More on Olympus and Breakeven

Started Jun 13, 2013 | Discussions thread
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HappyVan
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More on Olympus and Breakeven
Jun 13, 2013

More on Olympus and Breakeven

The debate on Olympus imaging's viability has become too emotional. Some love (or hate) Oly and it can do no wrong (or right).

Let's go back to the numbers. Thom Hogan has this insight into Oly's breakeven.

http://www.sansmirror.com/newsviews/more-on-olympus-and-breakev.html

First off, Thom says that he likes the OMD. Of the opinion that Oly's cameras are 'darned good' and should sell. So, Thom isn't a hater. However,

“Nikkei.com is reporting that Olympus now says the break-even point for profit with mirrorless cameras is 1m units, and the goal for this year is to boost sales 20% to 730k units. Thus, it won't be until their next fiscal year that they actually believe they'll get to break-even with mirrorless (which tends to contradict what they said at their full year financial results review, where they said they'd be break-even for all cameras, even the rapidly declining compacts in the next two quarters of the current year) ...

To achieve this new claim, Olympus would have to manage a 28% market share worldwide this year to make their goal, a 39% market share to achieve break-even. I should point out that two very large financial investment firms both predict that Olympus won't manage even 730k units this year (can't really say any more than that, as their reports are private and the specifics are for paying customers only) ...

So the camera companies are forecasting 26% growth in mirrorless camera sales, but the current market is actually 13% down over the first third of the year. Now here's where the smoke and mirrors come in: a number of companies are going around claiming that they have X% market share (let's use 25% as an example, as one company is claiming they're currently at that number). Great, so they multiply 4.9 by .25 and you imply they'll sell 1.25m units. But what if the actual sales-to-date is more accurate than the original CIPA forecast? Now we're at 850k units. As I noted above, Olympus is saying that it will take 1m units for them to get to break-even. So if this were Olympus that I was using as an example (;~), the difference between the CIPA estimate and the CIPA actual so far is the difference between significant profit and significant loss...”

Here's the big question. Why does Oly sell so few cameras if they are so 'darned good'? Why can't they meet the breakeven? Why can't they cut prices to sell more?

It's a matter of economics and technology. You can't be a significant new player if your products are merely good. They have to be superior to take market share from the top players.

Market share is critical for profitability and pricing. A large market share means lower unit costs from cost sharing and volume production. Industry heavy weights can fend off new players by using their lower unit costs to cut prices.

Only superior technology (justifies a premium price) can overcome superior economies of scale. The situation is grim for companies with me-too technology.

We have seen decent camera companies fail because they just couldn't get enough market share to survive. Fiji did a nice line of DSLR (using Sony sensors and Nikon lens mount). But, they never cleared 4% market share. They couldn't afford to cut prices to gain market share.

Minolta once had as much as 7% of DSLR industry. But, they had nothing superior, and they couldn't match Canikon's economies of scale.

Oly should have learned a lesson from the failure of 43 format.

In the end, using Sony sensors doesn't guarantee success. Customers won't pay a premium (to offset inferior economies of scale) unless there is something better than what Sony/Canikon has.

Oly has to make hard choices. Currently, seems that they will try to tough it out for as long as they have cash to burn. How long can that be?

IMO, it will eventually follow Pentax to the premium niche market where it will battle with smaller players. The profit potential is trivial. But, it will keep the brand name alive.

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