From time to time I receive emails or phone calls at the office, or comments on this website, in which readers express some concerns about their camera system being discontinued. Orphan camera system risks exist, and they are the subject of this article. I’d like to thank one of our readers, Allan Crook, for a recent comment which was a bit of a creative spark for this article.
I suppose when many people think about a camera system that they think may be discontinued, Nikon 1 is often one that comes to mind. Rather than go there right away, let’s have a look at some other potential ‘orphan camera systems’ first.
Panasonic is an interesting one to consider. In March, the company announced a major restructuring and rumours immediately surfaced that the camera division was being ‘disbanded’. As could be expected, Panasonic immediately tried to squash any rumour that the camera business was being dismantled. Instead, Panasonic confirmed that all consumer electronics were being put under one division. The company would not comment on whether any head-count reduction was in the cards for the camera division.
It is interesting to note that Bloomberg/Gadfly reported that Panasonic now makes more money from auto parts than home appliances. Apparently if broken out on its own, Panasonic’s auto parts business would be a ‘Top 10’ car parts supplier.
Having a look at Panasonic’s Fiscal 2018 Management Policy document seems to confirm quite a bit of emphasis on the auto parts business. While there is no specific mention of Panasonic’s camera business, the consumer electronics division appears to be classified as a ‘stable-growth business’. White goods (i.e. appliances) are mentioned prominently when the company discusses the consumer electronics business so it really is unclear how much emphasis Panasonic intends to place on the camera business. Since ‘low-profitable business’ was cited as having a need for ‘improvement of management structure’, one could deduce that cameras were already classified as low profit, hence its consolidation under the consumer electronics division.
It is quite clear from the Panasonic document that capital investments will be flowing into the company’s auto parts division, “From now on, our investment will be focused mainly on automotive battery as a capital expenditure”.
Everyone can make their own assessment what all of this means for Panasonic’s camera business. It certainly doesn’t sound like a ringing endorsement that Panasonic’s camera business will be continuing for a long time into the future to me. But, that’s just my take on it. I think there is a reasonable possibility that Panasonic owners could have an ‘orphan camera system’ in the foreseeable future.
Olympus is another interesting brand to consider. In its 2016 Annual Report, Olympus had its overview of its imaging division at the end of the report covered in only 2 pages in the 50 page report.
The 2017 forecast shows the Imaging Division with another operating loss. A turnaround is targeted in the 2021/3 time frame…quite a few years away. The 2017 loss follows a loss in 2016. On a positive note the 2016 loss was reduced from the loss of 11,710 million Yen incurred in 2015.
An interesting quote from the Imaging Business section, “…we will advance the selection and concentration of target regions for sales in response to the contraction in the market in order to transition to a cost structure that supports ongoing income generation”. Hmm…that sounds like potentially transitioning from being a player in the global camera market, to focusing on regions instead.
Mirror-less cameras are seeing volume growth thus far in 2017, mainly due to an expansion of the market in Asia. It is difficult to assess the longer term commitment of Olympus to its camera business. Perhaps it will survive and be focused on larger, growing markets such as Asia. Could Olympus exit the North American market and leave its current users owning an orphan camera system? I suppose that is possible.
The big feeling that I got from the Olympus Annual Report was that it is fundamentally a Medical Business company, showing both revenue and profit growth coming from that main business area. Over 77% of Olympus sales are from its Medical Business, compared with 9.9% from the Imaging Business.
The lion’s share of Olympus profits also come from the Medical Business with 140,220 million Yen, compared to 8,482 million Yen for the Scientific Solutions Business, and a loss of 2,064 million Yen for the Imaging Business.
Again, you can look at the 2016 Annual Report for yourself and come to your own conclusion. Could owners of Olympus camera gear end up with an ‘orphan camera system’? Possibly, especially if you are located in the Americas where the mirror-less camera market is relatively small compared to Asia and Europe.
What about Pentax? Another interesting brand to ponder. Its parent company, Ricoh, is primarily in the printer/copier business…not cameras. The new CEO has indicated that the company will focus on growth areas of its printing business, and expand into segments such as thermal in-line printing, 3D printing and bio printing. Apparently Ricoh is looking to expand its printing technology beyond commercial and industrial markets.
