When the engineers and the accountants put their heads together

Started 4 months ago | Discussions thread
jwilliams Veteran Member • Posts: 5,834
Re: We'll see ...

bobn2 wrote:

jwilliams wrote:

bobn2 wrote:

jwilliams wrote:

I think that they are most likely to purse large scale production of a more limited portfolio of products. I see choices shrinking not expanding despite the recent addition of a very limited production item. That lens is a special case and unlikely to have anything similar following it. The upfront costs of designing small scale production items is probably not going to interest JIP much going forward. In the case of this particular lens Oly bore all the upfront costs so JIP got a good deal.

I suspect there will be a two stage process. I think at the beginning there will be a ruthless pruning of the product line, which eliminating all products that are loss-making. I think that will mostly be at the lower, volume end, where margins are small and big distribution operations are necessary to move the volume necessary to make money. These products will continue to be sub-contracted to Olympus for manufacture, or to the contract manufacturers that Olympus was already using (e.g. Sigma for lenses). Things like the EMIX ind the new lens make big margins, even if they don't sell a lot. I can see them continuing. Their problem is, that they weren't the type of product which would grow the market and bring sustainability.

Then there is the stage after that, where OMDS starts to develop new products. JIP has already indicated that it will explore new market areas, and if it does that using the mFT mount and lens system, it will be a very interesting possibility indeed. I would expect all those products to be tailored variants of the same technology base (probably the existing one) which can be manufactured easily at the same plants. What I'm saying is don't necessarily expect a new E-M5 model. Don't be surprised to see a drone cam which is essentially an E-M5 III repackaged for drone usage.

We'll see, but those low margin products move faster than the higher margin ones. I'd bet the time an EM1x sits on the dealers shelf before it is finally sold is much longer than an EPL10. Cash flow is the key and high volume products keeps that going better than low volume products.

Yes, that is a point, but the cash flow argument only works if OMDS has inherited a large inventory of cameras or parts which can be converted with no outlay. If not, low margin products are dreadful from a cash-flow point of view. If you don't keep payment very prompt, which is hard in an international business, you go negative fast.

I have no idea how inventory is being managed in the transition. I wasn't accounting for that at all since we have no knowledge.

Larger quantities of lower priced products produce a steadier cash flow than expensive products that sit around longer on store shelves but produce a larger chunk of cash when finally sold. It is both the overall volume and steadiness of cash flow that needs to be considered.

Maybe over a 10 year span both approaches produce the same cash coming in, but with the large expensive item strategy there are going to be more voids in the cash flow that put strain on an already strained company.

Also when similar events like this have occurred the products typically take a down market turn. I can't think of any company being sold in a struggling market where the acquirer took the products upmarket to make the company survive. Probably are a few but it is rare. Lots of examples of using the name you just bought and applying it to cheaper and often inferior products. This is quite common and really the norm for these type of transactions.

I just see no scenario where JIP takes Oly upmarket. Just doesn't happen in these type of situations.

FWIW I've ran a business for 31 years. Survived 3 recessions. Seen many competitors of mine go under. If I could sum up why I managed this feat as briefly as possible, the 2 words would be 'cash flow'. When hard times hit, as they inevitably do, I had it and my competitors often didn't. I survived, many of they didn't.

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Jonathan

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