Nikon Corporation 2013

Forest R. David

A. Case Abstract

Headquartered in Tokyo, Japan, Nikon develops, produces, and markets cameras, binoculars,
microscopes, measurement instruments, imaging lenses, photographic enlargers, and other
imaging products such as Nikons underwater film cameras. Nikon competes with Canon,
Casio, Kodak, Sony, Pentax, Panasonic, Fujifilm, and Olympus. With 24,000 employees and
founded in 1917, Nikon is part of the huge Mitsubishi keiretsu, a group of businesses linked
by cross-ownership. Nikons consolidated revenues for fiscal 2013 that ended March 31,
2013 were 1,010,493 million Japanese Yen.

Many analysts predict that Nikon, and rivals Sony and Canon, may go the way of Eastman
Kodak whose stock is down 99.9 percent in mid-2013 from its mid-1999 prices. Producers of
digital cameras are facing a shift in the way people take pictures as excellent technology in
smartphones enables people to take high quality pictures without paying for a high quality
digital camera. In the first five months of 2013, global shipments of compact digital cameras
dropped 43 percent, a huge shot over the bow of Nikon. The largest company in the camera
business is Canon, (CAJ) which has a 23 percent share of the global camera market, followed
by Nikon (NINOY.PK) with 21 percent market share, and lastly Sony (SNE) with 15 percent
market share.

Research suggests that the global digital camera market peaked in 2010, and sales in 2013
may drop 30 percent from that record level. Nikon needs a clear strategic plan to survive
severe threats facing its industry.

B. Vision Statement (proposed)

We strive to be the world leader in optical equipment by delivering the highest quality optical
equipment in the world.

C. Mission Statement (proposed)

As the leader in high-quality optical equipment (2) for photographers and the commercial end users (1)
across the globe (3), we pay special attention to remaining at the forefront of technological
advancements (4, 7) by developing and retaining the best employees (9) who display creativity and
trustworthiness (6). We will continue to grow (5) and contribute to communities where we operate (8)
around the world.

1. Customers
2. Products or services
 3. Markets
4. Technology
5. Concern for survival, growth, and profitability
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit
Opportunities

1. Competitor Kodak is shutting down digital camera production operations ($1.3 billion in revenues
for Kodak now available for the market to acquire).
2. The health and medical field lack new devices for inspection systems in diagnostics, and products
that contribute to the quality of life enhancement for the elderly.
3. The semiconductor growth rate for 2013 is projected at 25%.
4. IDC (International Data Corporation) projects a 27% compound annual growth rate for the
smartphone industry over the next 5 years.
5. Increased imaging interest in India: registered 110% unit growth for digital cameras and 200% for
Digital SLR in first eight months of 2012.
6. Over the next 5 years, the DSLR segment in India is expected to grow 40-50% year on year.
7. In the Middle Kingdom of China, 22% more money is spent by the consumer to purchase a digital
camera.
8. A worldwide trend is moving towards high-quality cameras; 10X optical zoom cameras grew 27%
in sales in 2011 vs. a 16% decline in cameras costing less than $200.
9. Mobile phones have spurred an interest in photography and provide access to an expanded
community of consumers.
10. In the first 6 months of 2012, a 15% growth in the interchangeable lens digital camera category
has been seen in 66 countries.

Threats

1. Potential natural disasters (flooding, earthquakes) to happen again in Thailand and Japan.
2. European market makes up 24.6% of sales, the largest market. The European slowdown affecting
exports: 12% drop in Japanese exports to Europe.
3. Potential loss of employees with technological expertise in regions with high labor mobility.
4. Supply chain traceability auditing enacted into US law through Dodd-Frank Act; use of conflict
materials from Congo (tantalum, tin and tungsten) must be traced through supply chain for
corporate transparency.
5. Samsung Electronics is investing $975 million into ASML for next-generation chip-making
technology research to be conducted.
6. Increased competition in imaging Canon reduced camera prices in East India to capture 27%
market share.
7. Percent of total mobile phone users who took photos using their phone: 52.4% (U.S), 57.5%
(Europe), & 62.9% (Japan). The technology gap for picture resolution is closing between mobile
devices and digital cameras.
8. Canon launched its mirrorless camera to compete with Nikons version; 100,000 cameras per
month are being manufactured.
9. Americans spending on digital cameras decreased 8.3% in 2011 from 2010.
10. In 2011, consumer electronics became the most widely seized counterfeited items.

