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AnonymousInactivehttp://online.barrons.com/article/SB124908694002798273.html?mod=googlenews_barrons
CAN RICOH FINE TUNE IT’S BUSINESS STRATEGY ?Ricoh isn’t letting this slump get the better of it. Instead, the world’s
No. 1 copier maker is fine-tuning its business to emerge stronger than ever,. Although he’s only beeen at ricoh helm for two years,
it must seem a lot longer to Shiro Kondo.Besides the normal stress of competing against the likes of
Canon, Konica Minolta and Xerox in the $28 billion global copier market,
Kondo’s tenure as president and CEO has coincided with a deep worldwide
recession, the Japanese yen’s rise against the dollar and euro, and a surge in
costs of parts and materials used to make the company’s products — which also
include printers, facsimile machines, computer peripherals, digital cameras and
advanced electronic devices.”The current business environment has been challenging,
to say the least,” sighs the 59-year-old Kondo, who was tapped for the top
spot in April 2007.The challenges were evident in Ricoh’s fiscal 2009 figures for
the year ended March 31. Sales slipped almost 6%, to ¥2.1 trillion (US$21
billion), while operating profits plummeted nearly 60%, to ¥74.5 billion.
Earnings per share fell from ¥146 to ¥9. The consensus expects Ricoh to earn
Â¥31 a share in the 2010 fiscal year. During Kondo’s tenure, Ricoh’s ADRs
(ticker: RICOY) have dropped from $111 to $63. (Each American depositary
receiptrepresents five Japanese shares.) The stock also trades at around book value.The bad news is certainly in the stock, but some
possible positives aren’t. For the past decade, Ricoh has been transforming
itself from a Japanese office-machine maker into a global technology solutions
provider that gets most of its revenue from software and services like
consulting. Today, the world’s No. 1 copier maker generates half its revenue
from hardware and half from software and services; 55% of those sales come from
outside Japan.As Kondo puts it, the problems of the last two years have
“provided us with an opportunity to further refine our business model and
focus on our global expansion.”In 2001, Ricoh bought U.S. office-products distributor Lanier
Worldwide, and in 2006 added the European operations of Danka, now named
Infotec, a major European supplier of toner cartridges and ink for copiers,
printers and fax machines.In 2007, Ricoh acquired a majority stake in IBM’s American
printing-systems unit, now called InfoPrint Solutions, which offers high-volume
printing services to banks, insurance companies and other financial firms. Then
in August of 2008, Ricoh purchased Ikon Office Solutions, a key distributor of
copiers and printers for Ricoh’s better-known rival, Canon.”The IBM purchase provides Ricoh with a solid foothold
from which to launch further products in the high-volume document market,”
says Kunihiko Kanno, an analyst who follows Ricoh for Credit Suisse in Tokyo.
“Digital commercial printers are used to print big documents such as
product manuals and direct mail quickly and in large volumes,” he adds.
“This is one of the fastest-growing segments of the office equipment
market,” he says.Ricoh picked up
“research and development, technology and skilled personnel from IBM that
we could have never developed by ourselves,” Kondo says. “This will
be a profitable division once things pick up again.” Because its clientele
is mostly financial-services providers, InfoPrint hasn’t turned a profit as
yet. By 2012 analysts expect it could add ¥100 billion in revenue and kick in
Â¥2 to Â¥3 per share in operating profits.Ikon, which also hasn’t delivered a profit to its new parent,
holds even more promise. Ikon provides document- and business-processing
services as an add-on to its conventional office-equipment lineup, Kondo says.
The goal is to convert Canon customers to Ricoh products and introduce Ricoh
clients to Ikon.”We plan to assimilate their expertise, and turn Ikon’s
customer base of major global companies into our customer base,” says
Kondo. By 2012, analysts say Ikon should deliver ¥280 billion in revenues and
¥8 to¥9 yen per share in operating profit. Kondo says Ikon will be an important
driver of Ricoh’s push into business and consulting services.The stock market doesn’t fully
understand the Ikon acquisition’s significance says Credit Suisse analyst
Kanno: “Kondo has very ambitious plans for Ikon, and the stock should
benefit.”Ikon is among the factors that persuade analysts that the
stock is worth a second look. Yoshikazu Higurashi, who follows the company for
Deutsche Bank in Tokyo, rates the shares a Buy, with 12-month yen price target
that translates into a dollar price of $84 for Ricoh’s ADRs — that’s 30%
upside, or more.Kondo’s confidence has helped him through a tough
indoctrination as president and chief executive officer. He looks for Ricoh’s
revenues to grow about 3.3% this year and then 10% next year. That would give
Ricoh about $24 billion in revenue, and about $1.7 billion in operating
profits, above consensus estimates.”You may find these targets a little
too aggressive,” Kondo told analysts last March, “but we are
determined to do our best to achieve these goals.” Investors certainly
hope he succeeds. -
AuthorAugust 4, 2009 at 9:04 PM
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