Olympus Financials: US Camera Sales Low

Olympus reported their third quarter financials and full year estimates earlier this month, but because of the large number of other things on my plate, my analysis of them got delayed a bit.

Because of the recent scandal that used acquisition Goodwill to hide investment losses that date back into the 90's, it's difficult to come to any particular conclusion about the company's overall health and how it will recover. Olympus is in the process of replacing key management and board positions and negotiating new investment from outside companies. That process is slow, opaque, and will happen in the traditional behind-closed door fashion with a lot of bankers at the table. It has only a little impact upon what's happening in R&D in the camera group.

We can, however, look at the health of individual businesses within Olympus. Olympus' main business, the medical instrument market, was slightly down in sales but still highly profitable. The business that everyone reading this site is interested in—the imaging group that makes cameras and lenses—was slightly up in sales, but still unprofitable.

It's actually more interesting than that. A lot of people—including this site from time to time—point to the BCN retail numbers in Japan as evidence of how mirrorless is doing. Olympus in 2011 was reported to be growing strongly and had the #1 market share in Japan. That is supported by the breakout of income numbers in Olympus' new report: domestic camera sales were up 21.5%. But elsewhere? Down 1.3%. I hadn't noticed this before, but Olympus is pulling 23.4% of their camera sales out of Japan. By comparison, CIPA reports that Japan is actually 16.7% of the world market for cameras (in dollars, which allows me to compare directly to the Olympus financials, which don't break out unit sales).

In other words, Olympus is more heavily reliant on the Japan market for camera sales than would be expected. They're doing less well globally. In fact, you can see where the weakness really is in Olympus' Sales by Region report: North America is 14.9% of the Imaging group's sales, but to match up with the industry-wide numbers, it would need to be 27.5%. I've been writing for some time that Olympus (and Panasonic for that matter) have been underperforming in the US. They are continuing to antagonize their dealer base here, which is not going to make fixing the problem any easier. 

Olympus claimed that the Thailand flooding and strong yen appreciation kept the imaging group from posting a (small) operating profit. It appears that Olympus is saying that sales were hurt by 15%. The graph they displayed in support of their contention appears to be wrong. 15% more income wouldn't put the top of the bar above 40b yen as the graph indicates. It should only go to 38.9b (they have it at about 45b, which would be a 34% increase). 

Somewhat disguised in the financials is another bit of information: Olympus predicts another pretty large operating loss for the camera division in the current quarter (higher than the first nine months combined). That's on a growth in overall sales. In other words, things aren't necessarily getting a lot better in the profit situation within imaging, at least not this fiscal year. 

The chatter on the Internet since the investment scandal first got revealed has been "will Olympus close or sell the camera division?" Imaging represents 16% of Olympus' sales (by comparison, at Nikon it is 65%+). The medical group at Olympus is highly profitable, the instruments group is decently profitable, the information and communication group is decently profitable; only imaging and "other" are bleeding money, and at a time when Olympus needs the cash flow. The net-think is usually something like this: just sell the weak link (imaging) to raise cash and stop the profit leak.

I don't see Olympus closing or selling the imaging group. It's not just a matter of pride and stubbornness. The problems are fixable, and having a healthy 16% instead of an ill 16% would actually have a large impact on Olympus' overall performance. The OM-D and the constant refresh in the m4/3 lineup is good, and there's potential growth there. But there's no evidence yet that Olympus is about to fix the compact camera line, nor that they're about to perform as well as they should in North America. Those are things that still need to be done, and sooner rather than later.  

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