Canon camera profits rise despite falling sales
The strong Yen has resulted in a fifth consecutive quarter of falling sales income for Canon's camera division, compared to the same period in previous years. Despite this, the company's operating profit and profit margin increased, prompting the company to improve its forecast for the next quarter. Total sales for the division fell 8.3% to ¥229 bn ($2,545m) once currency effects have been taken into account, though they actually grew 6.2% in the currencies they were sold in. This is despite recent product price rises aimed at mitigating the effects of the strong Yen.
'Despite the decrease in sales,' the company said: 'third-quarter operating profit for the sector increased by 5.5% to ¥47.6 billion (U.S.$529 million), owing to the increased sales ratio of high-value-added products and the positive effects of cuts in operating expenses.' Although it also says it expects the Yen to strengthen further against the US Dollar, the company's camera division increased its whole-year forecasts for both sales and operating profit. 'The company's fundamentals are improved - the mid range and high-end DSLR sales have started to pick up. Both Nikon and Canon are seeing increases in shipments and profitability,' said Hisashi Moriyama, an equities analyst at J.P. Morgan.
'Within the cameras segment, the high-resolution, competitively priced EOS Digital Rebel T1i (EOS 500D)
and advanced-amateur model EOS 5D Mark II digital SLR cameras continued to enjoy robust sales during
the quarter, contributing to growth in sales volume.' the company said: 'while demand for digital single-lens reflex (SLR) cameras displayed solid growth, demand for compact digital cameras remained sluggish amid continued price declines.'
Although Canon's compact camera business isn't showing signs of bouncing back (and the sector isn't nearly as profitable as the DSLR segment), Moriyama said he can't imagine any of the major makers abandoning the area: 'From a profitability point of view DSLR business would be much better - there are only five or six companies and the competitive conditions are not so tough and DSLR is still less than 10% of the market sales and it has a lot of lens assets. Most companies use compact cameras to expand their brand name into other markets around the world.' But compact cameras can be much more volatile: 'Casio or Olympus used to have big positive profit or negative profit. If management and investors want to see constant camera growth it would make sense to have a not so big compact camera business.'
Although he is impressed with Micro Four Thirds, he does not expect Canon to enter the area yet: 'I agree with what Olympus and Panasonic are doing in the digital single lens [non-reflex] market. Using a sensor smaller than in DSLRs they can make a product that is smaller and a different design that is more attractive to people including young customers and ladies who would not buy a DSLR. At the same time, I don't think it can compete with mid-range DSLRs. The sensitivity and autofocus speed is not as good as mid-range and high-end DSLR and the smaller sensor means it is unlikely to be taken up by mid-range, high amateur and professional photographers.' Instead he thinks mirrorless systems will compete with entry-level DSLRs, an area both Nikon and Canon are strong in - 'I think maybe Canon and Nikon will not get involved yet.' Instead he thinks it's an area that will initially be contested by consumer electronics companies such as Samsung, Sony and Panasonic 'They are digital consumer brands they don't have the same investment in lens or optical technologies such as steppers [industrial optical devices used in the manufacture of silicon chips], they need to make a different type of camera compared to the traditional camera brands. However, they have the technology to produce key components such as electronic viewfinders and that will be the way for them to gain market share.'
Despite the inroads being made by Sony in the European and North American markets, does not think Canon need be too worried. 'Right now Canon's DLSR business has sales of around 75bn with profitability of 21% whereas Sony's profit level is not so high. There are really two types of consumer for DSLR, the entry level and the mid-to-high end buyer. The entry level sells for $300-$500 while the mid-range will cost anything from $1500-$6000 and profitability is very big. Canon and Nikon are in a much better position in that market. Even though Sony bought Konica Minolta, they are having difficulty improving market share. Their production costs and product releasing speed is still has room for improvement.'