Nikon recently posted its first quarter financial report which shows improved sales but still leaves many questions unanswered about its post-COVID recovery. Is it making or — indeed — losing ground to its competitors?
Earlier this year I reported on Nikon's generally weak progress as a business since 2015 with financial results for 2020-2021 (reported by Nikon as 2021) — like many manufacturers — having taken a significant hit from the COVID-hit global recession. The Imaging Division is the principal source of their financial problems having significantly restructured which led to inevitable, and large, write-off costs. Once the shining beacon of Nikon's progress, year-on-year it is generating a smaller proportion of total revenue, now down to 30%. That is still a significant part of their business though and the slow in-roads into the mirrorless market (compared to Canon and Sony) isn't improving that outlook. The first quarter of their financial year (April-June) is therefore important given the recent recovery and upturn in the global economy.
The good news is that income is up at Nikon, although this is to be expected as it is occurring across the whole sector. Revenue came in at ¥132 billion, with an operating profit of ¥20 billion. This has led to a revision in total revenue for the year to ¥520 billion and ¥27 billion in operating profit. Remember that last year's revenue was ¥451 billion, dropping from ¥591 billion the year before that. This shows that Nikon expects to be closing in on pre-COVID parity, which is perhaps a good sign as to how the market is recovering. In terms of market segments, only Industrial Metrology ran at a loss but this only represented 5% of revenue and the loss was small. Precision Equipment remains the star of the business with a 164% increase in revenue at ¥52 billion and is forecast to be the biggest segment at 40%. Imaging also did very well with a 99% increase in revenue and forecast to account for 32% of revenue; that latter is only slightly up on last year. More importantly, it generated a profit.
Z-System Camera Shipments
This is all positive news for the Imaging Division, however, the proof remains in the sales pudding and this is where it fell apart for Nikon last year. Camera ILC shipments were at a new low of 5.7 million units, made up of 3.3 million mirrorless and 2.4 million DSLR units. Nikon reports shipping 840,000 ILCs but, disingenuously, doesn't itemize the split between mirrorless and DSLR. The best we can do is compare their ILC forecasts with last year's and infer the split between the two segments. The first thing to note is that they expect the overall market to grow to 9.1 million units; last year the market was 8.9 million units and CIPA shipments are currently 22% up although the second half of 2020 saw the shipment gap to the previous year narrow. So while sales won't be 22% higher, Nikon's expectation is perhaps an underestimate (as it was last year). Of the 9.1 million units, 5.8 million are estimated to be ILCs; again, given that 5.9 million shipped last year this is likely an underestimate (but let's stick with it). And this is where the biggest warning for the Imaging Division is buried; even with an increasing ILC market, Nikon is expecting to ship fewer units, reducing from 840,000 last year to 750,000 this year.
Ponder that figure: 750,000 cameras shipped. Then look across at Canon whose Imaging Division has a revenue forecast of ¥431 billion on the back of shipping a forecast of 3 million ILCs.
This reduction in units shipped is likely threefold. Firstly, there will undoubtedly be a continued contraction of the DSLR market in which Nikon does particularly well with a 2020 market share of around 30%. Last year was the first time mirrorless (55%) units out-shipped DSLRs (45%) and that trend looks likely to continue as both Nikon and Canon reduce production in favor of mirrorless and consumers focus their purchasing on new systems. As a best-case scenario, the reduction in shipments Nikon is forecasting could be based upon maintaining current mirrorless numbers (around 250,000), with the losses from DSLRs. Either way, this is a worrying situation as it demonstrates that Nikon is not shipping more units at a time when Sony and, particularly, Canon are thriving.
Secondly, the only new model on the market this year is in the form of the Z fc and while a great featured and looking camera, it won't single handedly reverse Nikon's sales fortunes. There is the mooted Z 9 which has been seen in the wild at the Tokyo Olympics but it won't contribute to sales in 2021. Thirdly, we also know there are supply problems which are slowing the delivery of some products.
Nikon's Magical Turn Around?
For whatever reason, Nikon appears to have a problem in persuading people to buy into its Z System. With both Nikon and Canon playing catch-up to Sony, they are taking alternate strategies to fill out their ranges of cameras and lenses. In one sense, Canon has an easier time of this because it is only developing a full frame system, leaving the APC ground to their ESO M range. The EOS M50 Mark II shows that there is still life left in the system, but given the second tier standing in comparison to the EOS R range, it's hard to see big spending amateurs being drawn to it, let alone wildlife and sports photographers who want that extra reach that APS-C offers. Nikon has played to this market with the well-regarded Z50 and Z fc but it is lacking a filled-out lens range to support it.
On one level, the lack of sales we are seeing isn't a problem. As long as the Imaging Division is making a profit then it is paying its way, in much the same way that we see at Fuji. However, on another level there is concern that Nikon has ceded control of the market to Canon and Sony, potentially relegating itself to a Pentax-esque bit player. It's joining the party, but only doing a little jig in the corner of the dance floor while watching everyone else.
Will its strategy result in a slow start (which we are already seeing), but attracting users with time? The next year will give us more information on both the camera and lens roadmap along with those critical sales.