Competitive Profile Matrix

Canon is the strongest firm among the three compared in the CPM and earned 5 times what Nikon
earned in 2012.

EFE Matrix
 Nikons performance is average on external issues but faces severe external threats as indicated by
the ratings of 1 in the EFEM.

E. Internal Audit
Strengths

1. 2012 sales up 3.5%, despite Thailand flooding.

2. Annual cash dividend per share increased 19 JPY from 2011 to 2012.
3. Facebook presence of Nikon: 1,662,014 U.S. likes.
4. Strong brand image Nikon customers are willing to pay more money for digital cameras than any
other brand customers.
5. 2012 operating income up 48.2% - gain in earnings contributed by Precision Equipment segment.
6. First-movers in image sensor technology.
7. Launched first Android platform camera in the industry for smart cameras.
8. Nikon India has a 55% market share for DSLR cameras.
9. From 2009, the Nikon imaging segment has increased its total market share 9.5%.
10. For 2011, in the UK, Europe, and Japan, Nikon had the best-selling DSLR camera and the best-selling
compact camera (Nikon Coolpix S3100).

Weaknesses
1. The Board of Directors and Executive Officers are not ethnically or gender diverse. All members are
Japanese males.
2. Seven top executives (President, CFO, Finance & Accounting, Instruments Co.) nearing retirement
age; impending loss of tacit knowledge. Five of these have been with Nikon since the 1970s.
3. The load time of images on company website is slower than that of competitors Canon and ASML.
4. Geographic sales are lumped into Europe, China, Japan, the USA, and other making up 23.3% of
sales these sales arent broken down to see the next largest region(s).
5. No e-commerce option on Nikon website to channel consumer and business purchasing.
6. The interest coverage ratio dropped significantly from 128.0 to 14.2 (2011 to 2012 FY).
7. The Precision Equipment segment (27% of company) and the Imaging segment (63.9% of company)
make up 90.9% of share of sales.
8. In Switzerland, Nikon was fined 12.5 million Swiss francs for using unlawful vertical agreements
curbing parallel imports.
9. Operating loss of 2.5 million JPY in the Instruments segment third year in a row of operating loss.
10. The only digital camera manufacturing plant is located in Thailand where flooding occurred.

market growth (Ops profit: -$734.79 million)

Financial Ratio Analysis (in YEN)

Profit Margin Percent Nikon Industry

Gross Margin 33.65 37.97
Pre-Tax Margin 4.44 28.83
Net Profit Margin 3.14 21.31

Liquidity Ratios
Debt/Equity Ratio 0.11 0.14
Current Ratio 1.82 1.81
Quick Ratio 0.77 1.47

Profitability Ratios
Return On Equity 6.69 30.35
Return On Assets 3.59 18.8
Return On Capital 5.75 26.38

Efficiency Ratios
Income/Employee 1.29 Mil 73,317
Revenue/Employee 41.17 Mil 616,549
Receivable Turnover 7.46 10.22
Inventory Turnover 2.39 44.23
Asset Turnover 1.14 0.88

Nikon is struggling on both profitability ratios and on managing inventory.

Net Worth Analysis (in millions)

 Canon is worth considerably more than Nikon on all methods above.

IFE Matrix
 Nikon is performing just above average on internal issues, but should consider divesting its Instruments
segment.

F. SWOT
SO Strategies

1. Build one additional imaging manufacturing plant outside of Thailand to increase sales. (S1, O1).
2. Launch television campaign for 2012 in Middle Kingdom of China. (S4, O7)
3. Partner with Samsung to release "Nikon" branded smartphone camera lens. (S7, O4, O9)
4. Increase capacity output of semiconductor production machines by 5%. (S7, O4)

WO Strategies

1. Hire 2 new executives to sit on the Board of Directors, if available, the Kodak imaging managers, to
create better diversity. (W1, W2, O1)
2. Increase R&D 20% for Instruments for healthcare field to capitalize on need and diversify income.
(W7, O2)
3. Create mobile application site to purchase cameras through e-commerce. (W5, O9)
4. Build one new manufacturing plant for DSLR equipment in Europe. (W10, O8)
 ST Strategies

1. Cease imaging production in Thailand and switch operations to existing European manufacturing plant.
(S1, T1)
2. Lower camera prices in East India by 5% to remain above Canon's price range. (S4, T6)
3. Offer additional stock options for employees in R&D as incentives to remain with Nikon. (S2,T3)
4. Eliminate use of conflict materials to keep existing brand image and social responsibility. (S4, T4)

