 Well, we should have saw this coming but we didn't and I'm gonna start off by saying that I own Nintendo a bit of an apology over the NES classic edition situation But before I get into that apology, I need to explain what the heck is happening So the Wall Street Journal, yes that Wall Street Journal the one that got a lot of flak for how it went after PewDiePie and blah blah blah blah blah has put up a new report and The report deals with the Nintendo switch in particular How Nintendo is has issues dealing with their suppliers So here's how the story goes. I'm just gonna read it verbatim and then we'll get into the specifics and what this actually means So Nintendo has told suppliers and assemblers that it hopes to make nearly 20 million units of the switch again We reported on this the other day of the Nintendo switch device in the year ending March 2018 People involved in the discussion said though the company's official sales target for the year is 10 million Strong demand suggests it could sell many more if it can make them The problem is an industry-wide capacity shortage for components used in smartphones Computer servers and other digital devices. These include the NAND flash memory chips that store data Liquor crystal displays and linear resonant actuators the tiny motors that enable the switches handheld controllers to imitate the feel of an ice cube shaking in a glass Here's a quote Demand for our NAND flash memory has been overwhelmingly greater than supply and the situation is likely to stay this way for the rest of the year Set a spokesperson at Toshiba The troubled industry giant that is leaning on flash memory to survive She cited demand from smartphone makers Apple and Chinese companies are among Toshiba's customers and data centers People in the industry say the rapid expansion of web-based services for corporations has driven demand for computer servers that use flash memory continued demand for Apple's iPhone 7 and a 10th anniversary model of the iPhone Expected later this year also keeping parts makers at full capacity Helping power Japan's economy to its longest growth streak since 2006 Nintendo and Apple representatives declined to comment on supply chain issues Analysts say that rivals for the sought after parts can offer better terms than Nintendo Makers of data center servers tend to use newer and higher margin components Well, smartphone makers use larger orders than Nintendo if Nintendo increased spending significantly to secure more parts They would risk driving the switches production costs above the 299 retail price President Tetsumi Kimishima has said he doesn't want to sell the switch at a loss So this report was put up by a well-known Journalist who follows a lot of stuff in Japan Takahashi Machizuki We've covered some of his stuff at internal prime before we haven't talked about him specifically But he's he has got a fairly decent track record Obviously the big thing that knocked against him was his report about Nintendo talking to Netflix about a live-action show for Zelda Again, he never said it was happening. He just said that talks happened So that story kind of grew legs of its own But getting back into the meat of this of this grand story about the switch and Apple and having issues with supply chains First to my apology Nintendo stated privately to well, it wasn't that privately but they stated to investors that the reason that they stopped making the Nintendo Classic Edition was due to issues in manufacturing and Most of us just took that for granted It was just Nintendo not wanting to make it anymore, right? Like who likes money? They weren't making enough on it. So just stop making it Well, it turns out that the Nintendo Classic Edition uses NAND flash memory inside its system So if it is using it and the switch is using it and Nintendo is trying to make the switch Supply, you know Meat demand it makes sense that they're gonna have to shut down another system that uses NAND flash memory And in this case that is the Nintendo Classic Edition So the Nintendo Classic Edition was essentially competing against a switch for Assemblers and suppliers now some people might be like, oh, why don't they just make more of them make more of them or Shrink down how much memory is in the switch? Well, here's the thing the fight isn't over the chips Like how many you know how big the chip is or the type of chip it is the fight is over the assembly line itself it turns out that several companies in China and Apple and some data centers right now pay significantly more either for higher-end chips or For just larger orders to own the assembly lines Nintendo gets their NAND flash from the same companies as Apple and These Chinese companies and data centers So because of this Nintendo is actually directly competing with those companies force time at the assembly line So let's say, you know, this is a small-scale example let's say there's eight assembly lines and Apple put in the order for let's say 500 million of their 10th anniversary iPhones, which you know, maybe they have and They need to have that order done by Let's just be conservative say August so they can start, you know building the phones and putting all the parts together and then have it release in November So they do this right? Well, Nintendo has an order for 20 million Let's say that let's say they're trying to hit that 20 million this year So Nintendo has an order for 20 million due by the end of March 18 Well, there's this giant 500 million dollar order versus the 20 million dollar order. Which order do you think's going to get priority? It's going to be the 500 million because the company is being paid significantly more money to produce those 500 million than the 20 million And now we're not talking about per chip. Obviously Apple's getting a discount per chip for ordering 500 million But because that purchase order is so huge the company has to prioritize that because they don't want to lose that purchase order in the future So they are going to prioritize Apple to own all those assembly lines so they can push it out Now will Nintendo hit their 20 million? Maybe by the end of March 2018 Just not during 2017 it'll be after they serve Apple right and if Apple sells out of all their phones They're gonna have another purchase order come in and another and another and another and on and on it goes Where Nintendo keeps getting lower priority on the assembly lines for this particular flash memory and This doesn't include the companies in China So let's say Nintendo had one of those assembly lines one of the eight were making Nintendo switch units Well, this big order comes in from Apple they take away that assembly line for a few months Now it's what's Nintendo gonna do and it's not as if Nintendo has a lot of options, right? Like the number one thing would be go find another major NAND flash memory manufacturer Well based on the research I was able to do Google They were There there isn't a bigger NAND flash memory manufacturer than Toshiba So because they all get there's a reason that Apple and all these Chinese companies and Nintendo get it off from this company There isn't a company that can come close to the production levels So again, this isn't about how big the memory is It's just about having the assembly line available to make the memory for the switch Doesn't matter if it's eight if it's 1632 240 it really doesn't matter They just don't have time on the assembly line to get their products as much as they would like Now