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Canon Scores Record ProfitCanon’s strong performance is likely to be reflected in results from competitors copier giant Ricoh Co. and digital camera maker Fuji Photo Film in the coming days, but the firming yen is clouding the outlook for them all.
Canon posted a consolidated net profit of 275.7 billion yen ($2.60 billion) for calendar year 2003, beating analysts’ consensus estimate of 264.5 billion yen, on revenues of 3.198 trillion yen, up 8.8 percent from the previous year.
Profits at Canon are being powered by healthy demand for multi-function network copiers and hot-selling digital cameras, in which it commands about 20 percent of the global market, running neck and neck with Sony Corp (NYSE: SNE – news) ( news – web sites). for the top spot.
“One of the reasons we hold Canon is that they have a strong position in many of their business areas relative to the competition,” said Graeme Sinclair, a fund manager at Aberdeen Asset Management in Singapore.
“Operationally things seem to have been going fairly well.”
Japan’s largest office equipment maker said it expects the good times to go on, projecting group net profit will rise 3.7 percent in 2004 to 286 billion yen. Revenues are seen up 4.1 percent at 3.33 trillion yen.
The picture is similar at other leading printer and copier makers worldwide.
Earlier this week copier giant Xerox Corp. posted its biggest annual profit since 1999, while printer firm Lexmark International Inc scored a 20 percent gain in quarterly income, reflecting greater demand for home and office machines.
But unlike many of its global peers, Canon has been in a prime position to benefit from the digital camera boom.
Senior managing director Toshizo Tanaka told a news conference that Canon expected to sell about 15 million digital cameras worldwide in 2004, a surge of about 74 percent from the 8.6 million it sold last year.
RISING YEN
Of that total, Tanaka said it would aim to sell 1.3 million digital single-lens reflex (SLR) cameras including its “EOS Kiss Digital” model, which has been a big hit with serious users since it was launched last September at a price of around 120,000 yen.
Canon sold 580,000 digital SLR units last year.
Fund managers and Canon agree that one of the biggest risk factors facing the record profit scenario is a stronger yen.
About three-quarters of Canon’s revenues come from outside Japan and the company estimates that each one yen rise in the yen against the dollar cuts 12 billion yen off its sales and five billion yen off its operating income, in annual terms.
Canon’s Tanaka said it would have difficulty achieving a fifth straight year of record profit in 2004 if the dollar fell much further below the current level around 106 yen
“For us to be able to produce profit growth, the dollar has to stay somewhere in the 100 to 105 yen range,” he said. Canon assumed a dollar/yen rate of 105 yen this year.
Even after a recent recovery, shares in Canon are down about 11 percent since marking a 2003 high on September 17, underperforming a roughly flat performance by the Tokyo stock market’s electric machinery index IELEC.in the same period.
“The share price has underperformed the rest of the market over the past six or seven months, largely reflecting the strength of the yen,” said Aberdeen Asset’s Sinclair. “By international comparisons the valuations appear attractive.”
Canon is trading with a price-to-earnings ratio of about 19, compared with Xerox at 42 and Lexmark at 25.
STEPPERS UP
Besides digital cameras, Canon is also predicting strong growth in sales of steppers, used to etch circuitry onto chips and to produce liquid crystal displays (LCDs).
Canon said it aimed to ship 123 integrated circuit (IC) steppers in 2004, up from the 80 units it shipped last year. Canon ranks third in IC steppers behind industry leaders Nikon Corp and ASML Holding NV of the Netherlands.
The Tokyo-based firm also expects to ship 117 LCD steppers in 2004, compared with 95 units in 2003, as LCD panel manufacturers ramp up production to meet increasing demand for flat-panel TVs and as more and more PC monitors are equipped with LCDs.
Seiko Epson Corp., which competes with Canon for the top share of Japan’s printer market, said on Thursday its net profit jumped 750 percent year-on-year in the April-December period thanks to surging demand for its LCD displays.
Seiko Epson is the world’s largest maker of LCD screens for mobile phones, which are rapidly switching to color.
Prior to the announcement, shares of Canon ended Thursday trade up 0.18 percent at 5,550 yen, compared to the electric machinery index’s IELEC.0.41 percent decline. Seiko Epson fell 2.78 percent to 4,540 yen.
($1=106.18 Yen)
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