Another Quarter Pounder (geddit?) for Canon – What Will It Take for Canon to Recover? We Have Some Ideas

by Hugh Brownstone1 Comment

Canon gets pounded in the third quarter of 2015. It is well to remember that while words tell a story, numbers tell it better in financial reporting, even when there are very few of them. We have some ideas, including splitting the camera body business from the lens business.

The Full Text

Here’s the full text of the section of Canon’s press release entitled 2015 Q3 Results for the Imaging Systems Business Unit – that’s the one that we care about.

Within the Imaging System Business Unit, although total sales volume of interchangeable-lens digital cameras declined due to market shrinkage, sales of interchangeable-lens digital cameras increased from the same period of the previous year in Japan and Europe owing to healthy demand for such new models as the EOS 5DS, EOS 5DS R, EOS Rebel T6i/EOS 750D, EOS Rebel T6s/EOS 760D and EOS M3. As for digital compact cameras, while sales volume declined amid the ongoing contraction of the market due to the effects of the growing popularity of smartphones, profitability improved thanks to the growing ratio of high-added-value models featuring high image quality and high-magnification zoom capabilities, such as the new PowerShotSX710 HS and PowerShot G3 X. As for inkjet printers, although printer unit sales volume declined from the same period of the previous year owing to the sluggish market in Southeast Asia, sales increased slightly thanks to strong sales of consumables. As a result, sales for the business unit decreased by 4.2% to ¥302.5 billion, while operating profit totaled ¥41.7 billion, a decline of 3.8%. Sales for the combined first nine months of the year totaled ¥897.7 billion, a year-on-year decrease of 4.6%, while operating profit totaled ¥121.3 billion, declining 11.0% year on year.

Let’s parse this.

sales volume of interchangeable-lens digital cameras declined due to market shrinkage

Translation: Canon’s bread and butter DSLRs aren’t selling as well as they used to.

sales of interchangeable-lens digital cameras increased from the same period of the previous year in Japan and Europe owing to healthy demand for such new models as the EOS 5DSEOS 5DS REOS Rebel T6i/EOS 750DEOS Rebel T6s/EOS 760D and EOS M3.

Translation: there are some kind-of-bright-spots for now in their number 3 and 4 markets (I’d guess) for their highest- and lower-end DSLRs, but the 5D Mk III is mentioned nowhere, nor is a single model in their Cinema EOS line. If they were doing well, Canon would have mentioned it. Not good.

As for digital compact cameras, while sales volume declined amid the ongoing contraction of the market due to the effects of the growing popularity of smartphones profitability improved thanks to the growing ratio of high-added-value models featuring high image quality and high-magnification zoom capabilities, such as the new PowerShotSX710 HS and PowerShot G3 X.

Translation: smartphones are biting more deeply into Canon’s compact camera sales, but Canon’s sweet spot higher-end/higher margin models are easing some of that pain – but they are about to get slammed by next generation smartphones and the growing smartphone ecosystem including auxiliary lenses. This ship has sailed.

As for ink jet printers…

Translation: Geez, they shouldn’t really be in mixed in with cameras at all, but OK: even though unit sales are dropping here, too, at least they’re making up for it by selling a pile of ink cartridges.

Sales… decreased 4.2%… profit decreased 3.8% [for the quarter]

Translation: not good.

Sales for the combined first nine months of the year totaled ¥897.7 billion, a year-on-year decrease of 4.6%, while operating profit totaled ¥121.3 billion, declining 11.0% year on year.

Translation: even worse.

No need to parse the rest of the press release: the most interesting point is that Canon spent a pile to acquire Axis for its growing security business, and that created a significant hit (along with a couple of other things both to their paper numbers (¥10.3 billion) and their actual cash flow:

Owing to these factors, as well as the negative impact of foreign currency translation adjustments, cash and cash equivalents decreased by ¥263.3 billion to ¥581.2 billion from the end of the previous year.

That’s a chunk.

So What Should Canon Do About This?

Well, at one level we already know what Canon is doing about this: it’s diversifying, especially into security. They’re not the only ones.

At another level, they’re milking their current line up where their margins are fattest, in theory to do two things: fund even more acquisitions and fund new product development.

Two months ago when I sat down with Chuck Westfall of Canon he said something very interesting: dual-pixel auto-focus only works well with STM lenses, and they can’t use STM technology for their larger lenses because their glass elements are too heavy. He acknowledged that Canon needs to develop new focusing technology to really make their autofocus advantage in the Cinema line pay off.

