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Olympus imaging - dire straits....

Discussion in 'Open Discussion' started by robbie36, May 17, 2013.

  1. robbie36

    robbie36 Mu-43 All-Pro

    Sep 25, 2010
    Bangkok
    rob collins
    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?
     
  2. Wizard Steve

    Wizard Steve Mu-43 Regular

    128
    Feb 10, 2013
    Provence, France
    David Ricketts
    If they made consumers in the US pay as much as those in Europe, they'd be in the black in no time. Simples!
     
  3. Just Jim

    Just Jim Mu-43 Top Veteran

    941
    Oct 20, 2011
    Projections from anything out of Japan right now are guessing games considering Shinzo Abe's current success in creating a weaker Yen. Export prices out of Japan should be getting cheaper, and Oly may be able to take advantage of that with lower price points lower prices may create more demand in the states and other markets, especially considering I'd imagine Canon and Nikon won't lower their prices in attempt to take advantage and increase their margins. But, like I said, guessing games, not going to be an easy nut to crack with Japan right now.
     
  4. juangrande

    juangrande Mu-43 Top Veteran

    805
    Dec 2, 2012
    COLORADO
    If they could just get a small percentage of the approx. $15 trillion that the banking cartel has printed and handed out to themselves over the last couple of years, they'd be sittin' pretty!
     
  5. kwalsh

    kwalsh Mu-43 Top Veteran

    775
    Mar 3, 2012
    Baltimore, MD
    Excellent point Jim:

    USD/JPY Currency Conversion Chart - Yahoo! Finance

    That's 25% in just about six months.

    Which is not to detract entirely from Robbie's observation that making hopeful assumptions to get to breakeven is pretty standard business practice - especially in Japan.
     
  6. caimi

    caimi Mu-43 All-Pro

    Apr 13, 2012
    middle US
    Caimi caimiphotography.com
    I have absolutely no economic expertise but I had the same thoughts as JustJim when I heard the news of the weaker yen: cheaper prices for Olympus products on the US market resulting in stronger sales.
     
  7. DeeJayK

    DeeJayK Mu-43 Hall of Famer

    Feb 8, 2011
    Pacific Northwest, USA
    Keith
    My Econ 101 professor told me that it's not quite as simple as that, Steve. It's been a while, but I seem to recall something about a "law of supply and demand". :wink:
     
  8. DeeJayK

    DeeJayK Mu-43 Hall of Famer

    Feb 8, 2011
    Pacific Northwest, USA
    Keith
    Thanks for the cogent analysis, Robbie. Things definitely haven't been trending well for Olympus for several years, which is worrisome for their long-term prospects. From what I understand their real bread-and-butter division is medical imaging.
     
  9. mring1

    mring1 Mu-43 Regular

    41
    Nov 28, 2012
    Phoenix, Arizona
    John Taska
    A question for Robbie...

    I appreciated your analysis and your well-expressed concerns. But here's an interesting wrinkle: Olympus stock hit a one year high at 3185 yen. It's rated slightly better than "Hold". 18 months ago, the stock was almost worthless, the financial scandals involving the board were crawling out of the woodwork, and the whole company was undergoing a near-death experience...and Olympus Imaging was undergoing an even-nearer-to-death experience.

    The bankers that drive Olympus know something, otherwise I don't think you'd see the stock where it is today. Oly executives are making some good decisions after several years of poor decisions. By good decisions, I mean the alliance with Sony and use of Sony sensors, the release of some really good cameras, coming back to what they do well (core competencies), and dumping losers, like the low end P&S market. The P&L's are as you stated them, but some of that also reflects a weak market worldwide. Canikon is also failing to meet projections.

    It's a mixed bag financially, but we still buy the gear. If Olympus ceases to exist, I'll use the camera until it dies and then find something else. I understand how that works. I own a Saturn:rolleyes:
     
  10. DeeJayK

    DeeJayK Mu-43 Hall of Famer

    Feb 8, 2011
    Pacific Northwest, USA
    Keith
    Just listened to a portion of the Financial Results presentation that had to do with the "restructuring of the Imaging Division." Although I'm no financial analyst, I can't say I'm necessarily heartened by what I heard; there was lots of focus on "risk minimization."

    Some of the highlights (to me) of the accompanying slide deck:
    • Reduce Imaging Business staff by 30% by March 2014
    • Focus management resources on major cities where mirrorless camera demand is expected to grow
    • Accelerate investment in sales channels highly suited to mirrorless cameras
    • Minimize inventory risks

    This last point makes me wonder if there will be supply bottlenecks if the E-P5 or expected E-M5 replacement are big hits.
     
  11. robbie36

    robbie36 Mu-43 All-Pro

    Sep 25, 2010
    Bangkok
    rob collins
    Well as I see it there is a degree of logic behind Olympus's share price.

    Although the imaging division massively missed its forecast (23bn yen loss v forecast 1bn yen profit) the Life Science (division) exceeded forecasts and this is the core of their business.

    I imagine that the implosion of the camera division which has now lost money 3 years in a row and we can bank on a 4th is simply accelerating the date when Olympus either sells it or closes it down which will leave the remains of the business inherently profitable and without the drag of the camera division.

