*NEWS*CANON EARNINGS….UP,FUJI ….DOWN

[Anonymous]

Canon, Fuji Photo earnings seen stressing contrasts

TOKYO, Jan 05 – Quarterly earnings from Japanese precision equipment makers are seen as a study in contrasts, with strong demand for colour copiers boosting profits at Canon Inc.  while Fuji Photo Film Co  posts weak results on sliding digital camera prices and restructuring costs.

Analysts say Konica Minolta Holdings  and Ricoh Co.  will join Canon on the positive side of the earnings divide as they too are thought to have benefited in the October-December quarter from robust sales of colour copiers.

An upbeat earnings report is expected later on Tuesday from U.S.-based Xerox , underscoring the ongoing switch by businesses from monochrome copiers to more sophisticated colour machines that bring higher margins.

The average of estimates by four analysts showed Canon is expected to post 120.98 billion yen ($1.18 billion) in group operating profit for October-December, up 7 percent from a year earlier and a tad below Canon’s forecast for 123.3 billion yen.

But investors will be most keen to see how confident the companies are about earnings in the current quarter and next business year given deteriorating profitability in the digital camera market and the strengthening yen.

Canon, the only firm in the sector whose business term is the calendar year, will be issuing a forecast for 2005.

“The positive factors supporting earnings in the precision equipment sector are the industry’s transition to colour (copiers and printers) and successful moves to reduce production costs,” said J.P. Morgan analyst Hisashi Moriyama.

“But visibility is not that great and I expect companies to give cautious forecasts for the January-March quarter. The top risk factors are sluggish demand for digital cameras, Dell’s entry into the printer market and the strengthening yen.”

The market consensus is currently for Canon’s operating profit to rise about 3 percent to 550 billion yen in 2005, marking a sharp fall in earnings growth with it forecasting profit to have risen 18 percent to 535 billion yen last year.

“Office equipment will continue to be strong but I actually expect Canon’s digital camera business to see profits fall, and this will have a large negative effect,” said Mizuho Securities analyst Takeshi Ishizuka, adding that its steppers, which etch circuitry onto semiconductors, would be in the red.

“Canon’s earnings momentum will fall but others in the sector should be able to produce strong earnings growth in the next business year. I’m especially bullish about Fuji Photo Film and Konica Minolta because restructuring benefits will kick in.”

DIGITAL CAMERA WOES

Ricoh should post a 10 percent rise in operating profit in the latest quarter to about 40 billion yen, with healthy sales of multifunction colour copiers offsetting heavy promotion costs and charges related to its withdrawal from the optical disk business.

Konica Minolta, meanwhile, is expected to lodge a 30 percent or so jump in profit. Sales of colour copiers were so strong during the quarter that it had a shortage of key parts and could not keep up with demand.

The near-term picture is less rosy elsewhere in the sector.

Hurt by slumping demand and falling prices for liquid crystal displays (LCD) and semiconductors, Seiko Epson Corp  may see its operating profit down slightly for the latest quarter, although robust sales of ink jet printers would cushion any fall.

Fuji Photo and Olympus Corp appear to be the worst off as both struggle to raise margins in the digital camera business and are hurt severely by a firm yen. Fuji Photo also suffers from weak demand for photographic film and is burdened by heavy restructuring costs.

Lens maker Hoya Corp. flagged the digital camera market’s tough conditions last week by forecasting a fall in profits in the January-March quarter because it expects digital camera makers to enter a deep production adjustment phase.

Analysts say Fuji Photo may cut its outlook for the full year to March 31 after posting a double-digit decline in profit for the latest quarter, although its earnings could fluctuate depending on when it books restructuring expenses.

“We could see quite a few companies revise down their forecasts but I don’t think the size of those revisions will be all that large,” said J.P. Morgan’s Moriyama. “For example, we might see Fuji Photo cut its operating profit forecast to 160 billion yen from 164 billion yen to factor in the yen.”

Helped by strong sales of a hit digital single lens reflex (SLR) camera launched in March, Nikon Corp. is seen returning to profitability in October-December after losing money in the same period a year earlier.

Moriyama is bullish about Nikon’s prospects, predicting its operating profit will nearly double in 2005/06 after chip giant Intel Corp. earlier this month boosted its budget for factory and manufacturing investments.

Intel is Nikon’s top customer for steppers. Canon and ASML are the world’s other two major stepper firms.

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January 30, 2005 at 9:48 AM