Some old news and rumours courtesy of the Nikkei Asian Review indicated that Ricoh may walk away from the camera market, putting the future of the Pentax brand in question. As seen with initial Panasonic rumours, Ricoh has denied that it is intending to leave the camera market. It was a bit odd that all Ricoh stated in a recent press release in April, was that the article saying that Ricoh was considering to shrink its camera business and withdraw from consumer products, was “not based on RICOH’s official announcement“. Depending on how you choose to interpret that statement, it could potentially mean that Pentax could go…but its not just official yet.
So, what is the future of Pentax? I don’t think anyone really knows for sure. What is known is that Ricoh purchased Pentax from Hoya in 2011 for a reported $124 million. I doubt that Ricoh could simply walk away from the camera market and write off that level of investment without a serious attempt at making Pentax profitable. Could owners of Pentax camera gear end up with an orphan camera system if Ricoh can’t generate a profit with Pentax? It is possible, especially since Ricoh is fundamentally a copier and printer company.
That brings us to the brand that so many people seem to love to hate, Nikon 1. Is Nikon 1 going to be discontinued? Only Nikon executives know the answer to that question for sure.
Unlike Ricoh, Olympus and Panasonic, Nikon is fundamentally a camera company so its focus is different than the three competitors mentioned.
What we do know from CIPA statistics is that the interchangeable lens camera market has been more resilient than the fixed lens camera market. We also know that the shipments of mirror-less cameras in terms of actual unit volumes has shown an increase thus far in 2017, and that the shipments of interchangeable lenses are also showing some signs of a potential increase in units this year. So, strategically it doesn’t make much sense for Nikon to cancel a product line like Nikon 1 that is in a stable and/or growing product segments.
We all heard the rampant rumours (assumptions?) that the Nikon DL Series of cameras would replace Nikon 1. I felt a bit like a voice in the wilderness when I wrote an article expressing my opinion that the rumour/assumption didn’t make any sense to me from a strategic perspective. Well…the DLs never saw the light of day, and Nikon 1 is still standing…at least right now.
No doubt Nikon is having financial challenges. As a result it announced a corporate restructuring and a shift in its overall strategy to one based on increased profitability in a shrinking market. That was indicated to be focusing more on higher value products and additional differentiation. We are beginning to see what that means on the DSLR side of the product line with the D7500. Great camera specs, but some ‘takeaways’ in terms of features (single card slot for example). A few readers have told me that the overall build of the D7500 is more like a D5XXX Series camera. In Canada a D7500 is going for $1,700 compared to $1,330 for a D7200.
Significant price increases on new camera models is not restricted to Nikon of course. Panasonic and Olympus have taken similar decisions with their pricing on new camera bodies.
I think the future of Nikon 1 really boils down to two simple words: contribution margin.
If Nikon can sell its various Nikon 1 camera bodies and lenses and generate enough revenue to more than cover its variable cost of manufacture, then Nikon 1 will be around for many years to come. As long as the product line can generate a positive contribution margin it will help offset some of Nikon’s fixed costs. In that context, Nikon 1 would make a positive financial contribution to Nikon. At the end of the day, that is fundamentally why any company creates, builds and markets products…to make money.
For many typical Nikon 1 buyers Nikon would not need to spend much R&D money on developing new lenses, other than perhaps a dedicated macro. A couple of Nikon 1 zoom lenses would meet the needs of the majority of casual photographers. Bodies would only need to be updated every couple of years or so. So, the majority of cost for the Nikon 1 product line has already been incurred. Why wouldn’t Nikon keep it around, as long as it generates positive contribution margin?
Let’s assume that the worst actually does happen and Nikon 1 goes away, as does Panasonic, Olympus and Pentax. Will the world stop? Of course not. All of those people who own those cameras will still be able to create images for quite likely many years to come.
Sure, some folks will panic and dump their Nikon 1, Panasonic, Olympus and Pentax gear. That just creates an opportunity for owners of those brands to buy an additional body or two, and some lenses, to extend the life of their camera system at bargain basement prices.
If we take the emotion out of potentially owning an orphan camera system…there really isn’t much to actually worry about. Especially if you pick up some additional gear at fire sale prices.
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