Why Does the Switch OLED Cost $350? A Deep Dive

As a longtime Nintendo fan and gaming industry follower, I‘ve fielded many questions recently around why the new Switch OLED model carries a $50 premium over the base $300 Switch. It‘s not only the shiny new OLED screen – a confluence of factors from hardware upgrades to global economics boil down to Nintendo‘s strategic decision to launch at $349.99. After poring over the announcements and analyzing each element of the updated design, I‘ll break down exactly what‘s driving the price tag.

It All Starts With the Superior OLED Display

The headliner improvement on the Switch OLED is right there in the name – the new 7-inch OLED panel replacing the 6.2-inch LCD screen.

OLED (organic light emitting diode) displays deliver far superior image quality compared to traditional LCDs (liquid crystal displays) in several ways:

• Deeper blacks and improved contrast – OLED pixels generate their own light and can turn off completely to achieve true black.
• Faster response time for smoother motion and gameplay.
• Wide viewing angles with reduced color shifting if viewing the screen off-center.
• HDR support for higher color gamuts and brightness ranges.
• Thinner, lighter and more flexible for new form factors.

However, producing OLED screens currently costs around 50% more than LCD panels due to:

• Lower yields compared to mature LCD fabrication methods
• Additional layers and materials required
• Challenges printing uniform pixel arrays over large surface areas

Source: DSCC Quarterly OLED Shipment and Fab Utilization Report

While the Switch OLED screen is far smaller at 7 inches, it retains the same superior picture quality, response times, contrast and viewing angles as a large TV display thanks to OLED technology. The production cost premium per screen inches could account for $20-30 of the $50 retail price increase alone.

Updated Internal Specs Also Boost Costs

Nintendo packed more updated internals into the OLED model beyond the display panel itself:

• 64GB internal storage – Double the 32GB storage in the original Switch
• Enhanced CPU processor and RAM for better performance
• White color scheme unique to the OLED model

Increasing the built-in flash storage from 32GB to 64GB adds around $10-15 to Nintendo‘s BOM (bill of materials) based on current wholesale pricing for NAND flash memory chips.

The faster processor and RAM also contribute to higher production expenses. All those internal upgrades result in a more advanced,expensive system-on-chip (SoC) from component suppliers like Nvidia.

Ramping Production Mid-Pandemic Carries Challenges

Launching upgraded gaming hardware during a global pandemic and supply chain crisis undoubtedly exacerbated expenses as well. Even giants like Nintendo and key partners such as Nvidia have dealt with major headaches:

• Persistent chip/component shortages
• Dramatic price spikes for memory, display driver ICs
• Longer production times and delayed tool deliveries
• Reduced travel affecting vendor meetings/setup
• Scarcity raising prices of supporting materials

Analysts have tagged up to $20 per console in additional costs stemming from COVID-related supply and logistics challenges. Efforts to scale up production mid-pandemic entail extra safety precautions, logistics, quality assurance and redesigns that directly hit margins.

Strategic Pricing and Segmentation Decisions

Of course, all those cost buckets culminate in strategic pricing decisions weighing supply factors and demand elasticity. I‘d be remiss to ignore how Nintendo intelligently manuevers financial levers around console pricing – the OLED model gives them room to make bolder margin plays.

Nintendo has traditionally staggered console pricing across model variants. For example, the base 3DS launched at $249.99 while premium “new” editions with larger screens, customizable shells and better processors could run $50-75 more.

Premium models cater to devoted fanbases willing to pay higher prices for upgrades while base editions maintain mass market accessibility.

The $349.99 OLED Switch nails premium appeal in features, performance and displays. Higher production costs across the board just provide handy cover for edging retail prices upward while maintaining sufficient differentiation from the $299 base unit.

I expect the OLED premium and segmentation to enable fatter profit margins for Nintendo – partially funding future platform R&D and buoying financials should chip shortages persist limiting sales volume near term.

Of course, curious what you think – are those upgrades worth $50 to step up to the OLED Switch? Let me know in the comments!