We need to do a better job of teaching financial information in our educational systems. Every time Nikon posts a loss and I write about it, I get a string of emails asking "is this the end?" or "who's going to buy Nikon?" or "I guess I should switch now, right, before I get stuck?"
There's a big difference between posting a loss and being in financial difficulty. Indeed, even the mainstream press business writers seem to be getting confused with profit and loss gyrations lately. First, to answer all those that wrote me: I don't see Nikon in any particular financial difficulty. Much of their loss is in write-off of assets. In the camera business, which is 72% of Nikon's business now, they are profitable and holding market share. The underlying financials--debt ratio, cash flow, etc.--all are not critical at the moment, though they could be better (as in no debt at all and plenty of cash on hand). Nikon is not going to go out of business tomorrow, nor is it really a takeover candidate.
Nikon's big problem is a tough one, though: where does growth come from? I suppose a rebound in the semiconductor equipment marketplace might quickly bring in critical additional revenues and large profits, and this could turn the weaker part of Nikon's financials around faster than you could blink an eye. But that would only restore Nikon about to where it should be. It's not "growth" if all you do is return to previous levels of sales. (I'm sure the business press will report it as growth, though ;~).
The Imaging division is getting growth in unit volume, but not in sales and profits. That's the critical issue for not just Nikon, but the entire camera industry. In other words, the market is mature. Even in good times (no worldwide recession) the strong companies in a mature market have a difficult time achieving growth. To truly achieve respectable growth in a mature market, you need one or more of several things: (1) disruptive technology that invalidates previous products; (2) entirely new product lines (e.g. video cameras for Nikon); (3) a close connection with current customers that you can use to leverage into additional, related sales (e.g. lenses and accessories); or (4) acquire businesses.
Historically, Nikon has relied upon #1. They're a technology-driven company, after all. Interestingly, despite tough times on the bottom line, Nikon's R&D spending has not changed a lot: it's slightly down from it's peak but still historically high as a percentage of sales. The numbers say Nikon is betting on #1. Traditionally, #4 is the easiest to do, but very difficult to get right. But personally, looking closely at where Nikon is today and what they need to accomplish to keep from getting relegated to a niche company with no large potential future gains, I think they need to do all four things. And they need to do it soon.
The end of the current Great Recession is going to give the camera companies a short bit of a respite, I think. They'll see sales inch upward and pricing pressures ease a bit, and all that accrues pretty directly to their bottom lines. They'll think everything is copasetic and business-as-usual. The only problem is, it isn't. We're still at near saturation on camera sales, there can't be price rises without technology breakthroughs, the overall market is still low-growth, and none of these companies is exactly customer friendly, so they're not firing on all cylinders to start with.