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Konica Minolta eyes transformation via new tech

TOKYO -- Konica Minolta aims to remake itself as a supporter of next-generation technology and a provider of marketing services -- a bid to find more fertile ground as its native business solutions market plateaus and stiff competition crimps earnings.

New fields

The Japanese company, known best for its printers and document centers, is now stepping into the field of robotics. A partnership formed with U.S. company Savioke in July has yielded a robotic housekeeper, which delivers toiletries, towels and other items during the night to guests at hotels in the state of California.

     Service companies in the U.S. have found themselves short-handed of late as the economy continues to expand. Finding nighttime hotel staff is particularly difficult, creating an ideal opportunity for robots. Konica Minolta also sees demand for security bots growing as a labor shortage in that industry deepens, prompting an investment in an American night-vision device maker in October 2014.

     Konica Minolta also has invested in Wikitude, the Austrian developer of an augmented reality platform. The Tokyo-based company is putting that technology to use in collaboration with automakers in Japan and in Europe. Auto technicians are able to scan vehicles for parts in need of repair using a tablet-based system. When a damaged component is detected, repair instructions are displayed on-screen. The technology is seen improving the efficiency of repair work, particularly as the spread of hybrid fuel systems and other advancements make cars increasingly complex.

     The search for new business in tech fields is headed up by Konica Minolta's five Business Innovation Centers, located in London, Singapore, Tokyo, Shanghai and Silicon Valley. Since their creation in 2014, the centers have hosted experts in a variety of fields, including a former chief information officer at NATO. That diversity is aimed at helping the company think and act beyond its current business model centered on the sale and maintenance of document centers.

     At any one time, the network is investigating around 100 possible projects, including investments in startups, looking for those "with the potential to bring in tens of billions of yen in sales," said Yuji Ichimura, deputy general manager for business development. The goal of the centers is to "work with our customers to develop solutions in five regions around the world," President Shoei Yamana has said.

Going where the money is

Cutting reliance on its business solutions segment is probably the right choice for Konica Minolta. Shipments of printers, document centers and other hard-copy peripherals fell 6.3% from the year-earlier level to 25.8 million units in July-September 2015, market research company IDC Japan reports. The global market for such devices seems to be fairly saturated, and is unlikely to grow further as it matures.

     Konica Minolta in October downgraded its group operating profit forecast for the year ending in March to 73 billion yen ($615 million), or 4 billion yen under the initial level. Though that figure still marks 11% growth, "price competition on document centers" was seen blocking the way to higher profit, Director Ken Osuga said. Unlike its competitors, Konica Minolta is refraining from deep price cuts, meaning sales volume will likely fall, he said.

     Yet the company has been quick to reinvent itself, focusing on "marketing for our corporate clients" as the next driver of earnings, said Jun Haraguchi, general manager for business technologies marketing. The purchase and upkeep of document centers are typically considered clerical costs, which generally make up around 2% of a company's sales, Haraguchi said. Marketing fees, meanwhile, typically count for 7-8%. Konica Minolta is thus buying up companies involved in data-based marketing support and taking other steps to center its earnings structure on assisting companies with print, web-based and other advertising.

     The company has received cautious praise for its new tech- and service-based strategy. Konica Minolta's "will to reinvent itself and goals with its Business Innovation Centers are commendable," Tomoki Komiya of Mitsubishi UFJ Morgan Stanley Securities said. "But I can't quite see how they will yield significant results or further potential for growth," Komiya added. The business environment facing the company is growing more severe as the yen strengthens against the euro. Investors are becoming concerned that an earnings crunch for the company's current core operations could delay its expansion into new fields, weighing on its stock price.

     Headwinds to earnings look likely to only grow stronger in 2016. Sketching out a plausible plan for its new operations to drive growth is the first test the company must pass.

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