    As I see it one or other - sale or closure - is all but inevitable now at some point in the next 5 years and this will be good news for Olympus.

    Personally I hope they sell it (possibly to Sony) while there is perhaps some value left in the business. The worst case scenario is that business continues to evaporate to the stage that noone actually wants to buy it.

    If you consider that sales of mirrorless are 38bn yen that is less than 5% of Group sales and only 6 months profit for the Life Science operation. Olympus can afford to keep it you might think. But it is bleeding very badly and holding back the company and its long term potential is still very low.
     
  12. robbie36

    robbie36 Mu-43 All-Pro

    Sep 25, 2010
    Bangkok
    rob collins
    I actually doubt that the weak yen is a huge factor for Olympus. 45% of sales are in Japan in any case and I believe their biggest manufacturing operations are in Shenzhen and Vietnam.

    More importantly when your losses are over 20% of sales a weaker local currency for an exporter is only something of a plaster on a gaping wound. And in any case Olympus is already forecasting that its gross margin will rise from 33% to 44%.

    The main factor to consider is that this is going to be a very difficult year for all camera manufacturers. It is an absolute certainty that the compact market will continue to shrink but it is also likely we will see falls in mirrorless and DSLRs.
     
  13. ptolemyx

    ptolemyx Mu-43 Veteran

    290
    Jun 19, 2012
    Vancouver, BC
    Ben
    Unless they also put ex-Olympus employees in charge of the division, they may as well let it die. Sony has great technology but (with some exceptions) they apparently view their cameras as they do their consumer electronics... gimmickry first, photography second.
     
  14. dhazeghi

    dhazeghi Mu-43 Hall of Famer

    Aug 6, 2010
    San Jose, CA
    Dara
    That scandal had to do with financial improprieties. Imaging had nothing to do with it then or now. As it stands Olympus is a profitable company. It's just that all the profits (and most of the revenues) come from medical equipment. Olympus won't disappear any time soon. Olympus Imaging is less certain.

    As to charging higher prices in the US market, I invite you to look at Pentax. Charging more than your competitors for comparable gear is unlikely to either increase sales or revenues.

    The only obvious fix I see for Olympus in the US is to dramatically improve marketing and distribution. Nikon distribution used to be awful too. It's something that can be fixed. However, doing that will require spending some money upfront, and that doesn't look like it's in the cards right now.
     
  15. robbie36

    robbie36 Mu-43 All-Pro

    Sep 25, 2010
    Bangkok
    rob collins
    Really increasing 'marketing and distribution' expenses in the US isnt really an option for Olympus.

    The US only accounts for 20% of sales and total sales of mirrorless was 38bn yen or US$400m. So that means mirrorless sales were some US$80m in the US.

    Now compare that US$80m to the US$4.5bn that Canon does in the US. There really is no way that Olympus could spend anything more than what amounts to a gnat bite against Canon.

    And my gut feeling is that marketing and distribution spending generate a negative ROI in terms of the increased gross profit on sales generated already. I rather suspect that Samsung is being relatively smart in the mirrorless market at the moment. Spending almost nothing on marketing, generating very low sales but losing less money than if they were spending heavily.
     
  16. Just Jim

    Just Jim Mu-43 Top Veteran

    941
    Oct 20, 2011
    ooooh. It's ok I had 3DO, the expensive panasonic model too... Don't feel to bad we all make bad choices... in my case REALLY bad decisions. Couldn't even get a good resale to get a PS1, oh the old days. But hey we all learn! I didn't buy a Wii U :cool:

    I'm hoping you're talking about the SEGA saturn, and not the car company... but same point.
     
  17. BigTam

    BigTam Mu-43 Top Veteran

    773
    Mar 19, 2012
    Dortmund, Germany
    Ron
    They do, Steve. But US prices are before sales tax, if any, and EU prices include Value-Added Tax, usually at 19-20%. Do the sums, the prices are very close.
     
  18. mring1

    mring1 Mu-43 Regular

    41
    Nov 28, 2012
    Phoenix, Arizona
    John Taska
    Actually, I was referring to the car..

    I have a 2006 Vue, which has a Honda 3.5l engine and runs like a bandit. Our family collectively owned 12 (!!!) of them from 1991 to 2006. I'll never forgive GM....

    But back to the thread...we're seeing the same kinds of closures and consolidations in all industries now. I think the OP's comments about the very questionable long-term viability of Olympus Imaging is similar to what has happened in a lot of markets. The bankers that drive Oly probably won't be content to see continued losses focused on one division. I'm betting they'd sell the name and the intellectual property and move on as opposed to simply shutting the doors.

    Notwithstanding our collective enthusiast status (why else would we all be posting here), it IS only a camera. I've used Pentax and Nikon before and I've driven a number of Fords. Life would go on....
     
  19. thchen

    thchen Mu-43 Regular

    41
    Jan 28, 2012
    And I owned a Saab. So this made me LOL on a Friday afternoon. Does that mean we should NOT be buying more OLY lenses?
     
  20. mring1

    mring1 Mu-43 Regular

    41
    Nov 28, 2012
    Phoenix, Arizona
    John Taska
    Since there's a market for Saturns and Saabs (you just have to turn over the right rock:wink:), there's a market of Olympus cameras and glass.