OEM’S READY FOR RESTRUCTURING

[Anonymous]

Restructuring eyed as Japan precision firms report
January 2006TOKYO: Canon
Inc may stand out with a strong rise in quarterly profit as Japan’s
precision equipment makers report earnings from this week, but
investors will also be watching out for restructuring plans from Seiko
Epson Corp and Fuji Photo Film Co.
As well as posting strong results, Canon is expected to forecast
another record profit in 2006 on the back of solid sales of colour
copiers, printers and digital cameras, especially high-end digital
single lens reflex (SLR) models that use interchangeable lenses.
But sector watchers may be focusing more closely on Fuji Photo’s
restructuring steps for its ailing photo film and colour paper
operations and Seiko Epson’s plans for shoring up its chip and display
businesses.
Analysts say the pressure for further restructuring was ratcheted up a
notch when Konica Minolta Holdings Inc. said earlier this month it is
pulling out of the photographic film and digital camera markets.
“Global demand for colour film is declining about 20 per cent annually,
and that trend probably won’t change,” said Deutsche Securities analyst
Yoshikazu Higurashi.
“Fuji Photo needs to implement restructuring that involves production,
sales and services or the future does not look good.” Fuji Photo, the
world’s second-largest camera film maker after Eastman Kodak, said in
October it was looking to accelerate reform and suggested that related
charges could force it to cut its full-year profit outlook.
For its part, Seiko Epson is expected to announce restructuring steps
for its devices devision as heavy price falls for semiconductors and
small liquid crystal displays (LCD) used in mobile phones have put that
division in the red.
Analysts are also worried about profit margins on Seiko Epson’s ink-jet
printer business after rival Lexmark International Inc said its
quarterly profit fell by more than half on slumping demand for its ink
and toner products. Matt Harris, part of a team that manages £1.5
billion ($NZ3.96 billion) in Japanese equity at Scottish Widows
Investment Partnership, said tough competition in the copier and
printer markets would keep him wary of precision equipment shares.
“I am always nervous about the quite high operating profit margins they
make on these businesses, when really it’s a very competitive area to
be in. It’s very difficult to make a copier or a printer that’s
particularly different to the one that Lexmark makes or Dell makes,”
Harris said.
Canon’s operating profit for the October-December period may come to
178 billion yen ($NZ2.27 billion), up 35 per cent from a year earlier,
according to a consensus forecast of six brokerages polled by Reuters
Estimates. Canon’s own quarterly estimate is for 173 billion yen.
Earlier this month Canon CEO Fujio Mitarai predicted that profit would
grow 10 per cent in 2006, and analysts expect the company’s official
forecast to reflect that remark.
“Canon has enjoyed strong demand for colour multi-function copiers and
(laser) printers, and has boosted its share of the ink jet printer
market,” Higurashi said of Canon’s quarterly results, noting that a
weaker yen also helped.
“There is a good chance that its margins will decline (this year) due
to rising raw materials prices and tough price competition, but demand
for Canon’s core products is firm and its profits should remain on an
upward track.” Analysts generally expect Fuji Photo’s quarterly
operating profit to come in somewhere around last year’s figure of 43.7
billion yen, supported by strong sales of medical equipment and optical
film for use in the production of LCD panels.
Copier giant Xerox Corp. posted an 18 pe rcent rise in quarterly profit
but its sales fell. Merrill Lynch analyst Ryohei Takahashi warned that
the profit-margin improvement was not necessarily a good sign for Fuji
Photo’s office equipment unit, Fuji Xerox, owned 75 per cent by Fuji
Photo and 25 per cent by Xerox.
Takahashi said in a note to clients that operating profit margins at
Xerox and Fuji Xerox, which accounts for about 40 per cent of Fuji
Photo’s overall revenues, have shown an increasingly inverse
relationship since 2003.
“This looks bad for Fuji Xerox’s October-December 2005 earnings,” Takahashi wrote in the note.
Goldman Sachs estimates Seiko Epson’s third-quarter operating profit will drop by about 50 per cent to 20.5 billion yen.
Quarterly operating profit at Ricoh Co dropped about 11 per cent to
34.4 billion yen, according to Merrill Lynch’s Takahashi, missing the
company’s forecast of 38 billion yen amid tough price competition in
the copier and printer markets.
Konica Minolta is seen posting an operating profit close to the 18.5
billion yen it recorded in the same quarter a year earlier as healthy
demand for multi-function printers and LCD film offset weak sales of
optical pickup lenses.
Analysts generally see profit at Olympus roughly doubling on healthy
sales of endoscopes and on measures taken to improve margins in its
battered digital camera division.
Nikon Corp. previewed its results earlier this week by saying its
April-December group operating profit would more than triple due to
strong sales of digital cameras and brisk demand for lithography
equipment used to make chips and LCDs

[Author]

January 27, 2006 at 11:09 AM