Who understands Olympus prices?

Mystic38 wrote:

Marty4650 wrote:

It really is refreshing to hear someone that understands business and can go beyond "more sales are always better."

Sometimes... less sales are better, especially if the profit margins improve sufficiently.

For example, we all know that CIPA unit shipments have dropped like a rock 79% from their peak of 121 million cameras shipped in 2010 to last year's almost 25 million cameras shipped. And their revenue has also taken a huge hit, dropping 52% from ¥1.6 Billion down to almost ¥800 Million. And the reason that revenue hasn't dropped as much is due to price increases.

But those numbers don't show you another very important statistic... profits.

If you lose 79% of your sales, then that means you also shed 79% of your manufacturing costs. And 79% of your labor costs. And very likely around 79% of all your other fixed costs, like plants, facilities, and marketing personnel.

So, it is entirely possible that profitability can be the same at lower volumes, because so much of your other costs have evaporated. Of course, you still need sufficient volume, but 25 million of anything still qualifies as a mass market.

All you need to do is raise your margins enough, and it seems like every camera maker has done that.

According to the same CIPA data the average camera shipped in 2010 brought in ¥13,529 in revenue. And in 2017 that average camera was ¥31,740. This is a 235% price increase!

That increase in unit revenue wasn't entirely due to price increases, although that was a big part of it. It is also due to losing the bottom of the market. All that is left now is the higher end user, who is willing to pay more to get more.

sorry, but this is a complete fabrication of the cost structure of any business..

when your sales go down 79% you most certainly do NOT save 79% of your manufacturing costs...

you *may* save only 50% of your parts costs, given parts in lower volume are more expensive.

True. You certainly will save SOMETHING. And it probably is less than 79%. Your 50% guess may be much closer. When volumes go down, your costs are diminished. The real question is over profitability.

you will save zero percent of facilities (buildings etc), capital costs, land, machinery and all the fixed costs of a manufacturing base.

You only save "zero percent" if you keep and maintain all those buildings, land, and machinery. I seriously doubt that camera companies are holding on to all the infrastructure they needed to build 121 million cameras a year, in hope of a market rebound.

The truth is.... employees have been fired. Plants have been shuttered. They really have shed lots of their costs.

no matter how much automation is done, or how little, manpower costs do NOT scale directly to volume, other than the direct manpower screwing bits together, hence you dont save 79% of total manpower.. perhaps 30-40%.. you cannot fire QA, maintenance, management, shipping & receiver etc etc.

Agreed again. The relationship isn't directly linear, but you can't deny that it exists.

it is IMPOSSIBLE for profitability to maintained at the same unit price at lower volume, as unit cost is the sum of direct parts cost + direct labor cost + (cost of factory operation divided by #units) which gives a fully loaded factory cost per unit...

However, my premise wasn't based on costs being the same. My premise was based on volume being down and margins being significantly higher.

Any argument about economy of scale goes down the tubes once you realize scale is still the same. Because the number of discrete models varies from year to year.

• In 2010 CIPA shipped 121 million cameras with 141 distinct models. That works out to 861,000 units per model.

• In 2017 CIPA shipped 25 million cameras but only released 27 models. Meaning an average of 926,000 units per model.

The unit cost of production in both years could have been the same. In fact since the 2017 production is based on ten years newer manufacturing technology, more automation, and perhaps even larger batch runs... it might even be lower. Without a doubt, material costs are higher than they were ten years ago, but are they 235% higher? I doubt it.

the only DIRECTLY scaleable item to sales volume is the direct cost of labor per unit.. whih is not the total labor cost embedded in the calculation.

This wasn't a complete analysis. We don't have enough real data to calculate all the variables. This is Just to suggest that the camera makers may not be as bad off as some are saying. Most have done a good job improving their margins and cutting their costs.

Losing 79% of unit sales does not necessarily mean you cannot be profitable. It just means you have to make some serious adjustments.