‍Switch 2 Expectations

The History of Handhelds

‍Last week, Nintendo published its first-look trailer for the Nintendo Switch 2, the successor to the Switch (2017). Nintendo has been at the forefront of innovative game hardware; they are the only global company with a handheld x console hybrid, combining the success of their previous handheld and console product lines (Handheld: Game Boy, DS; Console: Nintendo 64, GameCube, Wii).

While the competition in the console space between Microsoft (Xbox), Sony (PlayStation), and Nintendo (Switch) is well-reported and documented, competition in the handheld market has been relatively sparse, only recently being reinvigorated by Valve (Steam Deck, SteamOS).

This week, we will be revisiting the history of handhelds in games, assessing the current state of the market, and making the following prediction on the Switch 2: the Switch 2 hardware sales will underperform compared to the Switch by 25-40%.

‍A Historical Overview

‍Note: Konvoy distinguishes the difference between “handheld game consoles” and “consoles” as such:

• Handheld game console (also known as a handheld console, handheld): a portable gaming device with a built-in screen and controls, allowing you to play games anywhere without needing a separate TV or controller. Examples include the PlayStation Portable (PSP) and the Nintendo DS
• Console: a video game system that uses a separate screen and separate controllers to play with. Examples include the PlayStation 5 (PS5) and the Xbox Series X|S

Based on these definitions, we consider the Switch to be both a handheld gaming console and a console and will be including the Switch in comparisons we make for both handhelds and consoles. We will be including the Switch in comparisons we make for both handhelds and consoles.

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‍Origin story (1970s): The concept of a game that could fit in your hand was first introduced by toy giant, Mattel, who launched a line of “calculator-sized sports games” starting in 1976. Three years later, Milton-Bradley and Smith Engineering collaborated to launch the Microvision, the first true handheld gaming console and the first to use interchangeable game cartridges.

‍The handheld race heats up (1980s-1990s): While there were a few other companies that released handheld consoles in the 1970s such as Coleco and Parker Brothers, the “modern era” of handhelds - when players still known today got their start in the space (e.g., Nintendo, Sega, Atari) - began in the 1980s. These two decades were intensely competitive, with many new entrants and almost just as many commercial failures (Atari Lynx, Bitcorp Gamate, Neo Geo Pocket Color).

‍The decade of innovation (2000s): During the 2000s, manufacturers began to experiment and push the limits of a handheld system:

• Nintendo introduced the concept of using a handheld system as a console controller through the release of both the GameCube and the GBA in 2001. Two years later, they launched the Game Boy Advance SP (GBA SP), which featured the same clamshell design that was starting to get popular in the mobile phone space at the same time. Only one more year after that (2004), Nintendo released the DS, which featured two screens (one was a touchscreen), wireless connectivity, and a microphone port. The DS is still the most-sold Nintendo device to this day (Nintendo).
• Game Park launched their handheld, the GP32, only months after the Nintendo Game Boy Advance (GBA) in 2001; this device had a 32-bit CPU, 133 MHz processor, and could hold up to 128 MB of anything downloaded on PC through a USB cable (IGN).
• Nokia released the N-Gage (2003), which acted as a cellphone, PDA, radio, handheld gaming console, and MP3 player.
• Sony first entered the global handheld market in 2003 through the Playstation Portable (PSP). This was the first handheld to use an optical disc format, Universal Media Disc (UMD) for distributing games, movies and TV shows, highlighting that the PSP was a multi-media device.

Mobile takes center stage in gaming (2010s): The 2010s was generally a slower decade compared to previous years, as most gaming growth was driven by mobile gaming. Market incumbents such as Nintendo and Sony launched successors to previous product lines, and new entrants were limited to experiential (commercially unsuccessful) product releases by gaming hardware companies such as Razer (Switchblade) and Nvidia (Shield). However, this decade is marked most notably by the launch of the Nintendo Switch (2017) - more on this later.

‍Today (2020s): The 2020s thus far have been marked by two themes:

• Valve (Steam) entered the handheld space in 2022. The device runs its “proprietary” operating system, SteamOS (a Linux distribution), and allows gamers to tap into almost all (estimated 75-95%) of the Steam library of >14,000 games, historically only accessible to PC gamers. Earlier this year, Steam announced it would be licensing SteamOS, starting with Lenovo’s new handheld, the Lenovo Legion Go S.
• Retro games and nostalgia have driven some demand for Game Boy-esque replicas such as the Analogue Pocket. The Pocket specifically utilizes Field-Programmable Gate Array (FPGA) technology, which can be programmed for near-perfect emulation of classic game systems while also being compatible with original game cartridges and accessories (Analogue).