WT Strategies

1. Divest Instruments segment and solicit Apple investment for chip research and development for
Precision Equipment segment. (W9, T5)
2. Create a position for VP over global law to limit lawsuits and infringements. (W8, T4, T10)
3. Limit imaging production capacity in Thailand, and launch production site in existing European plant.
(W10, T1)
4. Enhance training for upper management for the potential movement into executive positions and to
keep them at Nikon. (W2, T3, T6)

G. SPACE Matrix
Nikon is located in the Competitive Quadrant of the SPACE, due largely to rival Canon performing substantially
better.
H. Grand Strategy Matrix

Nikon competes in an industry that is seeing sluggish sales as cameras are being replaced by smartphones.
Canon is a top competitor and is stronger financially.
I. The Internal-External (IE) Matrix
 Segment 2013 Total Sales
(in millions)
Precision Equipment 179,031
Imagining Products 751,240
Instruments 53,877
Other 26,363
Total 1,010,493

Imagining Products is the leading segment for Nikon experiencing a 30% gain from 2012 to 2013, but
Precision Equipment lost 28% over the same time frame, while the companys Instruments segment lost
3%.
J. QSPM
 Note the best QSPM strategy is to partner with Samsung, as indicated by the 1.86 score.

K. Recommendations
1. Build one additional imaging manufacturing plant outside of Thailand to increase sales.
2. Launch television campaign for 2012 in Middle Kingdom of China.
3. Partner with Samsung to release "Nikon" branded smartphone camera lens.
4. Increase capacity output of semiconductor production machines by 5%.
5. Cease Imaging manufacturing in Thailand and switch operations to existing European manufacturing
plant for 10,000 million.
6. Lower camera prices in East India by 5% to remain above Canon's price range but stay competitive.
7. Offer additional 500 million in stock options for employees in R&D as incentives to remain with
Nikon.
8. Divest Instruments segment and solicit Apple investment for chip research and development for
Precision Equipment segment.
9. Create a position for VP over global law to limit lawsuits and infringements for 250 million.
10. Enhance training for upper management for the potential movement into executive positions and to
keep them at Nikon for 100 million.
11. Hire 2 new executives to sit on the Board of Directors, if available, the Kodak imaging managers, to
create better diversity for 500 million.
12. Create mobile application site to purchase cameras through e-commerce for 50 million
13. Build one new manufacturing plant for DSLR equipment in Europe for 40,000 million

L. EPS/EBIT Analysis (in millions expect for EPS and Share Price)
Amount Needed: 55,000
Stock Price: 2,500
Shares Outstanding: 401
Interest Rate: 4%
Tax Rate: 30%
 55,000 million is not much capital for a firm the size of Nikon. Debt or equity would work well, but with
a debt/equity ratio near 0 and low rates, debt is likely the best choice.

M. Epilogue
For their fiscal year that ended 3-31-13, Nikons Precision Equipment Company reported a 28 percent sales
decline and a 70 percent net income decline. Overall, the companys total sales increased by 10 percent,
but operating income decreased 36 percent for the year. The companys imaging segment reported a 28
percent increase in sales and an operating income rise of 13% up from the previous year. The companys
instruments segment reported a 4 percent drop in sales. Despite the weak results for FY13 that ended 3-31-
13, Nikon's precision unit is expecting an operating profit of 16 billion yen for FY14, which would
represent a 50 percent year-over-year gain.

Nikons digital cameras are part of its imaging products segment that generates 91.8% of
revenues. Surprisingly, contraction of the digital camera market is not been disastrous to this
segment's performance. Nikons sales of digital cameras with interchangeable lenses are doing
well, for now. In the year ended March 31, total sales increased by 28% to $7.9 billion. Operating
income was up 12.5% to $639 million. Net working capital is one of the best metrics to identify a
strong company. To calculate it, subtract the company's total liabilities from its current assets. A
company that has more net working capital than its market capitalization is usually a great
investment for purchasing stock. Nikon's net working capital is currently $2.07 billion, 24.4% of
its market capitalization not good.

Chapter 26: Nikon

10 Basic Questions

1: B

2: A

3 D

4: A

5: B
6: C

7: C

8: B

9: A

10: B

15 Applied Questions

Grand Strategy Matrix and Quantitative Strategic Planning Matrix (QSPM)

1: C

2: B

3: D

4: A

5: B

Balanced Scorecard

1: A

2: C

3: D

4: A

5: C

Business Ethics

1: D

2: A

3: C

4: C

5: A