*NEWS*CANON EXPECTS PROFITS TO DROP

[Anonymous]

Canon Expects Profit to Drop for the First Time in 13 Quarters

AUG 05 – Canon Inc., the world’s biggest maker of photocopiers, forecast
profit will decline for the first time in 13 quarters because of falling digital
camera and office equipment prices.

Net income may slide 18 percent in the third quarter to 84 billion yen ($756
million), partly because of asset and pension- related gains in the year-earlier
period, the Tokyo-based company said in a statement. Canon made the prediction
after reporting second-quarter profit gained 7.5 percent.

“The fact that profit is expected to drop this quarter highlights the impact
of falling product prices,” said Masaki Iso, who oversees the equivalent of
$7.6 billion as head of Japanese equities at Yasuda Asset Management Co. in
Tokyo. “That’s probably going have some negative implications on the share
price.”

Canon has weathered a slump in industry prices better than rivals such as
Seiko Epson Corp., which today cut its full-year profit forecast, partly on
lower prices of ink-jet printers. President Fujio Mitarai, 69, stuck to a target
for a sixth year of record profits, boosted by sales of products with higher
profit margins such as color printers and single-lens reflex digital cameras.

“Price declines were significant in all our products but mainly in printers,
copiers and compact digital cameras,” Canon’s senior managing director Toshizo
Tanaka said at a press conference in Tokyo. Copier prices fell 10 to 15 percent
and digital camera prices dropped 10 percent in the six months ended June 30
from a year earlier, he said.

Canon shares, which have risen 7.4 percent this year, fell 0.7 percent to
5,940 yen as of 3 p.m. in Tokyo. The company announced results after equity
markets closed in Japan.

`Slightly Negative’

Canon projects third-quarter operating profit, or sales minus the cost of
goods sold and administrative expenses, to fall 14 percent to 136 billion yen
and sales to rise 2 percent to 855 billion yen.

In the quarter just ended, net income rose to 82.2 billion yen from 76.5
billion yen a year earlier as sales gained 7.3 percent to 912.5 billion yen.
Operating profit rose 5.8 percent to 126.9 billion yen, missing the company’s
previous forecast of 132.7 billion.

The company also trimmed its operating profit forecast for this year to 578
billion yen from an April forecast of 584 billion yen. Canon maintained its
full-year net income forecast at 367 billion yen.

“I got a slightly negative impression on the results,” wrote Hisashi
Moriyama, an analyst at JPMorgan & Chase Co. in Tokyo, in an e-mail after
the earnings release. “Operating profit for the second quarter and the full
year is worse than expected, mainly in the business machine segment.”

Color Models

Canon, which supplies laser printers to Hewlett-Packard Co., is increasing
profit as it benefits from companies switching to color printers and copiers
that have a higher profit margin than black and white models. The products, such
as those that can copy, scan and fax, also drive demand for consumables such as
toners and printers.

Sales at the business machines division rose 3.5 percent to 603.5 billion yen
in the second quarter, while operating profit of the unit fell 4.5 percent to
118.6 billion yen.

Shipments of color laser printers rose 49 percent in the first half, the
company said, while prices of copiers declined 10 to 15 percent from a year ago.

Canon surpassed Seiko Epson last year to become Japan’s biggest seller of
printers, and is the world’s third-biggest in terms of shipments, trailing
Hewlett-Packard Co. and Seiko Epson.

Seiko Epson today reported a fiscal first-quarter loss of 7.05 billion yen,
compared with a profit a year earlier. The company, based in Nagano prefecture
in central Japan, cut its full- year net income forecast to 44 billion yen from
the 54 billion yen target it set in April. The company earned 55.7 billion yen
in its last fiscal year.

Digital Cameras

Canon, which last year overtook Sony Corp. as the world’s biggest seller of
digital cameras, may struggle to maintain profit margins on the products as the
market becomes saturated in Japan and some overseas countries.

Although shipments of digital cameras gained 31 percent in the first half,
the company is keeping its fiscal full-year projection for shipments unchanged,
according to the company.

Prices for compact models declined 10 percent and single-lens reflex cameras
fell 5 percent, Canon said. The average price of a digital camera in Japan fell
8.3 percent to 25,870 yen last year, according to the Tokyo-based Camera &
Imaging Products Association.

Canon is betting sales of its digital SLR cameras, which use an
interchangeable lens to capture and electronically store images on a computer
chip, will make up for a slump in cheaper models. Canon competes mainly with
Nikon Corp. in the market for more expensive SLRs aimed at professional and
hobbyists. The most popular models are priced around $1000.

Dollar Forecast

Profits at Canon, which generates three-quarters of its revenue abroad, may
be lifted by the weaker yen. The company said the weaker Japanese currency may
add 23 billion yen in sales in the second half and 11 billion yen to operating
profit.

Canon expects the yen to trade at an average 110 against the dollar and 132
per euro for this year. The Japanese currency averaged 107.53 yen against the
dollar in the past quarter, and at 135.46 yen against the euro.

[Author]

August 16, 2005 at 8:23 AM