From the Olympus Website--A little better translation than DPReview

Started Feb 14, 2013 | Discussions thread
Craig from Nevada
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Re: Cost accounting and reality.
In reply to John King, Feb 17, 2013

John King wrote:

Craig from Nevada wrote:

John King wrote:

Craig from Nevada wrote:

Lets assume world digital camera sales are above 115 million cameras

Let's assume Olympus has market share of about 10 percent or about sales of 11.5 million

Lets assume Olympus Imaging loses $170 million this year on cameras only, but breaks even on lenses and accessories.

Olympus is losing almost $15 on each camera it sells.

Let's assume a ladder ... (very old joke about the chief financial controller and the managing director)

Sorry, but you would not even passthe first unit of cost accounting on that analysis ...

AND there are two units in that subject that you have to pass in order to obtain a professionally recognised accounting qualification ...


Bird Control Officers on active service.

LOL, John

I am an economist, not an accountant.

Micro economics is a science; economics is ...

It was just for illustrative purposes to highlight the depth of the problem. $170 million is a pretty steep loss.

Anyone can illustrate anything using that kind of example, Craig.

We have a federal treasurer here who really believes that moving a $22Bn deficit from 2012/13 FY backwards into the (closed ... ) 2011/12 FY translates into being a surplus for 2012/13FY. BTW, that made the federal deficit some $44Bn for 2011/12FY ...

If I had ever prepared books of account for any of my clients in that way, the tax office (ATO) and companies office (ASIC) would have had to stand behind my professional body to take their turn to put me in jail for fraudulent accounting.

It's not just Olympus that have been involved in dishonest accounting practices .

BTW, who would have thought that the average Australian buys a new mobile phone every 6 months? I wouldn't have, but the statistics show that it is something like that. My last one was 4 years old when retired (still works for emergency numbers ... ); and the CEOoDO's last phone was about 10 y.o. when the battery started to die. Her current one is now about 3~4 y.o.

With 7Bn+ people on this planet now, why do you think that world wide digital camera sales might be 115 million p.a.?

If the camera companies combined had the imagination of the wheel nuts on a truck, they could probably move a lot of their stocks of digi-cams in the third world.

It would certainly make a "contribution margin". This is money earned from selling stock at a loss that would otherwise be scrapped. This then makes a contribution to defraying sunk costs. i.e. far better to make a loss of (say) $100M from running at a loss, than it is to shut down operations when fixed costs are (say) $300M.
In the first case, one makes a loss of $100M. In the second case, the loss is $300M ...


John, I am an agreement with everything you have said.

Actually, I looked up the number for camera sales may be on the low side.  Some numbers point to 140million by 2015. I did find a number with 115 million and I can't relocated the cite, so let's use another number.   Numbers are all over the place.  So let's call world wide digital camera production 140 million.

http://www.isuppli.com/Home-and-Consumer-Electronics/News/Pages/Digital-Still-Cameras-Market-to-Grow-in-2010-But-Decline-Soon-to-Follow.aspx

http://www.imaging-resource.com/NEWS/1297728975.html

However, Olympus, had about 6 percent of the market share for all digital cameras in 2010-at least according to this source:  http://www.fredmiranda.com/forum/topic/1000532/0

So lets say 7 percent world  market share  or 10 million units  per year and losses of $170 million come in at $17 per unit.  So $15 was a bit low.  This was a back of the envelope estimate and still is.

The sunk cost question is interesting.  It appears that as is the case of automobiles, the unit cost drops per unit of production  From a loss minimization standpoint, it would make sense to keep producing so long as you cover your variable costs  plus one dollar or Yen (in the short run).

I am not on an expert on camera production. Again, how much of the production is  actually Olympus owned versus third party manufacturing Olympus products is another question.  I do know that parts for cameras are manufactured by third-parties and assembled at the point of production.

How much of the $170 million is cash versus, let's say depreciation expense is another question. Cash is a problem at Olympus.

The question is how much of this loss is sustainable in the short-run versus the long-run.  I would point out the problem that Olympus has is similar to other manufacturers. The market for cameras mature--the cellphone camera is now driving the market.  This is not a short-term cyclical thing, such as a recession, but a long-term market development.  This has to factored in as well. The problem Olympus has it that the market for the types of products it produces is getting tougher. Too many cameras chasing too few customers.

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