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February 12, 2013 12:53 pm
What scandal? Last year it was possible that Olympus, reeling from one of Japan’s biggest accounting frauds, could be broken up or forced into change by outside shareholders. Either option would have been a radical outcome for blue-chip Japan. But the opportunity passed as the company’s bankers triumphed and it won support from peers, including Y50bn for a minority stake from Sony . Business has continued as usual, with good units covering bad ones. Olympus shares have also rallied hard. But a break up still makes sense.
Olympus has a very good medical equipment division, but the rest of the company, including cameras, ranges from average to terrible. Buying Olympus means getting a stock where the Y56bn of operating profits from medical equipment so far this financial year (which ends in March) are more than twice those of the overall business. Losses in its camera business doubled, too.
Of course, Olympus has a plan. What ailing Japanese technology company does not? But along with “personnel optimisation” and other cost-cutting, the plan is still centred on cameras and life sciences (microscopes and the like) as well as medical equipment. Those three businesses can in theory be complementary. But financially, all the heaving is being done by only one of the three, with little sign that the other units can really pull their weight. The camera division’s lower-end products are being hurt by smartphones, while the high-end business, dominated by the likes of Nikon, is suffering a sharp drop in pricing power.
During the past 10 years, Olympus would have earned a quarter again as much operating profit had it just sold medical equipment. Now it is trading at 0.75 times sales, half the level of rival Boston Scientific. But with no break-up in sight, there is little chance of investors realising the company’s true worth.
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