Smartphone Cameras at 41-Megapixels Pressure Canon, Nikon

The global camera business,

centered in Japan, is headed for a shakeout.

With industry revenue falling to the lowest level in a

decade amid surging smartphone sales, Nikon Corp. (7731), the world’s

No. 2 camera maker, has cut prices to lure consumers. Market

leader Canon Inc. (7751) may follow suit to keep pace, according to UBS

AG, putting pressure on smaller producers and possibly leading

them to retreat from the business.

“There are too many players,” said Ryosuke Katsura, an

analyst at UBS in Tokyo. “It’s going to be tough for smaller

camera makers even to remain in the business as competition

between Canon and Nikon will likely intensify,” said Katsura,

who recommends selling shares of both industry leaders.

Since Apple Inc. introduced the iPhone in 2007, Canon and

Nikon stocks have lost more than half their value as demand has

withered in an industry they have dominated for over a decade.

Nikon is the worst performer in the Nikkei 225 (NKY) index this year,

falling 34 percent.

Sales of compact models have slumped as smartphones

displace the point-and-shoots that were the biggest part of the

market. Now higher margin single lens reflex models — a market

80 percent controlled by Canon and Nikon — are slowing as well.

To keep sales moving, Nikon has been discounting many

models. The Nikon 1 J2, introduced a year ago, now sells for as

little as 23,485 yen ($240), 64 percent below its initial price,

according to Japanese online comparison site Kakaku.com. The

high-end D600, also introduced last September, has declined 26

percent to 145,975 yen.

Army Binoculars

Camera shipments are likely to fall 30 percent this year to

69 million units, according to Morgan Stanley MUFG Securities

Co., even as manufacturers try to slow the decline by adding

smartphone-like features such as Wi-Fi and Bluetooth. Nikon in

August cut its 2013 net income target by 23 percent while Canon

lowered profit and sales forecasts in July.

Nikon says it cut prices to reduce inventory as demand

falls, and that the company is scaling back production to boost

profitability. Canon says it doesn’t plan to chase short-term

market share gains by cutting prices.

Founded in 1917, Nikon supplied binoculars and optical gear

to the Japanese military. After World War II the company focused

on consumer products and in 1959 introduced its first camera

with an interchangeable lens, the Nikon F. Today it gets 84

percent of operating profit from imaging.

Buddhist Goddess

Canon started in an apartment in the Tokyo district of

Roppongi in 1933. The next year, the company built its first 35

millimeter camera, called the Kwanon after the Buddhist goddess

of Mercy. Its EOS Rebel, introduced in 1993, helped Canon cement

its lead in the market by attracting a younger generation to

high-end SLRs.

“Camera makers need to seek a new growth driver,” said

Hirosuke Takayama, an analyst for SMBC Nikko Securities Inc. in

Tokyo. Medical equipment that uses their image-capturing sensors

and processors is “the area the companies are all looking at.”

Olympus Corp. (7733), which started as a maker of microscopes and

thermometers in 1919, produced its first camera in 1936. In

1950, it made an early endoscope — for taking pictures inside

the body — and the company is now the world’s largest producer

of such devices. Olympus plans to stop SLR development and this

year closed a Beijing camera plant and suspended its cheapest

compact camera line. In April Olympus started a venture with
Sony Corp. (6758) to develop medical equipment.

$1 Brownie

Fujifilm Holdings Corp. (4901), a Tokyo-based photographic film

maker, is shifting away from consumer cameras to medical systems

and display components. Panasonic Corp. (6752), which produces the

Lumix brand, will shrink its compact camera business, Chief

Executive Officer Kazujiro Tsuga said in an interview.

Both industry leaders have ample resources to fund new

ventures and takeovers. Canon had cash and equivalents of 755

billion yen in June while Nikon’s cash holdings were 121 billion

yen, according to data compiled by Bloomberg.

“Changes in the camera market may tell them it’s time for

them to take risks to do something drastic to change their

earnings structure,” said Hisashi Moriyama, an analyst at

JPMorgan Chase Co. in Tokyo.

The shift to smartphones could be similar to the transition

from film to digital photography, which weeded out companies

slow to adapt. Konica Minolta Holdings Inc. sold its SLR

business to Sony in 2006 to focus on office equipment. Pentax

Corp. was acquired in 2007 by Hoya Corp (7741), which sold the camera

operation to Ricoh Co. (7752) four years later. Eastman Kodak Co., the

photography pioneer that introduced the $1 Brownie Camera more

than a century ago, is now bankrupt.

41 Megapixels

Smartphone cameras are getting more sophisticated. Samsung

Electronics Co. (005930)’s Galaxy S4 is equipped with a 13-megapixel

sensor. Sony’s latest Xperia Z1 has a 20.7 megapixel camera and

an optional zoom-lens attachment. Nokia Oyj (NOK1V) in July unveiled its

Lumia 1020 with a 41-megapixel camera. By contrast, Canon’s
EOS-1D X, which sells for $6,799 on the company’s U.S. website,

has an 18.1-megapixel sensor — though pixel count is only one

of many factors that affect image quality.

As Nikon and and Canon consider diversification, earnings

are going to remain under pressure as smartphones cannibalize

compacts and margins on SLRs shrink, said Amir Anvarzadeh, a

manager of Japanese equity sales at BGC Partners Inc. (BGCP) in
Singapore.

“This is not,” he said, “going to reverse anytime

soon.”

To contact the reporters on this story:

Mariko Yasu in Tokyo at

myasu@bloomberg.net;

Grace Huang in Tokyo at

xhuang66@bloomberg.net

To contact the editor responsible for this story:

Michael Tighe at

mtighe4@bloomberg.net

Article source: http://www.photographyblog.com/reviews/pentax_k500_review/

Smartphone Cameras at 41-Megapixels Pressure Canon, Nikon