Canon sees sales boost from supply chain

SHANGHAI Wed May 18, 2011 10:00am EDT

Canon camera equipment is displayed at an electronic shop in Yokohama, south of Tokyo in this April 26, 2011 file photo. REUTERS/Yuriko Nakao

Canon camera equipment is displayed at an electronic shop in Yokohama, south of Tokyo in this April 26, 2011 file photo.

Credit: Reuters/Yuriko Nakao

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SHANGHAI (Reuters) - Japanese camera and copier maker Canon Inc (7751.T) expects its quake-hit supply chain to recover more quickly than originally estimated, giving a roughly 50 billion yen ($600 million) boost to its annual sales, the company's chief executive said.

Fujio Mitarai also told Reuters in an interview that the company may expand a factory under construction in Kyushu, southern Japan, as part of a strategy to diversify its production of key parts.

Last month Canon lowered its annual earnings forecasts and said a recovery in its supply chain, which was disrupted by Japan's March 11 earthquake and tsunami, was not expected until June or July.

"As those involved in parts production have been giving it their best, we expect supplies to arrive sooner than we had predicted," Mitarai said in an interview late on Tuesday in Shanghai.

"We now forecast (production) to return to normal by the end of June."

Mitarai said the faster-than-expected recovery of its supply chain would likely boost its sales. The company is currently forecasting revenue of 3.73 trillion yen for the year to December.

"I am hoping it would lift our sales by around 50 billion yen," he said.

One of the biggest risks facing the company, he said, was a potential power shortage in Japan following a crisis at a nuclear power plant in the quake-hit northeast.

DIVERSIFYING PARTS PRODUCTION

As part of its strategy to diversify is production base for key parts, Canon may eventually beef up operations at its Hita factory in Kyushu, which is currently under construction, Mitarai said.

The disruption of parts supply in Japan has affected a wide range of electronics makers, including many overseas such as Apple Inc (AAPL.O) and Texas Instruments TXN.N.

Xerox Corp (XRX.N) said last month it saw some product constraints in the middle of the second quarter due to the March disaster and did not expect a full-product recovery until later this year.

Mitarai said his company was also considering increasing production lines at its two factories in southern China's Guangdong province.

Like many foreign companies operating in China, Mitarai warned that rising labor costs could eat into margins in the near term.

"We must gradually adopt a more efficient system in China that saves manpower, and change our product line up to one with more added-value," he said.

"But if you look at it over the longer term or from a more macro perspective, rising wages will also lift peoples' purchasing power and so it's not a bad thing at all."

Demand for single-lens reflex cameras -- high-end models with interchangeable lenses -- is expected to remain strong, supported by the continued expansion of the middle class in emerging economies, Mitarai said.

Canon is also very open to overseas acquisitions in the medical and high-tech sectors although nothing specific is planned at the moment, he said.

Shares of Canon, which takes its name from the Buddhist goddess of mercy, were flat in early trade in Tokyo at 3,725 yen while the benchmark Nikkei average .N225 was up 0.5 percent.

($1 = 81.425 Japanese Yen)

(Editing by Nathan Layne and Edmund Klamann)

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