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Surprise -- Canon's earnings strongly rebound

Camera sales to rise for first time in five years; copiers also selling well

TOKYO -- Canon's earnings have found a solid upward trajectory as the company's long-struggling office equipment and camera businesses rebound with surprising vigor.

The company on Thursday upgraded its forecasts for group earnings for 2017 following a similar revision in April. Canon is now looking for a sharp rise in both sales and profits.

It could even return to being the powerful profit machine it once was if the four new businesses that CEO Fujio Mitarai has been aggressively bolstering start seriously contributing to the bottom line.

Executive Vice President Toshizo Tanaka on Thursday announced Canon's results for the first half of 2017. "We will be able to achieve growth in both sales and profits for the first time in four years if we can keep our earnings performance in the second half as strong as it is now," he said.

Canon's group sales in the first half of 2017 grew 18.6% from the year-earlier period to 1.96 trillion yen ($17.6 billion), while its operating profit surged 58.2% to 171.9 billion yen.

The company has upwardly revised its earnings forecasts for all of 2017. It now projects a 19.1% rise in sales to 4.05 trillion yen and a 44.2% spike in operating profit to 330 billion yen.

These figures would represent a sharp upturn from the dismal results for 2016, when weak sales of office equipment and digital cameras depressed the company's operating profit to the lowest level since 2009, when the world was mired in a Wall Street-triggered financial crisis.

Canon's weak results last year alarmed investors and analysts, prompting them to warn that the company could sink into serious trouble unless it swiftly creates new revenue sources.

The earnings upturn came as something of a surprise.

In the April-June quarter, Canon's laser printers for emerging markets and high-end digital cameras racked up unexpectedly strong sales, lifting the company's bottom line.

At the news conference, Tanaka stressed that this growth led Canon to upwardly revise its earnings forecasts.

Sales of Canon's multifunctional printer-copier-scanner-fax machines and other office equipment are expected to pick up 3.4% this year, boosting the unit's operating profit by 22.7%.

The imaging systems unit, which includes camera operations, is now seen notching a 2.2% sales increase along with a 10.8% operating profit expansion. This means Canon will see its first rise in camera sales in five years.

The new projection should give Mitarai and his strategy a shot in the arm. The chairman and CEO has been preaching the importance of raising the profitability of the company's mainstay products while working hard to expand Canon's medical equipment and other new lines.

Now his efforts to shift the focus of Canon's camera operations toward higher value-added products are beginning to pay off.

The company has launched five new interchangeable-lens cameras, ranging from entry-level models to high-end shooters for photography buffs. It has also put its high-speed, auto-focus technology, which used to be available only in high-end models, into its entry-level cameras.

Canon Chairman and CEO Fujio Mitarai

Production line upgrades have also contributed to the rebound. Canon already had unique and competitive manufacturing technology with highly automated production equipment.

Additionally, the company's four new businesses, which Mitarai sees as future sales and profit drivers, have gotten off to a smooth start.

The company's Industry and Others Business Unit, in particular, is projected to post a more than sixfold increase in operating profit to 45.9 billion yen. The unit makes computers and a range of high-tech products.

The expected profit boom will be driven mainly by soaring sales of equipment to manufacture screens formed by a thin, bendable layer of organic light-emitting diodes. Canon Tokki, a strategically important subsidiary, provides the equipment.

Additionally, Canon's acquisition of Toshiba Medical Systems has increased its ability to develop cutting-edge medical equipment products. Canon is planning to launch diagnostic imaging systems and a host of other medical technology.

The medical systems unit is forecast to generate an operating profit of 20.5 billion yen on sales of 440 billion yen for 2017.

With an estimated operating profit margin of 4.7%, the unit will remain less profitable than other businesses. But its profitability is likely to improve if Canon can parlay its competitive optical and imaging technology into the development of new hit products.

Canon is also taking steps to beef up the marketing operations for two other new businesses -- commercial printing and network cameras.

Canon set its profit record back in 2007. Since then, it has set targets of raising group sales to over 5 trillion yen and its operating profit margin to more than 15% in 2020.

There is a long way to go; the company's operating profit margin in 2017 is projected to be 8.1%.

And Canon faces the formidable challenge of accelerating the growth of new businesses while further raising the profitability of its core office and camera operations, which account for more than 70% of overall group sales.

Mitarai's job, then, is to build synergies between Canon's traditional lines and its new businesses.

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