November 15, 2017 9:45 am JST

At Nikon, full recovery still a long way off

Progress made cutting costs but profit now less than half the record

RINTARO SHIMOMURA, Nikkei staff writer

People walk past a Nikon camera retailer in central Tokyo. © Reuters

TOKYO -- A year after launching a structural reform drive, Nikon faces an uphill battle. Its core digital camera business is limping along. And its key semiconductor lithography equipment division is also ailing.

To be sure, Nikon's turnaround efforts show signs of improvement, as reflected in the company's financial results for the first half of fiscal 2017.

But Nikon announced additional job cuts at its digital camera business at the end of October as sales continue to decline. And what used to be a strong player in the precision equipment industry still has a long way to go before achieving a full recovery.

The Tokyo-based company on Nov. 7 released its consolidated financial results for the April-September period. Based on international accounting standards, Nikon's net profit tumbled 37% in the first half of fiscal 2017 from a year earlier to 13.9 billion yen ($122 million) as sales of profitable lithography equipment for flat panel displays went south.

But the company posted 6 billion yen more in operating profit than it forecast in August. "Our structural reforms started kicking in earlier than we expected," said Masashi Oka, Nikon's senior executive vice president and chief financial officer.

In November 2016, Nikon unveiled a structural reform program with a focus on the chronically loss-making semiconductor equipment business. Under the program, the company axed about 1,000 jobs at domestic group firms by the end of fiscal 2016.

Nikon has also implemented job cuts at its imaging products business, which includes digital cameras. The division's operating profit rose 4% in the April-September period from a year earlier to 15.4 billion yen. Lower fixed costs as well as more efficient spending on advertising and on research and development more than offset a slump in sales volume.

Tomoki Komiya of Mitsubishi UFJ Morgan Stanley Securities gave high marks to Nikon's turnaround efforts.

"Nikon has narrowed the number of its models, primarily compact digital cameras, demand for which has declined due to [the proliferation of] smartphones," Komiya said. "Nikon has also concentrated its [management] resources on hot-selling products. These efforts have contributed to improved profitability."

Nikon continues to enjoy a competitive advantage in the high-end camera segment. The D850, a new camera for professional photographers, has been in short supply since hitting the market in September, according to Nikon.

In response to the strong popularity of the D850, Nikon has upwardly revised its forecast for interchangeable lens camera sales in fiscal 2017 by 100,000 units.

Nikon is intent on further cutting costs. At the end of October, for example, it announced the closure of a Chinese factory that primarily produces compact digital cameras.

Nikon has booked one-time expenses such as increased retirement benefits and cut its full-year group net profit forecast by 4 billion yen to 30 billion yen, compared with a group net profit of 3.9 billion yen the previous fiscal year.

In addition to downwardly revising its full-year group net profit, Nikon also announced a decision to pull the plug on online sales of digital cameras in Brazil as part of efforts to narrow its sales areas.

Nikon's earnings are beginning to improve. But the company's group net profit forecast for the current fiscal year is still less than half the record of 75.5 billion yen, set in fiscal 2007.

While some analysts welcome progress in Nikon's cost-cutting efforts, others point out that the company should do more. One analyst at a foreign securities company said, "I cannot see any engine of sales growth."

Other big precision equipment makers are looking for growth in the health care field while also trying to milk their camera and office equipment lines.

Nikon is also accelerating its investment in the health care sector. But the company is reluctant to speak much about its growth strategy.

Now that its restructuring is progressing, pressure will mount on Nikon to come up with a new growth strategy.

Nikon Corp.

Japan

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