Nikon announces major business shift to Healthcare as camera sales stagnate

Ade

In a dramatic move, Nikon's new chief Kazuo Ushida today announced a major shift in business to focus on healthcare.

http://online.wsj.com/articles/nikon-shifts-focus-to-health-as-camera-sales-flag-1403006577

As part of a multi-year "Next 100" strategy, Nikon will spend US$2 billion over the next three years to acquire healthcare-related companies and will allocate another US$2 billion in R&D expenses, about a quarter of which will also be set aside for healthcare research.

Nikon currently has around US$2.2 billion in cash and US$1.2 billion in debt.

Nikon expects camera sales to plunge 8% this year and does not expect sales to recover above current levels until FY2016. Total growth over the next three years is expected to be an anemic 2%.

Nikon' strategy for the Imaging Division calls for significant costs cutting "from development to sales". Nikon will also focus on growth in emerging markets (most notably in China) by introducing new low cost products, and by launching a new marketing strategy.

In a bit of good news, Nikon intends to improve retention of existing customers, as they know many customers will undoubtedly jump ship to competitors.

Nikon stock is currently getting hammered at market open, down over 3% intraday in Tokyo.

PB_PM

Not a surprise, Nikon can see the writing on the wall.

Key reasons for this? D600 shutter issue, and the failure of the Nikon 1 system to gain traction. Customers simply no longer trust Nikon to build reliable cameras, or to invest R&D into worthwhile post DSLR technology.

manhattanboy

It's funny that Nikon, Toshiba, Hitachi and Canon are all running to the mythical "health care" gold mine.
It basically means that their core competence in optics is useless, sadly.

Coastalconn

I'm not surprised either. Nikon seems to be out of touch with reality and what their loyal fan base wants/needs.. I haven't been doing this a lifetime as many of you have, but I have continuously been scratching my head with their releases/pricing. DF? "A"? the whole 1 series? They keep "upgrading" the lower end models and can't even sell the stock piles of previous models.

Then there is the pressure from Sigma/Tamron putting out very competitive lenses all of a sudden, that cost much less and perform almost the same if not better. The pricing IMHO is out of control with Nikon lenses, the 80-400 went from 1500-2600? Then the Tamron pops out the 150-600 at a grand, that is very competitive at 400mm. Other than the 1% that hangs out in the various forums, I think the rest of the world will pick the Tamron almost every time. Then the 58mm F1.4 at 1600? The new Sig seems to be smoking it at 900. Being a chef, I see it this way, if the restaurant is struggling I can't take my filet that is $32, add a new sauce to it and suddenly increase the price to $48. If the 7dm2 comes out, and Nikon has nothing to counter it, my type will be jumping on it and grabbing a 400mm f5.6 and calling it a day..

Don't get me wrong, I have no interest in jumping ship, but Nikon is starting to feel like a dinosaur that is adapting to a new environment in the wrong way.

kyoshinikon

Not only the failure of their products but also the issue that they have been trying to sell DSLR's like hotcakes and like most companies are interested in rapidly increasing profit & productivity instead of working slow and steady. Leica isn't going anywhere because of this. If Nikon had bothered to listen to their customer base and didn't focus on unwanted product and overselling expensive product they wouldn't be in this pot only the failure of their products but also the issue that they have been trying to sell DSLR's like hotcakes and like most companies are interested in rapidly increasing profit & productivity instead of working slow and steady. Leica isn't going anywhere because of this.

Additionally they are doing what countour camera did and failing with the marketing. Canon is sill #1 exclusively because of their superior marketing. They like nikon have a similar product and just like nikon frequently release duds, problem product, & won't own up to their errors. If Nikon had bothered to listen to their customer base and didn't focus on unwanted product and overselling expensive product they wouldn't be in this perdiciment. If they were operating like the are now back in the 70's they would not even be around today. Now they are pulling a Fujifilm. Not all of their customer base (the vast majority of them for that matter) can afford (or want to) to buy every newest release. They also failed to brace for the biggest change in the camera market, the demise of the point and shoot. The point and shoot is most likely going to die well before even film does.

Rant over lol.

Ade

Nikon's "NEXT 100" strategy briefing deck has been published online:

http://www.nikon.com/about/ir/management/midtermbusiness/pdf/2014/0617e_all.pdf

BTW, I think they may have gotten the Fiscal Year labels on the Management Numerical Target slides wrong (pages 33-34). The numbers all seem to be off by one fiscal year, e.g., the figures shown for FY2013 are actually those for FY2014, etc., and the forecasts actually go to FY2017 instead of FY2016 as shown.

spraynpray

I don't agree with much (if any) of what is written above personally. IMHO the problem is nothing to do with the D600 glitch and the Nikon 1 system is a symptom of the real problem - it is more fashionable and convenient to use a mobile phone than to carry a separate camera.

