Nikon Financial Report Q1 FY2019 - Clearing the way for Full-frame Mirrorless Cameras

Nikon Corp. Q1 FY2019 Headlines (Ap 1, 2018, to Jun 30, 2019)

  • Overall company Revenue down -2.0%
  • Overall company Operating Profit up +53%
  • Imaging Products segment Revenue down -13.0%
  • Imaging Products segment Operating Profit up +63%
  • Shift to high-value products improves profitability

Overall Company Results

NIKON Corp. released their Q1 FY2019 results and again improve profits by reducing expenditure and moving upmarket to higher value products. Shares rallied 2%.

Looking at the overall business of Nikon we see a company with sinking Revenue by -2.0% from ¥170.3B to ¥166.9B. This fall was due to the shrinking Imaging Products Segment. All other business segments saw a rise in revenue, year-on-year.

Operating Profit has risen, year-on-year, by +53% from ¥12.4B to ¥19.0B and this rise is mainly due to the Imaging Products segment.

Let’s take a look at the overall business structure to see the losses and gains in each sector.

How the sales and profits are made.

The business is structured with the segments as follows:

  • Imaging Products - IP
  • Precision Equipment - PE
  • Healthcare - H
  • Industrial Metrology & Others - IMO

The Imaging Segment has 47.4% of the total Revenue, down from 53.4% for the same quarter the previous year. Imaging accounted for 45% 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. Imaging is still shrinking and competition is hotting up so it will be difficult to expand revenues in that segment. Precision Equipment has had a good quarter and now the most profitable segment.

Imaging Products Segment Results

The Imaging Products segment that includes all Digital Cameras and Lenses has decreased in Revenue from ¥90.9B to ¥79.1B year-on-year. Whilst Operating Profit rose from ¥7.6B to ¥12.4B. So some positive news about profits due to continued cost savings and shift to higher value Cameras.

Note: Accounting changes have changed some Operating Profit figures

Nikon Market Share in Digital Cameras

In FY2018 Nikon had approximately 23% or 2.62 million of the estimated 11.41 million Interchangeable Lens cameras sold. The market size is forecast to shrink to 10 million units and of that, Nikon is now forecast to drop to approximately 23% or 2.3 million cameras for FY2019. So if they can continue to hold on to their market share that would be good in what will be a very competitive year.

In the Compact Camera market, Nikon had 21% or 2.51 million cameras of the estimated 11.96 million market in FY2018. With the market expected to contract to just 8 million units in FY2019, Nikon is forecasting a drop to approximately 21.3% or 1.7 million cameras. Good to see some recognition in the forecast that the Compact Camera market is falling much faster than was initially thought at the beginning of the year.

Note: the figures of market scale above are Nikon's own.

Forecasts

Full year forecast for the Imaging segment is for camera unit sales to fall to 4.0M units, down from 5.13M units the previous year.

The whole Imaging segment will reduce Revenue by value to ¥320B, down from ¥360.7B in FY2018. Operating Profit will rise to ¥33B, better than previously forecast.

Foreign exchange

The expectations are that foreign exchange rates with the ¥en will remain stable throughout the year. It might or it might not.

R & D Expenditure

Spending on R & D must be maintained at a high level in order to compete in the modern camera market. Competitors are bringing new products to market on a much bigger scale then Nikon is. R & D in the imaging segment is rising from ¥23.4B to ¥25B in the current year. No doubt much of this is going on the much anticipated Full-frame Mirrorless Camera System due to be launched this year.

Conclusions

Nikon has been given a little breathing space with the strong performance of its Precision Equipment Business. Could Nikon survive and be content without a strong Imaging Business? It will all hinge on the launch of the Full-frame Mirrorless Camera System. It may get this right and have a new golden era, but strong competition from Sony and Canon may dilute any gains. Putting all the eggs in one basket and not having a competitive crop-frame system may be a bad idea. Full-frame does little to reduce lens size a key advantage of the mirrorless system over DSLRs. We shall, as usual, have to wait and see.

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