Sliding Mirrorless Camera Sales Could Be the Final Straw for Nikon

by Brad Moon | August 23, 2013 9:09 am

Sliding Mirrorless Camera Sales Could Be the Final Straw for Nikon

It’s no secret that the rise of smartphones has done a good deal of damage to the feature phone industry[1] — and thus to companies like former cell phone giant Nokia (NOK[2]) that were caught napping.

But digital cameras have taken a serious beating at the hand of smartphones as well — especially pocketable point-and-shoot models. Now we’re starting to see the same erosion of sales in mirrorless cameras — a new category of “prosumer” devices that manufacturers hoped would fill the gap between those smartphone cameras and bulkier, professional DSLRs.

That dropping demand for mirrorless cameras is hurting companies like Nikon (NINOY[3]), which just cut its full-year profit forecast[4].

Personally, I feel sorry for the camera industry in a way. It went through a massively turbulent period when digital cameras took over from film — and some companies failed to make that transition. Others took the technology in stride, with Canon (CAJ[5]) and Nikon in particular becoming even more dominant players. Together they now sell 44% of all cameras worldwide[6].

But just as it seemed camera-makers had things more or less under control, along came smartphones — and Apple’s (AAPL[7]) iPhone in particular. Point-and-shoot digital cameras were knocked reeling within only a few years as those smartphones gained increasingly sophisticated built-in cameras. Sales in the pocketable digital camera segment dropped and have continued to shrink, going from 144 million in 2010 to an expected 102 million this year[8].

Dealing with competition and new technology is one thing, but having a seemingly unrelated product — the mobile phone — zoom in and eat your lunch is a tough reality to swallow.

Companies like Canon, Nikon and Olympus (OCPNY[9]) that offer high-end DSLR (digital single lens reflex) cameras aimed at professional photographers have relied on increased demand from consumers for higher quality photos to help offset the decline in sales of their compact cameras.

And that brings us to mirrorless cameras. They are compact, use a much bigger image sensor than inexpensive cameras and offer the flexibility of interchangeable lenses, just like DSLRs.

With fewer moving parts, they are sturdier and smaller than DSLRs, but can still take pictures that rival DSLR quality —  perfect for “prosumers.” Manufacturers charge a premium for these cameras, with many models being priced higher than their entry-level DSLRs.

So it’s really bad news for camera makers that even that mirrorless segment is showing signs of slowing too. According to the Camera & Imaging Products Association, sales of mirrorless cameras are down 18.5% compared to last year[10].

What’s changed in that time? Well consumers aren’t any more willing to lug those full-sized DSLRs around as their daily-use camera and they sure as heck aren’t buying point-and-shoots instead. What has happened, though, is an arms race in smartphone cameras.

The latest generation of flagship smartphones include built-in cameras capable of taking pictures good enough to convince consumers they don’t need a mirrorless camera either. While a 5 megapixel smartphone camera was a big deal a few years ago, current models are sporting 13MP cameras with advanced features like image stabilization, LED flash, panorama mode and smile detection.

Nokia, for one, is trying to build an identity around itself as the builder of Windows 8 smartphones made for photographers, emphasizing the camera capabilities of its Lumia line. The company’s latest offering, the Lumia 1020[11], packs a 41MP camera with 6-element lens, optical image stabilization and a Xenon flash.

Plus, Samsung (SSNLF[12]) just released the Galaxy S4 Zoom[13], a smartphone with a 10X optical zoom lens that eliminates one of the digital camera’s remaining advantages over smartphones.

One of the smarter players in the camera industry these days just may be Sony (SNE[14]) — yes, that Sony[15].

The company has its own digital cameras, including the Alpha professional line (a DSLR equivalent), NEX mirrorless cameras and Cyber-shot compact cameras. It’s made inroads against Canon and Nikon in selling premium cameras in recent years, but has also been actively developing camera technology for smartphones — and not just its own Xperia.

