Olympus was once the doyen of the photographic industry, with the OM range beloved for its svelte lines and high-quality manufacturing. Revitalized by mirrorless in the digital era through its collaboration with Panasonic, their OM-D range is iconic. So, why were they bought by the private equity fund Japan Industrial Partners — specialists in restructuring — and what are the portents for the future?
Film Camera Successes
Olympus has a heritage that spans back over a century, having been established in 1919. Initially, a microscope and thermometer manufacturer (and holding about 70% of the current endoscope market), they didn't start manufacturing cameras until 1936 starting with the Semi-Olympus 1 (a 4.5x6 folder) and followed by the Olympus Six (6x6) in 1940. As with other Japanese camera manufacturers, production ramped up after the war with the Olympus 35 coming in 1948, the first 35mm sold in Japan. It was the 1960s that ushered in Olympus' golden era. The beautifully designed half-frame PEN arrived pensively in 1959 but gained the admiration and a significant following. In 1967, Olympus launched the Trip series, selling over 10 million units and ingeniously incorporating autoexposure through a selenium meter surrounding the lens. Then, in 1972, the iconic OM arrived at a time when the high-end Nikon F reigned supreme. In stark contrast, the highly compact OM system (and it was a full system, including a generous lineup of highly regarded Zuiko lenses) was revolutionary, a real street camera. Olympus then launched the XA — probably the smallest true rangefinder ever made — in 1978. I have very fond memories of this camera and have one in my collection. It is a joy to shoot with, allows fully manual operation, and takes sharp pictures, yet slips easily into the pocket. Any film aficionado should own one.
As with a number of camera companies, the 1980s is where it started to unravel. Up to this point, manufacturers had often been optical businesses that had expanded into lens production and then the precision engineering of camera bodies. But the 1970s saw the integration of electronic operation: those that embraced it thrived, and this is no better exemplified than through the integration of autofocus. Minolta was at the forefront of this revolution (and formed the basis for Sony's current imaging division) with the 7000AF; Olympus' lackluster response was the 1986 OM-707, which was a commercial disaster and subsequently dropped. The 1990s was therefore a decade they would probably rather forget about in terms of SLR development.
Into the Digital Era
Olympus' success from 1990 through to 2010 was largely built on the bridge camera, the first film, and subsequently digital. Its Stylus and Camedia ranges were at the forefront of the resolution wars and persuaded consumers to buy cameras in their droves. It was a golden period of camera manufacturing as sales increased year by year, with those that made good products and were able to manufacture in quantity reaping the benefits. That said, it is hard not to make money in a rising market. With sales high, if you have a product, someone will buy it, and for Olympus, this meant they could sink profits into reviving their SLR line, which they did in the form of the E-1 in the defining year of 2003. Partnering with Kodak, they developed a Four-Thirds based DSLR from the ground up, which was perhaps counterintuitive at a time when Nikon and Canon were converting their 35mm systems. It was innovative, incorporating the first ever sensor dust removal system, but not quite competitive with the leading brands.
However, Olympus' digital legacy will largely be remembered for Micro Four Thirds, which they co-founded with Panasonic in 2009. Essentially a modernization of Four Thirds, achieved by removing the mirror box, it was a return to their film roots — a svelte street camera that would fit the hands of the well-heeled prosumer and targeting a different market to Panasonic. They started with a reboot of the successful PEN line with the release of the E-P1; however, it was the OM-D E-M5 that got pulses racing a little more, as it was genuinely built in the vein of the original OM, offered a range of quality lenses, and brought in-body image stabilization to mass production. It was a groundbreaking camera that garnered a plethora of awards when it was released in 2012. The M1 introduced phase detect AF in 2013, with the M10 coming in at a lower price point in 2014. All three have gone through two subsequent iterations, with the E-M1X arriving in 2019. The latter was a return to the ethos of the E-1: professional news photography. Built to a high specification and making good use of the 7.5-stop IBIS sensor, it was the best digital camera they had ever made.
It's perhaps strange to think that it was in 2003 that Olympus nailed their future strategy to the mast, one that they haven't veered from since: consumer bridge/compact cameras and Four-Thirds DSLRs. This business direction was taken on the hoof and a result of their failure to develop a winning AF solution for the original OM back in the 1980s. With no SLR line to produce in significant numbers in the 1990s, they found a winning formula in producing the Stylus and Camedia lines. These were hardly high-brow cameras, but the strategy of pile it high and sell it cheap (and not so cheap models targeted higher up) was successful and largely created the bridge camera market.
