2009 Nikon Predictions
It's that time again...
Yes, I'm a little early this year. Actually, historically, I've tended to do my predictions in November, but I'm pushing things forward a bit more than usual so that Nikon can introduce away later in the month ;~). Just kidding. While Nikon has a late November announcement planned, whatever that product is has been pushed around quite a bit in its launch. It may get pushed around some more.
This year we have a whole new problem that's intersected the game: the worldwide econopanicolypse. No, that's not a word. It's a hybrid of economy, panic, and apocolypse. I've been writing for over six months now about the changing face of digital camera shipments. Back in spring compact camera sales started collapsing. In fall, DSLRs followed. All the dealers I track started scaling back orders for Christmas as early as this summer. So things were already going to get interesting and competitive before the panic hit Wall Street and spread to, well, everywhere. Curiously, Nikon has bucked this trend, producing their best ever quarter in terms of unit volume while others were struggling to maintain or increase volume. But I don't think that will hold.
As I write this, the Japanese companies must be howling. Predictability has gone out of the markets, and it's going to have some serious consequences. For example, this past week the yen has strengthened against the dollar, and the dollar has strengthened against the pound and Euro. Think about that for a moment. The US constitutes about a third of the global camera consumption, as does Europe. So suddenly you have two-thirds of your customer base going to be hit with price increases (or you're going to be getting a big margin hit). And one-third of it is moving faster against your currency than the other. At the same time, the global economy has clearly gone into a recession, which means people will be cutting back on non-essential purchases. You've got existing inventories that suddenly aren't moving. This wreaks havoc with product planning.
We've already seen the start of rebates and instant discounts from the Japanese companies, and we'll see more. I went in to buy a Coolpix P6000 from a normally list-price only dealer and not only got a discount, but got a kit and extended Nikon warranty for free. Note that this was a product that had been on the market for less than a week. Ouch. Someone's spreadsheets in Japan suddenly have a lot of red numbers in them.
Meanwhile, this was already a critical year for most of the players. Sony has wrestled their way into a clear third-place position in DSLRs, which has to cause concern for Nikon and Canon. Pentax, Olympus, Panasonic, Samsung, Sigma, and Fujifilm have either not budged in market share or have dropped, and none had a big enough slice of the pie to really get economy of scale going for them. My prediction has been and continues to be that DSLR sales will peak either this year or next. Given the recession, it's possible we'll have a false peak in 2008 with a drop in 2009 and a rise back up in 2010. But clearly the days of high double digit growth are gone, and now everyone's wondering if there are any days of significant growth in the future.
When markets peak like this, one or more of several things usually happens: (1) consolidation and withdrawal; (2) product blitzes to artificially excite the market; (3) regrouping and consolidation of individual product lines; (4) repricing to reinflate unit growth; and (5) plant and manufacturing efficiency becomes key to lower costs.
Pentax and Olympus seem particularly vulnerable to me as long term DSLR players at this point (I consider Fujifilm already gone). Sigma will stubbornly motor on and waste time and resources that could have been put into dominating lenses. Apparently they think "entrepreneurial" means trying to topple the big boys with small guns. Samsung and Panasonic both want to be Sony so they'll likely soldier on, indeed they have to be coveting Pentax and Olympus assets, respectively. Panasonic's awkward 4/3 alliance with Olympus produces as much a competitor as it does an ally, and I'm pretty sure Panasonic doesn't really like splitting whatever share 4/3 grabs with another player. With Panasonic buying Sanyo, this increases the pressure on Olympus, as now Panasonic will own the contract manufacturer Olympus has been using.
If you're getting the impression that in the back rooms in Japan there's a lot of scheming and "what if" thinking going on, you're probably right. Right now only Nikon, Canon, and Sony really sit in any position close to what they think is their rightful position, and they're all consumed with not fumbling the ball and letting one of the other two steal market share. If I were those three, I'd be thrilled to believe that the future might be 30%, 40%, and 20% market shares in DSLRs, respectively (it currently looks like 37%, 40%, and 13%, based upon last estimates). Anything less than that for each of them means they've completely failed.
