Canon profit tumbles, predicts further slide

TOKYO Wed Jan 28, 2009 5:26am EST

A logo of Canon Inc is pictured at the company's headquarters in Tokyo November 21, 2008. REUTERS/Yuriko Nakao

A logo of Canon Inc is pictured at the company's headquarters in Tokyo November 21, 2008.

Credit: Reuters/Yuriko Nakao

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TOKYO (Reuters) - Japan's Canon Inc (7751.T), the world's largest digital camera maker, reported an 81 percent fall in quarterly profit and predicted a further slide in annual profit to a 14-year low this year, hit by slumping demand for cameras and office equipment and a stronger yen.

Canon's annual forecast is closely watched as it is the first earnings indicator from a major Japanese exporter for the year ahead. While most Japanese companies close their books on March 31, Canon's business year ends on December 31.

"A substantial recovery in the economy is unlikely in 2009. Our operating environment will be even harder this year than it was last year," Canon Managing Director Masahiro Osawa told a news conference, a view that bodes ill for other high-tech exporters.

Canon, which leads Sony Corp (6758.T) and Nikon Corp (7731.T) in digital cameras and competes with Xerox Corp (XRX.N) and Ricoh Co Ltd (7752.T) in copiers and printers, did not give a dividend forecast for 2009, underscoring economic uncertainty.

Canon, which makes EOS and IXY brand digital cameras, expects its operating profit to fall 68 percent to 160 billion yen ($1.80 billion) in 2009, the lowest in 14 years, after posting its first annual operating profit decline in nine years in 2008.

The 2009 forecast compares with the consensus for a 309.8 billion yen profit in a poll of 16 analysts by Reuters Estimates.

"Earnings like this can be viewed as inevitable considering the irregular condition of the economy," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

"The focus will be on how much the company can advance restructuring of its businesses. If it can show that to the market, its share price could go back up."

Canon said it would aim to cut about 70 billion yen in costs in 2009 as it copes with a crisis that has pushed many rival electronics makers including Sony into the red, forcing them to scale back production and slash jobs.

Sony, set to report quarterly earnings on Thursday, last week revised down its operating forecast for the year ending on March 31 to a 260 billion yen loss from a 200 billion yen profit.

FROZEN DEMAND

Canon's profitability has been hit by sliding consumer demand, steep price falls and the strength of the yen, which makes Japanese products less price-competitive overseas and eats into revenues when converted into the Japanese currency.

Without the negative effect of a firmer yen, its operating profit would have been 677.1 billion yen in 2008, instead of an actual 496.1 billion yen, Canon said.

The company expects its digital camera sales to fall 7 percent from a year earlier to 23.9 million units in 2009, the first ever unit sales decline for the industry leader.

For October-December, Canon's operating profit totaled 35.8 billion yen, the smallest quarterly profit since it started reporting quarterly earnings in 2001. Net profit fell 91 percent to 11.6 billion yen.

"A sudden cooling in demand since the autumn had a far bigger impact on our business than we anticipated," Canon's Osawa said.

For a graphic on Canon's historical quarterly operating profit, click here

Its office equipment operation is under pressure as corporate clients rein in spending on information technology.

Rival Ricoh bought U.S. office equipment distributor Ikon Office Solutions for $1.6 billion last year, delivering a heavy blow to Canon in the key U.S. market.

Before the acquisition, Canon machines accounted for 60 percent of the products Ikon handled. But Ricoh has said it aims to replace Canon products with its own printers and copiers in a few years.

Shares of Canon closed up 0.4 percent at 2,590 yen before the announcement, compared with a 0.9 percent rise in the Tokyo market's electrical machinery index .IELEC.T.

(Additional reporting by Nathan Layne, Aiko Hayashi; Editing by Michael Watson)