Last week’s annual report has additional grim bits to it that show up on closer examination. For one, the core company is unprofitable. It’s only the subsidiary structure that’s somehow produced the positive income numbers we see on the consolidated statements. In the unconsolidated statements, we see some clear issues and problems.
One that stood out is the 25% increase in provision for warranty repair year to year. People ask me if Nikon knows they have a QC problem. Well, yes, if anyone at Nikon is reading their own financial statements, they know. What we don’t know is what they intend to do about it.
I was also struck by some of the risk assessment pieces, a few of which seemed new or reworded in interesting ways. In particular, one risk I hadn’t noticed before was that Nikon takes big pre-payments on semiconductor equipment but those sometimes need to be returned because the order eventually gets cancelled. Couple that with Nikon's projection of a great expansion year for the Precision group, and you have to scratch your head about why they spent so much time discussing that particular risk.
But before everyone panics, let me say this: what we’re seeing now is a replay of what’s happened before. Nikon doesn’t seem to know how to not repeat its own history. Some of this is institutional. It’s traditional, for instance, to transition the upper management from one group to another as the business mix changes. Which, of course, forces the business mix to change.
We’ve seen transitions in the upper management team leadership from Imaging to Precision to Imaging and now back to Precision. One problem with this is the politics and the informational awareness that stem from bouncing top management back and forth like that. Semiconductor equipment and consumer cameras are products and industries that are quite different. The skill sets to run one right are not the same as to run the other.
That said, Ushida-san (current CEO, from Precision) has had a couple of years to build his team and get them aligned to the tasks at hand. Any further issues in keeping the company running well are definitely going to accrue to his tenure now. It’s no longer possible for him to say that he inherited the problems. They’re his, and his to fix.
Here’s what I expect to happen next: within a month or two we’re going to hear about adjustments in the upper management team. Those will be re-assignments that telegraph to the rest of Nikon’s employees subtle messages about who was deemed responsible for the problems, and who is charged with fixing them.
If there were any Spring/Summer product rollouts other than lenses planned, they’re not going to happen. We almost certainly won’t hear about new cameras from Nikon until Photokina. I’d also guess that we’ll see two key cameras introduced at Photokina.
The 1H fiscal 2017 results (April-September 2016) for Nikon are going to be less dismal than projected, I think. Even the 45 day sensor unavailability issue shouldn’t generate such a huge projected drop in unit volume (31% in ILC). So either Nikon lowballed their forecasts to look good, or it very well may be that they’ve decided to take a bullet to the chest in order to move forward again (e.g. cancelled all Nikon 1 and a few other camera’s production)
2016 was supposed to be a “renewal” year for the Imaging business. The year that Nikon abandoned the losers and sought to refresh and extend the winners in the lineup. So far, the results on that are lots of ink, very little action. So Photokina is going to be key for Nikon: it’s their last chance to make 2016 even remotely like they thought it would be.
People have asked me what I expect at Photokina, so here it is:
- The DL relaunch
- The KeyMission relaunch
- The SnapBridge relaunch
- A D810 replacement
- A new mirrorless camera, probably DX to replace the D3300
- Two new lenses
That’s a lot. A huge undertaking to get right. But Nikon really needs to get it right. It’s possible that they’ll put the relaunches right after Photokina to reinforce the new product launches, but I think they need to go into the show with the full team and take a mighty swing at the ball.
It’s also possible that Nikon will have a different two new cameras at Photokina. One scenario that seems possible given what we know has been in the works is:
- D3500 (SnapBridge update)
- D750 replacement (much the same as a D610 was to D600) or full frame mirrorless launch
- D810 replacement becomes the Q1 2017 big launch
But if Nikon goes this way instead of what I suggest above, it will show that they haven’t gotten the message yet and are still lingering on an old scenario. In short, Photokina this year will be very revealing as to how far Nikon got in its camera rethink.
Addendum
Let’s not get stuck on the “but Nikon has good cameras” thing. Yes, they do. Three of them in particular excel, while another two distinguish themselves from competition in good ways.
The three that excel are the D5, D500, and D810. Though even in that list the D500 has teething problems, and the D810 is getting near the end of its reign as “best overall DSLR you can buy.” The two that are distinguished are the D7200 and the D750, though the latter one has had more than its share of issues.
But those five products aren’t enough to sustain a strong number two position in the declining camera market. Moreover, they are all DSLRs, which are now in decline. Nikon has no real viable play in the stable and slightly growing mirrorless market, and the plethora of Coolpix they pushed on the market is about to completely collapse.
So it’s not really about “but they have good products.” It’s about does Nikon have the right products? Do they have a viable bottom-to-top line? Can they stop the recurrent new product QA issues? Can a feature like SnapBridge actually get across their entire lineup fast enough and with enough capability to be a distinguishing trait?
For me, I mostly shoot with a D500 and D810, supplemented by a D7200 and D4/D5. So I’m using some of Nikon’s best efforts and enjoying the benefits of that (though not in the DX lens selection, buzz, buzz). Most of this site’s long-term readers are doing the same.
Still, we have to wonder how much shrinkage Nikon can really endure without changing in fundamental ways we are currently counting on.
Nikon doesn’t need 40 cameras splattered across nearly disposable small sensor compacts to beyond the current top into medium format. It needs a handful of really well considered, well made, and well supported products from 1” compact to FX DSLR. It also needs those products to live in the modern, not legacy world (though supporting legacy accessories is still one of their key attributes they shouldn’t abandon). But Nikon is still closer to the splatter of products than the well managed set. Their current financial situation is certainly due to not addressing that faster and better.
