High-End Cameras Fall Prey to Smartphones

High-End Cameras Fall Prey to Smartphones

Canon, Nikon Lower Full-Year Sale Forecasts for Interchangeable-Lens Cameras

JURO OSAWA

Updated Nov. 7, 2013 7:41 p.m. ET

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Declining sales of high-end cameras and lenses are raising an alarming question for companies like Canon Inc. 7751.TO -0.65% and Nikon Corp. 7731.TO -5.42% : Could the proliferation of camera-enabled, app-heavy smartphones be crushing not only the simple point-and-shoot, but premium models as well? This year, shipments of what’s called “interchangeable-lens cameras”—high-end models that let users swap out different lenses—are diving suddenly after years of robust growth. Most of those are digital single-lens reflex, or DSLR, cameras—the bulky models used by professional photographers and enthusiasts.Research firm IDC expects shipments of such cameras to fall 9.1% to 17.4 million units from 19.1 million units last year.

During the past few weeks, Canon and Nikon—two of the world’s biggest makers of high-end cameras—both lowered their forecasts for sales in the fiscal year ending in March. Major lens maker Tamron Co.7740.TO -1.59% , seen as a bellwether for the market, sold 22% fewer interchangeable lenses in the first nine months of this year than it did a year earlier, forcing it to lower its profit outlook last week.

Just what’s behind the decline is unclear. Canon, Nikon and Tamron point to a weak global economy and inventory buildups.

“We are seeing tough figures at the moment, but I don’t think this will last forever,” said Nikon Chief Financial Officer Junichi Itoh, at an earnings news conference on Thursday. “There still is potential demand, and I think China is the key.”

But the example of Lie Fhung suggests consumer tastes could be changing too. The Hong Kong-based artist and graphic designer says she now rarely uses the Canon DSLR camera that she bought five years ago. Instead, Ms. Fhung, 44, takes most of her photos with her iPhone, and satisfies her urge to manipulate the images with a bevy of photo-editing apps.

When the editing process is complete, she posts her snapshots straight from her phone to photo-sharing app Instagram, where she has nearly 1,600 followers. Ms. Fhung says she has no plans to replace her aging Canon.

“I like using different apps to play with the texture of photos,” she says. “It’s my hobby.”

This wasn’t supposed to happen. Camera makers have argued that although smartphones and mobile devices have decimated sales of cheap, compact cameras, premium products shouldn’t be affected, since they offer a level of control and picture quality that a smartphone’s tiny lens and sensor can’t replicate.

 

“Taking photos with smartphones and editing them with apps is like cooking with cheap ingredients and a lot of artificial flavoring,” says Canon spokesman Takafumi Hongo. “Using interchangeable cameras is like slow food cooked with natural, genuine ingredients.”

But other market watchers say there are signs the popularity of mobile devices could be eroding sales in the cheaper, “entry” part of the high-end lineup.

Christopher Chute, a digital-imaging research director at IDC, says he’s finding that some consumers are choosing to spend money on smartphones and tablets rather than good-quality stand-alone cameras.

Died-in-the-wool camera buffs may continue to replace their gear, but the potential loss of some newcomers would be a serious issue for the industry, he says.

As more consumers evaluate gadgets based on software and how well it connects to the Internet rather than hardware, the benefits of high-end cameras may become less obvious, he says. “Using software, you can literally create effects of different kinds of cameras,” Mr. Chute says.

Even lens maker Tamron has acknowledged a potential problem, although it doesn’t blame that for the recent decline in sales. “Smartphones pose a threat not just to compact cameras but entry-level DSLRs as well,” general manager Tsugio Tsuchiya said in a phone interview.

Some analysts say the impact on high-end cameras from smartphones and apps is exaggerated. “Whenever the market declines, people tend to try to come up with structural reasons,” says J.P. Morgan JPM -0.86% analyst Hisashi Moriyama.

Camera makers have argued that people who get hooked on photography through smartphones and apps could later move on to purchase better cameras, as they become more serious hobbyists.

Still, the pessimistic view that smartphones are hurting even interchangeable-lens cameras won’t go away unless sales start picking up firmly again, says UBS Securities analyst Ryosuke Katsura.

Shares of Canon, which two weeks ago said it expected to sell 8 million interchangeable-lens cameras this year, instead of the 9 million it forecast in July, have declined 7.3% since January, even as Japan’s benchmark Nikkei 225 stock index gained 37%. Nikon’s shares have fallen 29% this year.

In August, Mr. Katsura lowered his digital-camera market forecasts for this year and the next. Mr. Katsura doesn’t think smartphones will kill stand-alone cameras, but he isn’t completely ruling out the possibility.

“The industry is at a turning point right now, so no scenario is impossible,” he says.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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