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Canon Dims Sales Outlook as Smartphones Capture Snapshots

Canon Inc. (7751) is finding it even harder to sell cameras in a global market where smartphones already command a 13-to-1 lead in shipments.

The world’s biggest camera maker cut its annual profit and sales forecasts yesterday as it faces slowing demand for the compact and high-end models with interchangeable lenses that underpin its 983 billion-yen ($10 billion) business. The shares slumped the most in three months on the Tokyo Stock Exchange.

Worldwide shipments of cameras have fallen to a 10-year low as consumers increasingly take pictures with phones from Apple Inc. (AAPL) and Samsung Electronics Co. (005930) equipped with lenses capable of high-quality snapshots. Canon said an economic slowdown in China, which it expects will become the biggest market, is also curbing demand while Japanese rival Nikon Corp. (7731) looks for ways to tap smartphone growth to counter the slump.

“The cannibalization effect on compact cameras by smartphones has become quite serious,” said Toshiya Hari, a Tokyo-based analyst for Goldman Sachs Group Inc. “Canon will have to find a new growth driver. I can’t imagine the camera market will grow much further in the coming decade.”

Shares of the Tokyo-based company fell 5.4 percent to close at 3,245 yen, the second-biggest percentage-loser on Japan’s benchmark Nikkei 225 Stock Average. Nikon dropped 4.7 percent to 2,161 yen, while the stock index slid 1.1 percent.

Photographer: Tomohiro Ohsumi/Bloomberg

A Canon Inc. digital single-lens reflex (DSLR) camera is displayed at an electronics store in Tokyo. Close

A Canon Inc. digital single-lens reflex (DSLR) camera is displayed at an electronics store in Tokyo.

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Photographer: Tomohiro Ohsumi/Bloomberg

A Canon Inc. digital single-lens reflex (DSLR) camera is displayed at an electronics store in Tokyo.

Goldman Sachs cut its share price forecast for Canon to 3,270 yen from 3,400 yen, saying “the underlying situation looks severe,” while Nomura Holdings Inc. reduced its target by 14 percent to 3,617 yen.

Smartphones Surge

Worldwide camera shipments fell 29 percent to 434 billion yen in the first five months of 2013, according to the Camera & Imaging Products Association in Tokyo.

For the year, shipments will probably fall 30 percent, Masahiro Ono, an analyst at Morgan Stanley MUFG Securities Co. in Tokyo, said a report July 16. Total shipments will probably be 68.6 million units, down from 98.1 million last year, Ono said.

Conversely, smartphone shipments are expected to rise about 32 percent to 928 million units, market-research firm TrendForce said in a July 23 report.

Samsung, the world’s largest smartphone maker with about 30 percent of the market, released its flagship Galaxy S4 in April. Apple, which had about 19 percent of sales, said July 23 it will introduce new products starting in the fall.

Forecasts Cut

As handsets evolve, the level of detail offered for pictures is increasing. Apple’s iPhone 5 has an 8-megapixel camera, while the S4 that was released in April offers 13-megapixels. Nokia Oyj (NOK1V) this month unveiled its Lumia 1020 with a 41-megapixel camera.

Canon’s EOS-1D X, which sells for $6,799 on the company’s U.S. website, has an 18.1-megapixel sensor.

Canon said yesterday said net income will probably be 260 billion yen in 2013, cutting its April projection of 290 billion yen by 10 percent.

The maker of PowerShot and EOS cameras cut its sales target for 2013 compact models to 14 million from 14.5 million and its forecast for single-lens reflex deliveries to 9 million from 9.2 million.

“We knew there was a slump in cameras but it’s worse than our expectation,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo. “The situation will be difficult for Canon for a while.”

Weaker Yen

Canon cut its sales forecast to 3.85 trillion yen for this year from an April projection of 3.98 trillion yen. Operating profit, or sales minus the cost of goods sold and administrative expenses, may be 16 percent less than previously expected at 380 billion yen, the company said.

“The market worries that there may be a negative impact on SLR cameras from smartphone cameras,” said Hisashi Moriyama, an analyst at JPMorgan Chase & Co. (JPM) in Tokyo. Canon’s operating profit forecast “reaffirmed there’s a part that Canon can’t make up with its own efforts in its camera business.”

Nikon, the world’s No. 2 camera maker, is trying to tap the smartphone boom after warning of weaker-than-forecast earnings. The company’s first-quarter results may be “a little short” of its plan, President Makoto Kimura said this month.

Some of the impact on earnings by slowing camera sales gets offset by a weaker yen, which boosts the repatriated value of Japanese exporters’ overseas earnings. Canon makes about 80 percent of its annual revenue outside Japan.

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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