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How Canon, Nikon and other Japanese camera companies are fighting for survival in the Smartphone era

Key Points
  • Of Japan's eight digital camera makers, a group which includes Nikon, Canon and Fujifilm, only one posted sales and profit growth in the most recent annual period: Sony.
  • The digital camera market declined to 19 million unit sales in 2018. Over 400 million smartphones were sold globally in 2018.
  • Imaging sensors, medical equipment and other B2B products, have helped these companies survive, but cameras are fated to be a niche, hobbyist market.
Festival-goers pose for a selfie photograph.
Oli Scarff | AFP | Getty Images

In 1988, Fujifilm unveiled what it called the world's first fully digital consumer camera with the FUJIX DS-1P. It had a revolutionary feature, storing up to 10 images on a credit card-sized SRAM memory card. A lot has changed, especially since Apple introduced the iPhone in 2007, a device on which users today store thousands of images.

There were 100 million digital cameras shipped in the iPhone's first year. By 2018, the digital camera market had declined by roughly 80%, to 19 million. Of Japan's eight digital camera makers, the only one to log sales and profit growth in the most recent annual period through March 31 was Sony, and it was not due to gangbuster camera sales, but rather, the steps Sony took to wedge its technology inside the smartphone market.

"The history of photography began with silver collidium daguerreotypes and it was a rich man's game," said Damian Thong, an analyst at Macquarie Group. "What we've seen with smartphones is the democratization of picture-taking. Today there are literally 5 billion smartphones in adult hands and we can take photos anywhere. In the future, the camera won't go away but it will become a niche market again."

Fuji and the nostalgia market

When Fujifilm announced its latest instant camera last month, it was a sign that old-school photography can still find ways to remain popular with young people. The instax mini LiPlay is a hybrid camera that lets you save images as digital files as well as print them as small Polaroid-style snapshots. In a modern twist, you can add QR codes to the prints that trigger sound files when scanned with a smartphone. Known as cheki in Japan, these retro snapshots have been popular for decades and are an example of how Japan's camera companies have tried to innovate amid big technological and marketplace changes.

Festival-goers seek shade by the FujiFilm Instax trailer during the second and final day of Warped Tour on June 30, 2019 in Atlantic City, New Jersey.
Corey Perrine | Getty Images

Aside from the nostalgia of factor, part of the appeal of instant cameras is the tactile nature and immediate gratification of film itself. It's no wonder these throwback devices are a hit with kids and teenagers. It doesn't hurt to have Taylor Swift leading the trend with a branded instax SQUARE SQ6 Taylor Swift Edition from Fujifilm. The company sold 10 million instax units in the year to March 31, 2019. That's more than half of the 19 million units in total digital camera shipments for 2018 logged by the Camera & Imaging Products Association (CIPA).

Nostalgia may be what Fujifilm was thinking when in June it said it would start to sell black-and-white film again, an about-face from its 2018 termination of the business after more than 80 years of sales. In launching Neopan Acros 100II, Fujifilm was responding to calls from photography fans young and old to bring monochrome back despite weak demand overall. It also was a nod to the company's history. Founded in 1934 under a government plan to foster a Japanese film industry, Fujifilm began making motion picture and photographic film, followed by cameras in the 1940s.

But waxing nostalgic for a niche of enthusiasts won't be nearly enough.

While Fujifilm still manufactures film and cameras, including the Instax instant and Fujifilm X camera lines, the recent stats for its imaging solutions business are grim. It made up only $3.6 billion, or 16%, of the company's $22.6 billion in revenues for the year ended March 31, 2019. That's down from 33.5% in 2000, when sales of color film peaked. Though digital camera sales were up last year, photo film accounted for less than 1% of revenue. The lion's share of Fujifilm revenue in the past year came from health care and material solutions, at 43%, and document solutions, through a joint venture Fuji Xerox, at 41%.

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By the time digitization began some 20 years ago, Fujifilm already had decades of experience manufacturing X-ray film and was able to leverage that in transforming into a medical and document services company. It has also acquired a slew of medical businesses in recent years, including a cell culture media firm, a biologics factory, and an endoscopic instruments maker. Meanwhile, some of its most important products today are digital X-ray machines and polarizer protective films for liquid crystal display screens.

"Color photographic film, which used to be our main product, requires very advanced technologies for evenly applying approximately 20 photosensitive layers of different functions into film measuring just 20 microns," says Fujifilm spokeswoman Kana Matsumoto. "Fujifilm has accumulated numerous technologies of the world's highest level in particle formation, nanoparticle distribution, film making and precision coating, and applied them to non-photographic fields to deliver medical X-ray films, printing materials and optical films for display panels."

