Self-Fulfilling Prophecy

In an interview at a business conference in Japan, Nikon President Toshikazu Umatate recently made a couple of statements that reflect the way the company has traditionally thought about its two primary businesses. In essence, Nikon has long believed that both their semiconductor making equipment business and their camera business would fail. Okay, not exactly completely fail, but fail to provide meaningful growth or a clear long-term upside for the company.

Indeed, as Umatate-san points out, starting the Precision business in the first place was partly due to the fact that Nikon believed as far back as the 1970's that the Imaging business would decline and they needed another leg to stand on. Ironically, the film SLR business did stagnate in the late 80's and 90's, and the camera business was difficult. Right up to the point where Nikon introduced the D1 DSLR ;~). The DSLR (and compact cameras) drove ten years of dramatic growth in the camera business that Nikon wasn't exactly expecting, though certainly benefitted from. Meanwhile, the Precision business eventually gave up on EUV steppers—the technology that ASML mastered and which provided them with a monopoly on small process semiconductor creation, so Precision slowly cratered. 

It's interesting to hear Umatate-san's own words regarding EUV: "I didn't know if it would be possible, and development required the investment of huge amounts of money and resources; I didn't have the strength to do that."

Which is where self-fulfilling prophecy comes in. 

Nikon has historically been its own worst enemy. It has multiple times "given up" on trying to stay on top of a market and the technologies driving that business. In the technology world, that's dangerous because tech progression is relentless, and when you skip a generation or back off you often can't catch back up. It takes a bigger disruption to get back to your original top end position. 

These days, Nikon has decided that other businesses are where they can rebuild and grow the company, and they're using monies generated by their two primary businesses to buy into those new ventures. As in literally buying companies. To a large degree that's already proven to be a major success for them. Disclaimer: long before Nikon started to invest in new businesses I made the case that they needed to. I was dismissive of their first attempt to do so in the medical field—Nikon's only peripherally linked to medicine, unlike Fujifilm and Olympus—but I believe their most recent moves in the manufacturing and parts supply businesses will likely prove strong long-term wins. 

The problem I see is the same problem that has kept Nikon from staying dominant in their core industries: they keep predicting decline (or at least only stability of a market) and that becomes a self-fulfilling prophecy within the company as they back off from trying to stay at the forefront of key technologies. 

In a presentation to Nikon executives in Tokyo in early 2011, I pointed out that they were already too late to successfully participate in smartphones. Why "Nikon Inside" never happened with smartphones (ala Leica) is a long story, but the basic explanation is that Nikon arrogantly asked for too much from the companies making said phones. In my presentation I outlined three key areas (technologies) that Nikon Imaging would need to invest in to once again "flip" the camera market to their favor. They've partially implemented one since then, and ignored the other two.

Nikon is not a "bet the company" organization, it turns out. They're a "preserve the company" entity. That means that they will back off and try to just find a stable position over taking a more aggressive approach and attempting to lock down a market. It's why they went from #1 in semiconductor steppers to a distant #2 (or even #3 depending upon which part of the market you look at). It's why they went from #1 in cameras to a strong #2 to a now distant #3. 

As I've noted elsewhere, Nikon Imaging's current goals are not to increase market share or even sales volume. It's to build fewer product but at higher value (and profit). The Z9 wasn't a surprise in that respect, nor is the fact that the Z6/Z7 refresh is taking longer than would be expected (i.e. > 24 months), or that a Z8 might happen first. We'll get fewer iterations, and those will be more upscale, for the most part. Which apparently hasn't sunk in to part of the Imaging group: witness the Z50, Zfc, and Z30. Someone didn't get the memo, apparently. 

Don't read this as saying Nikon will fail or leave the camera market. They won't. It's too much of their legacy to say goodbye forever. Moreover, other parts of their businesses benefit from what happens in camera and lens development. No, it's more a disappointment that a company I've long felt has had all the pieces necessary to dominate a business and determine its future keeps setting itself up to do less than it could have. 

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