For 4Q Olympus's imaging division made a 'record loss'. In fact it lost more in 4Q than in the previous 3Qs combined. On sales of 19.9bn yen, the imaging division made a pretty staggering loss of 14.3bn yen. Just some other facts and figures from the results... Sales of compacts were 57bn yen against a forecast (made this time last year) of 91bn. Sales of compacts have fallen from 120bn Yen over the last 3 years. Olympus is 'substantially reducing' the number of compact camera models it is producing and will cease production of lower priced models. For the current year they expect compact camera sales to fall from 57bn to 40bn yen. ....Sounds vaguely realistic..... Perhaps more worrying is 'mirrorless'. Olympus achieved sales of 38bn yen well below their forecast of 43bn yen made at the beginning of the year. Given what must have been a very successful OMD launch that's not too impressive. Olympus expects 'strong growth' in mirrorless 'in conjunction with market trends'. (yeah right!) They are forecasting mirrorless sales to increase from 38bn yen to 50bn yen (ho, ho, ho). They are also forecasting their gross margin for the imaging business to increase from 33% to 44% (I am not making this up) and SG&A expenses to fall 20% from 56bn yen to 44bn yen. The combined effect of these (massively heroic) assumptions is a forecast to move from losses of 23.3bn yen to breakeven. The problem Olympus faces is that last year it made a loss equivalent to 20% of sales! And the only way you can get back to breakeven from there is by making hopeless optimistic forecasts for sales, gross margin and your ability to cut expenses. It is just as likely that things will not get any better this year. Assume 35bn of compact sales, mirrorless sales flat at 40bn, an unchanged margin and SG&A expenses down 15% and Olympus would lose 23bn yen again. If that is the case, then the imaging division will have lost the US$500m equity injection from Sony in less than two years. And here is the rub for Olympus. It currently has a compact business that last year produced 57bn of sales that will continue to implode until it is closed. It will be left with a mirrorless business that made sales of 38bn yen and is probably capable of producing sales of 50-60bn yen in a few years time. Now if that business was to produce a 10% net margin, the same as Nikon, the imaging division might eventually make 5-6bn yen profit. And so the question is. How much longer can Olympus continue with a business that is losing 10-20bn+ yen a year when the 'long run' 'potential' for the business is only to produce 5-6bn yen profit?