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Smartphones Sales Sting Canon Earnings for Q1 2013
By DAISUKE WAKABAYASHI And MAYUMI NEGISHI
TOKYO—Relying on conservative finances and efficient operations, Japan’s Canon Inc. 7751.TO -6.38% and Nintendo Co. 7974.OK -5.49% avoided the types of massive losses from overstretched investments that wreaked havoc across the country’s electronics sector in recent years. Now, the two corporate stalwarts are facing a different type of problem, standing on the wrong side of a technological shift introduced by smartphones.
As Canon and Nintendo posted results Wednesday, the two companies felt the impact of smartphones in different ways. For Canon, digital-camera shipments are shrinking rapidly as smartphones eat into demand for compact point-and-shoot models, while Nintendo’s newest videogame systems are struggling to gain momentum in a world of free-to-play games surging on smartphones.
The emergence of smartphones—global shipments are expected to reach nearly one billion units this year—has reverberated across the technology landscape, crimping everything from personal-computer demand to music-player sales. The impact has been especially pronounced with digital cameras and portable game machines, where Canon and Nintendo are the biggest competitors.
"Cellphones are cloaked mobile-gaming devices that you always have in your pocket," said Serkan Toto, a Tokyo-based mobile-games consultant. "You haven’t seen anything yet."
Nintendo said it fell short of its profit and sales estimates for the fiscal year ended in March because sales of its two flagship game machines were weaker than expected.
The company doesn’t break out quarterly results, but a Wall Street Journal calculation showed that the videogame maker’s operating loss widened to ¥30.55 billion ($307.2 million) in the January-March quarter from a loss of ¥20.91 billion a year earlier. Its quarterly net loss came to ¥7.45 billion, compared with a profit of ¥5.15 billion a year earlier.
Meanwhile, Canon said it posted a 34% decline in quarterly net profit even though sales and earnings benefited from the weak yen. Canon said sales at its imaging-system business, 70% of which comprises camera sales, slipped 1.8% in the first quarter in yen terms, although they sank 14% once the impact of the yen’s depreciation is stripped out. In addition, the operating-profit margin at the business fell to 9.6% in the first quarter from 15% a year earlier.
"With the compact camera, demand is shrinking in both developed and developing countries because of the sluggish economy and the popularity of the smartphone," said Toshizo Tanaka, Canon’s chief financial officer. "We found it difficult to avoid that impact."
The weak yen is helping to blunt the technology shifts that are sapping demand. Nintendo is forecasting a sevenfold net-profit increase in the current fiscal year when the company will be helped by foreign-exchange gains, provided currency rates stay near current levels.
Canon raised its 2013 earnings estimates almost exclusively on the impact of the weak yen. Without the currency’s impact, Canon’s full-year sales would be largely flat and profit would be expected to decline.
The improving quality of smartphone cameras and the desire for consumers to share photos instantly via social-networking sites is wiping out demand for compact point-and-shoot models that account for about 75% of all digital-camera shipments.
Compared with peak global shipments of 121.8 million units in 2010, according to the industry’s Camera & Imaging Products Association, Canon said it now expects global digital-camera shipments to total 70 million units this year. That compares with a previous estimate of 83 million units in January. Canon expects its own shipments to fall to 14.5 million units this year from an earlier forecast of 17 million units.
The company is focusing on the high end of the market, where Canon dominates with its profitable single lens reflex, or SLR, cameras. It was a late entrant into the so-called mirrorless category, a popular segment of cameras that offer better picture quality and the ability to change lenses in a more compact body. But the company said it has a competitive product and expects the category to continue to grow.
At Nintendo, the sluggish start of the Wii U and 3DS is more telling when compared with the sharp growth of social games on smartphones, including popular titles such as "Puzzle & Dragons" in Japan and the combat-strategy game "Clash of Clans" in the U.S.
Nintendo said the Wii game machine it launched in November sold 3.45 million units by the end of March, failing to meet the company’s target of four million units. Nintendo had already reduced that target from 5.5 million units in January.
The 3DS, launched two years ago, also failed to meet the company’s own targets. It sold 13.95 million units in the fiscal year ended in March, short of the 15-million-unit target set in January. Nintendo had lowered that target twice previously, from 17.5 million units in October and 18.5 million units in July.
The company continues to insist that smartphones and free-to-play games—the titles don’t cost anything initially but try to lure players into paying for weapons or tools within the game—aren’t the cause of the lukewarm reaction to its latest videogame systems, the Wii U and Nintendo 3DS.
Nintendo President Satoru Iwata said the answer is to make more appealing games that can’t be replicated on smartphones. To do that, Nintendo said it might encounter more delays in software development to strengthen the attractiveness of the games.
"It is imperative that we focus our energies on strong software that will win users," Mr. Iwata said Wednesday. "We want games that will sell—games that people feel they need to play."
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