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Get Four
|  | FEBRUARY 10, 2006
By Brian Bremner Camera Makers' Many NegativesWith many consumers having already made the switch to digital, sales are slowing down -- and some companies are closing the shuttersAnyone who has followed the travails of Eastman Kodak's (EK ) grueling transition from traditional film to digital imaging can appreciate how disruptive technological change and rapidly shifting consumer preferences can be to a business model. On Jan. 30, for instance, Kodak reported its fifth consecutive quarterly loss, ending a year in which the once-fabled company lost a head-spinning $1.4 billion on sales of $14.3 billion (see BW Online, 1/31/06, "Kodak's Comeback: Still Undeveloped"). By comparison, Japanese rivals, leaders in the $13 billion digital camera market, seemed to be living on Easy Street. Far from it. In recent weeks, some of Japan's most venerated camera companies, grappling with same transition issues as Kodak, have shocked investors with dismal news of their own. Fuji Photo Film (FUJIY ), Japan's biggest producer of photographic film, has just lowered its projected earnings estimate by 77% to $170 million for the fiscal year ending in March. It is also slashing 5,000 jobs and will dial back dramatically on production of traditional color film. Meanwhile, Konica Minolta Holdings last month sold its digital single-lens reflex camera business to Sony (SNE ) for an undisclosed price, ending more than a century in the photography business. And last year, Kyocera (KYO ), which sold digital cameras under the Kyocera and Contax brands, also threw in the towel. With prices declining, demand softening, and about 30 digital camera makers competing globally, some Japanese contenders have no choice but to beat a hasty retreat. FADING MARKET. The problem is that digital cameras have now been around long enough that most consumers have made the switch. Indeed, shipments of digital cameras from Japan are expected to rise by just 4% this year, down from 8.4% growth last year, according to Japan's Camera & Imaging Products Assn. "The digital camera market has started to become mature," says J.P. Morgan analyst Hisashi Moriyama. That means all but a handful of leading companies will suffer, he says. The potential winners: Canon (CAJ ), the world's biggest digital camera maker; Nikon (NINOY ); and possibly Sony. Canon continues to move from strength to strength, and is actually expanding production (see BW, 9/5/05, "Can Canon Keep Printing Money?"). It continues to broaden its IXY compacts and EOS single-lens reflex series. Meanwhile, Nikon last fall introduced compact models that allow users to transmit images to a printer or computer without a cable. Nikon recently upgraded its operating earnings forecast for the year ending in March to $449 million, up 73% over 2005 levels. Thanks in part to expected strong digital camera shipments, Merrill Lynch expects the same level of robust profits next fiscal year and record profits of $525 million in 2007. PHOTO FINISH? Sony is already a major force in digital cameras but wants a bigger slice of the lucrative high-end segment. Canon and Nikon control 80% of global sales of single-lens-reflex models geared toward serious photographers. The SLRs offer profit margins in the 30% range vs. 5% to 10% on compact digital cameras. Hence Sony's interest in Konica-Minolta, which is coveted for its lens-making technology. Yutaka Nakagawa, president of Sony's digital imaging and audio business, said last month that Sony wants to boost its share of the overall digital-camera market to 25% from about 20% now. In any event, expect the shakeout to continue. Fuji Photo is struggling in cameras and is experiencing weakness in other key segments such as copiers and printers. Casio Computer (CSIOY ) and Olympus Optical are also in the chase, but will need to invest heavily to keep up with the leaders in delivering wider LCD viewer screens, better imaging sensors, and other advanced features that are expensive to develop.  Bremner is BusinessWeek's Asia regional editor based in Hong Kong Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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