An Objective Analysis of Nikon’s Restructuring Announcement (8 Nov 2016)

When Nikon announced a massive restructuring plan including planned layoffs, haters rejoiced, online critics wrapped themselves with self-righteous correctness, arm-chair experts sprouted more nonsense, and more than a few Nikon users got a little nervous.

As usual all information is publicly available in Nikon’s corporate releases. They are actually surprisingly transparent considering the supposed gravity of the situation. Warren Buffet supposedly made his billions because he learned how to read the financial reports of the companies he wanted to invest in. So the astute investigator would have saved himself quite a bit of confusion. In fact, Nikon’s share price rose after the announcement, so reality could indeed be different from what netizens on photography forums perceive it to be. πŸ˜›

Abandoning The Medium-Term Management Plan

In mid 2015, Nikon management outlined a “Medium-Term Management Plan” that aimed to position the company for sustained growth for “the next 100 years”. In summary, the strategy was to maintain FPD Lithography and Imaging as the cash-cows, break-even on Semiconductor Lithography, and develop Microscope Solutions, Industrial Metrology and Medical as new businesses.

However as we approach the end of 2016, Semiconductor Lithography is still in the red, and revenue from Imaging is declining due to the global shrinking market. In other words, management is essentially saying, “this is not going to work”. Leading to the following announcements in their corporate strategy:

“We were unable to effectively respond to weakening market demand
and intensifying competition. As a result, our profits declined and
we failed to meet market expectations”

“Strategy and initiatives are misaligned with our business environment
such as the shrinking market and increasing competition”

“We have not resolved the structural challenges our core businesses face”

Leading to the headline announcement:

“We acknowledge the issues of current targets and will discontinue the existing medium-term management plan”

The management has arrived at the conclusion that even though the company is profitable now, it is not sustainable in the future with the current way the company is conducting its business. Hence they are taking some drastic measures to avert disaster in the future.

Always good news to know that a company is willing to change their direction in recognition of current trends. Perhaps that is why their share price actually went up after this announcement!

The Restructuring Plan

The biggest cuts in the restructuring plan are directed to Semiconductor Lithography, identified as the heaviest bleeder. It will be subjected to a “re-assignment” of 1,000 employees. I am not familiar with the nature of this business, but at first glance it looks like they aim to break-even by reducing the scale of the business.

Another entity subjected to cuts is HQ operations, which is subjected to a “re-assignment” of 200 employees. They appear to be addressing some problems in corporate structure that could be hampering business functions. It almost sounds like there is an issue of people not actively taking responsibilities for the products the company delivers!

“Simultaneously shift to portfolio based management, implement targets linked to shareholder value, and enhance governance structure to improve transparency and discipline”

“The number of directors and officers will be reduced according to a reassessment of their roles and assignments”

Not an uncommon problem in large organizations. In fact my frequent observation is that Nikon does not have a technology problem – instead they have a management problem. They need to have management who understands their business, make good decisions, and steer their R&D and product teams to focus on the right products.

Finally we come to the Imaging Business, where I have more to discuss. This is still Nikon’s greatest revenue generator, so it is absolutely important that it creates as much value as possible. There is a planned “re-assignment” of 350 employees, and a business unit working on microscope lenses is expected to be absorbed into another business unit working on camera lenses.

The current Nikon strategy is to offer a full range of products at every price point for every level. Consider the full range of imaging products from compact cameras to bridge cameras to D3xxx/D5xxx/D7xxx/D500 to D6xx/D7xx/D8xx. However the restructuring plan says that this is unable to adapt to a shrinking market. What is their plan?

“Achieve high profit margins by focusing on high value-add products”

This suggests that Nikon may start to discontinue products that are low-volume and low-margin. A possibility could be the D3xxx line and the dozen-or-more 18-55/55-200 kit lenses that get refreshed every other year. Products which traditionally sell at high volume and high margins will be favoured. Examples include the D750 which sold well in Europe during 2015 and the more expensive higher-end D810. There may be a renewed push for higher-grade lenses to generate more profit. What I am afraid of is that Nikon ends up focusing too much on expensive high-end products that the enthusiasts find difficult to afford. Consider the recent string of new Nikon lenses – 70-200mm f/2.8, 19mm PC, 105mm f/1.4. Wonderful choices, but I’ll cease being a Nikon user soon if all Nikon offers in the future sits in this kind of price category. πŸ˜›

The good news is that Nikon recognizes it has a problem, and is racing to fix it. The even better news is that they identified management as a major source of their problem. πŸ˜€ The bad news is that we still do not know exactly what strategy they are taking in the Imaging business, other than some guidelines. Looking forward to CES 2017 for some hints. – WY

One comment

  1. I’ve spent recent days reviewing possible upgrades that will allow me to work more broadly, efficiently, and effectively as a WORKING journalistic-style photographer. My conclusion? Nikon is doing something right that other makers are not. Olympus, Fuji, Sony are all dithering in the high-end market, creating exotic lenses and selling camera bodies that tend to have niggling faults that get in a working photographer’s way. Canon innovates with useful features, but hasn’t produced the kind of all-round practical camera that the Nikon D700/D750/D500 are. The D500 blows the 7D II away. Meanwhile, nobody seems to recognize that Nikon actually did something very revolutionary with its 1 series line of cameras. The Nikon V1 and its followers are incredibly good at doing the basics very, very well – they focus, expose, and track focus outstandingly. And when push comes to shove, you can have all your little innovations, but if the menu system is a tangled mess (Sony), or image quality and operational speed are a cut below (Canon), and color and lens availability and price are on a second level (Olympus, Fuji), well, there you go. I am looking forward to Nikon’s DL mirrorless line. Mirrorless solves a huge problem with DSLRs that truly bugs the heck out of many pro photographers – the two-mirror backfocusing problems that decrease our trust in these cameras. Mirrorless camers, especially the 1 Series line, by contrast, just feel solid. Like good shoes, you can move around and blaze away on a paid job and pretty much forget about them (without dislocating a shoulder, I might add).

    Like

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