Nintendo's turnaround is underway. Here's how it could still screw it up

Game enthusiasts and industry personnel walk past the Nintendo Switch exhibit during the Electronic Entertainment Expo E3 on June 13, 2017 in Los Angeles.
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Game enthusiasts and industry personnel walk past the Nintendo Switch exhibit during the Electronic Entertainment Expo E3 on June 13, 2017 in Los Angeles.

After a high-profile stumble with the Wii U, Nintendo is quickly regaining some of its glory with the Nintendo Switch.

The Kyoto, Japan-based company sold 1.97 million of the new hybrid home/portable consoles in its fiscal second quarter (the three month period ended in June), bringing total life-to-date sales to 4.7 million units.

The company says it's on track to sell 10 million units by the end of the fiscal year.

The news has management and investors thrilled, but to say that the company's turnaround has been successful might be premature. While things are looking much better for the house that Mario built than they were 18 months ago, there are still a number of potential roadblocks.

Here are the biggest potential pitfalls.

1) Problems delivering software on time

The Switch has had a tremendous initial lineup of games, kicking things off with "The Legend of Zelda: Breath of the Wild" (3.92 million units sold), then following that up with "Mario Kart 8 Deluxe" (3.54 million units sold). And this October, it's expected to launch its next big hit "Super Mario Odyssey."

That's going to drive demand, but the company has an inconsistent history when it comes to meeting planned release dates. If it stumbles in 2018 and beyond in delivering big games on time, that could leave it relying on legacy titles to drive demand during holiday seasons.

That won't be a problem if there's sufficient support from third-party software publishers, like Electronic Arts and Activision. Which leads to the next potential problem.

2) Third-party game-makers could walk away from the Switch

The poor performance of Wii U made EA, Activision and others a bit gun shy when it comes to Nintendo. They're coming around slowly, but analysts say it may not take much to scare them away again.

"The [Switch] starting price of $300 could eventually become a problem given a light software slate and widespread discounting for the PS4 and the Xbox One," said Michael Pachter of Wedbush. "Although the long-term first party slate is promising, third-party support may eventually subside."

That third-party support could also be endangered if Switch owners spend their money primarily on Nintendo titles, like "Mario" and "Zelda," a problem that came to haunt the Wii at the back half of that console's lifespan.

3) Gamers are increasingly mobile first

Mobile remains a threat. Nintendo has yet to develop a true mobile smash on its own. ("Pokemon Go" was developed by Niantic, meaning Nintendo only gets a percentage of the earnings.)

The Switch could also wind up cannibalizing the market for Nintendo's hand-held devices like the 3DS, which has been a consistent earner for the company, with lifetime sales of more than 65 million units.

But with the Switch's hybrid design, it could "negatively impact demand for Nintendo's hand-held devices," Pachter said.

Income from smart devices, it's worth noting, was up 450 percent in the second quarter in a year-to-year comparison, though. And Nintendo said in its earnings release it's planning to "introduce new [mobile] game applications while also focusing on continued operations for our released applications so that consumers can enjoy playing them for a long time."


4) The Switch could become too successful

The company is still struggling to meet demand, a common hurdle for any popular new console. This is normally something manufacturers can resolve in a matter of months or, worst case, within the first year. Nintendo seems to be on course to taking care of this issue — and Pachter thinks the company will surpass its estimate of 10 million Switches sold in their first year of availability.

But even Reggie Fils-Aime, president of Nintendo of America, concedes that keeping an adequate supply of the systems in stock has proved to be a problem.

"It's a dual-edged sword," he said. "The more you launch great content, the more demand increases, which puts pressure on the supply chain. … We recognize the challenge and we're working hard to ramp up the supply as fast as we can."

WATCH: Want to buy the new Nintendo Switch? Check out our first impressions