TOKYO — Japan’s Canon has blamed a slowing US economy weighing down camera and office equipment sales for a surprise drop in quarterly operating profit.

The world’s largest digital camera maker warned yesterday its earnings this year would fall short of market expectations.

Rival printer maker Seiko Epson left its forecasts for the year to March unchanged, despite strong quarterly results, citing an uncertain economy. Slowing US demand prompted Ricoh to cut its 2007-08 outlook.

Canon had healthy demand for its EOS high-end digital cameras and IXY compact models last year, but slowing consumer spending in the US, a key market for its cameras and office equipment, has cast a shadow over its earnings prospects.

“The subprime loan problems have turned out to be worse than we anticipated,” Canon MD Masahiro Osawa said. Group operating profit totalled ¥193,58bn in the December quarter, 1,2% less than a year earlier.

The quarterly result also fell short of Canon’s forecast made in late October of ¥209,9bn, underscoring an unexpected slowdown towards the end of the year.

On a net basis, profit rose 1,8% to ¥127,85bn in the fourth quarter of last year.

Ichiyoshi Investment Management fund manager said: “The slowdown in the US economy is clearly a negative factor here, and Canon (shares) may come under selling pressure.

“But if the risk of the US economy heading into recession starts receding somewhere down the line, Canon and other blue-chip shares would naturally stage a major upturn,” he said.

Canon competes with Sony and Olympus in digital cameras. It also vies with Xerox Corp, Ricoh and Seiko Epson in printers and copiers. The Tokyo-based company sold 24,6-million digital cameras last year, up 17% from a year earlier, but missed its October forecast of 25-million units.

Canon said it expected operating profit to grow 5,7% to ¥800bn, targeting a ninth successive year of profit growth. But the forecast fell short of the consensus of ¥819,6bn in a poll of 20 analysts by Reuters Estimates.

“We expect governments to take various measures (to combat an economic slowdown),” Canon’s Osawa said.

“We are going to have a tough time in the first quarter. But from the second quarter onwards things will be getting better gradually. With the Beijing Olympic Games scheduled in the second half, the economy will be on a recovery path,” he said.

Canon aims to boost its digital camera sales 20% to 29,4-million units this year, and keep its number one position.

To buttress its camera and office equipment operations, Canon said last month it planned to take 24,9% of Hitachi Displays, a wholly owned Hitachi unit that makes small liquid crystal display panels used in products such as digital cameras and printers.

Seiko Epson operating profit rose 32% to ¥33,4bn in the December quarter, bringing profit in the first nine months of the current business year to ¥55,7bn, or 99,5% of annual forecast.

Ricoh managed a 1,6% rise in quarterly operating profit, but cut its operating profit forecast for the year to March 3,6% to ¥188bn on slowing North American sales.
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