Don't be a Yahoo, Olympus Will Likely Survive 2014

24/7 Wall Street, a column that appears regularly on Yahoo! Finance, wrote this past week about 10 brands that they believe will disappear in 2014. #6 on their list was Olympus. 

It's certainly true that Olympus has been reporting terrible results on camera sales, and has a long string of large yearly losses in cameras now. But to predict that they'd pull out of the US market (or worse) in the next 18 months is probably going too far. 

First, Olympus is a Japanese company. Beyond the stubborn tenacity these companies tend to have, there's also the cultural aspect of not admitting failure coupled with the large investments by Japanese banks and funding groups that tend to make very non-Western judgments on whether an investment has legs or not. 

In the case of Olympus, there's no doubt that they've piled up a large string of losses and have lost market share. Unit volumes (mostly compacts) are down, and about to go down much, much further. I would say that it's highly likely that Olympus will lose money on cameras this year and probably next, too. So why wouldn't they close that money-losing investment down and just stick to the healthy medical business they have?

Well, there's Japanese regulation, for one. In some cases, you actually incur greater costs by closing down jobs in Japan than you do by retaining them in a money-losing business. Culturally, closing plants and letting go workers is frowned upon. Thus, things have to get pretty desperate before a Japanese company starts slashing like American companies do. The medical side of Olympus is healthy enough that they can take their time deciding ultimately just what happens with cameras, and I'm pretty sure they'll first try to execute a strategy that helps them get back to profitability before giving up on it.

More important, though, is that Olympus thinks of the camera business in two ways that we don't see as consumers of their products. Digital imaging is integral to their future medical products, and especially to the joint venture they formed last year with Sony. Thus they regard the R&D in cameras as useful to other parts of the company. But I think there's a bigger compelling argument for Olympus to stay in cameras (and digital recorders, etc.): it's really their only consumer-facing business that keeps their brand name known to a wider audience. Closing down their consumer electronics means essentially becoming a brand only known by hospitals and doctors. That's a big jump, and a big ego bashing if they were to retreat from consumer goods.

Then there's lead time. The 2014 products are already mostly designed and in the process of being refined and put into production. Now I suppose it is possible that Olympus could do something like decide to only market those products in Asian countries, where the m4/3 craze is the highest. That wouldn't actually keep them out of the US market, though, as stores like Adorama and B&H would do what they did with Ricoh for many years: unofficially import them.

A couple of years ago, I wouldn't have even considered that Olympus could think about getting out of cameras: too many of their top executives had come up through the camera group. Unfortunately, the topmost one was one of those indicted in the recent financial scandals and removed from office, and when then CEO Woodford did his whistle blowing and was summarily dismissed, another camera executive moved in temporarily to the CEO position and tried to ignore the problems that had been uncovered. So we've had some of the camera executives that would tend to have the most ego in the game of keeping Olympus in cameras removed from the game. The current President comes from the medical side of the company.

One little tidbit I did notice in all the followup on Olympus' annual results: "steering cameras back to profitability is a condition of restarting dividend payouts."  

Unlike 24/7 Wall Street, I don't think Olympus will be withdrawing their brand any time soon. But there definitely is risk there for Olympus to keep pursuing a market that is just drawing resources and money from their main operations with no real end in sight. I doubt that they can sustain repeated market share erosion and monetary losses for very long. Thus, every analyst and m4/3 user is looking closely at Olympus for any signs that they've turned things around in the Imaging Group. So far, no. But neither are there signs that they're about to jettison the group.

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