Since I'm a Nikon expert and follower, I guess I need to explain that last comment a bit more. Nikon hit a high of 40% DSLR market share sometime in early 2008, but by their own admission they haven't really tried to consolidate or expand on that. Their current projection for their fiscal year is that they'll finish with a 37% share. Nikon's core is in the very serious shooter market, and I think that long term they're willing to concede a bit of share at the low end to retain strength in the middle to top. Historically, Nikon's SLR or DSLR shares have mostly ranged from lows in the low to mid 20's up to high's in the 40's. A 30% share, while a drop from their best position in DSLRs, is okay for them as long as it is produced by a high percentage of high-margin DSLRs in the high-amateur to professional markets. Nikon is not a Sony, Canon, Panasonic, or Samsung: it just doesn't have the leverage that the wide range of consumer and industrial products that the others use to advantage. Indeed, more than half of Nikon's revenues come simply from cameras, which is why they have to protect the serious shooter market where the margins are higher. The danger for Nikon is to be Leica-ized: a producer of only high end, low volume, high quality products. There's not enough significant and sustainable growth, volume, or leverage in such a position should they be reduced to it.
Thus, the critical aspect for Nikon moving forward is to not only finish shoring up their professional line, but to fully establish themselves in the consumer realm. That's a big reach. Coolpix currently holds perhaps 8% of the market while Sony and Canon are up around the 20% mark. And Sony's modest DSLR success has come at the expenses of Nikon's low end DSLRs. Nikon, in my opinion, fails to be perceived as innovative and category-leading in the compact-through-low-end DSLR markets. To avoid the problem I note above, they need to be. And to do that, they'll need to stop using pre-packaged compact designs upon which they put only a modest Nikon twist and stop treating the low-end DSLRs as a place to shift parts inventory as they move forward with the rest of their line. Unfortunately, I don't think that will happen in 2009.
The big question for 2009 is who will survive. I think it clear that Canon and Nikon are in the clear here. Sony and Panasonic are certainly doing well enough in compacts to survive there, the question is whether their costs at trying to expand into DSLRs are fully justified. In 2009, I think they'll survive the cut. In Sony's case, barely. The big question mark is Pentax. They already seem to have said they won't go full frame, which leaves them only in the most hotly contested segment which also has the most likely product margin slippage. I don't see how that's sustainable by Hoya, Pentax's owner. My guess is that we're witnessing the second collapse of Pentax. This one won't take as long to play out. Oh, they'll make it through 2009, I think, but what I talk about next really is going to be the death call for them.
Left to their own devices, the Japanese players would simply continue on, even if they weren't meeting their over-eager expectations and losing money in the process. But they're not left to their own devices this time. The critical element that's not being talked about is this: stores. In 2009 we're going to see the collapse of a lot of camera stores here in the US. A large number will make it through Christmas, look at how much inventory they have left afterwards and what it'll take to make it through the recession, and simply decide to close their doors. They can't get loans at good terms to tide them through the economic crisis. Sales aren't going to recover soon enough or fast enough to keep the cash flow covering their needs. So they'll do the only thing they can: hold a fire sale and go out of business. Don't get me wrong, not every camera store will close. Stores that have managed themselves well and are conservatively probably will get through the crisis intact, if not a little frazzled. But the ones that have been running close to the cash line are toast, and that's going to be a percentage we can measure in perhaps double digits.
Here's the problem: a camera company that relies upon camera store sales is going to find they aren't able to push any inventory into these stores. I'm thinking particularly of Pentax here. The number one thing I've heard from stores I've talked to is this: "As soon as I empty my shelves of the current X inventory, I'll stop carrying the line. I'm not ordering anything new from them except to fill a customer order for which I have a deposit." X in some cases has been Pentax, in others Sony DSLRs, in others Sigma, in one case Hasselblad. It's never Nikon or Canon.
