Nikon Reports On the Last Year: How Has It Done and What Does It Need to Do to Close the Gap?

Financial results are one thing and pundit commentary another; however, there is nothing like hearing it directly from the horse's mouth. So, how does Nikon think they are doing? Hear what they've got to say.

Nikon has just published their Annual Report for the 2020-21 financial year, which is a roundup of how the whole business is doing, where they think they have done well, and areas they believe need further focus. As I commented on earlier this year, Nikon's Imaging Division has had a tough time recently, as they implemented the business' three-year medium-term strategy, which involved significant restructuring, job losses, and impairment losses.

The report begins with a summary from Nikon's President, Toshikazu Umatate, and there isn't any way to dress up what is a painful restructuring moment in their history. In black and white, he notes that the Imaging Division has seen losses over the last two years of ¥17 billion and ¥35 billion. In terms of restructuring, they have recorded ¥30 billion in impairment losses (i.e. writing off capital assets) and laid off some 2,000 staff, principally through their overseas production operations, but also including sales companies. Moving on to the positives, he believes the current financial year will see a return to profit for the division, driven by a focus on new mid-to-high-end cameras and lenses, touting the imminent release of the Z 9 and expansion of the lens lineup from the current 22 to "nearly 30." Nikon has stuck to its core plan since the birth of the Z system and there is nothing inherently wrong with it. The problem is that they are not developing it in a vacuum of isolation; Nikon is up against well-funded, innovative, and motivated competitors in the form of Sony and Canon.

With all manufacturers targeting mid-to-high-end customers, one obvious tactic is to expand the size of the market to sell to. Umatate focuses upon new markets, which could include entry-level models for young customers. Interestingly, he conflates the young with low value (and presumably low income), which is not necessarily the case. There is something to be said for separating these two problems. How do you sell to the young and how do you sell entry-level models? The latter is decidedly difficult in the current smartphone-dominated world, while the former requires a different approach to marketing. Nikon isn't exactly known for being a hip, upstart brand. The other market Umatate pushes is business-to-business (B2B), where manufacturers sell to other businesses rather than consumers. Quite who these businesses are for Imaging remains to be seen, so I guess we'll have to watch this space.

Imaging is only one of five divisions, so any discussion of Nikon's future needs to take the others into account. Umatate is keen to promote the new Components division, which had a solid start to the current year (¥7.7 billion turnover), producing an exceptional ¥2.1 billion in profit. This good news is mediated by the relatively weak performance of its two biggest divisions: Imaging and Precision Equipment. That said, all divisions (other than Imaging) were largely profit neutral last year, and all had a good start this year bar a small loss at Industrial Metrology.

As a business then, the main headlines are a consistent reduction in income over the last decade from a high of ¥1010 billion to the current ¥451, with that large loss last year. That said, 2019 had Nikon's biggest surplus in the last ten years, so profitability has been less affected. In terms of inventory, this is consistently around the ¥250 billion mark; however, more problematic for a fast-moving business is the rise in the turnover period from 3.1 to 6.4 months over this period. Products in warehouses are not good for manufacturers or consumers. As I've noted before, Nikon has maintained a ~¥60 billion R&D investment even as income has fallen meaning that its relative investment is at an all-time high of 13.3% of turnover.

Umatate finishes his summary by focusing upon the brand. He notes:

we cannot deny that the Nikon brand has fallen into a long slump recently.

As a business, Nikon is conservative; however, given the current performance of Imaging, this is proving counterproductive to developing the business on two levels. Firstly, marketing attracts new photographers into the Nikon fold and depicts them as a progressive and exciting camera company. Secondly, it is to vaunt the breadth of their manufacturing and particularly their business-to-business activities. Their "Manufacturing Makes It Happen" video is an attempt to address the latter through the long-term investment areas.

Umatate concludes with what could be a mission statement:

Nikon is pressed to improve its reliability and fully exercise its creativity, backed by sophisticated technologies, in an earnest attempt to address the issues and needs of society and customers.

Has the Medium-Term Plan Paid Off?

The core of Nikon's management plan is to... generate profit! Perhaps that sounds a little obvious, but the problems with their business stem from the Imaging Division, which has long generated revenue and made up the bulk of earnings. However, with the decline of the camera sector, it now accounts for just 33% of revenue. This is still significant but is forcing Nikon to expand its manufacturing prowess into new areas while restructuring Imaging to make it profitable in the long-term and, in particular, with revenue of less than ¥150 billion. Part of its development into new product areas has been a focus upon "Monodzukuri," which will enable it to move back to its foundation in manufacturing prowess and then diversify into related fields. It sees this as a cross-fertilization of areas linked to precision manufacturing and optoelectronics (and "vision" more broadly) that links across to sub-specialisms in image processing and software.

