Canon figures show first quarterly loss

Canon has published its financial results for the first half of this year, which show that the company sank into the red in the second quarter, apparently the first time in Canon’s history that its produced a quarterly loss. 

This robot on the Canon stand at a recent Fespa show loads media to the Arizona flatbed, and then unloads it to the cutting table.

Thus Canon posted a net loss of ¥8.8 billion for the second quarter of 2020 as against a net profit of ¥34.5 billion for Q2 2019. Net sales fell 25.7 percent, comparing this year’s second quarter of ¥673.3 billion against last year’s figure of ¥905.9 billion. Gross profit was down 32.3 percent, from ¥406.4 billion Q2 2019 to ¥275.3 billion for Q2 2020. 

Naturally, Canon has pointed the finger at the ongoing Corona Virus crisis and pointed out that most major countries are also seeing a record decline in their GDP figures. Canon also notes that foreign exchange rates had a negative impact of around ¥14.4 billion overall, and ¥-5.4 billion on operating profit, due to the Yen’s appreciation against the US dollar and the Euro. Fortunately for Canon, the results from the first quarter were good enough so that the company was still in the black overall for the first half of this year. 

Canon’s major problems lie in shrinking markets in both the office printing and photography markets. The company has invested around ¥30 billion into structural reform last year but has been caught out by the accelerating pandemic and has earmarked another ¥15 billion to continue this structural reform. Nonetheless, Canon predicts “significant sales decline” in its office and imaging systems for the rest of the year though with an expectation that cost savings can preserve some profitability.

The headline figure is the 54.5 percent drop in camera sales, down from ¥122.6 billion Q2 2019 to ¥55.7 billion for Q2 2020. In my opinion, as someone who used to edit a photography magazine and still takes the occasional photograph, Canon’s sensor technology has often lagged a little bit behind the major competition. However, this has not been reflected in actual sales, where Canon is unquestionably the market leader with around 50 percent of the overall market. The camera market is undoubtedly shrinking, largely because most people use smartphones, but all the camera makers are dealing with this by switching their efforts to more expensive cameras and lenses. Canon expects the total market for interchangeable lens cameras to drop by 40 percent this year to 5.4 million units, and its own sales also to be down by 40 percent. 

Canon was a little slow to see the market transition from DSLR to mirrorless but Canon has a remarkably loyal user base, its recent mirrorless introductions appear to have been well-received and I have no doubt that Canon’s photography business will pick up in a year or two, albeit with lower unit sales. In any case, the pandemic will eventually pass, people will start travelling again, and a lot of those people will go out and buy new cameras. 

The office business is in bigger trouble, with Canon itself assuming that more people will work from home leading to lower office print volumes. Canon believes that this will help it sell more home printers, noting: “we have been able to reconfirm that paper is still essential” Strangely, the sale of home inkjet printers is almost the only positive in these results, with sales up 13.9 percent from ¥68.4 billion in Q2 2019 to ¥77.9 billion in Q2 2020. This is perhaps more to do with people having time to sort and print out their photographs because I would expect that home working would lead to greater use of electronic documents. 

Sales of office printers or MFDs fell 40 percent from ¥166.4 billion in Q2 2019 to just ¥99.7 billion in Q2 2020. Canon believes that this sector will recover in the second half of the year, pointing out that its sales of colour MFDs did recover in China as the lockdown lifted. However, I think it’s worth noting that almost every region, except perhaps New Zealand, has seen partial lockdowns following an initial easing of restrictions. 

Canon now bundles cut sheet inkjet presses such as the VarioPrint iX into the Others part of its Office division. Here, Canon saw sales drop 19.3 percent from ¥119.4 billion in Q2 2019 to ¥96.3 billion in Q2 2020. The company blames some of this on the cancellation of major exhibitions but also notes that sales of consumables have fallen as there’s less demand for commercial print such as posters and catalogs. The hope here is that as economies open up, so there will be more printing leading to more consumables sales. For hardware, Canon promises more customised online product demonstrations. Personally, as someone who routinely experiences Canon’s marketing efforts, I doubt that this will yield much results. 

Canon has had more success with its medical systems, noting: “We are seeing a general review of medical equipment purchasing plans as medical institutions focus human resources and funds on treating patients and preventing the spread of infection.” The Q2 new sales were down from ¥105.1 billion in 2019 to ¥101.9 billion in 2020, but operating profit rose from ¥3.4 billion to ¥5.9 billion in the same period, mainly due to better cost management. 

However, Canon saw large drops in its semiconductor lithography equipment business, down from ¥45.4 billion to ¥28.1 billion this last quarter, mainly because of overseas travel restrictions. Canon acknowledges that economic problems caused by the corona virus will affect demand for chips for consumer items such as cars and smartphones but expects sales in other areas such as computers and data centres will offset this. There’s a similar picture in Canon’s other industrial areas, including OLED vacuum deposition equipment and network cameras

Canon is expecting the second half results to improve, which at least proves that the board still have a sense of humour. They are predicting net income for the full year of ¥43 billion, a 65.6 percent drop from last year’s ¥125.1 billion. 

The assumption is that with many governments lifting their lockdowns and enacting financial stimulus packages so the overall economic activity will start to return to normal. This same sentiment is reflected in most of the financial statements released by different vendors over the last few weeks. But in the absence of a vaccine to eliminate or at least slow the spread of CoVid-19 this all seems like wishful thinking. 





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