Has Nikon Turned the Corner on Poor Results?

Has Nikon Turned the Corner on Poor Results?

Nikon had a torrid 2019 and the impact of COVID-19 on manufacturing and sales has simply added to that misery. However, does recent news suggest they are beginning to turn the corner of poor financial results?

Nikon's 2019 financial results were generally poor and reflected a business that relied heavily on its Imaging Division which was significantly underperforming to the point that it was undermining other profitable divisions. This was to some extent validated by Nikkei's 2019 DSLR and ILC sales data which showed very poor sales for Nikon's mirrorless cameras. To counteract a significant contraction in sales Nikon had implemented a new medium-term strategy that sought to cut costs and increase sales. That's perhaps an obvious strategy for any business to follow, but in Nikon's case, it had four primary areas to focus upon: cutting operation costs, focusing upon high margin products, improving its sales and marketing, and reducing production costs.

This is a tricky path to navigate (although one that Fuji successfully completed) that starts with the product focus. The global compact camera sector peaked at 108M units in 2010, crashing to a demoralizing 6.5M units by 2019. Both Canon and Nikon were large players in this profitable sector, but have had to dramatically scale back production. For Nikon, this has meant a significant reorganization of overseas labor from the closure of its Chinese Jiangsu factory in 2017, to over 700 job losses earlier this year in Laos and Thailand. The intention of the reorganization is to allow focus on more profitable camera products which includes building up the Z-System from scratch. The Z 6 and Z 7 were both very favorably received, particularly for first-generation products, however, it is arguable that it hasn't been as aggressive as Canon in both pivoting to mirrorless and innovating technically. In some senses, it's surprising that — in order to achieve this rapid product development — Nikon hasn't increased R&D spending, although as income dwindled that proportion has risen. It's this convergence of requirements that is exposing it financially.

Nikon's second-quarter results made for interesting reading as it showed an Imaging Division that was performing better than expected with a 58% increase in sales, although included significant impairment losses (one-off depreciation on asset values) on manufacturing equipment in Thailand and Japan. We now know that that was likely both the retirement of an older compact camera and DSLR production lines, but also the closure of their Japanese Sendai factory, ending over 70 years of domestic camera manufacturing. With production moving to Thailand, this remains a significant withdrawal from their home-grown labor market. That said, it is a pragmatic cost-cutting move that has clearly been planned for at least a year; however, they are also not alone, with Sony also manufacturing in Thailand.

Impact of COVID-19

Perhaps most encouraging, for all manufacturers, has been the increase in shipments recorded by CIPA. As can be seen from the graph below (January to October), shipments have recovered strongly from June to the inexorable Christmas peak. OK, so this is still lower than 2019 and it will be fascinating to see how 2021 progresses; given the circumstances, this is great news for manufacturers. It's a more interesting picture for lens shipments that are selling in the same numbers as cameras, albeit at a lower total value. This is the first time that lens shipments have been in this position which shows that they are increasingly an important aspect of manufacturer income. CIPA doesn't record shipments for budget manufacturers, such as Samyang and Viltrox, so total units will be much larger. The question is how margins on these units compare to cameras, although it is clear that these budget manufacturers are impacting in this area. On balance, this is good news for Nikon, although its failure to build out its lens range is limiting both uptake of the Z system, as well as potential income.

The Future

For Nikon, mirrorless sales are now key and it needs to improve on its 5th place ranking from 2019 which will make its 2020 financial results eagerly anticipated by both investors and consumers alike. This has, of course, led to initial speculation about whether Nikon might "pull an Olympus" and sell off its Imaging Division. However, that is about as close as a comparison with Olympus comes — whilst Olympus has long manufactured cameras they only represent 6% of turnover with the medical and instrument divisions driving growth. This is both a strategic choice and business statement: "We are not a camera company." This isn't the case for Nikon and whilst it's true that income from their Imaging Division is falling year-on-year, it still represents 38% overall. Cameras are their heritage, however, their failure to significantly diversify into other product areas has left them over-reliant on Imaging. There's no doubt that this is a critical period in their history and while Nikon is obviously more than just a camera company, it needs this to be successful in this division for the business to survive in its current form.

