Thom Hogan was linked to and quoted (by reader Globules) in the Comments to our post "Olympus Disappearing" yesterday. Today he responds to clarify:
Since I'm being quoted all over the place on this, I need to set a few things straight.
First, while Olympus CEO has said they'll post a profit next year, immediately after he publicly stated that, Olympus executives went around to analysts and said "no, we won't." If true, this would be the fourth year in a row that Olympus has said they'll post a profit in cameras yet lost money. Significant money.
As for why Olympus is at risk, it all has to do with that corruption scandal. We haven't seen the end of it yet, as there are lawsuits still pending and being filed. No one knows how much cash will eventually drain out of Olympus because of it. And despite the Sony investment, the company is still undercapitalized. They simply can't keep losing money in large amounts in imaging without it impacting the firm overall.
But here's the story you're not hearing: virtually all of the camera operations in Japan outside of Canon and Nikon (and maybe Sony) would be essentially bankrupt if we used Western accounting methods. The good news is that all but Nikon have other healthy businesses that can absorb losses. However, Panasonic has woken up to the fact that these negative ROI appendages are killing the overall company slowly. I suspect that Panasonic will fold their independent camera group, get out of the P&S business, and merge the remaining Micro 4/3 stuff into the pro video group as a temporary solution.
Note that Sony did that recently, and Samsung has merged cameras into the smartphone group. The problem with this is that long-term it means that camera groups don't act independently any more, and it's more likely that failures would get folded completely.
The bottom line is the bottom line. With no growth visible in the camera market, none of the Japanese camera companies can sustain their overbuilt structure and inventories, not even Canon or Nikon. They built for continued growth above 20%. Now they're paying the price.
I know Pentax folk are still mad at me for writing way back at the turn of the century that Pentax was dead in the water and non-viable. As it turned out, I was right. Hoya bought and stripped the company, then later sold the camera remains to Ricoh. If you add up all the losses Pentax made, all the costs of acquisitions, Pentax has no chance of ever making all that lost cash back up, even under perfect Ricoh guidance.
What we're really seeing is the Japanese business culture, where you can't really lay anyone off, you can't close down unprofitable businesses, and where banks arrange marriages to preserve entities. I don't know that this environment is long-term sustainable in a country that has over 200% to GDP debt, is trying to reinstate inflation in the market, and is actively devaluing its currency. Something's going to eventually give.
That said, short term we're not going to see any real changes, I think. It's business status quo in Japan at the moment, which means that money-losing businesses stay afloat by various propped-up means.
Thom
Camera industry analyst Thom Hogan's portfolio of websites—Gearophile, Sansmirror, DSLRbodies, and Filmbodies—are gated at ByThom.com.
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Featured Comments from:
Bob: "Thank you for posting this! As a financial analyst myself, Thom is the only photography market commentator that I read who actually 'gets it' about Japanese camera/electronics companies. Financially, Japan vs. the U.S. is night and day—it's why big banks and brokerage houses have separate teams just for Japan. And yes, it's really that bad over there...."
jean-louis salvignol: Thom has certainly properly identified the problem for all these small businesses in the photo industry. But whether it's widespread throughout Japan is questionable to say the least. Look at Toyota with and its mountain of cash. More generally, the future of Japan—Abenomics—is very well analyzed by Barry Eichengreen."
Thom replies to jean-louis: You caught me. I meant widespread through the consumer electronics industry in Japan. Sony's a great example of that: the half of the company that is involved in consumer electronics is a terrible performer (except perhaps for sensor sales), while the other half that is in non-tech businesses is doing fine.
Eichengreen's article is a good one, but it mostly raises questions, not actually offering a projection on how things will proceed. That's a problem. There seems to be a growing belief amongst analysts that Japan may have gone well over the top of the debt hill given their demographics, so getting back may be very difficult and very painful. Moreover, Eichengreen doesn't get to some fundamental issues that are still unresolved, such as how Japan plans to actually generate power at reasonable cost and impact in the future or whether it would be able to sustain another large quake.
I largely agree with Thom. Panasonic is larger and more profitable than Sony, and though it's Japan's largest consumer electronics maker, it seems to be focusing more and more on heavier equipment (like advanced batteries) and less on consumer stuff (it's out of cell phones, as I understand it.) I think most companies will be out of P&S pretty quickly, whether they want to be or not, because P&S is being eaten alive by phone cameras. The P&S that do survive will be most higher-end, I think -- like the Sony RX100.
