Nikon Blues


What's Red, White, and little Blue?

Update August 15, 2007 -- I've gone ahead and updated the tables at the right to the latest numbers (using Nikon's July 2007 estimates for fiscal 2008). Two things stand out in the current numbers: Nikon appears to think that they have new Coolpix models on the way that will increase their sales by >20%, and lens sales are predicted to be grow considerably, as well. This would be a "firing on all cylinders" type of scenario if Nikon manages to live up to it, as DSLR sales continue to increase significantly, as well. Note, however, that while unit volumes are all projected to be up by 20% or more, sales and profit numbers are projected to show single digit gains.

Update May 16, 2005 -- Nikon's full year results have come in and we now can get rid of the "e" in some of our charts (see right).

Update Nov 20, 2004--Nikon's first-half 2005 report was encouraging on some fronts, not so great on others. [A reminder: Nikon's fiscal year, which is what I'm referring to when I say 2005, ends in April 2005.]

The stepper business is still slowly improving, though this means it is hoovering near the breakeven point. The imaging business (the part of Nikon that readers of this site care about) is still decently profitable. Nevertheless, if you look at the camera sales predictions, there are signs of weakness. Essentially Nikon is predicting that margins and market share will continue to slide in the consumer camera realm (see right hand column for some exact numbers). Overall, the estimated camera sales have been lowered by 10 billion yen (though the income is still predicted to be about the same--what the Coolpix margins are taking away, the DSLR margins are grabbing back). Note that Nikon's predicting sales based upon a yen value of 107 to the dollar for the remainder of their fiscal year, which I think is a bit high--I expect the dollar to fall further than that, as the Bush administration seems to be totally oblvious to the spiraling impact that continued neglect will create. The interesting thing in the mid-year estimates from Nikon is this: they seem to be saying the Coolpix growth has stalled or perhaps even reversed and that DSLRs are where they will get future income. For example, estimated lens sales are up 50% for 2006 (this after several years of flat to modest growth). Overall digital camera sales are estimated to be up only 10-20% in fiscal 2006 according to Nikon, and since we know that their highest growth in digital camera sales is in DSLRs (over 100%), this means that Coolpix sales may actually be decreasing in unit volume (note that digital camera sales are predicted to drop in the second half of fiscal 2005 while film SLR sales are predicted to rise [F6, most likely]). This could be an intentional thing, as Nikon has stated repeatedly in the past year that consumer digital camera margins are eroding very fast. Or it could be simply an indication that the Coolpix models just aren't holding their own in the market. I'd tend to think it's a combination of the two, actually, as Nikon does indeed seem to be iterating somewhat slower than before (intentional) and their low-end Coolpix models tend to be a bit me-too because of that (erosion).

Update May 26, 2004--Nikon is still underperforming (see last year's report, below), though things are looking much better with the uptick in the semiconductor market. Bottom line? Sales up 8%, net income now 2.41 billion yen after taxes (as opposed to last year's 8.14 billion yen loss). Better still, Nikon is forecasting a 40% rise in sales and an increase to 19 billion yen in income for the coming year. American customers will not be surprised to learn that the US was the region that provided the most profit to Nikon (Japan showed a loss). Imaging product sales went from 270 billion yen to 283 billion yen, a dissappointing increase (more on that in a bit). Fiscal 2005 (ends March 2005) is expected to bring in 369 billion yen by comparison, though operating income is expected to drop. R&D expense for imaging was 10.4 billion yen in 2004.

One big problem for Nikon in fiscal 2004 was that they simply weren't able to produce all the product they predicted they would. Twice during the year Nikon reduced their digital camera unit forecast, mostly due to supply and manufacturing problems with the Coolpix line and lenses. While they've been scrambling to add capacity and fix supply issues, this problem has lingered for quite some time, so I'll believe they've fixed it when we see unit shipment evidence. Other camera companies have had similar problems (Fujifilm and Olympus come to mind), but others haven't, and they're the ones gaining market share. Still, look at the numbers in the right column: Nikon is a digital camera company, period. Film camera sales completely collapsed in a two year period (75% decrease). Meanwhile, several of Nikon's digital models are doing quite well.

June 1, 2003--A series of articles over the last month in both the Japanese press (e.g., Nikkei Report) and the US (e.g., The New York Times) have all noted the same thing: in a year where all the digital camera companies in Japan have posted outstanding sales and earnings growth, Nikon stands out as the lone exception.

On May 9th Nikon announced that it had a net loss for fiscal 2002 of 8.14 billion yen and would skip its annual dividend for the first time in 42 years (that's the "red"). Yet the camera division's profit was up 72% on a 130% increase in digital camera unit volume (that's the "white," as in white hot). The problem is Nikon's stepper business, started in 1980, which is dependent upon the health of semiconductor manufacturers (who are all a little "blue" in the current tech slump).

While Nikon's stepper business has big customers, such as Intel and Sony, it closely follows tech cycles. And it didn't help that Nikon didn't seem to catch the shift in microchip manufacturing to South Korea and Taiwan in recent years; Nikon managed to lose its top spot in worldwide stepper sales in the past year. Bottom line: a projected loss of 22 billion yen in the stepper business for fiscal 2003. I guess you could say that's below the bottom line.

