Nikon's bleak future
Nikon Corporation is acutely feeling the pinch following a steady stream of business setbacks over the past 10 years.
The low-cost digital camera market has virtually vanished due to the advent of smartphones, and sales of single-lens reflex cameras--Nikon's primary profit-earner--have declined as shopping sprees by Chinese tourists visiting Japan have cooled in the past few years. In addition, the Tokyo-based company lagged rivals in the development of new semiconductor lithography systems. Nikon's survival now depends on exports to liquid crystal-related plants in China, where capital investment on such facilities is ramping up.
Business experts say the popular camera maker's decline can be attributed to complacency and failure to use internal reserves for effective investments. Nikon could well follow Mitsubishi Motors Corporation, which is now under the Nissan Motor umbrella, by leaving the Mitsubishi Group.
Nikon introduced a redundancy program to which 1,143 employees--143 more than originally projected--applied, indicating many employees believe the company's future is rocky.
On February 13, Nikon announced it would book \16.7 billion in redundancy program-related costs as an extraordinary loss. The personnel restructuring was orchestrated by Masashi Oka, senior executive vice president and chief financial officer, who joined Nikon in 2016 after serving as a senior managing director of Bank of Tokyo-Mitsubishi UFJ (BTMU). Oka had two stints at the Union Bank of California, which Mitsubishi Bank acquired in 1984, 22 years before it merged into BTMU. Oka eventually served as chief executive officer and president of the Union Bank of California.
Oka has a reputation as a tough cost-cutter. He reduced staff numbers to rebuild the Union Bank of California, which had been suffering from low earning rates due to surplus workers. Since joining Nikon in May 2016, Oka has slashed 20 percent of its workforce, excluding group companies.
Complacent due to decline of rival Canon?
Earlier this year, Nikon stunningly announced it would cancel the release of the DL series of high-end, single-lens reflex cameras, which had initially been slated for introduction in June 2016, due to unsolved technological problems. Observers said Nikon acted irresponsibly by announcing the DL series would hit the market but then canceling it, and betrayed the high expectations clients pinned on the cameras. The incident also exposed Nikon's financial troubles.
Nikon's lackluster business performance over the past decade mirrors that of many established Japanese manufacturers. Nikon's sales in the business year ending in March 2016 were \822.9 billion, barely unchanged from \822.8 billion in the year ending in March 2007. Though Nikon maintained the level of its sales over the past decade, operating profit dropped to \36.7 billion, one-third of what it generated 10 years ago. Nikon has undoubtedly become less profitable by merely improving existing products, rather than developing new technologies and products.
Why did Nikon's management overlook such a serious situation? The answer may be the decline of its rival, Canon Inc. Nikon's mainstay products--digital cameras, single-lens reflex cameras and semiconductor lithography systems--compete with those made by Canon. In the global camera market, Nikon and Canon have been locked in fierce sales battles, raising their levels of technology and branding power. Nikon has constantly been trying to catch up to its giant rival.
Canon, however, has been on the decline since 2007. Its sales dropped by one-quarter over the past 10 years, and operating profit and net profit plunged to 30 percent of what they were a decade ago. Rivals are supposed to compete by providing new, better products, but it seems Nikon and Canon both became complacent as they watched each other struggle.
Compact digital cameras have virtually become deadwood since the advent of smartphones, and single-lens reflex cameras have become a niche product catering only to the needs of collectors. Nikon and Canon were expected to develop new products in the semiconductor, medical and precision machinery fields that could amaze consumers around the world. But what actually happened was both companies were overtaken in the semiconductor lithography device market by ASML, a Dutch company that introduced technological breakthroughs and poured massive funds into research and development. Now ASML holds more than 70 percent of the semiconductor lithography device market, while Nikon has a 10 percent share. Canon, which held a 50 percent share at one point, now deals with low-end models, which ASML does not make any more.
The voluntary redundancy program streamlined Nikon's workforce, but it resulted in many talented engineers leaving the company. Semiconductor engineers are in high demand and can receive handsome salaries and research and development funding. Their departures to other companies diminished Nikon's ability to enter new growth fields.
Nikon generates nearly 40 percent of its operating profit from selling lithography systems for production of large LCD panels at state-of-the-art plants being built in China. Construction of these plants will peak in early 2018 and be mostly completed two years later. The next item Nikon hopes to promote is organic electroluminescence manufacturing systems, but it remains unclear how much of a share it can grab in the market.
Companies from Taiwan, South Korea and China reportedly are considering acquiring Nikon. Experts say if its financial situation further deteriorates, Nikon may seek an acquisition by a semiconductor or precision machinery giant in Asia, or take a path like Toshiba Corporation, which is fighting for survival by selling its profitable operations.
This is a translation of an article from the April 2017 issue of Sentaku. The original article can be found here.