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 In the wake of the 2008 financial crisis, the world's largest camera
maker was caught out by its reliance on domestic production by a
soaring yen — which devalued its overseas earnings and increased
labor costs — forcing the company to produce more overseas.
It is now set to reverse that shift, boosting jobs and factory
operations in Japan in a move that will delight proponents of Abe's
economic policies and erode the competitive advantage enjoyed by
rivals such as Nikon Corp, which has long made the majority of its
cameras overseas.
Canon will raise the proportion of products made in Japan to 50
percent within the next three years from 42 percent now, Chief
Executive Fujio Mitarai told Reuters in an interview on Thursday,
after saying he was "looking forward" to a further slide in the yen.
"Right now we have spare capacity at home because we gradually moved
production overseas," said Mitarai, referring primarily to cameras
and photocopiers. Canon cut back production at home from over 60
percent before the 2008 crisis to 40 percent in 2009.
The move is designed to make manufacturing more flexible and Canon
will leave the option open to push production back overseas should
the yen strengthen again, Mitarai said, adding that the company has
no plans to build new factories in Japan.
The impact of Canon's strategy will be reflected in the company's
balance sheet in the months ahead. For the financial year ended
December 31, Mitarai sees operating profit as likely flat against a
forecast of 11.2 percent growth, and sales up around 7 percent
versus guidance of 7.8 percent. The company reports its results for
fiscal 2013 on January 29.
Last year, the yen fell 21.4 percent against the dollar and 26.4
percent against the euro as the Bank of Japan launched an aggressive
monetary easing program.
AUTOMATION
Canon is also continuing its push to automate much of its production
and replace humans with robots. Mitarai said he hoped to hike the
proportion of automation at Canon's lens factory in Utsunomiya, a
city near Tokyo, to 50 percent at the end of 2014 from 10 percent to
20 percent now.
The company expects gradual progress in partial automation at its
other factories, including Japan's Oita, Nagasaki and Toride, to
boost its gross profit margin by almost 1 percent to 48.3 percent in
2013.
Innovation in robotic production also means Canon can have factories
in developed markets and remain immune to the high wages while
keeping distribution costs low. But its plans for an automated
printer cartridge factory in the Netherlands have been stalled by
the prolonged chill in the European economy, with construction yet
to start.
"We've bought the land but demand in Europe isn't strong enough
yet," Mitarai said, adding that Canon had been too optimistic about
a recovery in its biggest market, where it gets around a third of
its revenue.
"Our forecasts for Europe at the beginning of last year were way
off."
Initially buoyed by a weakening yen, the company hiked its operating
profit forecast in the first quarter of 2013 by almost 10 percent,
saying that each yen that the Japanese currency slid against the
dollar would boost revenue by 19.7 billion yen ($187.91 million) and
operating profit by 7.7 billion yen.
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However, the dramatic shrinkage of the compact camera market last
year — estimated at 40.2 percent by researcher IDC — and an
unforeseen weakening in high-end camera sales forced Canon to cut
its profit forecast at the following two earnings announcements.
The CEO said he was optimistic that Canon can increase both revenue
and profit by more than 5 percent in 2014, and could far surpass
that level if the yen weakened beyond the company's "conservative"
estimates of 100 yen to the dollar and 135 against the euro.
On Thursday, the Japanese currency was 105 against its U.S.
counterpart and 142.89 against the single currency. A weaker yen
means it is cheaper to make goods in Japan, and boosts the value of
overseas revenue once repatriated.
SLR SALES Mitarai said sales of digital single-lens reflex cameras likely came
in under 8 million units in 2013 to mark the first annual decline
since Canon introduced its first model in 2004.
Some analysts say that consumers are increasingly prioritizing
connectivity and mobility over picture quality, finding themselves
slipping their smartphones out of their pocket instead of hauling
out their SLRs. Mitarai disagrees.
"There isn't any impact from smartphones on SLRs. They're a
different genre. You can send your (SLR) pictures out to the world
now with WiFi, to the cloud. The only difference is that you can't
make calls with your camera," he said.
"We don't have any plans to make a camera that you can phone someone
with... But we will continue to put in more connectivity features
into SLRs."
Canon says that digital SLR sales softened this year due to the
prolonged chill in the European economy and slowing growth in China.
Canon's global shipments of interchangeable lens cameras accounted
for 45.1 percent of global shipments in July-September, according to
IDC, a 5 percent drop in share from the year prior and a 25.7
percent drop in unit sales.
However, Mitarai said Canon had increased its share of the SLR
market by a few percent over the whole year and would aim to
increase unit sales in 2014, hoping to reach 9 million units in the
short-term thereafter.
($1 = 104.8350 Japanese yen)
(Editing by Christopher Cushing)
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