Dive Brief:
- Nintendo, which has been struggling to meet demand for its Nintendo Switch console, is up against tough competition for parts, The Wall Street Journal reported Tuesday.
- Toshiba, which also supplies Apple, various data centers, and numerous Chinese companies, cites a capacity shortage for the components, which are used in smartphones, computer servers and other digital devices. The shortage is predicted to last throughout 2017.
- Nintendo is likely falling short due to its smaller order size and lower margins per order for the supplier. However, placing larger orders would force the game maker to raise the price above the current $299 to meet higher costs.
Dive Insight:
The Journal's latest report reveals a further complexity in the Nintendo saga: Consumer frustration about the unavailability of various Nintendo merchandise may not just be due to low forecasts, but rather to the company's inability to access as many parts as needed.
Nintendo has stated that it would like to make 20 million units by end of March, 2018, but existing patents on the precise parts needed by Nintendo may lie entirely with Toshiba. As a result, Nintendo has no choice but to acquiesce to Toshiba's production schedule, and it sounds like the supplier has other priorities.
The seeming solution would be to change terms with its suppliers and ask for a greater share of production. But higher production to meet demand would require more orders, at higher costs, passed on to a higher sales price — which would in turn decrease sales forecasts.
Nintendo has already sought a work around to this issue: namely expediting more than 2.5 million extra consoles to the U.S. and Europe to meet post-launch demand, which cost the company approximately $45 per console. In other words, there appears to be no cost-effective solution for the game maker.
Either way, Nintendo faces a problem: leave countless willing buyers empty-handed, or buy more parts than it may need for a higher price than it likes. Perhaps, when considering opportunity cost, a year-long shortage was the best case scenario for the console maker. At least this way, demand does not decrease ... even if it frustrates loyal customers.
