Nikon Isn’t Likely to be Bought by Fujifilm

Updated

When did I become the voice of moderation? ;~)

I've just spent a one-week jaunt into the Internet-free woods—actually, mostly waters—where I was performing equipment testing in real conditions and usage. Judging from the emails sitting in my In Box when I returned, apparently the country of Japan is now telling Nikon it needs an elder sister to run its life, and that sister is Fujifilm. 

I’ve been watching this situation since it first surfaced in April. A somewhat gossipy business publication in Japan, Sentaku, published an article back then that conflated Nikon’s stepper business issues with their camera business issues. So let’s start there: while camera volume and sales are dropping for Nikon, the camera and lens part of their business is still very healthy. What’s not healthy are parts of Nikon’s Precision business, most particularly lithography steppers, a Nikon innovation that has long since been passed by an upstart competitor, ASML. 

That Nikon lithography group is the primary locus of cost cutting and restructuring that Nikon undertook at the end of their past fiscal year (ending March 31, 2017). As part of that restructuring, it’s almost certain that Nikon shopped the group to outsiders. There’s asset value there, so you want to get that back in some way rather than write it down to zero. The problem, of course, is that the most likely buyers of such a business would be Chinese, Taiwanese, or South Korean, probably in that order. 

As much as Japan businesses are on a “get your product margins into shape and close down money-sucking businesses” march, Japan is still highly nationalistic. The number of Asian and Western companies that have tried to take over struggling Japanese businesses or spinouts has been high, but in every case both the Japanese government ministries and the shadow keiretsu groups get involved in trying to keep that business in Japan.

Now we have a followup article from Sentaku that indicates the Bank of Tokyo-Mitsubishi and the Japanese Ministry of Economy, Trade, and Industry (METI) are seeking a partner that would put Nikon under the wings of a larger company. In particular, Fujifilm Holdings. The rationale given in that article is that METI is afraid Nikon will sell out to a company like Foxconn, Samsung, or Huawei, and that this would mean that Nikon's intellectual property leaves the country.

Things get increasingly complex to interpret from there, as the man said to have instigated the whole restructuring is a relatively new Nikon director that comes from, you guessed it, the Bank of Tokyo-Mitsubishi. Meanwhile, Sentaku is an unusual publication in that, like the Economist, authors aren’t cited. Unlike the Economist, Sentaku often drifts to total speculation about what is happening behind the scenes in Japan. I’m not dismissing these articles at all: I believe there’s a level of truth buried in them. But again, there’s a conflation between the stepper and camera business that doesn’t belong in those articles and seems to be confusing everyone.

Nikon’s suit against ASML has to be involved in this, too. Nikon appears to be trying to get to where they can claim all the real value in the group that they’re restructuring, thus making it more viable for sale or outside investment.

Still, Nikon is at 700b yen sales at the moment, and that would be really difficult size for Fujifilm Holdings to absorb. Moreover, Nikon overall doesn't seem like the right fit for the companies Sentaku states are interested in buying the company. Which makes me think that the discussion that Sentaku's sources seem to be picking up on must have to do with only a portion of Nikon's business, and that would be the semiconductor equipment side. 

So, what’s this mean to Nikon cameras and those of us that use Nikon cameras and lenses? Probably nothing. 

Well, okay, not exactly nothing. It appears that top management at Nikon is still spending lots of time trying to deal with the collapse of their lithography stepper business, so there is the distraction element to consider. A sale or spin-out partnership of the troubled lithography business—or even all of the Precision group—would allow management to get their full brainpower focused back on their more viable businesses. 

But the rumors now spreading around the web via the Sentaku articles and blog posts that have picked up on those articles have Fujifilm and Nikon combining forces in cameras, which seems so far fetched to be easily dismissed at this point. 

Sentaku claims "Nikon's camera business is compatible with Fujifilm's," for instance. I wouldn't agree with that. Consolidating the X System with the DSLRs wouldn't be an easy task at all, and would almost certainly force the combination to jettison crop-sensor X bodies or DX bodies. In essence, any combination of the two would result in less than the sum of the parts. 

Had Nikon been a Western company without cultural, nationalism, and keiretsu influences, it’s likely that the lithography business would have been folded much sooner. Pressure from Western stockholders would have pushed Nikon to act far earlier than it did, and back when cameras were printing money for them. Nikon also would have diversified into additional growth businesses long ago, too, not step gingerly into forming a money-sucking medical group as they have recently. 

This is not to say that Nikon’s camera business is perfect. Far from it. But as far as anyone can tell from the financial statements, the camera side of Nikon is what keeps it in business. Only Canon and Nikon seem to be able to run such highly positive numbers in a declining market.  

I’m betting that it’s business as usual for Nikon in the Imaging group for the moment. That means more incremental updates as Nikon calculates how they’re going to shift products in the high compact and mirrorless markets. And the next one of those iterations should be the D810 replacement. 

One thing does strike me, though: Nikon hasn't said a peep about the Sentaku articles that I know of, which seems strange. Meanwhile, Nikon's largest stockholder (Bank of Tokyo-Mitsubishi) is identified as the key player in these rumors. If true, that means there is pressure on Nikon to do something, and that might have started with Nikon shopping a piece of the company.

The disturbing aspect is this: this is very similar to how the Hoya acquisition of Pentax started. Rumors of sale. Active board member lobbying for it. Bank and METI involvement. 


A final note. Sentaku has a strong tendency towards click-baiting headlines and conflation of unrelated things in their stories and analysis. I would go so far as to say to ignore Sentaku's headlines completely, as they rarely line up with contents of the article.  

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