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 user 2006-01-31 at 11:25:00 am Views: 93
  • #14032

    Profit rises at Canon as it names new chief
    Canon, the world’s biggest digital camera maker, said Monday that its
    profit rose 34 percent in the fourth quarter of 2005 on sales of new
    models and a weaker yen.

    company also forecast a seventh year of record profit and named Tsuneji
    Uchida as its next chief executive to spearhead an entry into the $85
    billion flat-panel display market.
    Uchida, who heads Canon’s camera
    and display businesses, will take over a company that increased its net
    income sevenfold since 1995 under the chief executive Fujio Mitarai,
    who is due to become chairman in March.
    Uchida, 64, was promoted to
    senior vice president, ranking him second to Mitarai. Mitarai, 70, will
    become chairman of the Keidanren, the main Japanese business lobbying
    group, in May.
    Canon is developing a screen technology with Toshiba
    that generates clearer pictures and consumes less power than plasma and
    liquid-crystal panels.
    In the fourth quarter, net income rose to
    ¥108.2 billion, or $930 million, from ¥80.8 billion a year earlier. The
    median forecast made by analysts in a survey was ¥114 billion.
    Sales rose 14 percent, to ¥1.1 trillion, while operating profit rose 28 percent, to ¥169.3 billion.
    the full calendar year, the company reported a 12 percent increase in
    net income, to a record ¥384.1 billion, on sales of ¥3.75 trillion.
    Operating profit rose 7.2 percent, to ¥583 billion.
    The company’s
    camera unit had a fourth-quarter operating profit of ¥63 billion, a 59
    percent increase from a year earlier. Sales rose 18 percent, to ¥296.9
    “Canon’s cameras are doing surprisingly well despite an
    industrywide price slump,” Taiji Yoshida, a fund manager at Yasuda
    Asset Management in Tokyo, said before the earnings report was
    released. “They are committed to keeping up margins.”
    profit at its office equipment division, Canon’s biggest business, rose
    13 percent, to ¥150.2 billion, in the quarter. Sales gained 6.2
    percent, to ¥707 billion.Canon makes 70 percent of its sales from
    office equipment.
    “What pulled us back in the fourth quarter was
    office equipment,” said Toshizo Tanaka, the executive in charge of
    finances. The markets for color copiers and for inkjet printers, he
    said, faced greater-than-expected competition, especially on prices for
    inkjet printers.
    To try to combat falling prices, Canon is introducing more color models that can also copy and scan.
    2006, Canon predicts operating profit of ¥653 billion on sales of ¥4.06
    trillion. Mitarai has set Canon a sales target of $50 billion for 2010,
    to be driven by the display business and acquisitions.
    The company
    expects to ship 19.2 million digital cameras this year, including 2.2
    million SLR units. Canon sold 16.9 million digital cameras, including
    1.9 million SLR models in 2005.
    Canon said operating profit from its
    optical products rose 148 percent, to ¥8.55 billion, in the fourth
    quarter. Sales gained 59 percent, to ¥160.4 billion.
    Shares of Canon
    rose 0.4 percent to ¥7,190 Monday in Tokyo. The company announced
    earnings after the markets had closed. In the fourth quarter, the stock
    gained 13 percent, compared with a 17 percent gain in the broad market