But it's the Japanese culture thing that's hard to figure. Once the camera divisions of these companies are reconfigured to account for the P&S decline, I suspect the losses (if any) will be quite small -- and mirrorless, though it hasn't done well in the US and Europe, has done quite well in Asia, and is still a growing market. What happens from here depends, I think, on what the marginal companies like Nikon decide to do. Nikon's mirrorless has somewhat flopped, and it has to be looking with dread upon Sony's growth in that market. If Nikon or Canon, simply out of desperation, were to join the m4/3 consortium, that whole segment would begin to grow and stabilize, and eventually I think Nikon and Canon would come to dominate it, just as they did 35mm. If they continue to screw around with their own somewhat hapless mirrorless entries, then everybody could have problems, and Sony could take the whole segment.
It's very interesting. In terms of investment, I wouldn't buy any of these companies.
Posted by: John Camp | Friday, 03 January 2014 at 12:21 PM
I should point out one other thing: there's nothing new here. What's playing out today is just a continuation of what played out in the 90's as the film camera business receded. That's actually one of the reasons why Pentax was in such serious trouble when the digital SLR era showed up at the turn of the century: Pentax, despite having tightened up and downsizing a bit, was already under financial distress when Canon and Nikon took off with DSLRs.
This is the real problem that I'd be worried about if I were running any of the companies other than perhaps Canon, Nikon, and Sony, and even worry about some if I were running one of those three: if a new disruptor comes in again and we transition to a post-DSLR era, everyone in Japan is starting from a weak position (best case) to an untenable position (worst case).
Posted by: Thom Hogan | Friday, 03 January 2014 at 01:22 PM
When I read your post with the CoY, I got a serious case of GAS. With continued reading here on TOP, I now just have gas/heartburn. :-)
Posted by: Richard | Friday, 03 January 2014 at 01:42 PM
I guess Fukushima isn't the only thing in the process of melting down . . .
Posted by: hlinton | Friday, 03 January 2014 at 02:33 PM
Thom has a piece on his web site that puts Fuji in the same bucket as all the non-(Nikon, Canon, Sony) companies.
http://www.sansmirror.com/newsviews/smartphones-shatter-mirrorl.html
Posted by: psu | Friday, 03 January 2014 at 02:35 PM
I've heard tell of the impending death of one camera company after another every year for the past 40 years. Most are still around. Those that aren't ... Well, they went away.
Funny, the equipment bought from them is still working.
I wouldn't get too worked up over a couple of pundit 'pinions.
Posted by: Godfrey | Friday, 03 January 2014 at 09:28 PM
For a lighter side of camera issues and predictions see http://newcameranews.com/
Posted by: Jeff | Friday, 03 January 2014 at 11:11 PM
Like many others, I think we are looking at the end of the digital/still camera mass market.
Digital camera technology has advanced as quickly as prices have fallen. Most camera purchasing households have more than one digital camera and camera phones have essentially replaced instamatics/polaroids/disposable cameras/P&S cameras worldwide and across most socio-economic groups. And all, but the lowest end, of all of this digital imaging technology provides images good enough for 90% of the population, 90% of the time.
There's probably a year or two of growth/interest in consumer video/GoPro POV video/drone video and video production at the consumer level before that too becomes easy, cheap and ubiquitous as technology accelerates mass access.
Still and video integrated into products like GoogleGlass and robotics, 3d photography--especially combined with 3D printing will have a run too.
What the market always seems to be gravitating towards is convergence + DIY.
The earliest days of photography required going to a photographer; then there was the shift to Kodak/Brownies; a short Polaroid era; SLRs (shot like a pro with auto focus and exposure); DSLRs (shot like a pro with auto focus and exposure AND no film cost); a brief flirtation with print-at-home killed too soon by ink cartridge cost\greed; smartphones\tablets\instagram\Flickr et al.
The promise of new technology always seems to be that you can get/produce images faster/easier/cheaper/skip needing third parties/always be ready to capture an event-memory/rapid viewing delivery.
There's a little work left to be done in camera wifi (if indeed it gets done before the industry implodes), but beyond that DSLRs & mirrorless will face a dwindling market as sensor technology continues to improve (putting goood cameras in other/smaller devices) and digital delivery/viewing continues as the norm.
Yes, I know there will be a continuing need for an ever diminishing number of pro shooters and pro equipment for the print and web based advertising industry and a small but continuing demand for film and (almost entirely used except for the lomo's) film camera market by fine artists (including the wannbe's).
The more generic companies like Sony and Panasonic are more likely to evolve imaging product efforts in a changing world that will give them future products--but time will march on and what we know today (and yesterday) as photography will die. It makes no difference how passionate you feel about your current film or digital camera, most of the rest of the consuming world says, "Whatever..."
As for me, I'm buying many of the digital cameras that strike my fancy in what I see as the Golden Age of digital photography. I'm kind of stockpiling them for the last 15-25 years of shooting I'll be doing before I die.
And I bet GoogleGlass will end up replacing my Sony RX100 as my carry around camera when the time comes that I can buy it for $500 or less. Guess what--at that point it will probably replace my iPad and my Android phone too (and maybe my hearing aids too-if I am lucky).
