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Why Nintendo Switch Could Be in Trouble

The Nintendo Switch hasn’t even reached store shelves, but already one prominent video games analyst is questioning its chances of success.

In a note to investors on Tuesday, Wedbush Securities analyst Michael Pachter said that Nintendo’s upcoming console, the Switch, could be negatively affected by “pricing and a limited number of compelling software releases at launch.” He added that the console might not appeal to anyone beyond Nintendo’s core supporters, putting it in danger of falling behind Microsoft’s (MSFT) Xbox One S and Sony’s (SNE) PlayStation 4 Pro.

Nintendo (NTDOY) last week held a press event announcing final Switch details. The device, which was unveiled last year, is a tablet-like gaming device that can be used both as a home- and portable-gaming device.

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The Switch, which will hit store shelves on March 3 for $300, is Nintendo’s latest hope for reversing its gaming fortunes. Over the last several years, consumers have increasingly turned to Microsoft’s Xbox One (MSFT) and Sony’s PlayStation 4 (SNE) for in-home gaming, and smartphones and tablets for portable play. Nintendo’s Wii U, meanwhile, has been a distant third in the home console market and has been forced to deliver smartphone titles, like Super Mario Run, to keep pace with mobile gaming’s rise.

Nintendo apparently believes the Switch could help it turn the tide.

Pachter, however, doesn’t see it that way. He first took issue with the Switch’s $300 price tag. At that price, the Switch’s price will match the Xbox One and PlayStation 4, and he noted that retailers will often discount those devices to even cheaper prices. He believes that Switch needs to be a “more affordable alternative to the PlayStation 4 and Xbox One” in order to be successful. Since it’s not cheaper, Switch could be in for trouble, Pachter argued.

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The analyst also noted that software will ultimately prove critical to the Switch’s success, but at least at launch, software support might be a little light.

“Zelda, Mario, and Splatoon titles are expected in 2017, but only a handful of new games are expected at launch,” Pachter said. “Western third party support appears limited to ports of Xbox 360 and [PlayStation 3] games. We think that hardware sales will be limited without substantially greater third party support.”

Unfortunately for Nintendo, Pachter said, many third-party developers will wait to see how the Switch sells before they decide to heavily support the console. So if the Switch gets off to a rough start, Nintendo might have a hard time getting software developers back to its console.

His comments come after a new State of the Industry survey of more than 4,500 developers at the Games Developers Conference surfaced. The survey shows 50% of developers believe the Switch could outsell its predecessor (and poorly performing) Wii U.

Looking ahead, Pachter told investors that Nintendo should sell 1 million Switch units in its current fiscal year ended March, and another 4 million units in its next full fiscal year. He cautioned, however, that Nintendo might have some difficulty look further ahead.

“Sales beyond the first year will be affected by third party software support; the underpowered Switch is unlikely to attract much,” he said.