Is Nikon's Business Heading in the Right Direction?

Another day, another dollar. In Nikon's case, it wishes it had a whole load more dollars, as its annual financial report shows significant losses. So, is it making progress to get itself back on a level footing with Canon and Sony?

Nikon's 2015 to 2020 financial results were weak, falling from ¥800 billion (about $8 billion) to ¥591 billion, primarily a result of its Imaging Division, which saw income decline from ¥586 billion to ¥225 billion representing a drop from 68% of total revenue to just 38%. This was primarily a result of falling DSLR sales, the pivot to mirrorless, and shuttering compact camera manufacturing. Then came COVID, which, by and large, has impacted all camera manufacturers equally; it's just that the importance of the Imaging Division to Nikon is so much greater than, for example, Sony. The knock-on effect on the whole group is therefore more substantial.

So, how did Nikon fare in 2020-2021? Headline results are a drop in income to ¥451 billion (-24%), with a net loss of ¥56 billion. The Imaging Division turned over ¥150 billion and accounted for a ¥35 billion net loss. Imaging now represents 30% of income and the source of the vast majority of the losses (the latter principally accounted for by impairment losses, i.e. writing off capital assets). The driver of much of Nikon's recent success has been Precision Instruments; however, that also saw a drop in income and was profit neutral.

While Nikon's financial position remains challenging, it has been keen to highlight success in sales of its Z-mount mirrorless cameras. Is this born out by the figures? Unfortunately, Nikon doesn't separate out DSLRs and mirrorless cameras, grouping them together as ILCs. As I reported earlier this year, 2020 sales figures (which don't quite align with Nikon's financial reporting dates) suggest 5.7 million ILCs shipped, made up of 3.3 million mirrorless and 2.4 million DSLRs. Of those, Nikon accounted for 250,000 and 650,000 respectively. Nikon reports shipping 840,000 ILCs, which aligns with the above figures and potentially confirms the relatively low level of Z camera shipments.

On a positive note, mirrorless shipments show only a 10% drop on the previous year in a market where it appears only Canon has seen gains. That's good news, as Sony saw a 30% drop; however, the worry is in the overall volume of sales. Two hundred and fifty thousand is a small number and likely places Nikon behind both Fuji and Olympus, while Canon appears to have shifted 2.75 million ILCs, some three times the volume of Nikon. DSLRs still made up the greatest proportion, but that is changing rapidly, and it seems likely that either this year or next year will be a significant turning point as Canon and/or Nikon will sell more mirrorless cameras than DSLRs. That's in part because consumers are buying more mirrorless cameras, but it's also because manufacturers are making more of them. The cupboard is threadbare when it comes to the number of new DSLRs releases. It is probably true that Nikon sold many more mirrorless lenses, but that is simply a consequence of having significantly expanded its lineup.

Is Nikon In Recovery?

The obvious question is whether Nikon is well on the road to recovery. COVID has masked the principle signs by which we could determine this, as the impact of revenue losses swamps anything else. Perhaps a good place to start is what Nikon is actually forecasting for the next financial year. Looking ahead, its expectation is revenue of over ¥510 billion (15% rise), with Imaging rising to over ¥165 billion (10% rise), giving it an overall operating profit of ~¥20 billion. That looks like a cautious forecast in an uncertain world as we really don't know if we are post-COVID and so, what an economic recovery might look like. That said, it is enacting its medium-term strategy, which has four key components. Firstly, reduce costs specifically by cutting ¥50 billion of costs from Imaging. Secondly, focus its product development on the professional and hobbyist market segments. Thirdly, improve its sales strategies with direct sales, but also reducing costs. Fourthly, reorganizing manufacturing.

As it enters the last year of its plan, most of the painful — and expensive — restructuring elements of the strategy appear to be complete (e.g. factory closures, redundancies), and indeed, it has increased the cost-cutting to ¥63 billion, which is specifically intended to produce profit within Imaging on revenues below ¥150 billion. Does this indicate the revenue (and unit sales) it is expecting in the future? It suggests that there is limited revenue in camera sales and, indeed, it is pushing business-to-business developments to pursue linked camera related sales. However, on this basis, the first and fourth elements are largely complete. It, along with all the other manufacturers, is focused upon the professional and hobbyist market. Low-budget, entry ILCs are largely absent from the sector, with an increasing proliferation of high-end cameras that are intended to generate healthier sales margins.That's where the traditional market is at the moment. That leaves sales, and at this point, the numbers speak for themselves. Nikon has and is continuing to build out a good mirrorless system; however, they are not yet moving significant volumes. Sony has a headstart, and Canon has been undeniably successful. It is still early days, but Nikon is not chasing Sony and Canon, but rather Fuji and Olympus, a position it is not used to.

Perhaps most telling is Nikon's look at macro trends and crystal ball gazing for long-term growth areas. It is always going to be difficult to envisage a future marketplace and so a future business, but it is something that Fuji successfully did — and Nikon should have done — some 20 years ago with its Vision75 strategic plan. And this is the interesting point: Imaging has a small part of this future. For sure, it sees "Vision Systems" as having a successful future, but this seems unlikely to be based around the traditional camera market but rather the embedding of optical and imaging products within automated and semi-automated systems (a segment it calls "robotics"), which is perhaps why it is in the early stages of its business to business development. Alongside this thread sits healthcare and digital manufacturing, both predicated on existing divisions. Diversification and expansion is exactly what Nikon needs, and 2021 could well be the turning point for it. Will the Z System be successful? Who knows, but it seems it will remain a labor of love.

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

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18 Comments

Alex Ragen's picture

I have never understood the gleeful enthusiasm of so many "journalists" to dance on Nikon's grave.

