TOKYO Japan's Canon Inc cut its profit forecast for the year to December and trimmed its sales targets for both high-end and compact digital cameras as a slowdown in China and other emerging economies caught the company off-guard.
Canon, the world's largest maker of digital cameras, kicked off the quarterly earnings reporting season for Japan's big-name tech manufacturers by cutting its operating profit forecast to 380 billion yen ($3.81 billion), down 16 percent from guidance issued just three months ago.
Canon and other Japanese camera makers have already been hit by a slump in sales of compact digital cameras as consumers increasingly use smartphones to snap photos and this has weighed on Canon's earnings and share price.
"We had expected that compact cameras would be bad, but it looks like the interchangeable-lens cameras they'd been pinning their hopes on also don't seem to be selling like they'd expected in China and other emerging economies," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Tokyo.
Canon's chief financial officer, Toshizo Tanaka, told an earnings briefing that weakness in Europe and slowing growth in emerging markets weighed on a recovery in demand the company had counted on for the second half of the year, although he expected the weakness in China, unlike in Europe, would not be prolonged.
Although Canon's shares have risen about 40 percent during an eight-month rally fuelled by the reflationary economic policies of Prime Minister Shinzo Abe, that lags a 70 percent rise in Tokyo's benchmark Nikkei average. Rival camera maker Nikon Corp is up only 26 percent.
Canon shares closed 0.3 percent higher on Wednesday before the earnings announcement, while the Nikkei fell 0.3 percent.
Canon is also a major global manufacturer of printers and copiers, which were hit hard by Europe's debt woes and weak economy, although yen weakness since late last year has buoyed its export earnings.
Cameras now account for more than 60 percent of its overall operating profit and it had counted on its strength in high-end interchangeable-lens cameras to offset evaporating demand for compact cameras.
But on Wednesday Canon cut its target for interchangeable-lens camera sales to 9 million from 9.2 million, while compact cameras were cut to 14 million from 14.5 million. The previous projections were given at its last earnings report in April.
"Chinese consumers tend to be very fond of cameras, especially high-end ones such as SLRs, but an economic slowdown has hit just as sales were recovering from last year," Tanaka said, referring to a sharp fall in China sales in late 2012 as consumers shunned Japanese products due to a territorial dispute.
Competition for compact cameras from smartphones is also likely to heat up with both Samsung Electronics Co Ltd and Nokia Oyj introducing phones placing high-quality cameras at the heart of their designs.
Canon's 380 billion yen operating profit forecast is also shy of analysts' average full-year operating profit forecast of 448.3 billon yen, based on a survey of 23 analysts by Thomson Reuters I/B/E/S.
For the April-June quarter, Canon's operating profit rose 6.2 percent to 98.3 billion yen, exceeding the 95.9 billion yen average profit forecast from seven analysts.
(Additional reporting by Mari Saito and Nobuhiro Kubo; Editing by Edmund Klamann and Matt Driskill)