Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Canon Inc. may be doing better than expected. That should be good news.

According to a Nikkei report Friday, the Japanese camera and printer maker is likely to raise its full-year operating profit forecast by more than 20 percent to 330 billion yen ($2.9 billion) from an April estimate of 270 billion yen.

Strong sales of printers in emerging markets are behind the expected improvement of Canon's bottom line, aided by good M&A integration and automation, Nikkei says.

Rather than cheer the news, investors gave a polite golf clap in morning Tokyo trading. Not that a rise of as much as 1.7 percent isn't healthy, but it doesn't compare to the stock's 3.1 percent intraday climb one day last week.

Out of Toner
After a strong rally earlier in the year, investors have been a little more circumspect
Source: Bloomberg

Canon's shares have advanced 7.3 percent since April 26, when the company originally increased its full-year operating profit forecast after strong first-quarter results. The further 20 percent rise in earnings expectations should elicit a stronger reaction, especially in Japan's weak corporate environment. Granted, the Nikkei news report isn't an official adjustment, but surely there are traders out there ready to latch onto any positive development.

Canon's current valuation doesn't seem askew either: It's trading at 23.7 times earnings, well below the 44.5 times average of its peers and inline with the median.

One of the key concerns I have is that this rosier picture is centered more around an aging business than any indication Canon is changing its fundamentals.

To be sure, reports that automation is improving efficiency and boosting margins are encouraging. Yet the fact that Canon's key driver is in the older printer category instead of newer areas like industrial machinery is probably what's giving investors pause.

In a series of reports published on SmartKarma, researchers at Pelham Smithers Associates have outlined the challenges facing Canon, and have compared its business to the successful restructuring undertaken by Sony Corp.

The problem we've had with Canon is that it has assumed that its problems in cameras and printers are cyclical not structural, and held off from undertaking the necessary surgery.

More than 53 percent of Canon's sales last year came from its printing division, and 32 percent from its camera unit. Both percentages will drop this year, chiefly due to Canon's acquisition of a medical-devices unit from Toshiba Corp.

Carbon Copy
Printers remain the largest sales contributor at Canon, although a medical-devices acquisition will alter that in the coming 12 months
Source: Bloomberg

The company's hidden gem is Canon Tokki. As Bloomberg's Pavel Alpeyev and Takashi Amano outlined in December, this little-known unit has a commanding lead in providing the equipment needed to manufacture OLED screens. These are the awesome, yet troublesome, displays that may limit supply of Apple Inc.'s new iPhone. 

From my own discussion with sources in the supply chain, Tokki remains the critical bottleneck in the ability of Samsung Electronics Co. and others to churn out more OLED displays. Canon doesn't seem to recognize the golden goose it has nesting.

In comments to investors in April, Canon devoted just one paragraph to explain that it's "working to standardize and raise the efficiency of the manufacturing process in order to respond to the strong demand." 

Having cornered the market for a critical step in one of the electronics industry's hottest new segments, Canon is sitting on a business that should provide the basis for multiyear growth and development. Instead, executives seem obsessed with boosting sales in a legacy area that faces plenty of competition and continued headwinds.

No wonder investors are unimpressed.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at

To contact the editor responsible for this story:
Katrina Nicholas at