Pan daBear's picture

Obviously you’ve never danced on a grave before.

Timothy Linn's picture

I’m not sure how presenting objective numbers is dancing on Nikon’s grave. Mike’s analysis was not overly negative.

Roland Ayala's picture

Probably because there are a lot of previously loyal Nikon fans who lost patience with Nikon’s slow pace to adapt to changing times, and their reputation for being arrogant and unwilling to listen to their customers (a common sentiment or perception Ive seen frequently expressed over the years). It’s hard to feel sorry for Nikon, watching them claw back out if the grave they dug for themselves.

Doriano Ciardo's picture

Could it be for customers pissed off by the D600 and D800? In the US, Nikon was torn apart for those stories and in Brazil it lost all its stores. Or that by getting Sony's DSLR sensors, people found that, at the best price, Sony's MRs were good and with Zeiss glass? Or that the loss of $ 4 billion over the past year due to manufacturing choices and factories are idiotic moves? Especially at the expense of the workers? Or that people feel fucking deceived for years? In the end, the bill always comes back. I've never seen this shit with other brands.

Lawrence Huber's picture

A major problem for Nikon is if one likes the images then get the latest sensor technology that Nikon gets from Sony a year later.
Why buy Nikon when you are just getting a repackaged last years Sony?

Grant Schwingle's picture

Because you aren't. The sensor isn't just copy pasted from Sony shit. They run it through their own processor and from first hand experience I can tell you the images are not the same. Sonys menu systems are a joke and the ergonomics are non existent.

Timothy Linn's picture

As Grant pointed out, even if Nikon is using the same sensor used in Sony cameras — and I’m not sure that that is correct — Nikon has repeatedly demonstrated an ability to extract higher image quality from it. I’m not sure I see the problem.

J. W.'s picture

Because Sony makes the sensor does not mean it's the same sensor. TSMC produces chips for Apple, AMD, Nvidia, and many others. Are they the same chips? NO. The chips are fabricated using designs from each company and not TSMC. The same is true with TVs. LG makes the panels for Sony; when viewed under a microscope, the pattern is entirely different from LG.

It is common for companies to outsource fabrication to other companies, even competitors (Apple uses Samsung and Intel). At times, it is more efficient to use some else's fabs than building a new plant that will struggle to keep up with the competition. Remember, Nikon, Olympus, Pentax, and Canon never made their sensors back in the day. Kodak and Fuji provided the recording medium (film), so they do not come from a strong digital background.

Deleted Account's picture

That's not how manufacturing works. Apple specifically contracts TSMC to fab their chips with their own internal designs. TSMC just has the ability to manufacture large amounts of products. Apple is unable to produce 70+ million chips per year so they are forced to go to a large scale manufacturer with the ability to produce "Insert nm process node here" in large scale. Hence corporate espionage lawsuits every few years from stolen designs

Sony designs and makes camera sensors and then sells them off the shelf to other companies. In fact almost every camera and smartphone company in the world uses a Sony designed and manufactured sensor. The only exceptions are Canon who make their own sensors and occasionally Apple.

Its a massive part of why Sony doesn't need to be profitable with their imaging and phone divisions. They make up a tiny portion of Sony sales and Sony actively makes literal billions more from selling sensors and parts than Cameras and phones. PlayStation is also a massive reason why.

Bernard Languillier's picture

The thing is that Nikon's camera's image quality has consistently been superior to their Sony counterparts.

And you will have noticed that the sensors used in Nikon cameras were not in Sony ones nor the opposite since the a7rI. It's been a long time.

So I fail to understand your point.

Deleted Account's picture

Like Imagine Haaaaating Sony so badly you are blinded to reality

Lawrence Huber's picture

Nikon still uses Sony sensors to this very day.
Check your information again. The Z cameras are using Sony last generation sensors. The Z9 will use a Sony A7r IV sensor most likely at best.

jim hughes's picture

It's impossible to predict the future of anything that was affected by COVID-19, and that includes a lot. We don't know the future course of the virus, how economies will recover, how industries will adapt or how people will behave. So speculation is always interesting, but right how it has even less grounding than normal.

I just look at the quality of their recent new products, which seems to be very high. That indicates that very competent people are still running the company. And if the photography market no longer really cares about this kind of quality, and just wants faster pet-eye autofocus and bigger "portrait" lenses, then all bets are off.

Bernard Languillier's picture

The main problem Nikon is having today are these FUD spreading articles.

When you look at facts:
- The Nikon Z lenses are the best and offer the best price/performance ratio
- Sony FE lenses can be adapted on Nikon bodies but the opposite will never be true
- The AF performance of the Z6II/Z7II with firmware 1.2 is outstanding. In no way behind for eye AF, just a bit behind for tracking
- There is little doubt that the Z9 will take the crown back of best focusing mirrorless camera
- Nikon has a very wide base of satisfied high-end DSLR users, few having migrated to Sony, which is very different from Canon
- the Nikon stock keeps increasing
- they have taken all the tough decisions in terms of production location

So there is zero reason to be concerned.

Deleted Account's picture

The amount of lies. My mind

Deleted Account's picture

You are actually living in a different reality. Not only is Nikons current Stock price the worst its been since 2003. Historically their worst year in over 4 decades. 2020 saw their stock devalued to the lowest point since 1983... Nvm literally everything else you've said.

Like honestly get your head out your a** if Nikon makes a good product people buy it. If other companies make a better product people buy that instead. Its actually laughable that not only did you use "Nikon" and "best focusing mirrorless camera" in the same sentence but also imply some massive agenda against Nikon like hello??? Imagine. Like just Imagine

Steve McKenzie's picture

I see objectivity is not your strong point Bernard. Unfortunately, just saying it is so doesn't make it so.