Nikon misses FY2014 annual forecast, stock punished

Ade

Nikon announced FY2014 results after trading hours in Tokyo yesterday and investors punished them today, currently down more than 5% intraday. Nikon stock is now trading well under the previously predicted lows.

Notables:

- Full year unit sales of DSLRs and mirrorless cameras plunged 17.6% from last year and below even Nikon's own lowered guidance made just a month prior to the fiscal year-end. This suggest that Nikon did not have a good grasp of the deteriorating market conditions. Unit sales from lenses and from the P&S compact segment were also lower than forecasted.

- Net sales for the Imaging Division is down 9% compared to last year to 680b Yen, and net sales for the entire company (980.5b Yen) is also below consensus estimates.

- For the year Nikon had weak sales in Europe in addition to China. So they are having trouble in both mature and growth markets.

- The Imaging division managed to increase profits 6% by aggressive cost cutting and "optimization of product mix in entry class SLR cameras"

- Nikon is implementing "Minimum Cost Operation" throughout the company

- Nikon raised the possibility of a "race to the bottom" price-war happening, where competitors might possibly "launch an offensive with low-priced products"

- Like many Japanese companies Nikon is looking for new business opportunities in the health and medical markets

- For the upcoming year, Nikon is expecting better market conditions in later in the year; however, overall they are forecasting further drops in net sales (-4.1%) and net income (-3.9%) in 2015 compared to 2014.

Where does Nikon go from here? Nikon stock is now the cheapest in years, but unless Nikon management shakes off the status quo the company's outlook may slide even lower. Nikon needs some innovative product announcements this year, outside of the usual incremental upgrades.

PB_PM

Maybe increasing the price for the new 400mm F2.8E over the G by $3k wasn't such a good idea after all...

tc88

Nikon is trying to extract whatever it can right now from its customers regardless the long term impact. I feel the current generation of Japanese managers tried to “learn” too much from the American business culture, but all they learned is bean counting and powerpoint, while missing out on the real strength which is creativity and innovation. On the other hand, they lost their own root of quality and customer orientation. So they lose the best of both and end up with the worst of both.

Ade

@tc88 I think you nailed it... creativity & innovation, key concepts for Nikon to survive this storm.

Pistnbroke

Thom Hogan has a good review of this but I would like to see the figures for sigma and tamron lens sales compared to Nikon to see if the third party problems are having any downturn for sigma/tamron.
Clearly service is bad ..I waited 3 months for my rebate on a D800

spraynpray

Rebates are normally handled by outside companies so you could tell Nikon about it if it bothers you. I personally hate the cash card method of handling rebates - they should just give it at point of sale.

+1 @tc88

Pistnbroke

I agree but I did transfer the entire content of the card to my pay pal account and then to my bank.Then I used the card to apply filler to my boat !!!

Benji2505

Nikon is struggeling with the fact that the volume camera sales are vanishing because everybody and his brother takes pictures with their smart phones now. Technical substitution par excellence. They are fighting a retract battle now.
Since we had the pricing comments here: Nikon has learned quickly to launch new products with a high price tag and then lower the prices later. Remember the D800 availability desaster? This is how you do it when you have clients that always want the newest stuff and have deep pockets.

Photobug

This is so sad to hear. But I also agree with TC88 that they (Nikon) ....and I quote...."Japanese managers tried to “learn” too much from the American business culture, but all they learned is bean counting and powerpoint, while missing out on the real strength which is creativity and innovation. On the other hand, they lost their own root of quality and customer orientation. So they lose the best of both and end up with the worst of both."

Put this together with the sharp decline in point & shoot and increased use of cell phone shots and Canon, Nikon, Sony, and Pentax are going to take a heavy hit. Now who is going to do what to make the right changes to adapt to the end users. That is the question.