As for their chosen direction, it is an indication of their core competence - optics related products - this time supplying an industry that is growing, not a market that is shrinking.

sevencrossing

I don't agree with much (if any) of what is written above personally.

I also have to agree with S&P
The DSLR market seems pretty saturated, and while people seem happy to get a new phone every 3 years
they seem to hang on the cameras a lot longer

Msmoto

Maybe Nikon has read the Kodak story carefully…...

proudgeek

I think SnP is spot on with his comment about phones. The D600 debacle, while bad pr and bad business, isn't the issue. The issue is pocket space. If I can carry one device that serves the purpose of a phone, a camera, and a computer and is "good enough" for what I need, then I would.

Nikon's problem is a shrinking pie for their high volume, lower margin sales. There just aren't enough people like us who are willing to cough up $3,000 for a new camera every few years. If Nikon has "failed" at something it's that they didn't see how the smart phone was going to evolve.

Years ago I wrote an ad for a technology company with a headline: "The road to the future is littered with those who didn't see it coming."

Seems like that describes Nikon's position pretty well. Ask the dinosaurs what happens when you come in second place in evolution.

Fritz

The world wide economy isn't all that good and the percentage of per capita sales to the mature economies will probably will decline. We're going through a bust cycle and discretionary income is impacted. So how should Nikon maximize profits in the face of declining sales? I think that streamlining the product line might help. Is there any real reason to match Canon model for model when to do so dilutes your profits? Why not concentrate on fewer models that offer higher value to the customer base as most people have spoken of? Just think of the impact the D300 and D700 have made. Do I get as warm and fuzzy about my 610 as I did about my 700-no way! And how about the trend to build more and more capabilities into the software packages; some features obviously contribute to to the art form but some just seem to be superfluous. Nikon probably should listen more to their marketing people and less to their design and engineering geeks. The more interesting question might be if we collectively had a blank piece of paper in front of us and we were asked by Nikon to design our next camera, what would we say?

Fritz

Let's not forget that the future consumer market is not with the mature economies but with the emergent markets of the 3rd world, particularly in China and India. So why we in the west buy cameras is less important than why the chinese buy cameras.

donaldejose

Diversification would be good for Nikon . . . and for us because they have to make money to continue producing products we want to buy, especially those products which will sell in lower numbers.

sevencrossing

Maybe Nikon has read the Kodak story carefully…...

I wonder when Kodak woke up to the fact, the digital age would also kill off their medical division, with the loss of X ray materials

manhattanboy

If the 7dm2 comes out, and Nikon has nothing to counter it, my type will be jumping on it and grabbing a 400mm f5.6 and calling it a day...

The Canon 400 5.6 feels super lite weight and looks small because of the tiny barrel diameter connection. It is not quite as sharp as the bare Nikon 300 f4, but is equally snappy with AF. That the lens can be had for less than $1 grand is amazing.

Nikon has the best sensors out there, and by a lot. They should have been eating into Canon's market share, but the rest of the camera hasn't kept pace.

The 7100 does pretty well against Canon's 7D and 70D. Although I think we need to see more of your D7100 pictures as proof--you know which ones I'm talking about

Ade

Nikon emailed me just now with revised management slides (see below) with corrections to some figures mentioned previously.

Most notably, the 2% net sales growth estimate for the Imaging Division now goes out to FY2017.

With yesterdays announcements, JP Morgan Chase has downgraded Nikon stock to "underweight". Personally I am now neutral on Nikon. However, there are likely other investments with better upsides and less risk.

--

Dear Ade,

Thank you for inquiry.

As you pointed, FY labels may cause misunderstanding.
For more clarity, we changed the notation. E.g., FY 2013 ⇒ 2014/3.

We uploaded the revised file on our website below.
http://www.nikon.com/about/ir/management/midtermbusiness/pdf/2014/0617e_all.pdf

Thank you again for informing us.

Nikon Corporation

TaoTeJared

I don't agree with much (if any) of what is written above personally. IMHO the problem is nothing to do with the D600 glitch and the Nikon 1 system is a symptom of the real problem - it is more fashionable and convenient to use a mobile phone than to carry a separate camera.

As for their chosen direction, it is an indication of their core competence - optics related products - this time supplying an industry that is growing, not a market that is shrinking.

Agreed.


This is also not a "dramatic move" either, this side of their business already exists and they have talked for years of expanding it (and it has grown at a good clip.) A dramatic move would be what Pentax or Olympus did (can't remember which one did) when they bought an health insurance company. Now that is dramatic.
As a person who use to sit in the planning meetings and helped create decks like Ade posts, it is nothing more that marketing material to investors and motivational/feel good BS for internal managers. It is all a smoke screen, I mean a "story" of what management's goals are for the company. Those things never actually mean anything but a basic direction and where they hope analysts will look for to see if they are performing well.

If they are putting numbers to stuff, I'm willing to bet they already have 2-4 companies lined up to buy and need underwriter's capital loans to do so. Those numbers are too specific (even for their generic state) and no management team would be that stupid to put numbers down without already knowing they can achieve them.

