Nintendo scrambles to ramp up Switch production as demand surges amid Covid-19 pandemic

I was late to the whole Animal Crossing thing, but a few days ago I, too, decamped for a virtual island utopia, where I can breathe fresh digital air, chase butterflies, plant bright tulips and fish for sea bass (so many sea bass). Thanks to best-selling (and surprisingly therapeutic) games like Animal Crossing: New Horizons, the Nintendo Switch has become a massive hit during the pandemic. There's just one problem for Nintendo Co.: It can't make them fast enough.

The inventory crunch serves as a reminder of how crucial supply chain management is in the Covid-19 era. The disease has decimated many industries, cost millions of jobs and taken thousands of lives, but the companies that sell equipment to enable people to work from or pass idle hours at home have benefited. From PCs and smartphones to tablets and wearables, the current batch of winners and losers of the hardware market will likely be decided by which companies can build enough products to meet demand from sheltered populations.

Nintendo was unprepared for the sales surge and is now said to be scrambling to ramp up production and procure key electronic parts. The big question: Will the Japanese company be able to fix its supply chain woes before demand wanes?

Back in February, as the coronavirus was spreading around the globe, Nintendo started to see early indications of supply constraints. Component shortages in China were reportedly affecting factory output in Vietnam. Switch shipments to Nintendo's home country of Japan were delayed due to supplier bottlenecks, an alarming prospect for the hits-driven business, which had potential blockbuster games like Animal Crossing and Minecraft Dungeons coming out in the spring.

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"We do not see any major impact on the shipment to the U.S. currently, but we will remain vigilant and take steps if necessary," a Nintendo spokesperson told Bloomberg at the time. "It's possible the supply would be affected by the virus if it becomes more widespread and prolonged."

Spoiler: It did. By the following month, the hardware shortages followed the virus's spread around the world. The Switch was nowhere to be found in North America at Amazon, Best Buy, Target or Walmart. Unscrupulous Switch scalpers, with the aid of bots, began hawking the console on Amazon.com Inc.'s and EBay Inc.'s reseller marketplaces at aggressive markups of 55% or far more. Some crafty gamers even started to build their own knock-off Switch systems from scratch.

Still, sales climbed skyward. Last month's sales outpaced rivals', according to research firm NPD Group, and purchase volume more than doubled from last year. The device is sold out practically everywhere.

Nintendo is now purportedly aiming to boost its production to 22 million units this fiscal year, a remarkable uptick considering the Switch is already three years old. That's more than Nintendo sold in the U.S., its biggest market, from the console's debut in 2017 to last year. Yet, these efforts may not sate demand anytime soon: One analyst suggested retail stock might not catch up to demand until June.

While sold-out inventory is a good problem for Nintendo to have, it could fail to fully capitalize on the moment. Many people bored at home may opt instead to purchase a PlayStation from Sony Corp. or Xbox from Microsoft Corp., which said it has managed to resolve its supply chain challenges. Nintendo's Switch constraints raises questions, too, about what impact these issues are having on its online subscription service, which is substantially smaller than rival internet multiplayer portals and currently a target of hackers. And what does this mean for the company's newer and less expensive console, the handheld-only Switch Lite, which is still available in spite of so much public demand for its sister console?

It's likely some of these questions will be answered next week when Nintendo reports its fiscal-year earnings on May 7. Until then, I'll be living a sun-kissed life in Animal Crossing, where, incidentally, I was just gifted a virtual Nintendo Switch. Apparently, it's far easier to get one on my digital island paradise than it is in real life.

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