April 15, 2017 6:56 am JST

Canon's medical device biz bought from Toshiba sets sail

Camera giant to chase global 'big 3' in health care hardware with IT push

TORU HATANO and MIHO SAITO, Nikkei staff writers

Toshio Takiguchi, president of Toshiba Medical Systems, emphasized synergies with the rest of Canon operations.

TOKYO -- Having emerged as a savior for buying Toshiba's medical systems operations for a hefty sum, Canon has now embarked on a fresh journey as a major player chasing global leaders in health care equipment featuring the latest information technology.

Toshiba Medical Systems, which became a Canon subsidiary at the end of 2016, showcased several new products at a medical imaging trade fair that opened Friday in Yokohama. New offerings such as CT and MRI scanners accentuated the unit's fresh start.

"We hope to address the expanding variety of health care needs around the world by combining technologies," said an enthusiastic Toshio Takiguchi, president of Toshiba Medical.

After a damaging accounting scandal came to light in 2015, Toshiba decided to unload the medical systems business to improve its financial standing. And Tokyo-based Canon -- whose mainstay digital camera and office equipment businesses have lacked momentum -- bought 100% of the shares for the lofty price of 665 billion yen ($6.12 billion at current rates), hoping to make it a catalyst for growth.

"It's like staring a new business, so we don't expect it to earn so quickly" Canon CEO Fujio Mitarai noted, underscoring a long-term goal to cultivate the operation into a key business. On April 1, the electronics giant established a headquarters for its entire medical business and put Takiguchi in charge.

"Synergies are significant in research and development, as well as production technology," Takiguchi said in an interview with The Nikkei on Friday. Canon's image processing expertise will be incorporated into a product to find cancer metastases, expected by the end of 2017. And product planning discussions are ongoing around 50 or so themes, he said.

The company aims for sales of 500 billion yen in fiscal 2020, said Takiguchi. He maintains that Toshiba Medical is not lagging behind in IT compared with the "big three" in medical systems -- General Electric of the U.S., Siemens of Germany and Dutch group Philips. The operation showcased a cloud-based service to manage diagnostic images at the trade fair.

Hopes and hurdles

Globally, the market for health care equipment looks promising. It is projected to reach $459.7 billion in 2021, up roughly 40% from 2015, according to Mizuho Bank. Aging populations in advanced economies are seen expanding the market.

Yet there is no guarantee Canon can be a leader, with one obstacle being a scale disadvantage. While the big three generate sales equivalent to 1 trillion yen to 2 trillion yen, Toshiba Medical's are about 400 billion yen. The business ranks No. 3 globally in CT scanners and No. 4 in MRI equipment.

Another potential challenge is related to technological evolution. As the performance of medical equipment nears a maxed-out point, the focus of competition is shifting to how the hardware can be enhanced with IT.

"We will enter a new stage of competition due to digitization" said Soichiro Tada, president of GE Healthcare Japan, as the company unveiled an efficiency-boosting service based on operating-rate analysis at the trade fair.

Also at the fair, Philips featured a technology to enable instant sharing of medical images among hospitals to facilitate diagnoses. Canon is urgently stepping up IT utilization too, but it is still "behind the big three," said an analyst at a domestic securities brokerage.

Canon paid a blue-chip price to acquire Toshiba's medical equipment arm, whose price was driven up by a bidding war. Although the business has promise, the outlook is not all that rosy considering the competitive landscape.

Toshiba Corp.

Japan

Market(Ticker): TKS(6502)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 8,436.35M
Shares: 4,237.60M

Canon, Inc.

Japan

Market(Ticker): TKS(7751)
Sector:
Industry:
Electronic Technology
Electronic Equipment/Instruments
Market cap(USD): 44,726.51M
Shares: 1,333.76M

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