Nikon’s Third Quarter Financials

(news & commentary)

Nikon late last week announced their third quarter financials, and they were pretty much as expected: “Digital SLR cameras and interchangeable lenses fell short of the planned sales volume.”

However, due to price hikes and cost cutting, the operating income improved year-to-year and stayed above the 10% level Nikon seems to target for the group. As a camera company, Nikon continues to shrink, though it is maintaining its profitability levels as it does so. Still, cameras produce 68% of Nikon’s sales, and the operating income of the group is 146% of the company total.

Through three quarters, Nikon produced:

  • 30.7% of all CIPA compact shipment numbers
  • 31.3% of all CIPA ILC shipment numbers
  • 28% of all CIPA lens shipment numbers

To put that in perspective, though, Nikon sold 410,000 fewer ILC cameras (DSLRs and mirrorless) in the current fiscal year than last, 530,000 fewer lenses, and a whopping 950,000 fewer compact cameras.

Curiously, Nikon mentioned the postponement of the D500 launch as one of the reasons for a downward revision of their final quarter (ends March 31st) estimates. Overall, Nikon lowered their estimate of ILC sales in the final quarter by 100k units. See my article on the D500 delay: these statements seem to clearly indicate that Nikon didn’t foresee this delay.

Nikon continues to put a positive spin on things, but the clear evidence is right there in their own report: three years of declining sales and declining operating income for the imaging group in the critical third quarter (holiday season). There is no indication that fiscal 2017 won’t add a fourth year of decline. 

Lest Nikon loyalists get upset by that last statement, be advised that nothing in Nikon’s financials shows that they are in a death spiral. I’d characterize things at Nikon thusly:

  • Precision is no longer a money leak, but nor is it a growth opportunity, plus it still has unpredictable cycle-driven ups and downs
  • Imaging is being managed to profitability as it contracts in a down market
  • Instruments is small and basically breakeven
  • The nascent Medical group is not even close to providing significant growth for the company, let alone profitability

No doubt these are all signs of a dinosaur struggling with a changed environment. But the dinosaur is alive and currently expected to stay that way.

Update: once again people are hitting me with “but if Nikon only sold a mirrorless DX or FX system, they wouldn’t have this problem.” Sorry, but no. If Nikon were to take it’s traditional one-third of mirrorless sales as well as DSLRs, it would increase Nikon’s unit volume by 1m units. Only the DSLR sales wouldn’t stay the same ;~). They’d likely go down by at least the same, if not higher, amount. 

To take 33% market share in mirrorless, Nikon would have to likely make the D3300 update mirrorless. Doing an FX mirrorless solution wouldn’t give them the unit volume they need. But making the D3300 update mirrorless takes away one of Nikon’s highest volume DSLRs. So where exactly is the upside? 

Canon has been trying to finesse this with the EOS M line. By leaving off an EVF they basically created a mirrorless Rebel SL1. This approach makes somewhat more sense, but it still makes for a slippery slope where mirrorless simply replaces DSLR sales but doesn’t really increase ILC sales.

No doubt that both Canon and Nikon will eventually have large sensor mirrorless models that replace DSLRs. The question is when, which DSLR, and whether they can do anything to make that anything other than replacing A with B. 

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