How Olympus Is Scaling the Heights
For a glimpse of who's ahead in the digital-camera race, check out any electronics emporium in Japan. Dozens of new models cramming store shelves vie for the attention of shoppers, but only a few are hot sellers. In this hypercompetitive market, Olympus Optical Co. stands out. It had two of Japan's five best-selling models in June, a big retail month, according to an industry survey of 700 retail stores across Japan, where last year 80% of the world's digital cameras were sold. Olympus ranks with Casio, Canon, and Sony in global sales.
Booming digital-camera sales helped Olympus hit record earnings in the fiscal year ended in March. Net income jumped 137%, to $206 million, on sales of $4.8 billion, up 7% over the previous year. No wonder investors have pushed Olympus' Tokyo-traded shares up more than 50% over the past 12 months, vs. a decline of 14% for the Nikkei index. That, in turn, has pushed Olympus' ranking to No. 743 in this year's Global 1000, from 994 in 2002 -- one of the biggest gains on the list.
Investors have also taken notice of Tsuyoshi Kikukawa. After becoming president two years ago, Kikukawa reorganized the company into three main divisions -- cameras, medical gear focused on endoscopes (Olympus' biggest money-earner), and industrial tools such as microscopes for the chip industry. He speeded up decision-making and shifted emphasis from market share to profits. Olympus had a 19% share of the digital-camera market in 2001, yet its camera division lost money that year because of unsold inventory. So Kikukawa moved some assembly to China, cut costs by 20% in the process, and reduced inventory from 4.5 months to 1.4 months.
The challenge for Olympus is to keep moving up the Global 1000. Hisashi Moriyama, an industry analyst at J.P. Morgan Chase & Co. in Tokyo, is impressed with the company's growth over the past three years and cites its 80% global share in medical endoscopes as an important pillar. But its dependence on the digital-camera market for 30% of sales is a concern. Moriyama predicts that growth in digital-camera sales in Japan will slow to 43% this year, down from 83% last year, and decline to 11.9% next year. Europe and the U.S. are bound to follow. "It will be hard for Olympus to make money in digital cameras," concludes Moriyama.
Olympus is betting on its edge in digital single-lens reflex cameras to stay in the winning lane. Regarded by some as the next big thing, these new cameras combine the convenience of digital -- allowing the photographer to see exactly the picture that has just been captured, with an option to keep it or discard it -- with the image quality of an SLR. The field, so far, is limited to three players: Canon, Nikon, and Olympus, all traditional lensmakers. "Electronics companies can't compete against us because they lack the special kind of lens needed," says Makoto Nakatsuka, general manager for Olympus' finance department. Although pricey -- they cost around $2,500 per unit -- Olympus expects to sell 600,000 of them this year and 1 million in 2004. With luck, investors will keep liking this picture.
|Corrections and Clarifications "How Olympus is scaling the heights" (Global 1000 Special Report, July 14) should have said that Japan accounts for more than 80% of the world's digital camera production, not 80% of world digital camera sales.|
By Irene M. Kunii in Tokyo