ilya
30th of January 2004 (Fri), 08:54
Good article today in WSJ Online...
Canon Manufacturing Strategy
Pays Off With Strong Earnings
By SEBASTIAN MOFFETT
Staff Reporter of THE WALL STREET JOURNAL
TOKYO -- Most of Japan's top manufacturers deal with high domestic costs by making as many of their products as possible overseas. Not Canon Inc. So far, the strategy at Japan's biggest office-equipment maker: Focus on the product, not the manufacturing location.
Thursday's earnings results indicate that -- up until now, at least -- the manufacturer's strategy has worked fine. Demand for multifunction network copiers and hot-selling digital cameras catapulted fourth-quarter net profit 25% higher to ¥74.96 billion ($708.3 million). Sales rose 3.9% to ¥861.7 billion. For the year, net profit soared 45% to ¥275.7 billion, the fourth-straight year of record profit. Revenue for the year increased 8.8% to ¥3.2 trillion.
Canon wants to "preserve its core competence" by retaining as much manufacturing as possible in Japan, says Goldman Sachs analyst Shin Horie. "You can afford to do this if you're making the best margins, but very few companies can afford to do this." He has a "neutral" rating on the stock. In Nasdaq Stock Market trading, Canon's American depositary shares rose 58 cents, or 1.1%, to $51.67.
Part of Canon's success comes from being in popular product segments. Printers and copiers are hot right now. Indeed, office-equipment rival Seiko Epson Corp. also reported strong earnings Thursday. Its group net profit of ¥33.73 billion in the nine months ended Dec. 31, was up from ¥3.97 billion a year earlier. Yet unlike its office-equipment peers, Canon is strong in the digital-camera market. The company runs neck and neck with Sony Corp. in global sales, each with about 20% market share.
In addition, Canon likes to buck manufacturing trends. Rivals cope with Japan's high personnel costs by increasing their level of factory automation. Canon by 2001 converted all of its domestic printer and copier factories to a technique called cell production: It abolished production lines and got individual workers to assemble products themselves.
Japan's biggest manufacturing shift this past decade has been toward production in low-cost bases in other parts of Asia.
Canon, by contrast, has a target of keeping about 60% of its production in Japan, despite generating more of its revenue -- about 75% -- overseas. Earlier this week, the company said it would spend 80% of its capital outlays over the next three years in Japan in order to strengthen research and development of products. That compares with 75% spent in Japan last year.
"Labor costs are a small factor for Canon," says UFJ Tsubasa Securities analyst Yutaka Sugiyama. "I think the probability of them moving much production overseas is small."
Canon appears to be betting it can overpower currency considerations by developing higher value-added products. Thursday's results show it could live with the foreign-exchange levels of the past year, when the Japanese currency strengthened from ¥122 to the dollar, to 107 at year's end.
The company Thursday forecast another year of record profit in 2004, with net profit to rise 3.7%, to ¥286 billion, on revenue of ¥3.33 trillion, 4.1% greater than 2003. That growth is partly because of an expected surge in sales of digital cameras, to 15 million units from 8.6 million last year.
"The high yen has already been factored in to the current stock price," says J.P. Morgan Chase analyst Hisashi Moriyama. Because of Canon's profitability, at the company's current share price "we think it's cheap," he says.
However, the current bout of endaka, or high yen, might prove too much. Because Canon exports so much, annual operating income slips six billion yen for every yen the Japanese currency rises against the dollar.
Canon's senior managing director, Toshizo Tanaka, told a news conference that Canon would struggle to achieve a fifth-straight year of record profit in 2004 if the dollar falls a long way below its current level of about ¥106. Canon has assumed a dollar-yen rate of 105 for 2004.
Write to Sebastian Moffett at sebastian.moffett@wsj.com
Updated January 30, 2004
Canon Manufacturing Strategy
Pays Off With Strong Earnings
By SEBASTIAN MOFFETT
Staff Reporter of THE WALL STREET JOURNAL
TOKYO -- Most of Japan's top manufacturers deal with high domestic costs by making as many of their products as possible overseas. Not Canon Inc. So far, the strategy at Japan's biggest office-equipment maker: Focus on the product, not the manufacturing location.
Thursday's earnings results indicate that -- up until now, at least -- the manufacturer's strategy has worked fine. Demand for multifunction network copiers and hot-selling digital cameras catapulted fourth-quarter net profit 25% higher to ¥74.96 billion ($708.3 million). Sales rose 3.9% to ¥861.7 billion. For the year, net profit soared 45% to ¥275.7 billion, the fourth-straight year of record profit. Revenue for the year increased 8.8% to ¥3.2 trillion.
Canon wants to "preserve its core competence" by retaining as much manufacturing as possible in Japan, says Goldman Sachs analyst Shin Horie. "You can afford to do this if you're making the best margins, but very few companies can afford to do this." He has a "neutral" rating on the stock. In Nasdaq Stock Market trading, Canon's American depositary shares rose 58 cents, or 1.1%, to $51.67.
Part of Canon's success comes from being in popular product segments. Printers and copiers are hot right now. Indeed, office-equipment rival Seiko Epson Corp. also reported strong earnings Thursday. Its group net profit of ¥33.73 billion in the nine months ended Dec. 31, was up from ¥3.97 billion a year earlier. Yet unlike its office-equipment peers, Canon is strong in the digital-camera market. The company runs neck and neck with Sony Corp. in global sales, each with about 20% market share.
In addition, Canon likes to buck manufacturing trends. Rivals cope with Japan's high personnel costs by increasing their level of factory automation. Canon by 2001 converted all of its domestic printer and copier factories to a technique called cell production: It abolished production lines and got individual workers to assemble products themselves.
Japan's biggest manufacturing shift this past decade has been toward production in low-cost bases in other parts of Asia.
Canon, by contrast, has a target of keeping about 60% of its production in Japan, despite generating more of its revenue -- about 75% -- overseas. Earlier this week, the company said it would spend 80% of its capital outlays over the next three years in Japan in order to strengthen research and development of products. That compares with 75% spent in Japan last year.
"Labor costs are a small factor for Canon," says UFJ Tsubasa Securities analyst Yutaka Sugiyama. "I think the probability of them moving much production overseas is small."
Canon appears to be betting it can overpower currency considerations by developing higher value-added products. Thursday's results show it could live with the foreign-exchange levels of the past year, when the Japanese currency strengthened from ¥122 to the dollar, to 107 at year's end.
The company Thursday forecast another year of record profit in 2004, with net profit to rise 3.7%, to ¥286 billion, on revenue of ¥3.33 trillion, 4.1% greater than 2003. That growth is partly because of an expected surge in sales of digital cameras, to 15 million units from 8.6 million last year.
"The high yen has already been factored in to the current stock price," says J.P. Morgan Chase analyst Hisashi Moriyama. Because of Canon's profitability, at the company's current share price "we think it's cheap," he says.
However, the current bout of endaka, or high yen, might prove too much. Because Canon exports so much, annual operating income slips six billion yen for every yen the Japanese currency rises against the dollar.
Canon's senior managing director, Toshizo Tanaka, told a news conference that Canon would struggle to achieve a fifth-straight year of record profit in 2004 if the dollar falls a long way below its current level of about ¥106. Canon has assumed a dollar-yen rate of 105 for 2004.
Write to Sebastian Moffett at sebastian.moffett@wsj.com
Updated January 30, 2004