TOKYO -- Shares in Nintendo took a dive on Friday after investors were left disappointed by the gaming giant's first quarter earnings, which indicated fading demand for its popular Switch console.
Nintendo's stock tumbled 10% at one point, hitting its lowest intraday level in a year before closing down 7%.
The sharp fall comes a day after the company reported a 13% drop in net profit for the April to June period. Operating profit fell 17% to 119 billion yen ($1 billion), which was below the market consensus.
Nintendo suffered a decline in both software and console sales, mainly because the company had saw unprecedented demand a year earlier at the height of the coronavirus outbreak.
Animal Crossing: New Horizons, released last spring, became an instant global hit as consumers enduring COVID lockdowns sought entertainment and solace. The title went on to sell over 33 million copies worldwide and was the main driver of Switch console purchases.
Citigroup analyst Kota Ezawa notes in his report that "Switch hardware sales amounted to 4.45 million units, substantially below our forecast of 5.5 million. ... The market may well have braced itself recently for a degree of weakness in earnings, but we do not expect the negative impression to be readily dispelled."
Hardware sales have fallen for two consecutive quarters. And although Nintendo plans to launch its latest Switch model in October, equipped with a premium OLED screen, the global chip crunch is adding to investors' nerves.
"Second quarter sales could be worse due to the chip shortage," warned Hideki Yasuda, a senior analyst at Ace Research Institute.
The global electronics and auto industries have been struggling with an unprecedented chip shortage since late last year due to a combination of factors, including unexpectedly strong demand across a range of sectors.
Nintendo has acknowledged logistics delays caused by the pandemic, as well as the effects of the semiconductor shortage on production.
Meanwhile, some analysts believe there is still strong demand for Nintendo games.
Morgan Stanley MUFG Securities analyst Masahiro Ono points out that the first quarter had the toughest year-on-year comparison for Nintendo. "Considering that Animal Crossing accounted for 40% of sell-through in the previous first quarter, we believe demand remains at nice and high levels."
Kenji Fukuyama, an analyst with UBS Securities in Tokyo, echoed that view, saying the demand for Switch remains high, which means "there could be upside potential for earnings so long as the firm can continue to secure enough components."
Nintendo shares have been trending downward since July, declining around 20% a month. Before that, its stock price had doubled since its pandemic-low in March 2020. Uncertainty surrounding the semiconductor shortage, as well as a fall in earnings, likely prompted some investors to lock in gains on Friday.