Canon Inc. Q2 FY2016 results - and a cut in profit forecast

  • Q2 2016 Imaging System segment year on year net sales fall -13.5%
  • Operating profit Imaging System segment down -14.4%
  • Overall company net sales -11.7%

It has been evident as the year has progressed that Canon would face greater challenges to sustain their financial figures. Strengthening ¥en, earthquake disruption to production and general falling market for stand alone cameras have all proved challenging.

Todays consolidate results for Q2 FY2016 give a further insight into just how difficult conditions are for camera manufacturers. In Q1 FY2016 year on year net sales for the Imaging System segment fell -10.6%. Would Q2 see a deterioration or would the business bounce back?

At the beginning of FY2016 projections for the full year 2016 were for a fall of -8% Gross Sales Value and -16% in Total Units in the Imaging System segment. This fall was to be mainly due to the demise of the Fixed Lens Compact Camera that was expected to fall -24% by Units in 2016 under intense competition from the Smart Phone.

Overall Business Results

Net sales across all business segments, excluding the new Toshiba Medical Systems Business, were down -11.7% on the same period the previous year. Operating profit fell a considerable -34.5%. These results were against a background of an economic recovery in the developed countries but a slowing down in emerging markets.

The overall fall in sales was attributed to a fall in the market for Laser Printer and Cameras tied to a rising value of the ¥en. Other Business in the Lithography section showed strong growth as Capital Investment by Semiconductor and Flat Panel manufacturers increase their capital spending.

The strengthening of the ¥en against the Dollar and Euro accounted for 66% of the fall in Net Sales but 84% fall in Operating Profit.

The strengthening of the Yen as well as uncertainty in the global economy, blamed on ‘Brexit’, was not foreseen in the overall projections given in the end of year FY2015 report. Hence, projections for overall net sales for FY2016 have now been reduced yet again from Q1 to 3520¥B and operating profits have been reduced to 265¥B. If these predictions are achieved then overall sales will be down -7.4% and operating profit down -25.4% on FY2015.

This is much worse than many analysts had been predicting with expectations of around the 297¥B operating profit for the full year.

Imaging Systems Segment Results

Net sales in the Imaging Systems segment were down -13.5% for Q2 2016 year on year. As a proportion of overall sales Imaging fell to 33.5% down from 34.1% the previous year. Operating profit fell by -14.4% to 43.2¥B.

Sales by unit of ILDCs (Interchangeable Lens Digital Cameras) have declined just -1% whilst CDCs (Compact Digital Cameras) have declined -30%. ILDCs account for 56% by units and 85% by value of all cameras sold.

The main geographic area of concern were Americas at -17%, Asia and Oceania where sales slumped by -15.4% and Japan at -13%. Whereas, Europe was the best performer losing just -7.7% of sales by Value.

Digital Cameras account for 63% of the Imaging Systems segment whilst Inkjet Printers account for 28% of sales. The other 9% is made up by Image scanners, Multimedia projectors, Broadcast equipment and Calculators. Cameras have lost -3% from the previous year.

The highlights of the Camera section are noted as the release of the new EOS 1Dx mkII to attract the professionals to upgrade in time for the Olympics in Rio. The EOS M3 and M10 have done well in Japan and Asia. The extended G series Powershot models have high value and solid demand to offset the general demise of the compact camera.

R & D

Research and development within the Imaging segment has been decrease from 23.5¥B to 23¥B in this quarter year on year. Other companies appear to be reducing R&D and that will hurt them in the long run.


Lack of stock is one problem that is inhibiting camera sales for some companies in some areas. Canon have decreased inventories over the last 3 months and are now at 48 days worth but still up from just 43 days at the end of Dec 2015. Getting this product to the front line can only help sales.

Exchange Rates

The effect of the fluctuation in exchange rate have causes the biggest change in the financial figures this quarter. During 2015 the average rates were 121¥en to1US$ and 134¥en to 1€. In the 2nd Quarter of 2016 this changed to 108¥en to1US$ and 122¥en to 1€. Assumptions for the second half of 2016 have changed from 110¥ to 105¥ per $ and 125¥ to 115¥ per €. Even these assumptions may turn out to be too high as rates have touched 100¥/$ and 111¥/€ in recent days.


In my review of the last quarter I said ‘even the new forecasts seem optimistic’. That has proved true even though Canon seem to have weathered the earthquake disruption better than most other camera makers.

The professional market is still there and hopefully for a long time. It’s the enthusiast and upgraders that are in shorter supply. DSLRs are still pulling in the buyers for that sector of the market as they are better value for money. High end mirrorless will nibble a bit at each end but still a long way to go before taking over from DSLRs.

A closing phrase from the Q2 Analyst Meeting was ‘core businesses of Office and cameras have entered maturity phases‘ and ‘we are currently in transition phase after which we will emerge a new Canon’. So there we have it, you can’t make a living selling cameras any more. Move on.

Canon Inc. share price dropped down -2.79.% at the close of trading.

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