As one of my mentors always said; Hyperbole and platitudes at annual meetings are just smoke screens and mirrors to keep investors and analysts believing the future is bright, rather than showing how you f$^%#-up last year.

Ade

Question: when was the last time Nikon proposed to set aside an amount equivalent to half of the company's assets -- 5+ years of future profits -- to enter an unproven business segment with entrenched competitors?

Answer: never.

They are literally betting the future of the company with this move, with severe financial consequences if they fail.

Rx4Photo

From a television advertisement viewpoint, lately I'm seeing more and more ads for Nikon eyeglass lenses for eyewear and absolutely no ads pushing their cameras. From a healthcare standpoint I believe Olympus has usually been the norm with devices that are used for endoscopies and the beloved colonoscopy. Maybe they've got their sights on more of that market.

sevencrossing

does eyewear come under the category healthcare ?
I have friends who spend at lot more on eyewear than they do on cameras or phones

Fritz

A generally aging population in the industrialized economies means rising health care markets at the same time the new elderly are entering retirement with a corresponding decline of purchasing power. Nikon correctly is going where the money is. I suspect there may be some ceding of market share to Canon from this but I wouldn't think they will abandon the high end cameras. Perhaps there may be more innovation like light intensifying lenses or further development of mirrorless systems. It will be interesting to see what the D5 will be in the next few years. It may well be that the Bayer array and the DSLR format are reaching the end of their development life and will be replaced with other technologies. In any case, as a not yet retired senior citizen I'm going to keep filling the piggy bank towards the day that a D5 shows up.

Msmoto

There are times when people are motivated by fear or greed. Usually the decision making is not very good and while some positive results may be seen early, in the long run a failure occurs. Kodaks fear of the technology of digital replacing film, which of course it did, produced such massive denial in the executives that the end result was of course the complete failure of one of the most significant companies in the past century, IMO.

I certainly do not know what motivates Nikon, nor do I understand the internal affairs in the executive branch. But, if Nikon has intellectually "circled their wagons" rather than done the necessary due diligence to fully understand the trends in the economy, Nikon may indeed fall into the same sink hole as Kodak. Let's hope not.

Ade

Re: Nikon eyeglasses

The eyeglass business is another tough business to be in. The industry went through a lot of consolidation since the introduction of low-cost, disposable, soft contact lenses. Eyeglass lenses are practically a commodity now and the industry is facing intense competition from Chinese manufacturers.

Nikon no longer operates the eyeglass line of business. The current business started as a 50/50 JV between Nikon and Essilor, a major French ophthalmic lens company. However, a couple of years ago Essilor assumed full management and operations of the JV, and 100% of the JV revenue is now recognized under Essilor's books (not Nikon's). As 50% owner of the JV, Nikon receives a share of the profits but I believe that amount is very small, maybe in the order of $10 million a year.

Nikon and Essilor also run a separate "Joint Research Center" to combine/reduce their R&D expenditures.

Essilor owns the global distribution and marketing of the Nikon-Essilor JV. So any TV ads you see about Nikon-branded eyeglasses are actually produced by Essilor, not Nikon.

Ironically, Nikon used to make various healthcare (eye care) instruments (e.g., those used by eye doctors, optometrists, etc.), but they were forced to exit this business about 10 years ago.

TaoTeJared

Question: when was the last time Nikon proposed to set aside an amount equivalent to half of the company's assets -- 5+ years of future profits -- to enter an unproven business segment with entrenched competitors?

Answer: never.

They are literally betting the future of the company with this move, with severe financial consequences if they fail.

Ignorance must be bliss for you. Nikon's assets are around $9.5b. Their market cap is $6.3b. But looking at assets or their m-cap isn't remotely how anyone determines how big an investment is. Exaggerating the news with a goal of attempting to make some sort of hoopla around nothing is just distasteful.

In Nikon's words, (the investment results will) "account for 11% of its total revenue target" by 2017. By anyone's standards, 11% of a companies revenue is not a drastic amount. $2 billion for mergers and acquisitions for companies dealing with medical and healthcare related goods is a drop in the bucket. If you ask me, it does not seem like a great return to me - just an average one. At least that segment is growing which is something Nikon needs more of.

Ade

Ignorance must be bliss for you. Nikon's assets are around $9.5b. Their market cap is $6.3b.

Except that you forgot to subtract liabilities. [-X

Net Assets = Total Assets - Liabilities.

Nikon has significant liabilities, so their assets is actually only about $5.4b, compared to a total of $2.5b in new spending. I.e., the spend amount is roughly 46% Net Assets.

Or compared to annual profit (Net Income) the spend is 5.3 times the 2014 profit of 46.8 billion Yen.

These numbers are based on FY2014 actuals not based on some future estimates which may or may not pan out. Nikon have had to revise their revenue projections downwards multiple times in the past three years, including once more with the latest management report.