Nintendo Adds Sharp as Assembler of Popular Switch Console

(Bloomberg) -- Nintendo Co. has added Sharp Corp. as an assembler of its Switch console, according to people directly involved in the matter, as it works to stabilize production and hedge against U.S.-China trade tensions.

The video game giant has struggled to produce enough units for most of this year as the hit game Animal Crossing: New Horizons and stuck-at-home consumers fueled demand. While the coronavirus outbreak hurt production early on, Nintendo President Shuntaro Furukawa said this month that output has returned to normal and the Switch is now made in Malaysia, in addition to existing China and Vietnam locations.

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That Malaysia factory is owned by Sharp, said the people, who asked not to be identified because the information isn’t public. Nintendo’s main assembly partner Foxconn Technology Co., a key unit of Foxconn Technology Group, owns a Sharp stake and helped connect the two Japanese companies, they added. Sharp continues to operate separately from its Taiwanese owner and its stock will be added to the Nikkei 225 Stock Average next week after a four-year absence.

Sharp shares were up as much as 2.8% Thursday, outperforming the benchmark TOPIX and reaching their highest point since February, while Nintendo rose as much as 3.5%.

Nintendo asked Foxconn Tech during the Trump era to provide alternative manufacturing sites outside of China to hedge against the trade war, according to one of the people, and the company ended up directing some Switch orders to Sharp as the Japanese company had extra capacity in Malaysia. The production volume in the Southeast Asia site is limited, the person said.

Nintendo’s Furukawa has said those assembly lines aren’t yet running at full capacity and the first batch from them is about to hit store shelves soon.

A Sharp representative declined to comment, while a Nintendo spokesman declined to confirm any details beyond the president’s earlier public comments.

Switch assemblers plan to operate at maximum capacity through the end of this year, eschewing the typical December lull that follows the fulfillment of holiday demand. That suggests Nintendo, in the current quarter, may end up shipping more than the 10.8 million Switch units it managed in the October-December period last year.

Read More: Nintendo Said to Boost Switch Production by Another 20%

Nintendo has been diversifying its supply chain since before the Covid-19 era and its chief said at this month’s press conference that the Malaysia addition is part of the effort. Osaka-based Sharp has a history of working with Nintendo, having once assembled the Famicom console and later provided key components for the 3DS handheld device. The bulk of Switch production continues to be handled by Foxconn Tech in China.

Switch sales momentum kept up in October, according to the Nintendo president, and the hotly anticipated debuts of new consoles from Sony Corp. and Microsoft Corp. in November were marred by severely limited launch-day supplies. Nintendo is expected to raise its fiscal-year sales target from the current 24 million when it next reports quarterly results, with David Gibson, chief investment adviser at Astris Advisory Japan, forecasting 26.4 million total sales for the period ending March 31.

Read More: Sony, Microsoft Consoles Struggle With Thin Launch-Day Stock

Released in 2017, the Switch has sold 68.3 million units as of Sept. 30 and its lifetime sales are on track to exceed 100 million units. The company has expressed confidence in the beefed-up games lineup it has in store for 2021. Bloomberg News has also reported Nintendo plans an upgraded hardware revision, likely with 4K graphics support, to help extend the Switch’s life cycle.

Read More: Nintendo Plans New Switch Games, Extending Console’s Life Cycle

(Updates with market reaction in fourth paragraph)

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