Dr. Nikon in the House (eventually)

(news & commentary)

Update: A particularly high number of people are reading this article as saying Nikon is getting out of the camera business. I wrote no such thing nor is that what’s happening. What is happening is that Nikon is finally diversifying in hopes of finding new growth for the company. Frankly, they should have done that well over a decade ago. They got to their current position by putting all their eggs in the Imaging (cameras) basket when their previous golden goose (semiconductor equipment) found its market shrinking and the business declined. To change metaphors: Nikon is looking for a third horse to ride, as the other two are tired. 


Today’s Wall Street Journal has an article (note: fire-walled site; non-paywall version) that gives us more insight  into what Nikon was talking about at their annual shareholder’s meeting and subsequent press interviews.

As a reminder, Nikon said that they expected their two core businesses, semiconductor equipment and cameras to be mature and no longer producing growth for the company. That’s a bit misleading, as it’s been the camera group that produced virtually all of Nikon’s growth in the last decade, to the point that 75% of Nikon’s sales and almost all their profits come from cameras and lenses. But still, point taken. The camera business is in steep decline, with even DSLR sales now seeing drop offs. So short of stealing market share, Nikon has no chance at growth. 

Unless they come up with new businesses to enter, that is. Besides the robotics business I mentioned in covering Nikon’s annual meeting, there was the mention of Nikon entering the medical field with little or no detail. How they were going to do that was the question.

Now we have the answer via the WSJ article: by acquisition. US$2b of acquisitions in the next three years, and US$500m of R&D a year. Of course, I was caught up with the line “Nikon will hire M&A experts to compile a list of targets and to handle due diligence and post merger integration.” Note the future tense, as in they haven’t done that yet. 

More future tense: they expect to generate US$1.3b in revenue in the year ending in March 2017. That would not be the current fiscal year, or even the next fiscal year. In other words, spend US$3.5b to generate the first US$1.3b in revenue. I had wondered why Nikon was piling on so many bond issues recently; there didn’t seem to be a strong need for that cash. Now we know what they were thinking: get the money and then figure out where to spend it.

Which makes me ask: how do they know this is really a viable route to success? Oh, right, everyone else is doing it.

Meanwhile, Nikon’s plan for cameras is…wait for it…more of the same with cost reductions. 

Personally, that seems a bit like giving up to me. Nikon’s trying the same tactic they used in the 90’s: survival via careful iteration and cost reduction (it’s when the Thailand plant ramped up for SLR production, for example). I still believe that there’s plenty of potential growth in the camera business, but not if you just keep producing the same thing. The problem for cameras has always been that the household saturation level is low. Every household doesn’t need an SLR or a DSLR, and once obtained, most households are not constant updaters. Both the film and digital markets had an interesting pattern, too: initially consumer driven (Kodak Brownie, Sony Mavica), then high-end driven (Leica/Nikon, then Canon/Nikon), reverting to consumer driven (compact cameras), and then disrupted by a different type of camera (instant and disposable in film, smartphones with digital). 

So the trick is to make the pattern repeat. Find the disruption point that starts a new cycle (all the while doing what Nikon is doing and did with digital, which is defending what remains of the old market as the new one starts to get established). To me, that disruption point is software, as I’ve written several times. Today’s cameras, despite all the smarts inside them, are dumb to the user: they only do what was pre-programmed in Tokyo a few years ago by people who don’t understand current state-of-the-art workflows. 

The problem with Nikon’s plan to expand into medical for growth is that other Japanese giants have already set the same target: Hitachi, Sony, and Toshiba to name just three. Others are already there: Fujifilm and Olympus, for example. The risk is that it’ll cost Nikon more money to enter into this new game, and even then they are likely to be a small player, not a dominant one.

It’s that last part that has me scratching my head. Semiconductor equipment? Number 1 or 2 in the market until they got arrogant and fumbled things away to an upstart. Cameras? Number 1 or 2 in the market, with some recovered fumbles along the way. Medical? Not even in the league yet, let alone winning customers needed to make you Number 1 or 2. If Nikon applies their usual methods to this new business, I don’t see how they win much, if anything. Perhaps they’ll get more humble and start to realize that the old methods of dealing with customers don’t work so well any more, which would be a joy to all us Nikon camera users if that attitude worked its way into the Imaging group, but I’m not going to hold my breath. 

One thing is clear: it’s now in-coming CEO Kazuo Ushida’s turn to drive the car, and he’s clearly thinking about adding some after-market accessories. But while he’s doing that, I wish he’d send a memo to Imaging with the following To Do list:

  • Iterate the D300s for gosh sake
  • Build a full DX lens set STAT
  • Rationalize the FX camera lineup
  • Get a photography-oriented adult to fix the Nikon 1 offerings
  • Get back to top QA and customer satisfaction levels
  • Re-invent the digital camera: if you can’t top Thom’s Communicating/Programmable/Modular idea, start there


Heck, those first five things might even improve short term sales while Nikon is still interning at the hospital. 

Notice that I didn’t include “lower costs” in the To Do list. Any company that’s not always looking for ways to do that deserves the outcome they get. Saying you’re going to do what you should always be doing is a bit like saying “I’m going to breath air today.”  The only takeaway I can have as a potential stockholder (disclosure: I hold no stock in any camera company) when a company says they’re going to try to lower costs is “gee, are you telling me that you let get costs get out of control?” 

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