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The New Switch Lite Is Exactly What Nintendo Needs to Lift Sales, Analysts Say. Here’s Why

Nintendo's unveiling of a handheld video game player, Switch Lite, on Wednesday marks a major opportunity for the company, analysts said.

Nintendo on Wednesday took the wraps off its Nintendo Switch Lite, and said that it will focus on the handheld gaming market, so players can play Nintendo games and titles from third-party developers wherever they are.

Switch Lite borrows its design from Nintendo's two-year-old console, Switch, which can be plugged into a dock for playing games on televisions or used for mobile gaming. But unlike the Switch, which has controllers that has attachable controllers, the Switch Lite has a controller built in. It also has a slightly smaller screen, 5.5 inches versus 6.2 inches.

Most importantly, the Switch Lite will cost $199 when it debuts in September, or $100 less than the Switch.

"The $199 price point for Switch Lite immediately gives it tremendous appeal, particularly during the holiday gifting season," NPD Group analyst Mat Piscatella told Fortune on Wednesday.

But Piscatella's optimism requires context.

The fact is, the Nintendo Switch Lite is indeed "lite." It has a smaller screen, can't be connected to a television, and will only offer "slightly" better battery life despite its smaller size, according to Nintendo. And since some popular games, like 1-2 Switch, require the diminutive and detachable Joy-Con controller, players may have problems playing some games.

But Wedbush analyst Michael Pachter says those tradeoffs aren't enough to discourage sales. He told Fortune that the Switch Lite's more affordable price, alone, could be enough to attract buyers.

"There are people who want handheld only and at the lower price point, the Lite makes a lot of sense to me," Pachter said.

Piscatella said that the supposed benefits in owning a Switch aren't as significant as some may think. He added that the Switch Lite might even be better than the Switch in some areas.

"The Switch Lite design may be more apt to withstand the bumps and bruises of players that only play Switch in portable mode, and for the younger audience that tend to be a little tougher on hardware," he said. "The Switch Lite certainly has a significant addressable market, even if it does not feature detachable joy-cons or HDMI out."

Growth Ahead?

But will that big potential market translate into sales growth for Nintendo?

The Japanese game company's earnings have soared in recent years, based partly on the Switch's success. Earlier this year, Nintendo said that year-over-year sales grew 13.7% to 1.2 trillion yen ($11 billion) while operating profit grew 39% to 194 billion yen ($1.8 billion).

But in its 2020 fiscal year guidance, Nintendo said that it anticipates a slowing in sales growth to 4.1%. The company also said that its profits would drop 7.2% compared to the previous fiscal year.

In discussions with analysts at the time of its earnings, Nintendo blamed the somewhat disappointing guidance on slowing demand for its Switch and 3DS handheld, another device made for gamers on the move.

Nintendo hasn't said whether it will change its guidance in light of the Switch Lite's unveiling, but both Pachter and Piscatella are hopeful.

"I expect to see Nintendo sell more hardware on a combined basis after the Lite launches," Pachter said, suggesting that even its Switch will see bigger sales following the Switch Lite's premiere. He added that the Switch Lite creates a larger "addressable market" for Nintendo to tap into by targeting consumers on a budget who may not want to pay $299 for a Switch.

Piscatella echoed that sentiment. He said that the cheaper Switch Lite will expose the handheld to "a large and relatively untapped audience of younger players" who would likely want cheaper Nintendo hardware. He said the Switch Lite "provides significant upside" for Nintendo's financials both in 2019 and beyond.

"This is absolutely a great move for Nintendo," Piscatella said.

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