May 12, 2017 5:00 pm JST

For Nikon, red ink is worth the price of recovery

Despite sweeping reforms, digital cameras still weigh on the Japanese group

MIHO SAITO, Nikkei staff writer

TOKYO -- Nikon is bleeding red ink for the first time in seven years, but the Japanese camera heavyweight sees the loss as a necessary part of its campaign to create a sleeker, more profitable company.

One major problem clouding Nikon's dream of growth, however, is the fact that digital cameras -- the company's main business -- are faring poorly.

The group on Thursday reported a net loss of 7.1 billion yen ($62.4 million) for the year through March, blaming heavy spending on structural reforms and weak sales of digital cameras.

Explaining its first net loss since fiscal 2009, Nikon pointed to the 53.3 billion yen bill it incurred during the period from the radical overhaul of its organization and operations.

But the company is not dwelling on the loss. Nikon projects a net profit of 34 billion yen for the current year in the expectation that the effects of its makeover will kick in.

Seeking a strategy

Reforms are one thing, but there is still the matter of mapping out a path to growth.

At the company's earnings briefing in Tokyo on Thursday, Nikon President Kazuo Ushida tried to sound chipper about the future, saying, "The structural reforms have gone largely as planned."

Nikon unveiled the restructuring plan in November in response to declining earnings at its semiconductor equipment and camera businesses.

The company has shed around 1,000 jobs in the past six months. It has also been slashing costs by consolidating its optical parts-manufacturing business, downsizing operations to develop advanced equipment to make semiconductors, and terminating sales of certain models of digital cameras.

Group sales for the year ended March slipped 8.6% on the year to 748.8 billion yen, but operating profit expanded 60.8% to 50.9 billion yen.

The profit figure suggests the company is capable of returning to growth in the current fiscal year if its ongoing changes lead to better cost efficiency.

But while Nikon is best known for its cameras, the primary factor behind last year's bigger operating profit was strong sales of instruments to manufacture small and midsize displays.

Indeed, its main camera business may be beyond hope.

Sales at Nikon's camera-centered imaging equipment business are projected to shrink to 345 billion yen for the year through March 2018, down more than 170 billion yen from two years earlier.

The company has decided to scale down the business to focus more on profitability. That has included pulling the plug on some small digital camera models that are not generating profits.

Masashi Oka, Nikon's senior executive vice president and chief financial officer, says the company will shift its focus to high-value-added products to raise average prices and overall profitability. The catch is that all major camera makers are doing that very thing, making it harder for Nikon to lift prices much.

Blurry picture

Nikon's operating profit for fiscal 2016 received a big boost from brisk sales of its display manufacturing equipment. Demand was driven by heavy investment by Chinese display makers, who helped sales volume double on the year.

For the current year, however, sales are expected to shrink due to factors related to the product mix.

Nikon has its fingers crossed that its money-losing chipmaking equipment business will bounce back, helping to offset the expected decline in sales of display-making instruments. But there are a lot "ifs" in this strategy.

Ushida has warned that fiscal 2017 will shape up to be Nikon's toughest year for earnings, but he plans to wrap up the restructuring push by the end of March 2019.

Given the gloomy global outlook for digital cameras, however, the company will probably have more tinkering to do after that, including at its overseas operations.

Faced with that likelihood, Nikon's recovery is unlikely to come into focus anytime soon.

Nikon Corp.

Japan

Market(Ticker): TKS(7731)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 8,157.70M
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