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Fuji's Digital Picture Is Developing Fast


Kazuko Iyanaga hasn't bought a roll of film in two years. When she needs prints, she heads for an electronics store in downtown Tokyo. There she downloads snapshots from her digital camera into a bright green terminal that looks like an automated teller machine. She can choose the snaps she wants, crop them, and print them out on standard photo paper or as sheets of postage-stamp-size stickers. Within a minute, the machine churns out the prints at 48 cents a pop. "It's very convenient," says the 33-year-old photography buff. "I don't have to pay for pictures I don't want."

The self-service terminal is one of thousands of such kiosks sold by Fuji Photo Film Co. (FUJIY) in Japan and the U.S. It's also a symbol of Fuji's effort to withstand the digital tsunami that's turning the once-staid photography market on its head. This is not the company's only digital maneuver. Fuji pioneered consumer digital photography in the late 1980s, and today it's the fourth-biggest digital camera maker. It has also become the world's biggest supplier of specialized film for liquid-crystal-display screens and a leading producer of the image-sensing chips used in digital cameras and camera phones.

What was once Fuji's lifeblood -- analog film -- is rapidly being drained by the digital age. Traditional products such as silver-halide film, photo paper, developing chemicals, and nondigital printers still account for 42% of Fuji's sales. That's expected to shrink to just 31% in three years, which is far ahead of rival Eastman Kodak Co. (EK). For the U.S. film maker, film, paper, and processing make up 61% of annual revenue and will still account for 43% by 2007, according to Citigroup Smith Barney (C). Meanwhile, Fuji expects its digital-camera sales to double, to 12% of revenue, by 2006. "Rapidly changing technology requires us to act more dynamically," says Chief Executive Shigetaka Komori.

The move seems to be paying off. True, Fuji posted lackluster third-quarter results in January, which Komori blamed on a glitch that delayed shipments of a key digital camera component. Yet for 2003, Fuji expects profits of $762 million on sales of $25 billion, up from earnings of $463 million and revenues of $23.9 billion in 2002. That's not bad compared with Kodak's 70% profit slide, to $265 million.

BILLION-DOLLAR PUSH. So why haven't Fuji's shares spiked along with the Nikkei stock index? For starters, investors are worried about a brutal war with the likes of Canon (CAJ), Olympus (OLYOY), and Sony (SNE) for supremacy in digital photography. And whatever Fuji manages to achieve may not be as profitable as film was. "I'm somewhat skeptical digital can be as good a market as analog," says Joel Scheiman, an analyst at ING Financial Markets (ING) in Tokyo.

Komori is out to prove the naysayers wrong. Kicking off Fuji's 70th anniversary on Feb. 5, he outlined a plan to invest more in imaging products such as high-grade printers, lenses, and sensors for digital cameras and mobile phones. Komori, who has been president of Fuji for five years but only became chief executive in June, is eager to put his stamp on the company. To meet his ambitious plans to double profits by 2007, he vows to cut costs by $1.9 billion over the next three years.

Despite all the turmoil, Komori is keeping a hand in traditional film, since business is still good in developing markets such as China and India. But as prices for digital cameras fall, it won't be long before green terminals start popping up from Bombay to Shanghai. One way or another, Fuji intends to stay in the picture. By Chester Dawson in Tokyo


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