TaoTeJared

Just a point on business history - it was the Japanese that taught American business the essentials of mass production with little to no variance in products. They are the quintessential bean counters. Note the difference between car companies where GM, Ford and Chrysler cars have many models and options vs Japanese where they have fewer models and options. (Although this is changing now with the US auto makers offering less options.) Inventions came from the US, and Japan knew how to mass produce them. Photography is more of a national hobby for their culture so they have done much, but nothing terribly game changing. Most of that still came from Kodak.

The innovate or die comes from our computer technology sector and it is a great platitude but I'm not sure it is what Nikon needs. People keep forgetting it takes 3-6 years to bring a new camera product to market. That means they are working on products that we will not see for 6 years. D5, D810, DF2, V4 etc. are already in the pipeline and have substantial time and effort put into them. Higher end Cameras are not a device that can be designed and built in a year - it just doesn't work that way. It cost a lot of money to "innovate" and is wasteful in the big business picture. I don't see any signs of that in any of their statements, and actually quite the opposite.

I'm not saying that a substantial new product design for where the Nikon 1 series is at could help, but that is already in a crowded market. They are for sure pushing margins up with the actual cost of items for sure, but in actuality, they are now more in-line with what Canon's prices are (which many obviously don't know they are quite a bit higher) and taking a note from them with starting out High, and lowering the price throughout it's life cycle. That is something Nikon has never done - but we are now seeing that with many lenses and bodies.

Companies that are in trouble do not have the luxury to sit around, innovate and try ideas. That costs way too much. Companies innovate when they are flush with money, not when they are hurting. They cut corners, push margins and cut, cut, cut, cut, and cut. Then they pray the economies become better to sell more products. All that says to me is that we will see more "should be recalled" products coming to a store near you.

ThomasHorton

"People keep forgetting it takes 3-6 years to bring a new camera product to market. That means they are working on products that we will not see for 6 years. D5, D810, DF2, V4 etc. are already in the pipeline and have substantial time and effort put into them. Higher end Cameras are not a device that can be designed and built in a year - it just doesn't work that way."

Excellent point. That is one area where cell phones have the advantage... a new model can come out pretty much when the marketing department chooses.

Which product has more innovation? To the consumer, perhaps the product where a new model comes out every year.

Ade

Product cycles are shrinking by necessity.

In the film era it was acceptable to introduce a new flagship every 10 years. Now Nikon and Canon are updating their digital flagships every 4 years. And the Sonys and Panasonics of the world have pipelining in place to refresh their top lines every 2 years.

No one can afford to spend 5 years working on a next iteration of a camera anymore. In 5 years you need to come up with a completely new product!

Part of the faster product cycle is due to standardization. In the early days of digital, for each release Nikon had to spend a lot of money and time designing, building and testing their own LBCAST sensors, custom DSPs, etc. Today products are largely based on "off the shelf" sensors (from Sony, Aptina, etc.), image processors, etc. If you look at tear downs of Nikon cameras, you'll mostly see commodity components in there.

Consider that the original iPhone took around 3 years and $150 million to develop. In contrast, for the past three years Nikon has sharply increased their R&D expenses to around US $275 million per year for the Imaging Division alone. That's roughly double their capital spending for each of those years.

Now, does Nikon really need to spend $275 million each and every year in R&D expenses to give us minor updates to the D3300, D5300, D7100, etc? I hope not!!!

So what have they been spending this R&D money on? Hopefully they are innovating.

PB_PM

Nikon hasn't done much new (innovative) in terms of camera design or functionality in recent years, so it cannot be going into traditional DSLR cameras. Unless that cash is going into an entirely new line of cameras and lenses (DX/FX mirrorless?) there must be something wrong with the development team. I suspect a fair chunk of that R&D has gone into major optical updates, like the 800mm F5.6E and 400mm F2.8e.

tc88

No one can afford to spend 5 years working on a next iteration of a camera anymore.

