Nikon Financial Report Q2 FY2019 - Full-frame Mirrorless Arrives

Nikon Corp. Q2 FY2019 Headlines (July 1, 2018, to Sept 30, 2019)

Year-on-year quaterly changes

  • Overall company Revenue up +6.8%
  • Overall company Operating Profit up +9.4%
  • Imaging Products segment Revenue down -14.8%
  • Imaging Products segment Operating Profit down -89.7%
  • Imaging takes a hit but Precision Equipment Comes to the Rescue

Overall Company Results

NIKON Corp. released their Q2 FY2019 results with all segments but Precision Equipment taking a hit on profits. Shares fall 9.4%.

Looking at the overall business of Nikon we see a company that has produced improved performance but not in its main business activity. The Precision Equipment business has blossomed to 37% of revenue and 88% of operating profit. So that's fine if it continues, but is this not a 'Camera Company'?

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 42.5% of the total Revenue, down from 53.4% for the same quarter the previous year. Imaging accounted for just 4.5% 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 half 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 ¥84.3B to ¥71.8B year-on-year. Whilst Operating Profit fell from ¥7.8B to ¥0.8B. Difficult times but will Full-Frame Mirrorless turn it around?

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 9.8 million units and of that, Nikon is now forecast to drop to approximately 23% or 2.25 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.

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 3.95M 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 ¥31B, less than previously forecast.

Foreign exchange

The expectations are that foreign exchange rates with the ¥en may improve, but don't bet on it.

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 than Nikon. 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 more lenses for the Full-frame Mirrorless Camera System launched this year.

Conclusions

Nikon continues to have breathing space due to the strong performance of its Precision Equipment Business. That space needs to be used to produce a viable crop-frame mirrorless system as well as grow their recently launched full-frame mirrorless system. DSLRs will probably only last a few more years before being swamped by the mirrorless alternatives. Competitors like Canon and Sony already have those systems in place and are reaping the rewards.

Sales of fixed lens cameras, or compacts, continue to fall at an alarming rate. Down 38% by units and 30% by value this year so far, alone. This represents 30% of the overall camera unit market, less add-ons, by value. There currently is no end in sight to this fall. Optimism is good but there has to be a point where reality bites. Growth from here will be very difficult. We shall, as usual, have to wait and see.

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