April 24 (Bloomberg) -- Canon Inc., the world's largest maker of digital cameras, posted a record first-quarter profit and raised its net income forecast on sales of EOS cameras and color copiers.

Net income climbed 21 percent to 131.3 billion yen ($1.1 billion), or 99.25 yen a share, from 108.3 billion yen, or 81.28 yen, a year earlier, the Tokyo-based company said in a statement today. Sales gained 13 percent to 1.04 trillion yen.

Canon is projecting an eighth year of record profit, aided by lower production and component costs for its digital single- lens reflex cameras. The Tokyo-based company will start sales of a new type of flat-screen television in the fourth quarter to compete against Sony Corp.'s liquid-crystal display sets and Matsushita Electric Industrial Co.'s plasma TVs.

``The profit forecast is a positive surprise,'' said Tetsuya Wadaki, an analyst at Nomura Securities Co. in Tokyo, who has a ``buy'' rating on the stock. ``The projection reflects that Canon's office-equipment business is really in good shape.''

Operating profit, or sales minus the cost of goods sold and administrative expenses, rose 22 percent to 207.4 billion yen from a year earlier, the company said.

Net income for the year ending March 31, 2008, will probably rise to 505 billion yen, from a January projection of 495 billion yen and the 455.3 billion yen reported a year earlier. Sales will climb to 4.54 trillion yen, from a previous estimate of 4.45 trillion yen, and 4.16 trillion yen a year earlier.

``Demand for both compact digital cameras and digital SLR cameras is expected to continue enjoying robust growth,'' Canon said in the statement. ``Additional demand is projected for full- color models'' of printers, it said.

Weaker Yen

Shares of Canon rose to 41.40 euros (6,660 yen) in Frankfurt, matching the close on the Tokyo Stock Exchange. The earnings announcement was made after Japanese markets shut. The stock added 0.9 percent in the past six months, compared with a 4 percent gain in the Nikkei 225 Stock Average.

Profit was boosted by a weaker yen against the dollar and euro, Toshizo Tanaka, a Canon executive vice president, told reporters in Tokyo. The Japanese currency's weakness contributed 23.1 billion yen to operating profit, Tanaka said.

Canon's revised 2007 forecast is based on the company's projection for the dollar to average 117 yen in the nine months ending Dec. 31, and the euro at 155 yen. The dollar averaged 119.33 yen in the first quarter, while the euro was at 156.45 yen.

Digital Cameras

The company widened its global lead in digital camera shipments last year, Framingham, Massachusetts-based market researcher IDC said. Canon's market share rose 1.3 percentage points to 18.7 percent in 2006, according to IDC.

Operating profit of Canon's camera business rose 37 percent in the quarter to 60.5 billion yen, with full-year profit forecast at 300 billion yen, up 11.6 percent from last year, the company said.

In the first quarter, Canon's digital camera shipments rose 20 percent to 4.3 million units, Tanaka said. Single-lens reflex cameras have interchangeable lenses and appeal to professionals and hobbyists.

The office equipment business had a 16 percent increase in operating profit in the quarter to 176.5 billion yen. Full-year profit at the business is forecast to climb 13 percent to 677.8 billion, the company said.

Operating profit of Canon's optical business, which includes steppers, machines that burn circuits into silicon, increased 24 percent in the quarter to 18 billion yen. Full-year profit is estimated to rise 17 percent to 48.3 billion.

Canon plans to sell surface-conduction electron-emitter displays, or SED, televisions in Japan in the fourth quarter of this year. The so-called SED technology produces clearer images and consumes less power than plasma and liquid-crystal displays.

To contact the reporters on this story: Hiroshi Suzuki in Tokyo at Hsuzuki5@bloomberg.net

Last Updated: April 24, 2007 05:03 EDT