I agree completely. taking 5 years in the past just means it was the status quo in the past, that doesn't mean it's going to work in the future. Markets change over time and many companies not able to adapt go the way of dinosours. Businuess history is littered with famous names from the past. Only very few companies that can keep on successfully adapting survive.

TaoTeJared

Product planning cycles are not shrinking, release cycles are. There is a big, big difference. Design time doesn't change, people can only move so fast, testing, machining new parts, etc. can not be made magically quicker. And Nikon releases products at a 2-yr cycle with major upgrades every 4. It is really no different than any other company. Olympus and Sony kick out their low consumer models faster, but with basically zero difference than the previous one. It is rather meaningless to most people.

What companies do is develop multiple product models at the same time. So a D810/800s is probably in finalizing stages, a D820 is in the middle stages where the main parts, (body, battery, lcd, pentaprism, maybe even the shutter & AF module?) are just about finalized, and a D830 is on the conceptual drawing board. The 810/800s (i.e. D800 1/2 upgrade) shares items with the D4s. D820 shares parts with the D5. And that is being done with each model. That is how almost every major company in the world works with generational products. Hell Intel is designing chips that we won't see go main stream for 6-8 probably even 10 years down the road. To believe that any company is actually "responding" to another within a few months or a year is a joke. I'm guessing the sensor is one of the last decisions, but even at that, they have to develop the firmware side which takes even more time. That is why many companies release multiple firmware updates constantly for the next year because they pushed the camera to market faster.

Nikon has some issues but one of them is not a release schedule problem at all. It is the same as everyone else and consumers would not upgrade bodies any faster either. Quite frankly I would easily live with a slower schedule if what they release isn't plagued with QC issues.

spraynpray

Product planning cycles are not shrinking, release cycles are. There is a big, big difference. Design time doesn't change, people can only move so fast, testing, machining new parts, etc. can not be made magically quicker.

Hate to disagree with you on that point, but back in the days of film SLR's people drew parts on drawing boards using pens. With CAD things move faster and more precisely. Then there is rapid prototyping too.

Nikon has some issues but one of them is not a release schedule problem at all. It is the same as everyone else and consumers would not upgrade bodies any faster either. Quite frankly I would easily live with a slower schedule if what they release isn't plagued with QC issues.

Totally agree on that tho!

Ade

Individual consumer's upgrade period is not very relevant, when you look at the market as a whole.

For example, Nikon's flagship currently has a 4 year cycle (+/-). But as we've seen with the D4, many customers choose to upgrade right away, but a large amount decided to wait until the D4S, and another large segment decided to "skip a generation" to the D5. We then repeat with the D5S, D6, D6S, etc.

What that means is there are always significant number of customers which will upgrade at any release point, or even in between release points.

This is no different than in any other industry. For example, the average car owner might get a new car only once every 10 years, but that doesn't mean the auto industry can release new models just once a decade! In the market as a whole, there are always those ready to buy the newest car, from you or from your competitor.

From a development length perspective, there are many factors why we no longer have 5+ year cycles on consumer products, including:

1) Cost. Capital spent on product development cannot be recouped until the product launches. Companies today must operate with short ROI expectations. Spending 5+ years just on development is not going to cut it.

2) Risk. There is no guarantee that after spending 5+ years working on a product, that the product will be a success in the market place. Long development times is a huge risk to businesses. Today there is a concept of "fail fast" -- it's better to find out issues early than spending all those years in development for a faulty product.

3) Innovation. Advances are being made much more rapidly today than in the past. It's very difficult to predict and plan what advances will become available a full 5 years out -- and undoubtedly some of those advances will be significant. Long product cycles means you're always restricted to decisions made in the long past.

4) Streamlined process and technology. @spraynpray might be amused that not only the drafting board is obsolete, even CAD is now being replaced by newer technologies such as BIM. Time from "idea to market" has shrunk.

5) Competition. If your competitors can cycle products faster than you can, then you have a big problem in your hands. In an evolving market, the competition for customer dollars will be more and more intense. A company which can bring innovation and advances to the market at a faster pace will have a distinct advantage over competitors.