Nikkei Report pointed out two significant issues, both of which are of interest to readers of this site:

  1. Nikon spent about 18 billion yen in camera R&D in 2002. But that's only about a third of the company's product R&D expenditures, despite the fact that digital cameras are the fastest growing and most profitable of Nikon's businesses. While the total amount represents a significant chunk of change (well, it would to me), it also means that we're unlikely to see Nikon throw dozens of CCD-based cameras against the inkjet paper and see what sticks. What comes next needs to be competitive, so don't expect the world's first digital slot-scan panorama camera or any other small niche product. It probably also means that D-TTL won't get fixed in the near future, either. [Seems slightly prophetic. The Coolpix line changed slowly, the D70 and D2h are the only new DSLRs, and they took longer to get to market than some expected.]
  2. Nikon uses Sanyo to manufacture the Coolpix cameras rather than doing it directly. This means that they share some of the profits with another company while a company like Canon doesn't. What isn't noted by Nikkei Report (or in any of the articles) is that Nikon has been doing this for some time. I seem to remember a circa 1991 Nikon video camera that was made by Sanyo, too. And frankly, Nikon's not the only one doing this. If you think your Kodak camera is made by Kodak, or your Leica digital camera is made by Leica, well, think again. Sanyo, Kyocera, and a handful of other companies produce a lot more of the consumer cameras you see than you might guess. Yes, Canon is different and probably retains more dollars per consumer camera than Nikon (one estimate 18% of the price versus 10%). But that hasn't helped them unseat the leader in that market, either (Sony).

So should Nikon users and loyalists panic? Not really. Though it's clear that a great portion of Nikon's energy and attention is on the stepper business, Nikon's camera business is healthy and growing. While many of the reports speculate widely about Nikon's mediocre and mid-pack showing in consumer digital cameras, Nikon has never really been a strong contender in the low-price, high-quantity camera market. (Quick, how many Nikon 35mm point and shoot cameras do you see?) I fully expect to see a D1 replacement within the next few months, and if it's as competitive as the current models have been, the camera group will continue to be happy and growing. Besides, Nikon's current camera business problem seems to be delivering enough of what they've already announced (even D100's don't seem to stay in stock at most dealers; I was at the primary Nikon dealer in a major market recently, and they were telling me they get three D100's at a time, and they're all always sold before they come in).

And if the semiconductor business ever picks up again, well, Nikon should be back paying dividends again. Perhaps by then someone will actually be able to tell me what my tax on them will be ;~)

 

 

 

 
What's a Stepper?


Steppers are a key component in the optical portion (scanning, etching, and printing) of semiconductor chip production, and are used in the mass manufacturing of chips and LCD panels, amongst other things. Note that the Nikon division name for the stepper business is "Precision Equipment Company." These are very precise beasts, indeed. These truck-sized (and bigger) devices have alignment accuracies measured in a few nanometers and use state-of-the-art lasers as light sources. Nikon sells only a few hundred of these behemoths a year (approximately 7000 total since 1981; 192 in 2003, 257 in 2004, est. 370 in 2005). I doubt that they're user upgradeable.


Financials

How Big is the Camera Division?
  Sales Income
2002 221.5 16.1
2003 271.9 27.7
2004 285 25.2
2005 355.5 16.8
2006 416.6 34.4
2007 449.8 45.7
2008 480 est 48 est

(figures in billions of yen; fiscal years end at the end of the first quarter, e.g. fiscal 2007 ended in 3/2007)

The more interesting data is in the breakouts of imaging product unit sales (breakout of digital units comes from a Reuters article, except for 2006, for which I assigned Nikon's estimated growth in digital sales based upon my own educated guess):
  2002 2003 2004 2005e 2006 2007 2008
35mm SLR 880k 930k 680k 310k 186k    
35mm compact 1530k 1300k 600k 60k! 12k! NA NA
Lenses 1200k 1230k 1230k 1480k 2200k 2640k 3600k
Digital cameras (all) 1450k 3360k 5400k 6600k 7260k 8110k 10,300k
Compact Digitial -- -- 5000k+ 5600K 5760K 5920k 7700k
Digital SLRs -- -- 300k+ 1000k 1500k 2090k 2600k

Interestingly, now 35mm SLR, lens sales, and even digital camera sales in the home market of Japan show declines. Nikon has to be fully aware of the fact that they're losing market share in Japan. As a traditional Japanese company, that has to hurt, and it may show that Nikon is getting slightly out of whack with their customer base's desires.

Note: one thing that seems to get glossed over by everyone reading Nikon's projected year forward is that Nikon has made all of their calculations based upon a yen/dollar conversion of 125. I'd be surprised if the average conversion stays that high this year [it didn't, but Nikon hedged currency--their new number is 107 yen to the dollar]. Frankly, I'm surprised that the big boys all missed that--it seriously changes how you look at the 2004 fiscal year estimates. [The same problem applies to fiscal 2005 and 2006, though as just noted, Nikon is hedging on the currency market, so modest changes from about 107 yen/dollar aren't going to be a problem, only big ones. The yen is also pegged to 128 Euro, and since Nikon's largest growth rate is in Europe, you might want to watch that number to give you a leading indicator of how they're doing financially.]



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