TOKYO/SEOUL (Reuters) - Japanese camera makers such as Canon and Nikon have long ruled the $22-billion digital camera market, but South Korean upstart Samsung Techwin is making a serious bid to build its brand to take on the big guns.
The market for digital cameras -- particularly high-end models -- is booming as prices have fallen, and as it becomes easier to store large numbers of photos on a computer or upload them to sharing Websites like Flickr and edit images through programs such as Google's GOOG.O Picasa.
Japan's camera makers, including Canon Inc 7751.T, Sony Corp <6758.T and Olympus Corp 7733.T, control 70 percent of the global digital camera market, which research firm IDC expects to have grown 15 percent in 2007 and expand 11 percent this year.
"Japanese camera makers don't really care much about overseas suppliers. But one company they do care about is Samsung Techwin 012450.KS," Techno Systems Research analyst Akiko Sato said.
Samsung Techwin, a quarter-owned by Samsung Electronics 005930.KS, more than doubled its digital camera market share to 7.8 percent in 2006, making itself the fifth-largest digital camera maker behind Canon, Sony, Eastman Kodak Co EK.N and Olympus by sales, according to IDC.
Samsung Techwin aims to boost its digital camera sales by 46 percent to 17.5 million units this year and become the world’s No.1 digital camera maker by 2010.
“Samsung Techwin’s distribution network is set to increase from 70 retailers in 2007 to 150 networks in 2008. It will get a powerful boost from Samsung Electronics’ retail network and brand power,” Prudential Investment & Securities analyst Kim Uno said.
Japanese rivals have every reason to take heed, having seen Samsung Electronics zip past then-mighty Japanese memory chip makers in the 1990s and flat TV makers earlier this decade.
“The company’s priority now is to establish itself in compact cameras, a sector where pricing is key,” said Prudential’s Kim. “Then it hopes to move into the DSLR category, where brand power matters more.”
Digital single lens reflex (DSLR) cameras -- advanced models with interchangeable lenses -- are all the rage, as what used to be available only to professional photographers is now cheap enough for enthusiasts to buy.
Canon and Nikon Corp 7731.T held a combined share of 80 percent of this market, which is growing more than twice as fast as the overall digital camera market, according to IDC.
Japanese camera makers virtually monopolized the DSLR camera market in 2006, with Samsung Techwin representing only 0.8 percent of the market, according to IDC.
It does not appear to have made much headway last year as Techno Systems’ production data for 2007 shows Samsung Techwin accounts for 0.6 percent of global DSLR camera production.
Limited presence in the high-end market is reflected in Samsung Techwin’s profitability. Operating margins at Samsung Techwin’s digital camera business are estimated at 4.4 percent in 2008 and 5 percent in 2009, according to Prudential Investment & Securities.
Analysts generally estimate operating margins of around 20 percent at a DSLR camera business, compared with single-digit margins at compact digital camera operations.
But where Samsung, in cooperation with Pentax, can really make inroads is by competing on price, firstly in the compact market.
“The battle over rising megapixel count is essentially over,” said Kim Do-han, an analyst at Samsung Securities. “Samsung Techwin hopes to move the battle to the pricing arena.”
And Japanese makers feel the pressure.
“It is fundamental for us to maintain brand appeal and offer value-added products,” said Keiichi Ishizuka, an executive in Sony’s digital camera division. “But I’m afraid we would not be able to survive competition if we don’t really improve cost competitiveness.”
For now Japanese manufacturers still hold a clear technological advantage over Samsung Techwin and other foreign brands in major digital camera technologies, analysts say.
“Digital cameras are not typical digital electronics. You have to have expertise not only in electronics, but in optics and mechatronics, too, to put together competitive products,” Mizuho Securities analyst Ryosuke Katsura said.
Analysts say it may take a decade or so before Samsung Techwin becomes a player in the DSLR market. But they also caution that Samsung Techwin is here to stay.
“The problem with DLSR is that the market is intrinsically limited by portability issues,” said Samsung Securities’ Kim.
“Samsung Techwin is challenging its rivals with cheaper price, while also striving to improve profitability by offering higher-end products within the compact sector. They should be able to raise their sales very rapidly.”
Editing by Louise Heavens
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