Nintendo's (NASDAQOTH:NTDOY) Switch console reportedly outsold Sony's PS4 in the U.S. and Japan over the last few months, and that trend could continue through the holiday season. The company sold nearly 2 million Switch units during its first full quarter on the market (which ended in June) and sees shipments hitting 10 million total by next March.
That would be significantly lower than the 62 million PS4s on the market today, but it would mark a huge improvement over Nintendo's Wii U, which only reached 14 million shipments during its five years on the market.
The Switch's impressive debut has helped lift Nintendo's stock price by over 70% this year, but investors should also pay attention to five of its biggest suppliers -- NVIDIA (NASDAQ:NVDA), Cypress Semiconductor (NASDAQ:CY), Maxim Integrated Products (NASDAQ:MXIM), Toshiba (NASDAQOTH:TOSBF), and Samsung (NASDAQOTH:SSNLF) and how Switch sales can affect them.
A custom version of NVIDIA's Tegra X1 SoC (system on chip) powers the Switch. This represents a big win for NVIDIA, since the PS4 and Xbox One are both powered by AMD's SoCs.
NVIDIA previously showcased its Tegra SoC, which combines a CPU and GPU in a single package, in its various Shield devices. The Shield K1 gaming tablet resembles the Switch with its ability to connect to TVs, and is frequently cited as a possible reason Nintendo chose NVIDIA's mobile-based SoCs over AMD's beefier chipsets.
For NVIDIA, securing the Switch was a big win for its Tegra business, which accounted for 15% of its top line last quarter. During that quarter, Tegra sales surged 101% annually, fueled by an 800% jump in revenue from gaming platforms and services (like the Switch) and a 19% jump in automotive revenues. RBC Capital Markets analyst Mitch Steves expects sales of Switch SoCs to boost NVIDIA's fiscal 2018 revenues by up to $400 million, which would equal 4% of its projected revenues.
Cypress' CY4356EC wireless chipset provides the Switch with its Bluetooth and Wi-Fi connectivity. These connections get the console online and sync the device with its Joy-Con controllers. Cypress inherited this chipset from Broadcom last year after it acquired its Internet of Things (IoT) business.
Cypress integrated that business into its MCD (Microcontroller and Connectivity Division), which also includes programmable chips, data connectivity products, the foundry business for its emerging tech division, and the patents for its memory products. Revenue at that business rose 13% sequentially last quarter (annual comparisons are unavailable due to a restructuring of the units) and accounted for 61% of its top line.
Craig-Hallum analyst Anthony Soss estimates that the Switch contributed about $20 million in incremental revenues to Cypress' top line during the second quarter, which would equal roughly 3% of its total revenue.
Maxim supplies three components for the Switch: two three-phase buck regulators for regulating voltages, and a single power management IC. The impact of the Switch on Maxim's revenue growth is hard to quantify since the chipmaker doesn't break down its product sales by category and analysts haven't made estimates.
However, Maxim's power management solutions are used across many other industries, including industrial machinery, audio hardware, and newer cars with driver assistance features. Rising demand for those solutions enabled Maxim to post three straight quarters of positive annual revenue growth, which ended nine straight quarters of declines.
Toshiba and Samsung
Toshiba and Samsung both supply the flash memory chips for the Switch, while Samsung supplies the device's 4GB of DRAM. Toshiba's involvement is noteworthy but not financially relevant, since it's currently selling its memory chip unit to offset losses at its U.S. nuclear business.
Samsung's involvement matters more, since the South Korean tech giant is currently expanding its semiconductor unit, which is the world's leading manufacturer of NAND and DRAM chips. Revenue from that business, fueled by surging memory prices worldwide, rose 65% annually last quarter and accounted for 23% of Samsung's top line.
The key takeaways
Rising sales of the Switch should help all these companies, but the impact on NVIDIA's and Cypress' growth should be easier to spot. However, Switch component sales won't offset the importance of NVIDIA's core gaming GPU business or Cypress' sales of programmable chips, so investors shouldn't consider the Switch to be a primary reason for buying these stocks. If you believe that the Switch has a bright future, the best play is to simply buy shares of Nintendo.