obviously they are still getting some of them made They are just not getting them made at the volume Nintendo would like to make them And this is why a lot of people think they are only projecting 10 million units And now this is probably why the NES Classic Edition was canceled because instead of wasting some of that time in the assembly line For making NES Classic chips They can focus on the switch and try to get as many switch units out as they possibly can manufacture so again a lot of people that thought maybe the Nintendo switch and Maybe the NES Classic itself had on purpose supply constraints from Nintendo to try to drive up interest It turns out no Nintendo literally cannot get enough physical pieces of The NAND flash memory to make the units and it goes beyond this they mentioned the liquid crystal displays So it turns out The Apple specifically Apple and Nintendo get their liquid crystal displays their LCDs From the same company now. They are not the same type of LCDs We know that Apple has a higher end LCD on their phones than Nintendo has especially at the 720p, but Reality is that they are still fighting for time at the assembly line to get more of these liquid crystal displays and That's tough when you're competing up against such large purchase orders as Apple throws in now We don't know exactly where the linear resonant actuators come from But it's probably running into a similar problem where it's at a manufacturing plant that gets large purchase orders from other companies For similar rumble like devices. So at the end of the day what we end up with is That Nintendo is in a battle with Apple and all these other various major Chinese companies And even some of the data center companies to try to get time on the assembly line to get their parts made This is hard You could all you could argue that maybe Nintendo should just open up their own manufacturing plant and do their own assembly But again, that's actually gonna be more expensive These deals they cut with Toshiba and other companies are a lot cheaper than they could make it themselves because they already owned the Equipment they can make them on a massive scale versus Nintendo having to invest billions of dollars into creating their own factories and Hiring their own workers and all that stuff and there's no way in heck They're going to be able to get them for it nearly as cheap I mean, it would be like Microsoft trying to build a factory in The United States to build Xbox's when they get a much better deal Just you know hiring out people in China or in Taiwan or even in Japan. So at the end of the day Nintendo is stuck right now We have to be much more understanding of the situation and then those deal deals with and this is something Nintendo is Never going to talk about publicly. They're not going to come out and be like look the reason There's not enough switch units out The reason we can't make enough is because Toshiba can't make us enough Nand flash memory or this company can't make us enough of the displays We want or this other company can't make enough of the linear resident actuators because all people are going to say is like well How come Apple doesn't have this problem? How come Samsung doesn't have this problem and The reality is that Nintendo doesn't want to start comparing themselves to these companies that sell hundreds of millions of Smart devices versus Nintendo who's just trying to get out, you know 20 million units in a year versus companies that sell Significantly more it's just not a comparison You want Nintendo to get into and start making public hubbub over how their device deserves more manufacturing time than the device that Hundreds of millions of people use especially now that Nintendo releases games on those devices So Nintendo actually profits from having those devices on the market. So at the end of the day Nintendo is just stuck Period that there isn't much they can do The only way they're gonna get more manufacturing time is to pay more money per unit to convince these companies It is worth Nintendo having some priority on those manufacturing lines And if that happens as the article states Nintendo would end up increasing the cost of the device past the 299 price point and since Nintendo does not want to lose Money per unit sold they promised investors that wouldn't happen that would mean that it would have to raise the price of the Nintendo switch to support such a change and There's a lot of people that already think the switch costs too much I'm not one of them But there are plenty that think the 299 price point is already really high So if they had to bump it to 320 to 350 You might start seeing the interest in the switch dwindle a little bit and Nintendo doesn't want to do that And Nintendo doesn't want to make it cost, you know, 320 dollars to manufacture, but only charge 300 at retail Now you get into where Nintendo loses money per unit sold and that's not a territory They want to visit with their investors They already went down that road with the 3ds and the Wii U and it's not a road They want to go back down again. So Nintendo is literally stuck in the mud Unable to really do much about what's happening at the moment So Nintendo would like to make 20 million units this year and they probably think if they could they would sell more than 10 million But Nintendo doesn't know that they are going to be able to make more than 10 million to sell in the first place So we're at this point now where Nintendo is desperately trying really really hard to make as many units as they can but They can't So I think it's finally time for us to give Nintendo a break if all of this is true if their supply strength Constraints that are outside of Nintendo's control because they're competing with all these other companies for assembly line time We're kind of at the point now where Nintendo needs to be Finally finally given a break and a lot of us probably own Nintendo some apologies not just myself I Understand now the Nintendo classic edition once the switch came out had to be discontinued and The reason it was already hard to meet the man. It wasn't necessarily because they under projected It's because they literally physically could not make enough of them because there's not enough time at the suppliers And at the same time they were trying to make Nintendo switch units right they were trying to get the switch ready for launch and they were making those and They had these two people these like two different devices competing for the same part at the same time on the assembly line That was not going well for Nintendo considering that they were competing for that time at the assembly line with Apple and other big companies So again, we need to be a lot more understanding of the predicament Nintendo's in they are trying to make as many switch units as they possibly can but again supply constraints and Time with the suppliers and the assemblers is holding things back And that's okay at the end of the day. It's okay. Nintendo will eventually catch up if they can't get 20 million units out per year Like they want it's okay as long as they keep Satisfying the people who own the switch and keep making the switch desirable It'll keep selling out and Nintendo will be able to still have big numbers with the switch long haul It's just one of those situations We have to understand that right now it is hard to find a switch and it's not necessarily Nintendo's fault Again, this is Nathan Ruffeljans from the center prime signing out