Canon Profit Drops 12% on Strong Yen

Japanese camera and office equipment maker Canon posted a 12 percent fall in quarterly profit due to sluggish copier demand and the stronger yen, but kept its forecast for a ninth straight year of earnings growth.

Canon has enjoyed brisk demand for high-end cameras but profitability at its office equipment operations has come under pressure with businesses putting off buying or replacing copiers as the global economy slows.

The company, which competes with Xerox , Ricoh and Konica Minolta Holdings in printers and copiers, is also grappling with the soaring cost of raw materials and the profit-slicing impact of a stronger yen.

"We expect the yen to remain strong and for high raw materials and fuel prices to continue. The operating environment is tougher than we had originally thought," Canon Managing Director Masahiro Osawa told a news conference.

Canon said its group operating profit dropped to 160.15 billion yen ($1.48 billion) in the April-June quarter from 181.47 billion yen a year earlier.

Net profit fell.

But Canon stood by its operating profit forecast of 770 billion yen for calendar 2008, which exceeds a market consensus of 743.8 billion yen in a poll of 18 analysts by Reuters Estimates and would mark a ninth straight year of higher profits.

The company tweaked its annual sales forecast higher, to 4.59 trillion yen from 4.57 trillion yen.

Canon had cut its annual profit outlook in April, citing a stronger yen and slower copier demand.

It earns more than three-quarters of its revenue overseas, the value of which falls when converted back into a stronger Japanese currency.

Canon is still cashing in on strong demand for digital single-lens reflex cameras, which are high-end models with interchangeable lenses.

Canon is the world's No.1 digital camera maker, offering IXY and EOS brand models.

Canon and Nikon control a combined 83 percent of the digital SLR market, the fastest growing and most lucrative segment of the overall digital camera industry.

Smaller rivals include Sony, Nikon and Olympus. Rival Ricoh reports quarterly results on Friday and Sony on July 29.

Prior to the earnings announcement, shares in Canon closed up, outperforming the Tokyo stock market's electrical machinery index IELEC, which also rose.

Canon shares have slipped this year through Wednesday, while the sub index lost.