The problem of relying on so much income from camera and lens sales has been the commodification of the photographic industry by smartphones and the subsequent devaluation of what are increasingly complex electro-mechanical devices. That the market is falling has meant too many manufacturers and an oversupply of devices in a highly competitive sector. Whilst this is good for the consumer in the short term, it has led to financial stresses for manufacturers. Fuji is a good example of how a business can play to its strengths, build out a completely new camera range, and be both profitable and successful. Nikon is treading a similar path, however, the media focus has been on its attempts to turn around its Imaging Division. Perhaps the more pertinent question to ask is how well it is diversifying the business so that all of its divisions are profitable with no over-reliance on any one single group. In that sense, whilst it is important to both Nikon and its customers that its Imaging Division returns to profit, it is more important that the other divisions grow the income both significantly and rapidly. Those camera businesses that are invested in heath (such as Fuji, Canon, and Olympus) have tended to be more resilient. 2021 will be a pivotal year for Nikon.

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21 Comments

Chaz Foote's picture

"Nikon had a torrid 2019...Nikon's 2019 financial results were generally poor..."

Perhaps you should rephrase that as torrid means very hot in American English--late 16th century: from French torride or Latin torridus, from torrere ‘parch, scorch’. I had no idea that the British used it in that opposite manner in a business sense until I just looked it up after my confusion.

Dillan K's picture

"Horrid" works.

stuartcarver's picture

Its always meant something negative in my 40yrs of being on the planet, its probably been used in that way in the UK for hundreds of years.

Chaz Foote's picture

The first known use in the English language has been traced back to 1545 and American dictionaries define it as hot, parching weather or ardent, passionate as in a torrid love affair; however, it it probably more commonly used over here to mean hot, as in a team on a hot streak might be referred to as torrid. If it is your team, that is good, not negative. Strange, the difference between your English and mine on this word.

stuartcarver's picture

It’s not widely used over here, I’ve mainly heard it only being used by the well spoken (upper classes) but they would normally say ‘XYZ had a torrid time at work’ as in something bad happened.

Momchil Yordanov's picture

The short answer is "no". They still don't have a model so tempting, that their DSLR users to feel like they HAVE to switch to the new system. (For example Canon did that, with R5 being well better than the 5D line and the R6 being well better than the 6D line) And without such a switch, the company is in trouble. The users of F-mount cameras see no point to invest in the older lineup, because it's probably a dead end. Meanwhile, they are not switching too, so the new lineup does not make enough sales. Worrisome 'balance'.

Robert Teague's picture

I'm a lifelong Nikon user, from the 1970s, and I switched from a DSLR to the Nikon Z7 almost as soon as the camera came out. The Z7 is every bit as capable as the D850 and lured a great many from the DLSRs from what I've been hearing from other Nikon users. The only thing holding back some of the serious users was the lens lineup, which is much more flushed out.

Nikon has just taken a different approach than Canon in building out their mirrorless line; starting with lower end lenses - which are stunning performers - before moving onto the higher spec lenses (that we see coming out now). Canon went the opposite, with a poorly received mirrorless camera and high end lenses. Nikon tends to be a very conservative company with regards to change.

Momchil Yordanov's picture

I'm glad for you. If only more people did the same. Nobody would talk about Nikon being in crisis. But in reality - it's not like that.

Robert Teague's picture

Nikon isn't in any dire crisis, but it makes for good headlines. Check out Thom Hogan's site (currently not updated until the new year); he has good insights into Nikon.

jim hughes's picture

Agreed, Nikon's mirrorless lineup is excellent despite being limited at present. The Z mount plays into the mania for big fast lenses as a way to say "serious photographer". Nikon is here for the long haul.