Moreover, we have a major Big Box store, Circuit City, that's closing down a huge percentage of their stores and has just declared bankruptcy. Even the Big Boxes aren't ordering up a storm, so squeezing into the limited shelf space there isn't an out. This poses a real problem for the camera makers. First, they've got built-up inventory they want to push onto shelves, but can't. Second, without being to move inventory onto shelves, they have to slow down, or shut down, production. This in turn means not ordering more parts. The cycle starts to be insidious. At some point you really have to decide whether its worth hemmoraging money both now and in the future to keep a line going. Since Pentax changed hands and is now a division within a larger company, you have to wonder what those boardroom conversations are like right now.
Meanwhile, as I've explained elsewhere, we've got currencies now running at major differentials to each other. Canada and Australia, for example, have seen a fast reversal of their currencies against the US dollar, and because the US dollar is moving only slowly down against the yen, this means that camera prices in those countries are going to get much more expensive in 2009. So one of the normal relief valves that the Japanese companies use--shift sales out of the US or the market that's experiencing lower-than-expected growth--is not really there this time. My prediction is that they'll try to stuff Asia, especially India and China, but there's only so much absorption that area can sustain.
Bottom line: it's a potentially horrific year for Pentax, Fujifilm, Olympus, Hasselblad, Sigma, and a handful of others. None of these companies can afford a big mistake in 2009 or else it will set their future inevitably. It's not a great year for Canon, Nikon, and Sony, either. Canon and Nikon will almost certainly try to keep unit volume up at the expense of profit, because this maintains and perhaps increases their market share and delivers great pain to their competitors. What I think we're witnessing is the beginning of the end of the camera-only companies with the possible exception of Nikon and Olympus, both of whom are too dependent upon cameras to give in. Sanyo's return to Panasonic is just the beginning of the consolidation.
Meanwhile, I have a comment about Kodak: how long do you think they'll continue to make cameras this time around? While they've managed to make a transition to a more digital company, analysts need to look a little more carefully at what that meant. I think Kodak now makes more off their LCD frames than they do off of cameras. No, even in the compact realm we'll see companies move out, consolidate, or move to label-only efforts, and I think Kodak is one of the most vulnerable in this respect.
So what do I expect product-wise in 2009? Here goes:
Finally, a word about my predictions. I write these to be provocative; to generate discussions about the health of the companies whose products we use and how they might best serve us in the future. When I write that I think a company or product line might not be long for the world, it's not that I want that to happen. Personally, the more players we have, the more competition we have and the faster we get new technologies and innovations that will make our lives as photographers better. While I make a modest living off of documenting Nikon products, I don't consider myself a Nikon fanboy. If you think I am, go back and read my Nikon Coolpix P6000 versus Canon G10 versus Panasonic LX-3 comparison for starters. Nikon themselves don't think I'm a fanboy ;~).
11/10/08: initial post
What I want in 2009
2. APS sensor in a small Coolpix body with decent focusing abilities. Plus a better-than-consumer lens.
3. 80-400mm VR AF-S with new tripod collar. Nikon is missing a critical lens for both prosumers and pros compared to Canon. Either update this lens with AF-S or give us something better to replace it. Please! Soon!!
4. Three hours of fast-moving Q&A with the guys who design the Nikon flash system, one hour of the same with the autofocus designers, and two hours of motivational cheerleading with the Coolpix team. I'll bring my own translater and pay my way to Tokyo. Drinks afterward are on me ;~). Hey Nikon, I plan to be in Japan in early 2010. Mind if I stop by?...
You might think I'd want more, but this is the dillema the Japanese companies now face: from a photographic standpoint, many of us are reasonably satisfied with most of what we have as tools. Getting us to invest in new ones is going to get tougher and tougher.