Missed Opportunities?

(commentary)

I’ve been reading financial analysts’ opinions recently on Nikon’s announced plans for the future, particularly about acquisitions in the medical area. This got me to thinking about the acquisitions they didn’t make.

At Nikon's most recent financial results meeting the company indicated that they will get into the medical products area with acquisitions of up to 200 billion yen (round it to US$2b). The problem the analysts all note is this: looking at other previous acquisitions in the area that Nikon wants to enter, with Nikon’s checkbook balance you could buy a business that generates only about 80 billion yen in sales a year. The problem with that is Nikon’s projection for new medical business: 80b in sales is not even 10% of their short term goal for medical. An area where they start with 0b in sales ;~). 

Meanwhile, they let sensor partner Aptina slip away for US$400m to a company that isn’t really interested in imaging sensors for cameras, but rather for industrial and automotive purposes. They also let software vendor Nik slip away, which ended one of the unique things they could point to in Nikon software products (e.g. U-point technology in Capture). 

It seems to me that Nikon isn’t "all in" with imaging products and hasn’t been for awhile, despite the fact that it brings in three-quarters of their revenues and most of their profits. With a war chest of US$2b for acquisitions, Nikon could have bet heavily on their own existing business. This tells me that they don’t have confidence in growing that business in the future. Indeed, given how far back this change in philosophy seems to go, it’s been a number of years since Nikon made a big bet on the imaging business. 

The funny thing is this: about a decade ago I pointed out that Nikon was getting out of balance and needed to pursue another “leg” in their product offerings. Now, however, Nikon has gotten to the point where they are primarily an imaging company and should be betting bigger on that in order to save it. When they should have invested in other businesses, they didn’t. Now when they need to invest more to protect their biggest business, they aren’t. Nikon’s approach seems backwards to me. 

I’ve written this before: it seems to me that Nikon should be the leading company in all things that revolve around optics. Yet I can think of many areas of optics that Nikon isn’t much of a player in at all, and they seem to have a very strange notion of balance in the lens lineups for their camera products. Instead, they have transitioned themselves mostly into an efficient manufacturer of a consumer electronics product sold through high-volume retail. But that’s a business where there are tons of players, many of whom are larger than Nikon and some of which are much more efficient. 

It’s going to be interesting to see how this plays out. But I’m with the analysts covering Nikon on this one: it’s highly unlikely that they’ll achieve their currently stated goals in the medical area. Acquisitions only get them a small part of the way there. To then manage that into phenomenal growth to meet their targets seems out of their area of expertise. 

Meanwhile, the camera business continues the same go-it-alone-with-constant-iteration model that seems to have worn out its welcome and now results in lower sales with each successive model introduction. 

Maybe there’s some “magic” still left in the engineering labs. Let’s hope so, because if the answers come from outside of Nikon, Nikon will be playing catch up in a declining market. The whole transfer of Capture to the Silkypix engine doesn’t bode well, though. As I’ve written many times, software is becoming more of the driving force for hardware now. The fact that we have a botched workflow for a critical new camera (D810) suggests that Nikon missed a turn. 

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