carly(tm) bets on sunset business

From: John Smith (a_at_nonymous.com)
Date: 11/22/04 

Date: Mon, 22 Nov 2004 08:38:37 -0500

http://story.news.yahoo.com/news?tmpl=story&ncid=1211&e=10&u=/nm/20041121/tc
_nm/tech_digitalcameras_dc&sid=95573372

Profits Fading in Digital Camera Industry

Sun Nov 21, 8:08 AM ET
By Nathan Layne

TOKYO (Reuters) - Bloated with inventory and mired in the red, the digital
camera business of Japan's Olympus Corp. underscores how making money in the
cut-throat market is getting tougher.

Sony Corp (NYSE:SNE - news) (news - web sites). and Canon Inc. are seen as
the strongest players in the $17 billion market, profiting even as prices
fall and growth slows. But most other makers will struggle and some might be
better off exiting, analysts said.

"They seem to think it's a big game of chicken and if the other guy backs
down they will be able to make lots of money," said KBC Securities analyst
James Moon. "Someone has got to realize that you can't make money on these
things anymore."

The average price of a compact digital camera will decline by 15 percent in
2004 and another 15 percent next year, according to UBS analyst Ryohei
Takahashi.

He sees slowing growth ahead, forecasting the global market to climb about
40 percent in 2004 to 68.5 million units and a further 22 percent to 84.1
million next year before leveling out at 84.7 million in 2006.

The spread of cellphones equipped with powerful cameras is also a worry, as
some consumers feel they don't need to buy a separate digital camera.

Many digital camera firms have cut their annual shipment targets in recent
weeks, but Olympus, the world's third-largest after Sony and Canon, as well
as Pentax Corp. and Konica Minolta Holdings stood out with their camera
divisions in the red.

PRICES TO FALL
Even makers with hit products have fallen on hard times. Nikon Corp. is
making money on a new digital SLR launched in March, but still expects
profits in its camera division to fall as prices of compact models slide.

"We expect prices to keep falling. But we are shifting our product line-up
toward the high end," said Nikon Chief Financial Officer Kenji Enya.

The problem with that strategy is that every digital camera company is doing
the same thing: avoid the low-end of the market where price competition has
made margins razor-thin.

Camera makers will also find it increasingly difficult to attract customers
by improving quality. There is a growing consensus among consumers that
three or four megapixels, the measure of how many million picture elements
are captured in a digital snapshot, are enough to produce a high-quality
shot.

Last month Samsung Electronics launched the world's first 5-megapixel phone.

"You used to be able to boost average selling prices by raising pixel
counts, but that doesn't really work anymore," UBS's Takahashi said. "Many
people are coming to the realisation that five megapixels isn't even
necessary."

With the pie not likely to get much bigger, makers can either try and carve
out a profitable niche like Casio Computer Co. has done by focusing on
card-sized cameras, or flood the market with products in an effort to grab a
higher market share.

KODAK A NEW THREAT
With more than 30 players, the market is far more competitive than a few
years ago. Eastman Kodak has emerged as a formidable rival in the United
States, while Matsushita Electric Industrial is gaining traction in Japan.

Kodak's share of the U.S. market rose to 18.2 percent in the first half of
calendar 2004 from 15.1 percent in the same period last year, according to
research firm IDC. Olympus, Nikon, Hewlett-Packard, Pentax and Sony all lost
share.

"Kodak's advantage is that they are offering cameras at lower prices and
focusing on creating better products. They are putting pressure on everybody
else," said IDC analyst Chris Chute.

Success depends not only on developing attractive products but also on
getting them to market quickly.

Fuji Photo Film slashed its annual digital camera shipment target by 18
percent to 7 million units last month, partly because a shortage of
components kept it from launching a key model in time for the summer bonus
season in Japan.

Olympus expects its camera division to lose 18 billion yen ($173 million) in
the year to March as it disposes inventory that swelled to 2.6 months at the
end of September, up 53 percent year-on-year. Still, the company is aiming
for 20 percent of the global market in three years, up from around 10
percent now.

"Some time ago our share used to be about 20 to 23 percent," Olympus Imaging
President Hiroshi Komiya said.

Olympus can nurse its camera operations back to profit in the next business
year by clearing out inventory and starting from scratch with new models,
according to KBC Securities' Moon.

But steady profits over the long-term are unlikely, he said.

Olympus has a relatively weak brand and was late to address two key
segments -- the thin, card-sized model and the reasonably priced digital
single lens reflex (SLR) camera, a high-margin, fast-growing segment
dominated by Canon and Nikon.

"Our problems stem from mistakes made in product development and our failure
to correctly read market trends," Olympus President Tsuyoshi Kikukawa said
last week. ($1=104.22 Yen) (Additional reporting by Franklin Paul in New
York)

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Guess she's counting on the 'synergy between the digital camera business and
convenience printing. Most of the people I know who use digital cameras now
cull the images they want printed and either burn a CD and take it to their
local photo lab or e-mail the images to the lab from optical printing on
real photo paper, bypassing the print-it-at-home route because it is far
less expensive to get Costco or Walmart or the myriad of other photo labs to
do it.