*NEWS*CANON PROFITS RISE & A NEW CHIEF
*NEWS*CANON PROFITS RISE & A NEW CHIEF
2006-01-31 at 11:25:00 am #14032
Profit rises at Canon as it names new chief
Canon, the world’s biggest digital camera maker, said Monday that its
profit rose 34 percent in the fourth quarter of 2005 on sales of new
models and a weaker yen.
company also forecast a seventh year of record profit and named Tsuneji
Uchida as its next chief executive to spearhead an entry into the $85
billion flat-panel display market.
Uchida, who heads Canon’s camera
and display businesses, will take over a company that increased its net
income sevenfold since 1995 under the chief executive Fujio Mitarai,
who is due to become chairman in March.
Uchida, 64, was promoted to
senior vice president, ranking him second to Mitarai. Mitarai, 70, will
become chairman of the Keidanren, the main Japanese business lobbying
group, in May.
Canon is developing a screen technology with Toshiba
that generates clearer pictures and consumes less power than plasma and
In the fourth quarter, net income rose to
¥108.2 billion, or $930 million, from ¥80.8 billion a year earlier. The
median forecast made by analysts in a survey was ¥114 billion.
Sales rose 14 percent, to ¥1.1 trillion, while operating profit rose 28 percent, to ¥169.3 billion.
the full calendar year, the company reported a 12 percent increase in
net income, to a record ¥384.1 billion, on sales of ¥3.75 trillion.
Operating profit rose 7.2 percent, to ¥583 billion.
camera unit had a fourth-quarter operating profit of ¥63 billion, a 59
percent increase from a year earlier. Sales rose 18 percent, to ¥296.9
“Canon’s cameras are doing surprisingly well despite an
industrywide price slump,” Taiji Yoshida, a fund manager at Yasuda
Asset Management in Tokyo, said before the earnings report was
released. “They are committed to keeping up margins.”
profit at its office equipment division, Canon’s biggest business, rose
13 percent, to ¥150.2 billion, in the quarter. Sales gained 6.2
percent, to ¥707 billion.Canon makes 70 percent of its sales from
“What pulled us back in the fourth quarter was
office equipment,” said Toshizo Tanaka, the executive in charge of
finances. The markets for color copiers and for inkjet printers, he
said, faced greater-than-expected competition, especially on prices for
To try to combat falling prices, Canon is introducing more color models that can also copy and scan.
2006, Canon predicts operating profit of ¥653 billion on sales of ¥4.06
trillion. Mitarai has set Canon a sales target of $50 billion for 2010,
to be driven by the display business and acquisitions.
expects to ship 19.2 million digital cameras this year, including 2.2
million SLR units. Canon sold 16.9 million digital cameras, including
1.9 million SLR models in 2005.
Canon said operating profit from its
optical products rose 148 percent, to ¥8.55 billion, in the fourth
quarter. Sales gained 59 percent, to ¥160.4 billion.
Shares of Canon
rose 0.4 percent to ¥7,190 Monday in Tokyo. The company announced
earnings after the markets had closed. In the fourth quarter, the stock
gained 13 percent, compared with a 17 percent gain in the broad market
Canon looks beyond quarterly projections
Digital technology is driving rapid changes in the way people capture and duplicate images.
Consider digital cameras.
a year ago, only 26% of all households had them in Western European -
the world’s largest digital camera market, according to a report
released in September by Weymouth, Mass.-based InfoTrends / CAP
That number should increase to 39% of all Western European
households by the end of this year, according to the market research
and consulting firm’s report.
Along with those digital camera
purchases come new ways to electronically transmit and print images.
That creates opportunities and challenges for companies selling
peripheral products and services like film and photo processing, and
other imaging technologies.
One local analyst says a good way to
sort through which companies will have more opportunities than
challenges is to evaluate their research and development spending.
all about planting the seeds for long-term growth,” said Rob Helf, a
research analyst at Fiduciary Management Inc. in Milwaukee.
Helf surveys the landscape of business / consumer imaging companies, he
sees giants like Palo Alto, Calif.-based Hewlett-Packard Co., Armonk,
N.Y.-based International Business Machines Corp., Tokyo-based Sony
Corp., and Stamford, Conn.-based Xerox Corp.
But he lands on another company he says he thinks will drive more innovation in the rapidly changing world of digital imaging.
Inc. (CAJ, $59.44), based in Tokyo, spends about 8% of its revenue on
research and development, Helf said. Hewlett-Packard spends about 7% of
its revenue on R&D, and the rest of those companies spend 4% to 6%,
“Most companies think about performance of revenues and
earnings over the next quarter or the next year, but this company
manages its business for the next decade,” Helf said. “Canon doesn’t
back away from continuing to spend and take costs out in other places.”
company was awarded 1,800 U.S. patents in 2004, and has received more
than 17,000 U.S. patents since 1995, making it second only to IBM in
U.S. patent volume during that period, he said.
Canon’s president and chief executive officer, is constantly discussing
in quarterly and annual reports and other communications with
shareholders, how the company will spend its money and take costs out,
About two-thirds of Canon’s revenue
and operating income comes from its business machines segment, which
sells about equal amounts of office copying equipment and computer
peripherals like laser printers.
Both businesses have what Helf
calls a “razor blade” model, where they generate a lot of business
after the initial purchase through sales of supplies like toner and ink.
make up another 25% of Canon’s business. The company has continued its
focus on high-end products and has maintained strong market share as
the lower-end camera sellers have begun to sift out, Helf said. Canon
is one of the top digital camera producers in the world, with more than
a 20% share of the worldwide market, he said.
Canon is developing,
through a joint venture with Toshiba, a television that uses SED
technology for the high-definition TV market, Helf said. The hope is
that SED, or “surface-conduction, electron-emitter display” technology
will be able to produce vivid color images with lower power
consumption, he said.
The company uses production cells rather than
assembly lines, he said. Each group of workers in a production cell can
develop specialized knowledge. And because of the streamlined
communication, Canon’s management says it’s easier to figure out how to
take out production costs.
Canon has about $8 billion, or $9 a
share, of cash on its books. Investors get the comfort of that cash
cushion and a relatively cheap stock that’s selling at roughly 12 times
2006 earnings on the share price minus that cash, Helf said.
company also on Wednesday boosted its dividend to about 83 cents a
share from about 54 cents, showing that management anticipates healthy
earnings and cash flow in coming years, he said.
Canon trades on the
New York Stock Exchange as an American Depository Receipt, or ADR. Each
Canon ADR that trades in the U.S. represents one Canon share that
trades on the Tokyo stock exchange. ADR holders are entitled to
dividends and capital gains associated with the related shares that
trade on the Tokyo Exchange
The biggest risks Helf
associates with Canon shares are the possibility its growth will slow
along with digital camera purchases, and the chance that a big customer
will go elsewhere. Canon currently gets about 20% of its revenue from
making laser printers that Hewlett-Packard sells under its name.
could be disruptive but it would be a big risk right now for
Hewlett-Packard to change its business strategy abruptly,” Helf said.
firm began buying Canon shares in late 2004 in its FMI Large Cap Fund
and clients’ big company stock portfolios, and is still buying
selectively for new accounts. Canon’s share price is likely rising now
because of anticipation the holidays will bring big digital camera
sales. Helf would buy up to $58 a share and says these shares could go
as high as $70 in the next 12 months