Analysis-Nintendo faces trade war test with Switch 2 launch

By Sam Nussey

TOKYO (Reuters) -Nintendo's Switch became a source of much-needed escapism during pandemic restrictions. Now, the Japanese video game company faces the harsh reality of a brutal trade war as it launches its successor device.

The Switch 2 is set to debut on June 5. That is eight years after the original Switch, which has sold 150 million units and disproved naysayers who predicted the decline of the console.

While the trade war has put the focus on industries such as cars and chips, the maker of "Super Mario" and "Donkey Kong" games must also grapple with tariffs disrupting its business.

For Nintendo, trade barriers complicate one of the hottest product launches this year as the success of the Switch 2 is vital for the future profitability of the company.

The Switch 2 launch will test Nintendo's ability to manage its supply chain, as it works to secure sufficient supply for the United States while maintaining the $449.99 price tag.

"If the tariffs are really going to hit them, they probably still need to raise the price for the Switch 2," said Serkan Toto, founder of the Kantan Games consultancy.

Nintendo announced the device's price and launch date on April 2, the same day U.S. President Donald Trump unveiled sweeping import tariffs, after an initial reveal in January.

The company then paused the start of U.S. pre-orders as it examines the impact of tariffs before announcing it would maintain Switch 2 pricing with pre-orders beginning on April 24.

Nintendo hiked the cost of some accessories and said in a statement other adjustments "are also possible in the future depending on market conditions."

"The accessory price hikes can only soften the blow to some extent," Toto said.

The company has experienced supply chain ructions in the past with production not limited to China, which has been hit with 145% tariffs on goods entering the U.S.

"Nintendo plans to supply the U.S. from Vietnam and Cambodia production, under normal demand assumptions," said Robin Zhu, an analyst at Bernstein.

Vietnam and Cambodia have also been hit with tariffs, though the higher levies have been paused for 90 days.

The U.S. is a major market for Nintendo with the Americas making up 44% of Nintendo's sales in the financial year ended March.

"Even in the bear case where Nintendo faces reciprocal tariffs of 46% in Vietnam and 49% in Cambodia, I'm assuming they will have to absorb that cost," said Jay Defibaugh, an analyst at CLSA.

Ampere Analysis forecasts sales of 4.6 million Switch 2 units in the U.S. in 2025, out of 13.2 million units globally.

"I don't think momentum will be impacted in North America," said Piers Harding-Rolls, an analyst at Ampere Analysis.

Experts said hardcore fans would buy the Switch 2 even at higher prices, but a hike could risk sapping demand among the casual players who turned the original Switch into a mega hit.

The sticker price of new gaming hardware is seen as one of the most important factors determining success, with the price of the original Switch also closely scrutinised.

Gamers have been complaining about the 50% price rise compared to the Switch and the higher cost of new software such as the $79.99 "Mario Kart World".

The Switch 2 price tag is seen by some analysts as already factoring in uncertainty over the trade war.

"Nintendo has a wealth of experience in managing the supply chain," said CLSA's Defibaugh.

The expansion of tech giants into gaming and the growth of mobile led some observers to question the need for bulky hardware.

However, Nintendo and Sony continue to hold a leading role in the industry.

Earlier this month, Sony hiked prices of its PlayStation 5 (PS5) in Europe and Britain with some analysts expecting price rises in the U.S.

The PS5's own launch was disrupted by the COVID-19 pandemic affecting sales earlier in the cycle.

Analysts are generally positive about the prospects for the Switch 2, which offers continuity from its predecessor, with a larger screen and better graphics.

"There's a lot of pent-up demand for a more powerful Switch experience," said Ampere's Harding-Rolls.

(Reporting by Sam Nussey; Editing by Jacqueline Wong)