Nikon today released their financial information for the last quarter of 2012 (their fiscal third quarter). Analysts seem divided over it. We Westeners see the mud stuck in the cracks of the dam. The Japanese business press seems to like the results and are pleased there's a lot of water.
Short version: Nikon missed on a few things, but is still profitable and mostly hit on their camera and lens shipment volumes.
I've previously characterized Nikon as hitting the accelerator at the end of the straightaway even though there's a tight turn coming up. I'll repeat that assertion today, but note that not only are they still on the accelerator pedal, but they're on the wrong accelerator pedal.
Compact camera sales (Coolpix) continue to astound in a seriously down market. Nikon is predicting they'll sell 17 million in their full fiscal year, which represents 23% of the entire compact camera market (which is in dramatic decline, as I pointed out over on sansmirror last week). Yet one of the small points Nikon made about why their profit numbers didn't match expectations is that average selling price went down. See any correlation?
Nikon blamed most of those selling price problems on what seems to be a faux issue: they built too much inventory just in case there were more floods. Funny thing is, where I can see the inventory buildup is in cameras made in China, not Thailand. Like the Nikon 1, which they ended up having to have fire sales on. Gee, would that lower your average selling price?
Meanwhile, Nikon has lowered their estimate of interchangeable lens camera sales despite the fact that CIPA has increased the forecast sales for the same. If that doesn't set off warning bells somewhere, I don't know what would. The changes aren't dramatic (200k fewer units forecast by Nikon, 1.5m more units forecast by CIPA), but if average selling price is a problem, you don't want to have declining market share in the category where the average selling price is highest (Nikon's market share was forecast to be 37%, now forecast as 34% for the year) and increasing market share in the segment that is lowest (was forecast to be 21%, now forecast to be 23%).
Meanwhile, camera and lens sales as a proportion of the overall company continue to grow. Nikon is estimating that a whopping 73.5% of their total sales will come from the Imaging group in the full year results. In other words, if they screw up in cameras, all hell will break lose with the company, as there's not much else left that provides any meaningful revenue. Everything else is shrinking faster than parts of me would if I jumped into a glacial fed lake, including Nikon's cash on hand (which is probably why they lowered their dividend).
Nikon pushed a lot of boxes last year, no doubt. But with declining return. The question you have to ask is how are they going to push more boxes this year with an increasing return? A D4x isn't the answer. Coolpix that end up selling for US$150 or less at retail are not the answer. I'd argue that the answer has always been staring Nikon in the face, but they've just ignored it: DX. The D7000 and D300s are overdue for updates, the DX lens lineup is stale and out of balance, and Nikon simply isn't driving performance (other than perhaps sensor) in ways they should if they want to hold off high-end mirrorless.
Let me put it another way. Nikon can't survive on FX alone. Best possible case is that they sell 1.2 to 1.5 million FX bodies, and that implies a max of 3 million FX lenses, too (they actually sell more than that because DX users have to dip into FX lenses). Those numbers alone won't save Nikon. The Nikon 1 obviously isn't saving Nikon, given that they're having to sell for so little to drain built-up inventory.
As far as I'm concerned, Nikon has been coasting with DX pretty much ever since the D300 appeared in 2007. Just a lot of lazy iteration, and no further attempt to blow their competitors out of the water. Yet that's the heart of Nikon's camera business, the part that has both volume and profitability.
I'm going to make a prediction: Nikon will likely have estimates for their next fiscal year that are either lower than the current year estimates, or they'll miss them when the actual results get reported. Of course, maybe I don't see that great middle of the lineup (CX and DX) onslaught that Nikon's got prepared for 2013 and 2014. If anyone else sees it, please let me know so I can adjust my eyeglass prescription.
I'm going to give you four numbers. Look at them carefully, then answer this question: what business is Nikon in?
- 7 million mirrorless and DSLR cameras.
- 9.8 million lenses.
- 17 million Coolpix.
- 42 steppers.
That's it. Those four numbers provide 92% of Nikon's money received. So what business is Nikon in? Where does the profit come from? Where does the growth come from? Which two numbers did Nikon just revise downwards?
I just might have a reward for the person who can provide me the best answer to what business is Nikon in. Even if they are a Nikon employee. We're looking at a future Harvard Business School case study, is my guess. So all you with MBAs, take a whack at it: what business is Nikon in? Bonus points: what business will Nikon be in five years from now?