    Canon looks beyond quarterly projections
    Digital technology is driving rapid changes in the way people capture and duplicate images.
    Consider digital cameras.
    a year ago, only 26% of all households had them in Western European -
    the world’s largest digital camera market, according to a report
    released in September by Weymouth, Mass.-based InfoTrends / CAP
    That number should increase to 39% of all Western European
    households by the end of this year, according to the market research
    and consulting firm’s report.
    Along with those digital camera
    purchases come new ways to electronically transmit and print images.
    That creates opportunities and challenges for companies selling
    peripheral products and services like film and photo processing, and
    other imaging technologies.
    One local analyst says a good way to
    sort through which companies will have more opportunities than
    challenges is to evaluate their research and development spending.
    all about planting the seeds for long-term growth,” said Rob Helf, a
    research analyst at Fiduciary Management Inc. in Milwaukee.
    Helf surveys the landscape of business / consumer imaging companies, he
    sees giants like Palo Alto, Calif.-based Hewlett-Packard Co., Armonk,
    N.Y.-based International Business Machines Corp., Tokyo-based Sony
    Corp., and Stamford, Conn.-based Xerox Corp.
    But he lands on another company he says he thinks will drive more innovation in the rapidly changing world of digital imaging.
    Inc. (CAJ, $59.44), based in Tokyo, spends about 8% of its revenue on
    research and development, Helf said. Hewlett-Packard spends about 7% of
    its revenue on R&D, and the rest of those companies spend 4% to 6%,
    he said.
    “Most companies think about performance of revenues and
    earnings over the next quarter or the next year, but this company
    manages its business for the next decade,” Helf said. “Canon doesn’t
    back away from continuing to spend and take costs out in other places.”
    company was awarded 1,800 U.S. patents in 2004, and has received more
    than 17,000 U.S. patents since 1995, making it second only to IBM in
    U.S. patent volume during that period, he said.
    Fujio Mitarai,
    Canon’s president and chief executive officer, is constantly discussing
    in quarterly and annual reports and other communications with
    shareholders, how the company will spend its money and take costs out,
    Helf said.
    Business success
    About two-thirds of Canon’s revenue
    and operating income comes from its business machines segment, which
    sells about equal amounts of office copying equipment and computer
    peripherals like laser printers.
    Both businesses have what Helf
    calls a “razor blade” model, where they generate a lot of business
    after the initial purchase through sales of supplies like toner and ink.
    make up another 25% of Canon’s business. The company has continued its
    focus on high-end products and has maintained strong market share as
    the lower-end camera sellers have begun to sift out, Helf said. Canon
    is one of the top digital camera producers in the world, with more than
    a 20% share of the worldwide market, he said.
    Canon is developing,
    through a joint venture with Toshiba, a television that uses SED
    technology for the high-definition TV market, Helf said. The hope is
    that SED, or “surface-conduction, electron-emitter display” technology
    will be able to produce vivid color images with lower power
    consumption, he said.
    The company uses production cells rather than
    assembly lines, he said. Each group of workers in a production cell can
    develop specialized knowledge. And because of the streamlined
    communication, Canon’s management says it’s easier to figure out how to
    take out production costs.
    Canon has about $8 billion, or $9 a
    share, of cash on its books. Investors get the comfort of that cash
    cushion and a relatively cheap stock that’s selling at roughly 12 times
    2006 earnings on the share price minus that cash, Helf said.
    company also on Wednesday boosted its dividend to about 83 cents a
    share from about 54 cents, showing that management anticipates healthy
    earnings and cash flow in coming years, he said.
    Canon trades on the
    New York Stock Exchange as an American Depository Receipt, or ADR. Each
    Canon ADR that trades in the U.S. represents one Canon share that
    trades on the Tokyo stock exchange. ADR holders are entitled to
    dividends and capital gains associated with the related shares that
    trade on the Tokyo Exchange
    Possible risk
    The biggest risks Helf
    associates with Canon shares are the possibility its growth will slow
    along with digital camera purchases, and the chance that a big customer
    will go elsewhere. Canon currently gets about 20% of its revenue from
    making laser printers that Hewlett-Packard sells under its name.
    could be disruptive but it would be a big risk right now for
    Hewlett-Packard to change its business strategy abruptly,” Helf said.
    firm began buying Canon shares in late 2004 in its FMI Large Cap Fund
    and clients’ big company stock portfolios, and is still buying
    selectively for new accounts. Canon’s share price is likely rising now
    because of anticipation the holidays will bring big digital camera
    sales. Helf would buy up to $58 a share and says these shares could go
    as high as $70 in the next 12 months