Canon Reduces Forecasts as Smartphones Start Replacing Cameras

Canon Inc. (7751), the world’s largest camera maker, cut its full-year profit and sales forecasts as consumers’ penchant for using smartphones such as Apple Inc. (AAPL)’s iPhone to click pictures hurt demand for the company’s products.

Canon lowered its sales forecast for Powershot, Ixus and other compact models by 9.5 percent to 19 million units, and for professional-grade EOS models by 4.3 percent to 8.8 million, the company said in a statement yesterday. The profit forecast was cut 6.4 percent to 234 billion yen ($2.9 billion) as economic turmoil in Europe and slowing demand in emerging markets also hurt demand, Tokyo-based Canon said.

Chief Executive Officer Fujio Mitarai, 77, has slashed compact-camera sales forecast twice since taking over the top job in March as Apple and Samsung Electronics Inc. (005930) unveiled phones that can take high-definition photos and videos. Canon, Sony Corp. (6758) and Nikon Corp. (7731) are introducing new products to win back customers in a segment that’s projected to have the worst demand since 2009.

“Camera sales are slowing down and a forecast cut was inevitable,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo. “With the yen’s gain and uncertainties over economies, it’s hard to foresee Canon’s earnings improving going forward.”

Global camera sales are expected to fall 4.3 percent this year to 115.2 million units, according to market researcher IHS. Industrywide camera shipments fell 25 percent in August from a year earlier, according to the Camera & Imaging Products Association in Tokyo.

Surging Smartphones

By comparison, global sales of smartphones -- devices that can be used to shoot high-definition videos, read books, play movies and surf the Internet -- rose 32 percent to 146.1 million units in the second quarter, according to market researcher Strategy Analytics.

“We lowered our camera sales projection because of slower economic growth and an increasing use of smartphones that’s eroding demand,” Chief Financial Officer Toshizo Tanaka told reporters in Tokyo yesterday.

Canon’s estimate for full-year profit lagged behind the 239 billion-yen average of 22 analyst estimates compiled by Bloomberg. The company yesterday also reported third-quarter profit of 50.1 billion yen, compared with the 55.5 billion-yen average of five analyst estimates compiled by Bloomberg. Sales of 799.9 billion yen in the quarter also trailed analyst estimates for 899.5 billion yen.

Apple, Nokia

Companywide sales this year may be 3.53 trillion yen, lower than the previous estimate for 3.69 trillion yen, Canon said. Operating profit may be 356 billion yen, down from an earlier estimate for 390 billion yen.

The shares rose 2.2 percent to 2,645 yen in Tokyo yesterday, before the earnings announcement. The stock has declined 22 percent this year. In contrast, shares of Samsung, the world’s biggest maker of smartphones, have advanced 25 percent, while Apple, the second-biggest maker, has gained 52 percent.

Apple’s new iPhone 5 -- with an 8-megapixel camera sensor and backside illumination -- has software that lets consumers take panoramic pictures. Last month, Nokia Oyj (NOK1V) unveiled a phone with a spring-mounted camera for steadier pictures. In February, the Espoo, Finland-based company introduced a phone that has a 41-megapixel camera.

Anti-Japan Protests

Camera makers are fighting back.

Canon’s first mirrorless model, the EOS M, became available in Japan last month, following the introduction of products with similar technology by Nikon and Sony. The mirrorless cameras are smaller than professional models yet capture similar-quality images with the ease of a point-and-shoot model.

The European debt crisis and anti-Japan protests in China also are affecting demand. A stronger yen is hurting repatriated earnings of a company that gets 80 percent of its revenue from overseas.

“The global economy remains weak in the fourth quarter and concerns are increasing about a slowdown,” Tanaka said. “Especially for Europe and China, we cannot foresee what will happen.”

A dispute over islands in the East China Sea claimed by both countries sparked anti-Japan protests in China last month, disrupting local output by Japanese manufacturers such as Canon and reducing demand for their products in the world’s second- largest economy. China and Japan’s worst diplomatic crisis since 2005 was triggered by Japan’s purchase of the islands.

Printers, Copiers

Canon was among the Japanese companies that halted production in China in September as demonstrators smashed stores and set factories on fire. Canon has restarted its three affected factories.

About a quarter of the cut in Canon’s annual sales of cameras are due to risks in China, Tanaka said.

“Our forecasts are based on the worst-case scenario that the China situation will continue until the end of the year,” he said.

Worldwide printer and copier shipments declined 8.4 percent in the second quarter from a year earlier, according to the International Data Corporation.

Canon’s office-equipment sales fell 13 percent to 409.4 billion yen in the third quarter, and imaging-system sales fell to 322.1 billion yen from 347.4 billion yen in the same period, the company said.

Canon based its full-year forecasts on exchange rates of 78 yen to the dollar and 100 yen to the euro.

The yen gained 2.4 percent against the U.S. dollar in the third quarter. Each 1-yen gain in the Japanese currency against the dollar would erode second-half operating profit by about 5.3 billion yen, Canon said in July.

“Canon is vulnerable to an economic cycle and currency,” said Naoki Fujiwara, a chief fund manager at Shinkin Asset Management Co. “Whether it can bottom from this quarter or continue its slump depends on Europe and China.”

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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