The former maker of playing cards, Nintendo’s attempt to keep physical games alive has taken another kicking after one of its biggest cartridge chip suppliers decided there was more money to be made elsewhere.
According to Taipei Times, the Taiwanese memory maker Macronix is gradually abandoning production of the ROM chips used in Nintendo Switch cartridges, with its chairman, Miin Wu, confirming that the company intends to focus on more profitable memory products.
The decision emerged from Macronix’s third-quarter results on 27 October but attracted wider attention after MST Financial senior analyst David Gibson highlighted the consequences for Nintendo on 4 November.
According to Gibson, Macronix will stop developing new ROM products and will no longer report the business separately after the third quarter. This is unfortunate for anyone who still likes buying a game and having something physical to show for it. Macronix has a fairly convincing financial reason for abandoning the business. ROM sales fell 39 per cent compared with the same quarter last year and now represent just five per cent of its revenue, down from 26 per cent.
Meanwhile, the company’s NAND flash revenue increased 768 per cent year on year, while NOR flash sales grew 158 per cent. Faced with figures like those, Nintendo’s plastic cartridges were always going to struggle for attention in the boardroom. Macronix reported a record third-quarter net profit of approximately $338 million, up 42 per cent from the previous quarter, with its gross margin reaching an extraordinary 70.5 per cent.
The company has been benefiting from booming demand for memory used in data centres, where customers are apparently willing to pay whatever it takes to secure components.
Wu told investors that customers were chasing the company for additional high-density NOR flash, particularly for data-centre products. Demand has become so strong that Macronix cannot increase production quickly enough to meet customer demand.
“Any investment nowadays requires a waiting period of at least a year. In the short term, the company is unlikely to rely on capacity expansion for rapid growth. Instead, near-term growth will be driven primarily by price increases,” Wu said.
That is presumably music to Macronix shareholders’ ears, although customers might have preferred the company to make more chips. The outfit’s existing 12-inch fabrication plant is operating at its full capacity of approximately 25,000 wafers a month. Macronix plans to spend about $1.2 billion expanding production, with new capacity directed towards NAND flash, embedded multimedia cards and other products where customers are waving considerably larger cheques.
Its first phase of additional production is expected during the second half of 2027, while a subsequent expansion will not contribute until 2028. Macronix intends to convert its remaining ROM production capacity to NOR flash, gradually cutting its ties with the gaming industry.
Nintendo has relied on Macronix for memory used in original Switch cartridges, although the company has other suppliers and the precise effect on production remains unclear.
The situation is different for Switch 2. Reports suggest that its newer game cards primarily use memory supplied by Rohm and another manufacturer, so Macronix’s withdrawal may have a smaller effect on the latest console. Nintendo has not publicly disclosed the complete supplier arrangements.
Another company has reason to be nervous. Japanese chip designer MegaChips has traditionally designed memory products for Nintendo and outsourced much of its manufacturing to Macronix.
According to MegaChips’ 2022 annual report, Nintendo represented 87.8 per cent of its sales, while Macronix handled 67.8 per cent of its outsourced manufacturing purchases. Those figures are historical, but they illustrate how closely the companies’ businesses have been tied together.
MegaChips will need sufficient alternative manufacturing capacity if Macronix’s withdrawal affects the products it continues supplying to Nintendo. The timing is particularly awkward because Nintendo has insisted that it intends to keep selling physical games, even as the rest of the gaming industry enthusiastically encourages customers to buy expensive licences that cannot be resold.
Physical cartridges remain popular with collectors and customers who prefer owning games without depending on digital storefronts. However, manufacturing cartridges costs money, particularly when a game needs substantial storage capacity. Nintendo has already introduced smaller cartridge options for Switch 2, while some publishers have turned to Game-Key Cards that require customers to download the game.
Those cards provide a physical object for the retail box while leaving the actual game sitting on a server somewhere, an arrangement that rather defeats the purpose of buying physical media. Gibson believes the loss of Macronix could encourage more publishers to use Game-Key Cards or abandon physical releases, although he expects conventional cartridges to continue for some time.
Nintendo’s own figures suggest that customers are increasingly comfortable with digital purchases. Digital software represented 61.5 per cent of its software sales during the April-to-June quarter, up from 59.3 per cent a year earlier. The figures fluctuate with major physical releases, but they help explain why publishers might be less enthusiastic about paying extra to manufacture cartridges.
For Macronix, the attraction of leaving the gaming business is obvious. Its NOR flash division now represents 46 per cent of revenue, while NAND products contribute another 47 per cent, leaving the company with little reason to devote scarce factory space to a shrinking ROM operation.
Macronix has not announced a final date for ending ROM production, and Nintendo has yet to explain whether it will need to change suppliers for any existing cartridge products.