Ade

Nikon reported today that they had set aside 1.8 billion Yen (US $17.7 million) to fix D600 problems -- about 3.8% of Nikon's FY2014 profit.

http://www.nikon.com/about/ir/ir_library/result/qa/2014_4q/index.htm

Q:
What can you tell us about the warranty reserve for the D600?

A:
With regard to the issue of the D600 digital SLR camera that we announced on March 28th, 2014, we allocated 1.8 billion yen for warranty reserve in the year ended March 2014 to cover the cost of repairs and replacements. We are taking this matter very seriously, and we will continue to offer users of the D600 a special service and , while we will be taking steps to restore confidence in the Nikon brand.

TaoTeJared

Product planning cycles are not shrinking, release cycles are. There is a big, big difference. Design time doesn't change, people can only move so fast, testing, machining new parts, etc. can not be made magically quicker.

Hate to disagree with you on that point, but back in the days of film SLR's people drew parts on drawing boards using pens. With CAD things move faster and more precisely. Then there is rapid prototyping too.

Cad, prototyping, tooling, precision manufacturing, 3d modeling of parts etc. have been in place for 25 years now. Almost nothing has changed in the last 15 years when it comes to the actual design times & testing that moves concept to product faster. Designing products is a very human based interaction and there is no way around it. Some things will/have saved time, but that is measured in hours and days saved. In a multi-year project that is less than 1%. In actuality design times have expanded due to the amount of electronics and software that is now in products. The more complex items are, the longer it takes to program & test.


Ade you are just making garbage up with zero knowledge or experience of business at all. Those are just all platitudes trying to prove a fanciful day dream because you think the real world is too clunky. Seriously stop making crap up.

-Capital spent on product development - that is there no matter what. There is no end to it. Just like keeping the lights on, Nikon always has to have product development. And in reality, as a company condenses development time, the cost rises significantly.
-Risk exists either way. Reaching for the clouds there.
-Innovation? Camera companies are the innovators. As the innovators, they are the ones that decide when things come out. There is almost no one outside of them that designs for camera companies but image sensors.
-Streamlined? BIM - is that your word of the day or did you just spend the last hour watching TED videos? Nice try. That has been around since the mid 90's and is used predominantly in construction - not electronics. I'm sure someone has tried it, but it is by no means a replacement for CAD.

Oh and guess what? The average time to design a new car is 3-5 years. Sound familiar?

spraynpray

Product planning cycles are not shrinking, release cycles are. There is a big, big difference. Design time doesn't change, people can only move so fast, testing, machining new parts, etc. can not be made magically quicker.

Hate to disagree with you on that point, but back in the days of film SLR's people drew parts on drawing boards using pens. With CAD things move faster and more precisely. Then there is rapid prototyping too.

Cad, prototyping, tooling, precision manufacturing, 3d modeling of parts etc. have been in place for 25 years now. Almost nothing has changed in the last 15 years when it comes to the actual design times & testing that moves concept to product faster. Designing products is a very human based interaction and there is no way around it. Some things will/have saved time, but that is measured in hours and days saved. In a multi-year project that is less than 1%. In actuality design times have expanded due to the amount of electronics and software that is now in products. The more complex items are, the longer it takes to program & test.

Maybe you're right on the 25 years although I am sure it arrived with the digital age in photography. I did a spell with the early CAD systems and they were barely faster than pen and ink by the time you had the film in your hand, but they were more accurate. 3D followed quite a while later IIRC - definitely since digital photography came into being.

If the saving in time and money really is less than 1%, I wonder that it is seen as worth the investment for all the plant and training.

Ironheart

My spouse worked for a 3-d rapid prototyping company 20 years ago, and they were on their 3rd or 4th generation. Just saying...

AutoDesk (the makers of AutoCAD) released their first product in 1979, before that it was done on mainframes, but CAD has been around almost as long as computers have.

