Something funny happened over the weekend. I read Nikon’s 2016 Report for the financial year ended March 2016, and it was honestly one of the most entertaining piece of material I read this year. It was entertaining not because it was funny or because I am sarcastic, but because there is a refreshing level of honesty addressing the company’s troubling business situation and challenging outlook. There is also a good amount of interesting information regarding Nikon’s strategies for the future, so that just made the report more fun to read. If you are interested, you can grab a copy here.
It is a forgone conclusion that with the ubiquity of the built-in camera in mobile phones, the traditional camera business is no longer what it was. Camera companies better get used to the new reality that most people don’t want and will never need the standalone camera anymore. It’s not a “this is the future” thing. That future is already here. In fact, it got here last year or maybe the year before last. 😉 Yeah, I know some people argue that the standalone camera business can still experience some kind of revival. The same way there were also people arguing that the music CD business will continue to prosper during the early days when MP3s and digitized music started gaining momentum. There were also Japanese soldiers who refused to surrender and continued to holdout in jungles after WW2 up till the 90s, while the world and their own country happily moved on.
In other words, camera companies should stop reminiscing about the “good old days”. The world has changed. Move on and build your businesses around the new reality.
With that introduction made, Nikon’s 2016 report is especially fun to read. For a long time, observers have rightly accused Nikon of being ignorant of or slow to react to the rapidly changing market. This report is probably the first I have seen coming from Nikon that openly acknowledges the challenges the company faces, and confesses to there being a serious need to react faster. The undertones stopped short of openly castigating the company itself, but the level of public self-introspection is refreshing for a Japanese company.
It is a big task to summarize the 86-page report, so I will just stick to examining Nikon’s current and future directions. I will also focus mainly on the imaging business only. Maybe I’ll read through and summarize the other businesses if I’m really, really bored. 🙂 I will not perform any financial analysis of the current and projected numbers either. I am not a qualified financial analyst, and financial numbers tend to sort themselves out remarkably well when your strategic plans are rational and well laid-out. Without further ado, let us begin.
We start with a summary of last financial year’s business results. Semiconductor Lithography did not perform as well as hoped. FPD Lithography was the dark horse as the demand for small and medium-sized high-definition panels surged, turning in a 75% improvement in income. Imaging declined 19%. Microscope Solutions and Industrial Metrology saw some improvements, while Medical is still in the red.
Right at the start, President and Representative Director Kazuo Ushida admits they are not doing as well as they hoped they would be, even though operating income met forecasts. Here is a sign that this is going to be a refreshingly different report – the title of Ushida’s message says “strong sense of crisis”. References to this “sense of crisis” is transparent and occurs frequently in his message. This is a public sign that someone has slammed their fist on a big red “emergency” button, and the situation serious and obvious enough that they are not going to hide it.
Reading further yields even more surprising emotions. Ushida repeated the mantra of their medium-term-management “Transform To Grow” several times, and openly admitted that there is a company-wide urgency to break out of current “molds of thinking”. He called this change of mind-set in the company a “major challenge”. An annual report where the company director says there is a problem dealing with transforming staff mindset? Pretty unexpected stuff here. While that can be taken with a lot of negativity, to me this is actually a fortunate thing to witness. Simply acknowledging a problem is a great first step and achievement. It’s like counselling – you can’t help someone who stubbornly refuses to admit they have a problem. (Believe me I have had unfortunate experiences of this in my social circles… 😡 ) But once they admit they do and need help, you’re on the way to winning the battle. This is also coming from the directorial level and expressed in public, so we know that the transformation Ushida has in mind is going to get hammered down into every level in the company.
Also surprising is how often Ushida repeated the term “internet of things” in his message. Sure that sounds late to the table and so “last season” for a technology company, but it is at least reassuring that Nikon is not still living in the technological stone-ages. In fact, Ushida repeated the IoT term so many times that there is no doubt that this is another focus that is getting pushed down through the entire organization. Finally good news for us who have been criticizing the lack of connectivity features on various Nikon cameras for years. It may be too soon to celebrate though – even the new D5 flagship did not get built-in Snapbridge. On those bodies where Snapbridge exists – according to end-user reports the performance is so dismal that it is nearly as good as not having the feature. ;P So Ushida really needs to be cracking the company whip on this.
Nikon’s strategy from 2016 onwards is to continue to maintain the earnings of the FPD Lithography and Imaging businesses. These will act as the main income generators for the company, as they try to return the Semiconductor Lithography business to profitability. They will then position the Microscope Solutions, Industrial Metrology and Medical businesses as growth businesses. This is their so-called “six-business” portfolio strategy. Personally, I am not opposed to this as I have no better ideas. 😛 Remember what I wrote about in the beginning – the camera market is never going back to what it used to be, so it is better to move on and diversify your portfolio.
One interesting thing mentioned by Ushida regarding the Imaging business is that they are moving away from compact digital cameras, and focusing on mid-and-high end equipment. This is probably the first time I heard an official acknowledgement from Nikon that they are making plans to exit the compact camera business. Indeed, I have noticed in several local electronics shops that Nikon point-and-shoots are noticeably absent from the display cabinets, while a few Canon and Olympus P&S are still sitting on adjacent shelves. Nikon has been moving fast in this regard.
With regards to sales patterns, sales of entry-level camera types such as the D5500 is strong in Japan, while higher-level models such as the D750 is more popular in China and Europe. The P900 also recorded strong sales. Sales growth of the imaging business is stagnating in most places except India, where it had surprising growth contrary to the trend experienced everywhere else.
Network connectivity and “improvements in efficiency via cost reductions and manufacturing process optimization” were identified as some of the steps in the medium-term management plan. The latter point obviously scares me – Nikon has been notorious for defective batches of camera bodies and lenses in recent years. I could only hope this does not mean more black eyes to their loyal customer base in terms of faulty products.
In the message from Imaging business Senior VP Nobuyoshi Gokyu, there was one piece of interesting information. Because of the Kumamoto earthquake, Nikon is giving priority to the highly profitable middle and high-end cameras. So working photographers and serious enthusiasts should look forward to new toys that meet their performance expectations soon. There was some veiled admission that the imaging business also needs re-thinking among its ranks. Always a good thing to know, but will it happen fast enough? 😛
I end my summary here. As I write this article, it is early September and about two weeks from Photokina 2016. So far Nikon has only announced a new entry-level D3400 DSLR and a few new DX “kit” lenses. There is an attention-grabbing 105mm f/1.4, but nothing more. There was even a rumour that the DL cameras will be delayed till next year, and there has been very little updates of the KeyMission 360 action video cameras. From the information provided in the report, I am guessing that a mid-range or high-range body will be announced soon. I’ll watch out for any news between 7-15 August. Not that I have any insider info, but Japanese camera companies like to make announcements mid-week. And if nothing happens? Well, I can only say I find it regrettable that management was unable to deliver on their goals, and hope Mr. Ushida spends more time cracking the company whip. – WY