Canon cuts outlook as China boycott adds to exporters' woes

TOKYO Thu Oct 25, 2012 5:54am EDT

A man tries out Canon Inc's camera at an electronics store in Tokyo October 23, 2012. Japan's Canon Inc cut its full-year forecast for compact camera sales on Thursday as it battles weaker demand from European consumers and stiff competition with smartphones. Picture taken October 23, 2012. REUTERS/Yuriko Nakao

A man tries out Canon Inc's camera at an electronics store in Tokyo October 23, 2012. Japan's Canon Inc cut its full-year forecast for compact camera sales on Thursday as it battles weaker demand from European consumers and stiff competition with smartphones. Picture taken October 23, 2012.

Credit: Reuters/Yuriko Nakao

TOKYO (Reuters) - Japan's Canon Inc (7751.T) cut its full-year earnings outlook and posted a weaker-than-expected quarterly profit as Chinese consumers began shunning Japanese products over a territorial spat, adding to corporate Japan's pain from a slowing global economy.

The camera and printer maker, which generates 80 percent of its revenue abroad, has been hit particularly hard this year by sluggish demand in the euro zone and a strong yen.

The Chinese boycotts, blamed along with dull Chinese economic growth for about one-fourth of a downward revision to Canon's camera sales forecast for the year, have added to its woes, although it brushed off a temporary halt to Chinese production last month due to anti-Japan protests.

"There was no impact from the suspension of production in China, and we don't expect something like this to happen again," Canon Chief Financial Officer Toshizo Tanaka told reporters after the release of third-quarter results on Thursday.

"But the boycotting of Japanese products is now taking hold in Chinese society, where people who buy Japanese goods are criticized.

"We see this particularly in camera sales and our products aimed at consumers and we think it will continue for some time."

Canon, as one of the first Japanese technology firms to post results, is considered an early barometer of corporate earnings performance in Japan.

And high on Japan Inc's list of worries this earnings season is what Canon and others are referring to as "China risk".

Almost half of Japanese manufacturers expect to see lower sales in the current fiscal year due to the spike in tensions between Asia's two largest economies, while nearly one-quarter said they were considering delaying or reducing planned investment in China, according to a Reuters Corporate Survey released on Wednesday.

Only a few weeks before factory protests and consumer boycotts erupted in China, the Nikkei business newspaper quoted a Canon executive as saying the company aimed to quadruple sales in China to 780 billion yen ($9.77 billion) by 2017.

CHINA RISK

Canon said it was not thinking about moving production out of China but cut its compact camera sales forecast for the year to December to 19 million cameras from 21 million, while the forecast for interchangeable-lens cameras was cut to 8.8 million from 9.2 million.

The IXY and PowerShot camera maker, which competes with Nikon Corp (7731.T) and Sony Corp (6758.T), has also seen its compact camera sales eroded by the popularity of smartphones from the likes of Apple Inc (AAPL.O) and Samsung Electronics Co Ltd (005930.KS).

Canon said its operating profit for July-to-September fell 42.2 percent from a year earlier to 70.88 billion yen, short of the average forecast of 99.9 billion yen in a poll of six analysts by Thomson Reuters I/B/E/S.

It also cut its operating profit outlook for the full year to 356 billion yen, down nearly 10 percent from a July forecast of 390 billion yen.

"I think this is pretty much within the range that people expected for a downwards revision so I don't get a very negative feeling about it," said Makoto Kikuchi, CEO of Myojo Asset Management.

Tighter budgets across Europe and elsewhere have undermined demand for office printers, with Xerox Corp (XRX.N) trimming its full-year earnings forecast this week and saying it would book a restructuring charge of up to $100 million to account for a tougher economy.

Lexmark International Inc (LXK.N) has exited the inkjet printer business to focus on its more profitable imaging and software division.

Canon, considered a leader in profitability in corporate Japan with its aggressive cost-cutting, also revised its forecast average dollar rate for the full year to 78 yen from 80 yen, signaling tougher headwinds from the currency markets, although it kept its euro rate forecast unchanged at 100 yen.

Shares in Canon ended up 2.2 percent at 2,645 yen ahead of the results announcement, compared with a 1.1 percent rise in Tokyo's benchmark Nikkei average .N225.

The stock is down more than 20 percent this year, however, and has been slow to recover from a three-year low of 2,308 hit after a disappointing earnings announcement last quarter. The Nikkei is up 7 percent for the year.

($1 = 79.8250 Japanese yen)

(Additional reporting by Reiji Murai; Editing by Edmund Klamann)