"They're Not Going to Be Around in Five Years"

(commentary on news story)

The Financial Post has gotten around to writing about the state of DSLR sales, and some of the facts, quotes, and claims in the article need some clarification, as they're viral-prone if left unchallenged or unexplained:

  • Claim: 10-15% DSLR shipment decline this year. Actual: currently stands at a 18.5% decline through first seven months. But that number is deceptive, as it's based upon CIPA shipments from manufacturers. The actual decline in sales almost certainly started last year when the manufacturers were still stuffing channels.  You can see that by looking at how many no-longer-made cameras Canon and Nikon still list as currently available. This year the camera makers have stopped stuffing channels so much. Thus, the 18.5% decline could simply be mostly channel rebalancing. Takeaway: DSLR sales are no longer growing, and probably haven't been for as much as two years. Unfortunately, the camera makers weren't fast to adjust to the change in demand, despite several of us that follow the market predicting this problem was coming. That will mean short-term adjustments that hurt the bottom line.
  • Claim: the rate of market decline is accelerating each quarter. Actual: no, it isn't for DSLRs or mirrorless. The first quarter decline was 23.2%, the second quarter decline was 14.97%. That's de-acceleration. What seems to be happening throughout the article is that they are mixing DSLR numbers with all camera sales numbers, which seems to make the stated problem—which is a real problem, mind you—seem worse than it might be. 
  • Claim: "which include DSLRs, falling 10.9% to just 4 million units shipped." Actual: I have no idea where this came from. The actual units shipped was 3.627m units, which I guess you could round to 4m. The change from the first quarter was an increase of 39%! The change from last year was a decrease of 15%. So I have no idea where the very specific 10.9% number came from. (I'm using CIPA shipment numbers for my statements, as no non-Japanese company makes a DSLR at the moment.)
  • Claim: "It's not about optics engineers and image scientists that much anymore...it’s all software." Actual: Not entirely. Those smartphones have hardware in them, too, and there's one heck of a lot of engineering time and money going into advancing the state of that. On the other hand, I will agree to this: as hardware becomes more ubiquitous and commodity-like, the differentiation ability is mostly due to software. I'll remind people that we didn't design the QuickCam back in the 90's to get my company into the hardware business: it was a Trojan Horse. We needed ubiquitous cameras in order to sell the software that we were developing. 
  • Claim: [The Sony QX lensors] "simply turns the host smartphone into a device that is still as cumbersome as cameras that came before." Actual: I'll have much more to say about this in my upcoming QX10 review on gearophile.com later this week, but no, it's not the hardware that's the problem with the QX. It's the software that is a mess. That's fixable, I believe. Whether Sony has the software expertise to do that is another matter.


But the quote that caught my attention was the one I've extracted as the headline here: Nikon won't be around in five years.

Even as negative as I've been on some of Nikon's recent doings, I don't believe that they're in serious danger of going out of business. Do they have a lot of things they need to fix and get right? You betcha. The longer we continue down the current path, the tougher those problems will be to fix. Given what I know about Nikon R&D and their turn cycle, there could be as much as a two-year timeframe where Nikon seems to be "not getting the market change." The question is this: when did they start changing future development? I see some evidence that they're already done so. Which leaves two critical questions: when did the change start, and how well did they think through the changes? 

I'll repeat what I've written before: what we're seeing in digital cameras is almost an exact replay of what happened in film cameras. Fast growth attracted lots of players, maturation of the market made everyone fight for market share and viability and we were really left with only two viable players: Canon and Nikon. The transition to digital reignited that same game and gave the marginal players hope that they could reverse fortunes. And now we're back to declining growth and the same issues that we had before. 

Nikon's strong dependency on cameras means they need to pivot, and quickly. The lack of strength in DSLR sales means that Nikon can't count on that cash cow going on forever. That's really the tricky part, and we don't know exactly how Nikon is going to be addressing it. But we can look to the past for some answers: short term pricing adjustments, continued iteration as they work towards a disruptive product, moving higher in product specifications and away from bottom end consumer products to preserve margins, and getting to the next disruption first. 

It's certainly possible that Nikon flubs this transition. The analyst quoted in the article said Nikon should have had a five-year plan for addressing smartphones five years ago is indeed correct in that. Back in 2007 when I sat on the side of Kilimanjaro and was able to email images back home, I saw the writing on the wall: the iPhone was a programmable device, and already it was doing something cameras couldn't do, and it was already doing it in the emerging markets (yes, there were cell towers on Kili back in 2007, and they had state-of-the-art data abilities, too). Just think what would happen if you put some great programmers at work on making that smartphone perform better (and improved the hardware, too). In essence, the iPhone went viral. When you've got something that might compete with your established, maturing market that goes viral, all your antennae need to activate and you need to assemble the brain trust. 

Having talked directly with Nikon executives since the iPhone appeared, I know they got their brain trust together. What still seems unclear still is what the brain trust decided to do.

But it's interesting that I'm writing this article immediately after an article describing a lens that, together with a D800E, challenges Medium Format. A smartphone can't do that. Yet. And this article appears just before an article on iterative Nikon DSLR launches. There's room at the top for Nikon to still iterate and build its loyal base of enthusiasts. How well they do that we'll need to see. 

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