However, they needed an ILC alternative, something to place on the top tier, and this is where the E-1 came in. Developing Four-Thirds was a fascinating move and genuinely different at the time. It wasn't unsuccessful, but it wasn't the direction the market took either; however, they innovated over the lifespan of the system, including the introduction of IBIS and live view. In fact, it was during this "golden period" that Olympus introduced many of the features we now take for granted with mirrorless, as well as expanding its long-term sensor partnership with Panasonic. Innovation has been a central tenet for Olympus engineering, and so, it's perhaps no surprise that the MILC came out of this bonfire of technological development, although the PEN E-P1 was a low key start. Panasonic arguably stole the limelight when the G1 landed in 2008 (as Fstoppers' Wasim Ahmad outlines). The OM-D E-M5 was a return to form and pushed Olympus back to the fore of the camera industry; however, two bombshells caused this turn around to stutter.
The first of these was the infamous accounting scandal that rocked Olympus and the Japanese industry more widely. This involved the discovery of more than $1.5B of investment losses, kickbacks, and bribes, wiping out three-quarters of the company's valuation in the process. This dated back as far as the 1980s, with ~$600M of bribes from $7B of sales in the US alone between 2006 and 2011 resulting in a ~$650M fine. This was bad enough for the company, but also coincided with the collapse of the digital camera market. Olympus didn't know it, but by 2013, industry sales would halve in size and lead to year-on-year losses culminating in a $157M loss in 2019.
The cash cow that was compact cameras died off rapidly, leaving Olympus with an excellent (but small) MFT system. The original 2003 strategy of compact/Four Thirds was looking particularly shaky. Drawing an analogy, Nikon was facing a similar dilemma with a limited compact camera market and the increasing sidelining of DSLRs. The winning strategy was APS-C/FF mirrorless, one that Sony has leveraged to great effect. For Olympus, the blind adherence to MFT has continually pushed it into a corner, where the benefits of sensor size (cost, system size, and reach) have increasingly become less important to consumers and not valued by pros. The release of the E-M1X only made that more perplexing.
Olympus isn't a small company, employing over 35,000 people and generating a turnover of more than $7.5B. However, while it has championed the Four Thirds sector, it is its medical instruments (endoscopes) and science divisions that regularly post the strongest earnings: imaging accounts for just 6% of sales. It's clearly the combination of division losses and a bleak outlook that has ultimately led it to the decision to jettison the group.
To succeed in the camera sector, Olympus needs a leaner and more agile division. Whether that is enough remains to be seen; however, Japan Industrial Partners (JIP) clearly thinks that — at the right price — it is worth buying. JIP are private equity investors that specialize in spinning out unprofitable divisions from large companies to form profitable medium-sized firms that can then be sold on. Their most notable acquisition is Sony's Vaio laptop brand, which has successfully maintained core sales (with Sony maintaining a 10% stake) since they purchased it. This broadly looks positive.
With Panasonic shifting their strategy to both MFT and FF, Olympus' sole focus on MFT seems untenable in the long-term. They don't have the ability of Sony, Nikon, or Canon to rapidly pivot their R&D, ramping up production to meet these needs. Given how bleak the camera market now looks, what should a reinvigorated Olympus do? Whatever it is, it can't be the status quo.
Of course, there is another scenario to consider here: Olympus' Imaging Division isn't worth buying and that JIP is merely a mechanism for handling the divestment of "liabilities," unbeholden to any employment legislation. In short, they will be paid to take on the division. What they then do will remain to be seen. If the focus is solely on the bottom line, then the business will be about stripping assets (principally the patent portfolio) and licensing brands. Olympus' exit from South Korea gives an idea of the direction that might well be taken. A best-case scenario would involve a route similar to Vaio being taken, in which case production may be maintained in some form, but the design would likely be outsourced, with production shifted to low-cost domains.
Will Olympus Imaging become a shell company to profit from the remaining IP or still have a stake in camera production?
Lead image (OM) courtesy of Martin Taylor via Wikipedia, used under Creative Commons.