I may not like what I see coming as the future for cameras (I still fondle my Nikon F2 & 2.8 28mm, even if I no longer shoot with it), but I'd be foolish to pretend that the inevitable isn't inevitable.
Posted by: John Driggers | Saturday, 04 January 2014 at 12:32 AM
One must concede that technology is relentless and heartless. Nothing will stand in the way of technological progress if it produces something that offers a benefit or captures the imagination of sufficient users.
Gutenberg was just the tip of the iceberg; think about typewriters, word processors, desktop publishing, add in the Expresso Book machine and I can upload a PDF and have a printed book in the mail in a couple of hours. Or I can take the same File and create a Kindle edition or iBook!
Camera phones may not appeal to camera enthusiasts who anxiously await DXO ratings for the latest digital cameras, but the technology behing camera modules for phones has been moving faster than "real" cameras. Backside illumination, liquid lenses and the first innovation in flash in a long time, LEDs, especially the color correction flash in the new iPhone indicate where the money is in cameras- making billions of modules for phones.
Cameras can't compete with smartphones under any circumstances since phones provide much more functionality. Can my camera buy movie or concert tickets? Show me a map and give directions to where I am going? let me text or call someone? Get the local weather? Read news online?And more.
There is no competition to a smart phone - the camera is "good enough" and all the other functionality is not something you can copy into a camera- you would just have another smartphone.
It is futile to angst over the fate of the P&S camera. We enthusiasts will have a smartphone and a few enthusiast cameras which will continue to be available. Just maybe fewer choices or new ones-Lytro maybe?
Posted by: Jim | Saturday, 04 January 2014 at 01:50 AM
I know this is about Olympus, but Thom's words attracted my attention (sorry for the lengthy post).
"I know Pentax folk are still mad at me for writing way back at the turn of the century that Pentax was dead in the water and non-viable. As it turned out, I was right. Hoya bought and stripped the company, then later sold the camera remains to Ricoh. If you add up all the losses Pentax made, all the costs of acquisitions, Pentax has no chance of ever making all that lost cash back up, even under perfect Ricoh guidance."
I'm afraid this doesn't make any sense, but it's an attempt to appear "right". Thom doesn't even attempt to support his claim that "Pentax was dead in the water and non-viable" but resorting to kettle logic; I'll go chronologically.
How was Pentax before Hoya took over? They made a profit, they had a healthy medical division and while Mr. Urano and Mr. Suzuki orchestrated the failed merger, they were preparing new camera products, and what products! The K10D, unprecedented for its price, and a brand new APS-C lenses (most of which were launched in 2008); they were also working on the first versions of the 645D.
Delayed start? Yes. Dead in the water? Non-viable? I don't think so.
Next, about the maneuver with which Hoya took control. The thing is, Pentax didn't need any "rescue" and actually tried to resist it; Mr. Urano was forced to resign and it seemed as if Pentax would continue to keep its independence.
And indeed it would, if not for a major shareholder Sparx Asset Management - who wanted to sell no matter what, and apparently was behind the whole affair. It was a nasty affair, with Sparx launching a damaging PR offensive on Pentax. In the end, Pentax had to accept Hoya's "offer" due to shareholder's pressure.
A hostile takeover from inside; sorry, Mr. Hogan; no proof of Pentax' supposed non-viability in here.
Now we're at Hoya stripping the company. What does it say? Only that they didn't want the Imaging Systems Business. What we saw in the last Hoya years was the effect of all this cost cutting and lack of investments; and Pentax still managed to launch new, interesting products like the 645D, K-x or the K-5 (and lenses started under Pentax Corporation). Note that Pentax Imaging Systems managed to become profitable again.
If the did that much in adverse conditions, were they non-viable?
And last, a most silly claim is being made - that Pentax (merged to Ricoh's camera division to become Ricoh Imaging) should make up to "all that lost cash" - i.e. all the losses (profits doesn't count in his opinion) and cost of acquisition.
What on Earth does it means? No single company supported all those loses (and no single company had all the profits). Does Ricoh has anything to do with Hoya's expenses for the hostile takeover?
That's pure nonsense, there are no such obligations. What matters is that Ricoh Imaging is expected to be profitable in the current fiscal year. And that makes it viable. Which means Thom was wrong.
Posted by: Alex | Sunday, 05 January 2014 at 05:47 PM
Look in to how Panasonic bought Sanyo and basically let Sanyo's powerful American HVAC presence with contractors and architects disappear without even a fight.
Posted by: Peter | Sunday, 05 January 2014 at 08:16 PM
Well, as an Olympus fanboy, I hope the company stays afloat somehow, even if it is in defiance in the laws of financial reality.
Posted by: PWL | Monday, 06 January 2014 at 12:01 PM