Nikon Still (Mostly) Defying Gravity

(news and commentary)

Nikon today reported not only their year-end financial results, but also their update to the mid-term management plan. Both are fascinating in their own way.

I use the defy gravity term because Nikon has managed to somehow do a few things that no other camera company did in the last year. Take compact cameras. The market itself lost about 20% in unit volume year-to-year, but Nikon went from 17.37m Coolpix to 17.14m Coolpix, barely over a 1% loss in volume. Put another way, they gained market share in a declining and very competitive market, a tough thing to do. The question, of course, is how many of those cameras are actually in customer's hands at this point, and what was the average selling price to manage that task, but Nikon's numbers don't reveal those answers.

DSLRs (plus the Nikon 1) and lenses both came in slightly down from their previous estimate, though significantly up from last year. Both were a little softer in sales than Nikon anticipated in the first quarter of 2013, but look at these charts and you'll see that that, too defied gravity a bit.

Overall, Nikon turned in a profitable year, though not a hugely profitable one (4.2% net profit margin before taxes). Cameras are now 75% of Nikon's business, and after everything is said and done, basically all of their profits. 

The mid-term plan renewal seems aggressive, and it has some assumptions in it that are seriously subject to debate. First, let's talk about those assumptions: a compact camera market that sells 50-60m units in 2015, and an interchangeable lens camera market that is 24-26m units. To put that in perspective, 2012 was 78m compacts and 20.2m interchangeable lens cameras sold. So Nikon is forecasting that compacts will contract no more than 36% more and interchangeables will grow a minimum of 19% from their current rate. I know analysts who'd dispute both those overall market forecasts. 

But let's look closer at Nikon's goal within those forecasts: 25-30% of the compact market, 40-45% of the DSLR market, and 25-30% of the remaining interchangeable lens camera market (e.g. mirrorless). At the moment Nikon has 25% of the compact market and 36% of the interchangeable lens camera market. Specifically, Nikon says they want to "strengthen" both the DX and FX cameras "to secure profit," leverage the Nikon 1 to "differentiate" and gain new customers, and tailor the compact lineup to each geographic region.

If all that weren't enough, Nikon continues to think of themselves as a growth company: they anticipate raising overall sales by 29% and profits by 159% in three years. So the pedal is still to the metal at Nikon. They have probably the most confident and aggressive forward forecast of the camera companies. Hopefully time will prove them right.

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