Nintendo Co’s earnings beat estimates after hit games like Monster Hunter Rise propped up sales of the Switch, but the company warned that global chip shortages may disrupt production of its marquee device.

It forecast 500bil yen in operating profit this year, although Nintendo, like many Japanese companies, often begins the fiscal year with a conservative outlook so it has room to raise the figure later. The company is targeting sales of 25.5 million consoles in the current year ending March 2022. Internally, Nintendo’s management is shooting for production of between 28 and 29 million consoles, according to people familiar with the projections who asked not to be named disclosing company targets.

Nintendo’s better-than-expected results suggest the Covid-era boom in gaming that turned Animal Crossing: New Horizons into a global online town hall has legs. The Kyoto-based studio reported operating income of 119.5bil yen for the March quarter, trouncing the average forecast of 68.3bil yen . The company sold 28.8 million Switch units in the fiscal year ended March, surpassing the 26.5 million it projected.

President Shuntaro Furukawa told reporters on May 6 that Nintendo wasn’t able to produce as many Switch devices as it had hoped due to component shortages. Recent demand has been higher than the company anticipated and the console hasn’t yet reached its peak, he added. Nintendo’s goal is now to surpass its official target of selling 190 million software units this year.

The handheld-hybrid Switch maintained momentum in the face of newer gaming machines from Sony Group Corp and Microsoft Corp, both of which have also suffered from chip shortages limiting production. Buoyed through most of 2020 by Animal Crossing’s runaway success, Nintendo’s signature device rode blockbuster titles including Capcom Co’s latest Monster Hunter installment and Konami Holdings Corp’s Momotaro Dentetsu during the most recent quarter.

Nintendo’s own product lineup has been relatively quiet in recent months. Bloomberg News has reported that the company plans a big rollout of new titles alongside an upgraded version of the aging Switch - with a faster Nvidia chip and a Samsung OLED display - in the latter half of the year. The original console is now more than four years old and was joined by a more affordable Switch Lite variant in late 2019.

“Nintendo needs to drive software sales, live services and mobile games to support earnings growth beyond this fiscal year ending March, in our view, as the Switch platform enters the mature phase of its cycle. Switch hardware sales may peak in 2020 absent a reported but as yet unconfirmed Pro version, putting greater onus on software to drive profit,” said Bloomberg Intelligence analysts Matthew Kanterman and Nathan Naidu.

The coronavirus outbreak was at first a brake and then an accelerant for Nintendo, choking its supply chain before triggering a demand surge with global lockdowns driving people to seek entertainment and escape. The company’s hardware sales improved by 37% and its software sales also rose 37% to 231 million units over the past fiscal year. It increased its proportion of sales coming from digital downloads to 43% from the previous 34%.

Nintendo’s shares closed 1.7% lower Thursday before the results, taking losses this year to 6.4%.

 - Bloomberg