I smell a much fuller new lens line coming for Canon’s first serious mirrorless camera – which we haven’t seen nor heard of yet. I don’t think that Canon is adding M lenses primarily for the unloved EOS M, a 100% mirrorless with shorter flange distance. At least, I hope not.

Instead, I’d guess they’re gaining experience with purpose-built mirrorless lenses and trying to figure out the next technology Chuck alluded to in September – and a new way to bring folks happily back into the Canon fold.

Right now, Canon EF and EF-S lenses can be adapted to Sony and MFT mount bodies, which make it easier to switch from Canon. But as Sony, Zeiss and others ramp up e-Mount lenses, the appeal of Canon’s current glass will diminish.

Imagine instead a scenario where Canon lenses can’t be adapted to other cameras – you’d have to buy Canon bodies to get Canon glass.

Remember Canon’s “Glass First” initiative?

Those new Canon bodies and lens line would have to be good enough to win against the Sony ecosystem in a clean page comparison.

What do you think would happen if Canon actually split the lens and camera business units, and now each had to exist on its own merits?

What if Canon were willing to make glass for the best camera bodies, unconstrained by its parent brand?

What if Canon were willing to make bodies for the best sensors and glass, unconstrained by its parent brand?

With Sony mirrorless sales surpassing ALL other camera sales including Canon’s traditional DSLR sales in Germany for the first time; with Sony’s FS7 and FS5 capable of using the growing and impressive native e-Mount glass; and with Leica building a real mirrorless SL  that shows the way to what a Canon 5D Mk IV ought to be, priced for scale that Canon can deliver, I think we’re going to see a real all-mirrorless M-mount camera from Canon that goes head to head with Sony in 2016.

Or else I fear it’s only going to get worse for Canon’s imaging business.

What do YOU think?

Canon Profits Down 21% as Mirrorless Cameras Cut Into DSLR Sales

Canon Profits Down

Via PetaPixel:

Canon announced its quarterly earnings today, revealing that its operating profit for the quarter (~$665 million) has fallen 21% compared to last year and that total revenue fell by 4.5%. At the same time, Canon increased its full-year earnings estimate due to a drop in the value of the Japanese yen.

Reuters reports that a shifting digital camera landscape are to blame for Canon’s weakening business. Smartphones are causing consumer demand for compact cameras to shrivel up, while mirrorless cameras are eating away at Canon’s market share for DSLRs, which have higher profit margins.

See Canon's Q3 Report Here.

Read full article at PetaPixel “Canon Profits Down 21% as Mirrorless Cameras Cut Into DSLR Sales”

(cover photo credit: snap from PetaPixel)

Hugh Brownstone

Hugh Brownstone

Hugh is the founder of Three Blind Men and An Elephant Productions. He and the team write, direct, shoot, score, and edit web-centric films; conduct photo shoots; and write copy, white papers and blog posts. Hugh also writes screenplays (he recently optioned a TV pilot) and just published his first eBook (Apple's iPhone: The Next Video Revolution). If it's about telling stories, it's in their wheelhouse.

And always with the ambition of authenticity, humanity and wit.
Hugh Brownstone

Comments

  1. How close
    are we to banging up against the laws of physics? How likely is it that, within
    the next decade (say), it won’t be possible to further improve sensors?
    When that
    day comes (as it has to), the playing field for camera bodies will be level,
    and no company will have any particular advantage. This convergence has
    probably occurred with film SLRs. I own a Canon EOS 1v, and though
    I’ve never used the Nikon F6, I suspect these bodies are Tweedle Dum
    and Tweedle Dee, with only minor differences.
    As for
    making bodies (lenses) to take (fit) other companies’ lenses (bodies)…
    Competition is a good thing for the customer. But it requires a major
    duplication of effort, potentially harmful for everyone.
    As for
    whether Canon is doing as badly as the author suggests… Consider what the
    following statement actually means…
    “…sales
    volume of interchangeable-lens digital cameras declined due to market
    shrinkage”
    It doesn’t
    say that Canon’s IL DSLR sales declined because fewer people were buying them,
    but because fewer people were buying all brands of IL DSLRs. That’s
    not good, but all companies are (presumably) in the same boat.
    Mirrorless
    bodies are likely to win out in the long run, because they’re
    smaller/lighter/less complex, and an EVF provides viewing comparable to a
    focusing screen cum pentaprism. The continuing improvement in sensors
    gives Canon the opportunity to catch up, as photographers dump their existing
    bodies to for new ones with improved image quality.

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