Sony is alone among major Japanese camera makers continuing to deliver on financials, in part due to its dominant share of the global smartphone image sensor market.
Sony

Sony is alone among major camera makers continuing to deliver on financials in part due to its dominant share of the global smartphone image sensor market, according to SMBC Nikko Securities

"The winning technology used to be the lens but has become the imaging sensors, and Sony has been the big winner on this front," says Ryosuke Katsura, senior analyst at SMBC Nikko. "We feel that increasingly higher quality imaging, including copies, scans, photos and other images will likely be available on multifunction devices like smartphones. Standalone cameras will exist for artists and the artistic wealthy."

The short history of U.S.-based GoPro, which successfully went public in 2014 as a hip camera company that was building a new market, has been an ugly one. Its shares today trade between $5 and $6, down from a high near-$90 after its IPO. Its annual revenue has declined from over $1.6 billion in 2014 to under $1.2 billion last year. Camera shipments were down from 6.6 million in 2014 to 4.3 million last year.

Business-to-business grows in importance

Japan has seen its consumer brands fade over the years as its manufacturers take a more B2B-focused approach.

Nikon, one of Japan's oldest camera makers, gets 60% of its business from selling to other companies, not consumers. It produces lithography systems, microscopes and other precision instruments, as well as optical glass. In recent years it has acquired Optos, a retinal imaging company, and invested in Velodyne Lidar, a manufacturer of lidar (light detection and ranging) sensors. In its latest medium-term management plan amid a restructuring drive, it highlighted 3D printers and machine tools as sources of growth. Even though its imaging products business is hurting — in May, it reported a 17.9% drop in revenue and a 27% decrease in operating profit — it's still clinging to cameras.

A booth attendant uses a Nikon Corp. Z7 mirrorless digital camera at the CP+ Camera and Photo Imaging Show on February 28, 2019 in Yokohama, Japan.
Tomohiro Ohsumi | Getty Images News | Getty Images

"Consumer and professional cameras are as important to Nikon now as they were in the past," says spokesman Yosuke Toyoda. "Nikon believes that cameras and photography will evolve even further as imaging technologies develop. For example, as the resolution of displays, frame rate and high-definition increases, images will become more realistic, and cameras and photography need to adapt to those changes."

Some analysts believe the digital camera market will shrink faster than previously expected, prompting further changes. The latest facet of this trend is consumers increasingly turning to multi-lens smartphones instead of pricey digital single-lens reflex (DSLR) cameras.

Canon commands a nearly 60% share of the Japan market in DSLRs, according to Tokyo-based BCN, but it has also struggled to minimize the effects of a collapsing camera market. Founded in 1933 as an optical instruments maker, the following year it produced Japan's first 35 mm focal-plane shutter camera, and named it Kwanon after the Buddhist bodhisattva of compassion, later adopting it as the brand Canon. In 2003, it grabbed the top share in the global market for interchangeable lens digital cameras and has maintained it since then while developing office products such as multifunction printers.

Canon has continued to lead digital camera sales, but even it has struggled to minimize the effects of a collapsing market.
Canon

In 2016, the company revisited its medical roots when it bought Toshiba Medical Systems, a computed tomography (CT) scanner maker. The move followed acquisitions of Océ, a Dutch high-speed printing company, and Axis, a Swedish maker of networked security cameras. Under an ambitious five-year plan beginning in 2021, Canon expects new businesses will grow 7% to 8% annually and account for up to 35% of sales, up from 23% in 2018; existing ones will have to expand around 2% to 3%. But so far, that's not happening. In the year to March 31, its imaging system business, which accounts for over a quarter of overall revenue, saw sales slump 11% percent. Still, it's not abandoning cameras.

"Canon will continue to release appealing products that feature new technologies and drive the camera market while flexibly responding to market changes and consumer needs," said a Canon spokesman. "Looking towards the future, we are continuing R&D into such areas as the amalgamation of stills and video, cameras capable of capturing ultra-high-resolution 8K video, and cameras that are highly compatible with 5G networks."

Macquarie Group's Thong, who has been covering Canon, Nikon and other Japanese companies since 2002, said that copiers have been a cash cow for Canon, protecting it from industry changes. Other camera makers like Olympus and Konica Minolta have similar B2B bulwarks, allowing them to continue their camera businesses almost as a hobby.

But for Nikon, Thong said the evaporating camera market is a bigger threat, it part because it failed to embrace video early on. That was a misstep in a rapidly evolving industry that's seeing fewer and fewer standalone cameras.

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