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Nikon Q2 financial results: better-than-expected revenue with plans to cut expenses and increase focus on higher-end cameras, lenses

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Nikon has released financial results for the second quarter (Q2) of its 2021 fiscal year, which starts April 1 (2020) and ends March 31 (2021), revealing a larger operating loss than forecasted despite higher-than-expected revenue.

As tends to be the case with financial results, there are plenty of nuances hidden within the broader numbers, but what is clear is Nikon’s Imaging Products Business is going through changes, not unlike Canon, which is also transitioning its product line and production facilities away from DSLRs and towards mirrorless.

Q2 Financial Highlights by segment. We have highlighted the Imaging Products Business, with the last column being the Q2 FY2021 results.

Starting with the Q2 results for Nikon’s Imaging Products Business, Nikon reports operating revenue of ¥39.3B ($372M) and an operating loss of ¥19.3B ($184.3M), down ¥12.4B and ¥17.8B, respectfully year-over-year (YoY) for Q2. Nikon further breaks down unit sales in the Imaging Products Business division, noting it sold 240K interchangeable lens cameras (ILC), 70K compact cameras and 390K interchangeable lenses. These numbers are down 31%, 73% and 29%, respectively, YoY for Q2.

An overview of the revenue and operating profit/loss for H1 FY2021 by segment.

Looking at the first half (H1) of Nikon’s Imaging Products Business’ FY2021, the company reported revenue of ¥64.4B ($615M) and an operating loss of ¥27.4B ($261M). This puts revenue above Nikon’s ¥55B forecast, but it seems expenses outpaced gains, as the company had previously forecast an operating loss of only ¥20B. Unit sales for H1 were also down across the board, with 380K ILC, 120K compact cameras and 610K interchangeable lenses being sold. That’s down 52.5%, 76% and 53%, respectively, compared to H1 FY2020.

A breakdown of camera unit sales per quarter going back to FY2018.

While the operating loss looks grim, it needs to be placed in context. Nikon cites ‘impairment losses on production equipment at production sites in Thailand, etc.’ as the reason for over half of this loss (¥15.6B, to be precise). These ‘impairment losses’ suggest Nikon is depreciating or downright writing-off the value of manufacturing equipment at its Thailand factories. Given the transition to new lines for mirrorless products, this isn’t a huge surprise. It’s likely the equipment Nikon is depreciating is that it used to produce its DSLRs (we know that Nikon is using new, more automated assembly lines for at least some of its Z series mirrorless cameras).

Note the additional comments in the yellow box at the bottom of this presentation slide.

Nikon notes its mirrorless camera sales volumes increased year-over-year, the percentage of revenue from its pro and hobbyist cameras increased ‘steadily’ and even says it saw a ‘better-than-expected market recovery from the impact of COVID-19.’

For its full FY2021 forecast, Nikon says it expects its Imaging Products Business to show ¥140B in revenue and an operating loss of ¥45B.

Moving forward, Nikon makes its plan for its Imaging Products Business clear: reduce business costs faster than the rate of shrinkage the camera market is experiencing and ‘Shift to a structure that secures profits constantly even when revenue drops.’ It hopes to reduce costs by more than ¥80B by the end of its FY2022 through ‘substantially lowering the breakeven point through improving productivity, production consolidation, headcount optimization and impairment losses of equipment.’ It also states it will be focusing on its pro and hobbyist products, which it wants to see as the bedrock of its Imaging Products Business. This assessment and approach is similar to the one Olympus has been taking for a few years now—downsize the business to match the market size, which is shrinking across the board.

Nikon also says it wants its Imaging Products Business to enter new fields, including more business-to-business deals. What exactly this looks like remains to be seen, as no details are given, but Nikon says it intends to ‘actively leverage [its] image processing, sensing technology’ and more.

If we’re to summarize this Q2 financial report into a single sentence, it’s this: Nikon plans to cut costs as much as possible to account for a clearly shrinking camera market while also focusing on its higher-end cameras and lenses, which are steadily increasing as a percentage of Nikon’s sales. This should come as good news to experienced Nikon shooters, particularly those who have already or are looking to dive into Nikon’s Z series mirrorless cameras and lenses; more cameras and lenses are on the way.

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