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February 8, 2013 11:59 am
By the time you finish reading this sentence, about 3,000 new pictures will have been shared via Instagram alone. Some will doubtless have found their way to your social media accounts. It is fair to say taking photographs has never been more popular – yet nor has it been harder to produce a steady profit on the back of that trend.
Shares in Nikon, a doyenne of the high-end and professional camera market, plunged a fifth this week after it surprised investors by knocking more than a third off its profits outlook for the year to March. After all, Nikon is supposed to be the smart way to play the camera game: the more pictures that are taken, the more people should consider upgrading to its higher-end, and higher-margin, digital single-lens reflex offerings. At that point, Nikon and Canon, its rival, each develop an Apple-like ecosystem as those who buy the accompanying lenses become locked into that brand. Nikon is in fact selling more high-end cameras than last year, but it has been getting less for them as competition among Christmas-related new products heated up in November. And costs cannot be cut quickly enough to keep up. Nikon’s camera-related sales are forecast to be Y5bn lower than the Y740bn previously expected this year. But operating profit forecasts have been cut by a quarter to Y60bn, knocking more than 2 points off its margin in the process.
Nikon does not need a fast-growing market to be reliably profitable, just a roughly steady one where spending can be planned with confidence. A world where it holds its forecasts for compact camera sales in spite of a near-halving of industry shipments in December speaks to its brand strength, but suggests “steady” is a long way off. In the run-up to its results, Nikon’s forward price/earnings ratio had risen from 12 in mid-November to a heady 18. Until the industry settles into focus its current 16 seems pricey enough.
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