The DSLR Duel

(news and commentary)


It's that time of year again, where we get the quarterly financial statements and some bit of clarity on how things are going in the two biggest camera companies. 

Canon announced first (back in the fourth week of July). I have to say, I don't understand their contradictory statements. For example: "Demand for interchangeable-lens digital cameras displayed strong growth all over the world" versus "Growth Rate y/y = -4%." Which is it Canon, growth or decline? 

More and more trying to interpret Japanese business presentations is getting like trying to understand what a politician really thinks. My interpretation was that Canon sold more 6D and 7D cameras (and maybe 70D) and this pushed the overall sales numbers up in dollars (growth!), but that when all the counting is done, they sold fewer cameras (decline!). Oh, and that growth? 4.4% year to year measured on sales, 0.5% measured on profit. It's likely that lenses played into that, as well, but Canon didn't give us any numbers on lenses to evaluate.

Compact camera sales were down 26%. That's better than CIPA shipment numbers would suggest, but there's a lot of fudgeability both in the CIPA numbers and the camera makers'  sales numbers. In both cases, those don't actually represent sales to customers. As I've noted elsewhere, the cash register receipt reports here in the US for the quarter are highly negative (-20% or so for even interchangeable lens cameras), and the US (along with Japan) is a region that Canon indicates is "recovering" (as opposed to "continued weakness" and "slowing growth."). We need another quarter's worth of results from Canon to get a clear indicator of their compact camera trend, but it's already visible that compact camera sales are getting less important in their overall imaging group results. 

For the full year Canon still expects 10% growth in interchangeable lens cameras and only a 24% decline in compact cameras. Sales up 9.3% in dollars, profit up 21%, both year-to-year. Put another way: ignore their previous quarter, they're going to beat that big time. That has me scratching my head a bit. Exactly what cameras are going to be shipped that manage that trick? 84% of the sales dollars being interchangeable lens cameras (up from 80% last quarter and 77% all of last year) is one indicator, I suppose. But a 10% bump in DSLR sales still seems highly optimistic to me at the moment (at least it's come down from their 12% growth prediction three months ago ;~). 

Apparently the Japanese companies think we have a short memory. Let's see, interchangeable lens camera sales for the first quarter were down 15%, for the second quarter down another 4%. But for the year? Oh, they'll be up 10%. 

Let me put that in perspective for you. Assume that you sold 400 cameras last year. In the first quarter you sold 85, in the second 96. You now need to sell 259 (130 a quarter) to get to the 440 you claim you're going to sell this year. Yes, I know the fourth quarter is a big quarter. But Canon looks like it is going to be heading into that at a fairly large deficit to their projections. (Okay, I'll do the research for you: last year's fourth quarter was 11% higher than the sales in the second quarter. Let's see, 96*111%=106, not the 130 they need in this example. So I'll stick by my story: they need to have an impressively big third and fourth quarter in interchangeable lens cameras to hit their 10% growth projection. Impressively big.)

The writing on Canon's wall is clear: sell way more DSLRs, far fewer compacts. 

Which brings us to Nikon.

Nikon made a number of statements, both in their official presentation as well as to reporters after their quarterly release meeting. The news isn't particularly good.

"Regional sales targets for Americas, Europe, and Asia (excluding) China could not be achieved." Of course those are the three of the four big markets for cameras.

Overall, net sales for cameras were down 2.6b yen, and operating income was down 5.1b yen. Net profit margin therefore shrank by about 25%. Nikon did not match last year's quarterly volume in DSLRs, lenses, or compact cameras. Overall, though, the camera business is now an astonishing 78.5% of Nikon's sales, though the full-year estimate predicts 71%. 

Nikon reduced their estimates for the full year (this was their first quarter report), much like I and others expected. 

Previous Estimates: 7.1m interchangeable lens cameras, 9.8m lenses, 14m compacts

New Estimates: 6.55m interchangeable lens cameras, 9.05m lenses, 11.5 compacts

Consider these statements, though:

  • "Nikon 1 represents the majority of sales volume reduction…[in] interchangeable-lens type digital cameras."
  • "Accelerate shifting [toward] newer products in the entry class of DSLR."
  • "[Will] not pursue sales volume and market share."
  • "Revise development plan for new compact DSC."
  • "Normalization of the channel inventory has been delayed." (A polite way of saying they have excess inventory, especially of discontinued models.)

Those statements are about as direct and as grim as any camera maker has made so far. 

Still, Nikon's forecasts say that they expect to capture 34% of the interchangeable lens camera market, 30% of the lens market, and 23% of the compact camera market. Those numbers are about where they are now. That means that if Nikon is right, a lot of the other more optimistic projections we've seen from the other camera companies are wrong. 

Nikon's estimate of the overall camera sales volume for the year is 69.5m units. That's within my projections, though a bit above the mid-point. As I've tried to point out for some time, this is a real market change, and not primarily due to economic slowdowns across the world: there simply is a lower demand for cameras. That's easy to see at the low end, where smartphones have essentially taken the market away, but household penetration of competent DSLRs is also near a max, meaning that we're back mostly into a replacement-type of market, not a new user growth market. 

After the financial report, Nikon executives began giving interviews to the press. Reuters is quoting Okamotos-san, President of the Imaging company as saying "In Europe and the US the ratio of mirrorless to SLRs hasn't grown at all, unlike in Asia, where it's quite popular with women because it's light."

It seems clear that Nikon wants to push consumer DSLRs in most of the Western world, while rethinking the mirrorless mix it is putting into Asia. Nikon also appears to be trying to hold market share in compacts for the time being without differentiating or producing something different. 

One other point: plugging Nikon's new numbers into my analysis spreadsheet, I come up with another astonishing figure: it's likely that 80% of the Imaging group's sales numbers came from DSLRs and lenses (a bit less than Canon's). Why is that astonishing? Do the math: in the quarter that means that over 60% of Nikon's revenue company-wide came from interchangeable lens cameras and lenses. Nikon is not only mostly a camera company, they are mostly a DSLR company. Nikon has no choice but to try to shore up that part of the business and make it robust and capable of surviving further storms. Yes, Nikon's DSLRs are good, but there are vulnerabilities in much of the line that need to be shored up.

Nikon stock was down about 1.5% for the day and is now down 30% for the year (Canon is down 20% for the year).

At this point, the forward forecasts for Canon and Olympus, in particular, look optimistic. Nikon's forecast seems more realistic, but sobering. Take a look again at the chart that kicks this article off. That's the marketplace that camera makers are trying to make gains in. Any gain. It's a rough playing field now, and it's going to take something dramatic to change that. 

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