In short, Nikon knows that Imaging is a declining business and needs tight cost control. At the same time, it must expand into other fields and grow them. The Precision Equipment Division (41% of revenue) is well placed for immediate expansion, but its Industrial Metrology (12% of revenue) and Healthcare Divisions (14% of revenue) need to grow, alongside the new Components business. Interestingly, China and the USA account for about a quarter of revenue each, with Europe, Japan, and "Elsewhere" equally splitting the remainder.

So, how is Imaging doing? Perhaps unsurprisingly, Nikon flags the declining market and intense competition as key risks, alongside more recent component shortages that are a continuing headache for manufacturers. It is the last of these that could cause significant problems and is further linked to energy shortages, labor problems, and significant logistics problems across the globe. Add into the mix pent-up consumer demand and a surplus of cash globally (yes, there is!), and you have rising prices and inflation. For any manufacturing business, this is going to be a difficult time. Beyond this, Nikon gives little away, although their relatively short roadmap of achievements in Imaging shows that they aren't moving particularly quickly. Still, this should be viewed in relation to their competitors rather than in isolation.

The last financial year — 2020-21 — was always going to be a difficult one for Nikon, as it completed its restructuring of Imaging. COVID has simply exacerbated issues related to supply and sales, which means that all eyes will be on its performance in the current financial year. If it can make Imaging mildly profitable (and not a drain on income) while growing its emergent star performers, then 2022 could will be foundational for a new, refocused, Nikon.

That, however, doesn't say too much about Imaging. Like Fuji, Nikon sees its camera business as part of its DNA; there is no debate over its future. However, the poor performance during COVID was seen across other camera manufacturers, but in Nikon's case, this has masked (and possibly excused) the weak performance shown by its market share. This remains a continuing concern as it loses DSLR sales, which aren't being completely replaced by its mirrorless cameras. All eyes are on Nikon, Canon, and Sony over the next year as the new market shapes out.

Lead image composite courtesy of Free-Photos via Pixabay, used under Creative Commons.

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9 Comments

Mark Beguin's picture

Try releasing cameras/lenses, instead of teasers. Just a thought.

Brad Smith's picture

Agree. When you've been teasing a flagship model camera for over 6 months which will, in all likelihood, have the same or similar specs to a Sony camera that's been out for nearly a year....you're in trouble if you're aiming for the high-end market.

Hans J. Nielsen's picture

What a small-minded way of thinking.
You do know that there was a time in the past, where Sony would release the A1 in 6 months in the future. Do you really think that just because they didn't release teasers, that they could release it sooner?

Sony dont use teasers, but Canon and Nikon do, but if all three of them decide to release a new camera in 8 months, it don't make any differens in when the camera will be released. It will still happen in 8 months.

Two of them will just be hyped up and one will be a surprise. Just the way the companies work.

Brad Smith's picture

Maybe you don't get the point....I don't have a such problem with "teasing" it. However, the entire reason they feel they have to do that is that they're behind the curve. They've gone from leader to follower and have to try and convince people that they actually have the technology. Which leads to the 2nd problem...they don't actually have the technology. When the camera you release that's supposed to push the competition merely matches it, you've failed.

Hans J. Nielsen's picture

Oh, so that is why Sony is teasing a teaser in 3 days for their new a7IV. Course if you tease a camera is because you are behind on tech. Or is that just a Nikon thing in your mind?
https://www.sonyalpharumors.com/sony-officially-launches-the-sony-a7iv-t...

Of course, this also prove that I was wrong in my first comment, as Sony clearly do use teasers.
Maybe companies use teasers course it is a good marketing strategi. It teases you to want to learn more. Like when a movie company launches a trailer, or even more, for an upcoming movie.
It is to pique your interest in the final product. Nothing more nothing less.

Stop reading too much into it, and just enjoy the show.

Christian Fiore's picture

3 days vs 6 months. Overhype killed the original Zs, and it doesn't look like Nikon has understood that.

Lawrence Huber's picture

The flagship will be a re-branded A1.
The Z6 and Z7 II are way behind Sony and Canon mid-range cameras.
Pros will not dump Canon for Nikon at this point like they dumped Nikon for Canon's far superior EF system.
There is no demonstrable reason to get the Z9 except by the usual rich amateurs and those wanting bragging rights with their Nikon fanboy club.

barry cash's picture

Kinda depends on the task why one needs what equipment but I could still do any job with a D4!

Newer better glass is the only think new in photography till now even the newest AF better yes but must have to get the shot umm I don’t think so

Celso Mollo's picture

Mark Beguin, I was just going to say exactly that, by the time they release the Z9 it will be old news.
I am a Nikon shooter so f. off haters.The only reason I don't change brands is because the camera I have does the job for mew, I couldn't even justify buying one of these new mirrorless cameras, the price is insane.