NIKON Corp. released their Q1 FY2018 results with little to cheer other than results exceeded previous weak forecasts. Restructuring is still under way to try to generate more profit from flat revenues and shrinking markets.
Forecasts for the first half have improved based on a better Q2 than was previously expected. However, full year forecasts have remained as previously stated. Just how Nikon will provide some revenue growth and diversify from their reliance on the shrinking Camera business is yet to be determined.
Investors are trying to be positive but stock price is slipping as there is little guidance into what the company will do with its pile of cash.
Looking at the overall business of Nikon we see a company with rising Revenue by +0.6% but largely due to exchange rate improvement. Operating Profit has fallen, year-on-year, by -31.1% and this is across all segments.
Let’s take a look at the overall business structure to see the losses and gains in each sector.
The fall in sales of the Imaging Segment has reduced that sector to just 53.4% of Revenue down from 55.8% for the same quarter the previous year. Imaging accounted for 35.2% of the Operating Profits before Corporate or other segment losses are factored in.
Other than Imaging only the Precision Equipment sector is providing a significant size to the business. Given Imaging is still shrinking with little hope of expanding, that leaves a big question about future business growth. For the rest of the year, Revenue and Operating Profits are forecast to flatline.
The Imaging products segment that includes all Digital Cameras has decreased in Revenue from ¥94.4B to ¥90.9B year-on-year. Whilst Operating Profit fell from ¥10.1B to ¥7.6B. Given the Imaging Products segment has over half the sales Revenue this is a problem that needs turning around.
What has been the problem?
The other issues such as, the strength of the ¥en, the Kumamoto Earthquakes and falling markets are no longer excuses. Nikon Imaging segment needs to deliver, otherwise a viable plan for diversification needs to be produced.
In FY2017 Nikon had approximately 26.3% of the estimated 11.77 million Interchangeable Lens camera sold. The market size is forecast to shrink to 10.7 million units and of that, Nikon is now forecast to drop to approximately 23.4% for FY2018. A loss of 3% of your main market strength is not good.
In the Compact Camera market, Nikon had 25.3% of the estimated 12.6 million market in FY2017. With the market expected to contract to 10.4 million units in FY2018, Nikon is forecasting a drop to approximately 22.1% by units.
Note: the figures of market scale above are Nikons own. Other reports have the scale of the Compact camera market around 14.5M in FY2017 and 13M in FY2018.
Full year forecast for the Imaging segment is for camera unit sales to fall to 4.8M units, down from 6.29M units the previous year. The whole Imaging segment will reduce sales by value to ¥345B, down from ¥383B in FY2017.
Whilst Operating Profit is better than previously forecast, Revenues are level year-on-year. Where is growth going to come from?
The Imaging segment continues to be the largest part of the business but Nikon does appear to reluctant to push forward with newer Mirrorless technologies and compete head on with Sony. Premium Compact cameras are also missing from the line-up. If you lose market share in camera bodies you will also lose out later for add-on lens sales.
The company is leaner than before, still has a large cash pile, however, it does need a plan for growth.
I will wait and see what the rest of the year brings.