Nintendo: the most successful gaming hardware company in the world

‍The discourse surrounding the console market over the last seven years has been contentious, with some including Nintendo while others primarily focus on Sony (Playstation) versus Microsoft (Xbox). Ironically, Nintendo was one of the primary catalysts in Sony’s entry into the gaming hardware market after Nintendo reneged on their SNES partnership in 1991 to develop a CD-ROM add-on to work with Philips instead. In response, Sony’s president, Norio Ohga, decided to develop the project into a standalone gaming system, which eventually became the Sony Playstation.

In terms of console and handheld units sold over the last 25 years, Nintendo is the most successful gaming hardware company in the world. As evidence, we have compared the following global sales comparisons (both handheld and console), grouped by company and release period:

Despite their ability to compete well historically against the PlayStation and Xbox, we believe that the Switch 2 will not outsell the Switch.

‍1) While the Switch 2 is a technical upgrade, the hardware performance will likely still be inferior to the latest Playstation and Xbox models: As we mentioned earlier in the piece, the Switch allowed Nintendo to access both the handheld and console markets. ~30% of users play in “handheld mode” a majority of the time, and just under 20% of players keep the Switch docked most of the time, leaving the remaining 50% of users alternating regularly (Digital Trends). Optimizing for this dual functionality required Nintendo to make sacrifices around graphics, compute, processing, storage, and battery in order to allow for both form factors. For example, to fit in a handheld form factor (solving for portability), the Switch utilizes a smaller, less powerful processor and graphics card, which limits its performance compared to larger consoles.

‍2) There is more content competition than ever: There are tens of thousands of games released per year. Despite the overwhelming variety of content available, gamers play a median of 4 games per year (Epyllion). This median includes games released in previous years. In 2023, only 6.5% of playtime was spent playing games released that year with only 3.4% spent playing on 2023 releases that were not Diablo IV, Hogwarts Legacy, Baldur’s Gate 3, or Starfield. Note that these 4 games are all RPGs that are graphic and compute-intensive; the Switch 2 will be an inferior console for players of these types of games. Even worse, the most anticipated games in 2025 also fall into this category (and may not be available on the Switch 2 at all).

3) Nintendo is not good at successors: Every hardware successor that Nintendo has ever released has performed worse than the original model.

Despite the aforementioned challenges, based on the comparison above, there is a correlation between the hardware units sold and the number of games sold. While correlation is not causation, it would be fair to hypothesize that a strong, content-driven launch could drive the Switch 2’s success. After all, IP is Nintendo’s superpower. Since 2017, 50-63% of Nintendo’s content revenue has come from first-party titles (>5x more than Xbox and Playstation’s average).

Nintendo’s carefully crafted content moat has been - and will remain - its most powerful asset moving forward. Unlike first-party content published by Microsoft and Sony, Nintendo’s first-party IP is exclusively available on Nintendo devices. This means that Nintendo has not been subject to the same scrutiny that Microsoft saw when it acquired Activision Blizzard. Since Nintendo has either developed its own games internally or worked closely with second-party developers rather than make large acquisitions of IP, there is nothing stopping Nintendo from continuing to make its first-party content exclusive on its hardware. The only outlier in their portfolio is The Pokémon Company (TPC), which was established in 1998 after the first Pokémon games were published in 1996; TPC is jointly owned by Nintendo, Game Freak, and Creatures Inc., with Nintendo owning 32% (ScreenRant).

While there are some titles available on PC, Playstation, and Xbox that are not on the Switch (e.g., Grand Theft Auto V, Elden Ring, Valorant, PUBG), for the most part, this is due to the technical limitations of the Switch. For example, Valorant is a competitive first-person shooter not available on the Switch but is playable at 120 frames per second (FPS) on PS5 and Xbox. This is likely due to graphical requirements to play such a competitive game effectively; the Switch 1 can only run a similar game, Fornite, at 1080p (docked) at 30 FPS. The upcoming Switch 2 is rumored to only target marginal improvements but likely not enough to put it on par with Sony and Microsoft’s 5 year old consoles.

‍Takeaway: We believe that Nintendo Switch 2 sales will be 25-40% less than the original Nintendo Switch. This is due to underwhelming technical upgrades, the intense competition over gamer attention, and Nintendo’s lackluster history launching hardware successors. However, we believe that if the Switch 2 is able to secure a strong content library within the first year of release by leveraging their strong first-party content library, the console has the potential to only underperform by 10-20% (we still do not believe it will outsell the Switch).