Ziggy Stardust's picture

"The Z7 is every bit as capable as the D850". That precisely is Nikon's error. Mirrorless can be far more capable than DSLR. Nikon brought a knife to a gunfight.

Robert Teague's picture

Yep, they could have done more. It's not like mirrorless is new to Nikon, they have been doing them awhile (although not at this high a level).

jim hughes's picture

Nikon hasn't done a thing wrong; the whole camera industry is in decline and the reasons are well known. The only way to turn this around would be to promote a new aesthetic for photographic imagery that emphasizes authenticity, process, and the experience of taking photos with care and intent.

peter van's picture

the biggest trouble of Nikon is facing now is that it could not catch up with mirrorless camera's development such as Sony’s bird eyes detecting and tracing system and high shutter speed, none of Nikon cameras has those features while Canon R5 with 45 million pixel slowly wins back its lost clients by adopting bird eyes detecting and tracing system with 20 FPS, that became a stronger competitor against Sony a 9II or a 7IV in the coming new year 2021. Without new technology Nikon will follow the downside path in 2021 and surely will be forced to sell to other investors if it could help. It is well known in the photography circle that those photographers who already have their first camera for landscape or video no matter if it is Nikon, canon or Sony, properly need the second one for birding at least most of my friends have had two cameras rather than only one in hand. That is why Canon R5 with bird eyes tracing and reasonable price seems very welcome and hot in market now and it attracts all of potential buyers who like Sony a 9II but hate its rocket high price. I guess if there is a such mirrorless camera in market with following parameters it will be popular in market in future: 45-50 million pixel, automatic birds eye detecting and tracing, 12-15 FPS, No high ISO noise (up to ISO 8000 ), lower light focusing capacity, light in weight for hand holding shoot with a marketing price around USD4500-5000.

Ziggy Stardust's picture

The A9 doesn't have a bird eye detect mode and its animal eye detect mode is pretty useless on birds.

Robert Teague's picture

There is also a leapfrogging effect with camera technology. Nikon's Z cameras are older than the Canon R5/R6 so it's not surprising they don't have some of the same technology the other guys do. The Z6 II/Z7 II seem to follow Nikon's pattern of releasing follow-on cameras that are just slightly upgraded from the previous version (think D800/D810). I suspect the Z8/Z9 series will be a stronger competitor.

Henry Canyons's picture

The author is not a financial analyst (I am) and misses the point from the perspective of a photographer. To a photographer, the only thing that matters is if Nikon is going to remain in business with enough R&D to remain competitive in the future (including mirrorless). Nikon did its best to hide the CFFO numbers from its investor presentation because they are terrible. Still, it is reducing costs significantly and recognizes that the photo market is at least 80% professional and must be made profitable. Despite the drop in cash and writedowns, Nikon will be around. Dontworryaboutit. https://www.nikon.com/about/ir/ir_library/result/pdf/2021/21second_all_e...

Robert Teague's picture

That's pretty much what Thom Hogan was reporting earlier this year. I'm not a financial analyst, but Nikon has good sales, profits and cash in the bank and a plan to weather the downturn in the market.

James S's picture

Agreed. I don't understand the focus on Nikon's corporate diversity. I mean, I understand why an investor would like Nikon to have a broad base of revenue. But I'm a photographer; I want to invest in a system (company) that I know has a long-term commitment to photography.

Nikon obviously has demonstrated a long commitment, and their corporate structure ensures they will continue to do so. Can we say the same for other huge diversified companies? I'm old enough to remember Sony TVs, stereos, Vaio computers. And we've already seen Olympus's move.

Nikon does not need to be #1 in unit volume or revenue to continue being a fantastic photographic company. They just need to be profitable.

Ziggy Stardust's picture

Shipments aren't sales.

Rey cisneros's picture

Stay tune for the nikon z 9 that will be the game changer