Fujifilm Focuses on Pharma

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One downside to the diversification: Without film, Fujifilm doesn't have a big, reliable money-earner. Bringing Toyama in-house gives Fujifilm a toehold in the $650 billion global drug market. But it's unlikely to replace film. And not all of Toyama's seven experimental drugs for influenza, rheumatism, and Alzheimer's are likely to pass the safety testing stage. The risk, analysts say, is that Toyama, whose unpredictable earnings have dipped into negative territory twice in the past five years, could hurt more than help Fujifilm. So far, Mizuho Securities (MFG) hasn't changed its forecasts for Fujifilm's operating earnings this year, which could double to $2.18 billion, from $1.1 billion last year, on a 2.4% rise in sales, to $28.4 billion.

Stiff Competition

In the medical field, Fujifilm faces competition from other Japanese high-tech companies such as Olympus and Canon (CAJ). Olympus leads Fujifilm in endoscopes, remote controlled tubes with built-in cameras for examining the intestine, while Canon has teamed up with Tokyo Institute of Technology and Stanford University to beef up its presence in medical imaging. In printers, Fujifilm also needs to raise its margins, which should top 7% this year but can't compare to Canon's 18%, says JPMorgan's Moriyama.

Komori deserves much of the credit for the company's reinvention. Not long after he took charge in 2000, Fujifilm was in crisis. Digital photography was replacing film faster than executives had expected, and Komori had a tough decision. He realized he had to prioritize digital imaging and phase out film—but he also mapped out a two-year, top-to-bottom reorganization costing nearly $2 billion. In short order, Komori cut 5,000 jobs and streamlined the company's supply chain, shuttering unprofitable film factories and transferring camera production in Japan to China. In the most recent quarter, through December, Fujifilm's ratio of overhead costs to sales was at an all-time low.

To foster innovation, Komori had a new lab built in Kanagawa prefecture, west of Tokyo, for 1,000 researchers working on core technologies. And to drive home the point that the company's film-centric model was dead, Komori & Co. dropped the word "photo" from the masthead in late 2006.

Hall is BusinessWeek's technology correspondent in Tokyo .