Apple’s iPhone 5 — which was arguably the most anticipated smartphone of 2012 — uses a Sony camera sensor[16]. And now Sony is prepping a pair of all-in-one camera lenses that combine a big image sensor, optical zoom lens and processing inside a self-contained unit that snaps onto smartphones[17], using the smartphone display for framing and review.

In other words, it’s “prosumer” quality but also tiny, integrated with your existing smartphone, can be migrated to future devices and is removable if you don’t want a lens permanently sticking out your phone a la the Galaxy S4 Zoom.

Smart.

That brings us back to Nikon. The bottom line: The company is having problems and they’re only going to get worse. This year started out okay[18], but shrinking sales in all segments (including DSLRs) paint a much uglier picture.

After a forecast of decreased demand and falling prices in February, Nikon’s stock took a 19% plunge (the largest single day hit it’s taken since 1985[19]). In early August, the company released revised profit expectations based on lower sales, causing Nikon’s stock dropped 14%[20]. Nikon is now down 40% on the year.

Plus, while cameras are just one division for Sony and part of a product mix that includes printers, scanners, projectors and medical equipment for Canon, Nikon is highly dependent on camera sales. Its Precision Equipment business is small potatoes, shrinking and according to its August earnings report[21], currently running at a loss.

With continually eroding compact camera sales, DSLRs under price pressure and now mirrorless cameras beginning to lose ground in a big way to smartphones, camera manufacturers like Nikon can’t sit still or they could become the next Kodak[22].

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Endnotes:
  1. damage to the feature phone industry: http://investorplace.com/2013/08/smartphones-nokia/
  2. NOK: http://studio-5.financialcontent.com/investplace/quote?Symbol=NOK
  3. NINOY: http://studio-5.financialcontent.com/investplace/quote?Symbol=NINOY
  4. which just cut its full-year profit forecast: http://www.reuters.com/article/2013/08/08/us-nikon-earnings-idUSBRE9770EH20130808
  5. CAJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=CAJ
  6. 44% of all cameras worldwide: https://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDoQqQIwAA&url=http://online.wsj.com/article/SB10001424127887324769704579007712301978916.html&ei=G5oKUuLZB--r2AXlhYG4BA&usg=AFQjCNEBJAfZF9gEqGPybgljkBu1rZOzHg&bvm=bv.50500085,d.b2I
  7. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  8. from 144 million in 2010 to an expected 102 million this year: http://online.wsj.com/article/SB10001424127887324251504578580263719432252.html
  9. OCPNY: http://studio-5.financialcontent.com/investplace/quote?Symbol=OCPNY
  10. 18.5% compared to last year: http://camyx.com/news/2013/05/mirrorless-dslr-camera-sales-cipa/
  11. the Lumia 1020: http://www.nokia.com/global/products/phone/lumia1020/specifications/?category=photography%23
  12. SSNLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=SSNLF
  13. Galaxy S4 Zoom: http://www.samsung.com/global/microsite/galaxycamera/s4zoom/
  14. SNE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNE
  15. that Sony: http://investorplace.com/2012/02/can-kazau-hirai-navigate-sonys-sea-of-red-sne-aapl-amzn/
  16. uses a Sony camera sensor: http://news.cnet.com/8301-13579_3-57518444-37/iphone-5-camera-powered-by-sony-sensor/
  17. snaps onto smartphones: http://gizmodo.com/leaked-manual-reveals-more-details-on-sonys-smartphone-1153562174
  18. This year started out okay: http://investorplace.com/2013/01/the-digital-camera-market-an-ugly-picture/
  19. the largest single day hit it’s taken since 1985: http://petapixel.com/2013/02/07/nikon-stock-plummets-19-biggest-drop-since-1985/
  20. Nikon’s stock dropped 14%: http://www.bloomberg.com/news/2013-08-09/nikon-falls-to-lowest-since-january-2012-after-cuts-tokyo-mover.html
  21. August earnings report: http://www.nikon.com/about/ir/ir_library/result/pdf/2014/14first_1_e.pdf
  22. the next Kodak: http://investorplace.com/2012/01/eastman-kodak-chapter-11-bankruptcy-ek/

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