Also I have it on good authority that the development cycle for a luxury automobile is still 3-5 years. Some of the low end is around 2 years, mostly for the aesthetic parts of the design. Engines, suspensions, etc... are under continuous development and merge with the aesthetic design after the fact.

Intel has mutiple parallel teams working on future chip designs that won't tape out for nearly a decade.

The first iPhone took almost 3 years and $150M to produce. That was with over 1000 engineers and believe me they had plenty of CAD and prototyping going on.

My point is these things take far longer to design and produce than folks imagine.

Ade

I mentioned BIM only because of @spraynpray's CAD / drafting board analogy. Drafting board -> CAD -> BIM.

In practice, no one uses CAD for electronics design anymore, other than for very rudimentary PCB design (e.g., students, hobbyists). It is simply not possible to do modern electronics design on a CAD. CAD is used to design mechanical parts such as the camera body, motorized elements, etc.

The BIM equivalent in the electronics world is called EDA, and such is the pace of innovation that an EDA from 5 years ago would be considered ancient today.

@Ironheart

The iPhone was designed by a 16-member team, lead by Jony Ive and Steve Jobs. Thousands of engineers are needed oversee daily manufacturing of the iPhone in China, but that's a separate concern.

As already mentioned above, Nikon spent $275 million of R&D dollars in FY2014 alone, and around $800 million in the past three years. That's enough R&D money to make an iPhone five times over!!

Ironheart

And a DSLR has at least 5x the number of moving parts as an iPhone :-)


Off topic, but relevant to the point of how long it takes to design and develop, let alone produce a complex piece of consumer electronics. The initial industrial design of the iPhone may have started as small team, but according to facts released as a result of the recent lawsuits:
http://readwrite.com/2012/08/07/4-real-secrets-weve-learned-so-far-about-apple
Apple started assembling an internal team to create the iPhone in 2004. The team consisted of about 1,000 Apple employees to work on “Project Purple.” The employees worked on one floor of Apple’s campus that had to be entered with keycards and had security

The iPhone was a revolutionary product in 2007. It generated immediate consumer excitement and ushered in the touchscreen smartphone era. What Apple released in 2007 though was not its first idea of what the phone should be. Nor, likely, was it Apple’s 50th or 100th idea. Designers would sit around a kitchen table talking about and sketching ideas, some of which would be rendered into 3D models.

Ade

That "1,000 Apple employees" is an often-repeated misquote. That was actually the number of employees under Scott Forstall's iOS group in 2012 (at the time of the court trial) -- 8 years after Project Purple started. By that time Steve Jobs had already resigned as CEO and Forstall was reporting to Tim Cook.

Ironheart

Ade, you are mistaken. In 2005 there were more than 300 people on project purple 1, and many of the leopard OS developers were pulled to work on project purple 2, and the reason leopard was so late. By 2007 there were at least 1000 folks across multiple groups working on it. Besides being off-topic and somewhat irrelevant, no one disputes it took 3 years from concept to production. And this is for a device that has almost no moving parts. For a DSLR 5 years wouldn't be out of the question.

Ade

And this is for a device that has almost no moving parts. For a DSLR 5 years wouldn't be out of the question.

Well a bicycle has more moving parts than an iPhone; should it take 5 years to design one as well?

Look at the RED camera. 4K, 120fps, RAW video -- all things Nikons can't do even today. From drawing board to first delivery? Two years.

Mind you, this was a camera designed from scratch by a brand new team led by a guy from the fashion industry (founder of Oakley). The project started in 2005 and by 2007 the first customer order was delivered. By 2008 Peter Jackson was already using it to shoot District 9, which received four Oscar nominations including Best Picture.

http://reduser.net/forum/showthread.php?63017-RED-HISTORY

If Nikon still needs 5 years to make small incremental upgrades to their DSLRs, maybe they deserve the trashing they are getting in the stock market.