More on Olympus and Breakeven

(news and commentary)

I've been digging some more into statements made recently by Olympus executives regarding how they expect to get back to break-even in cameras, and several sources have provided me with some additional translations of materials that have only appeared in the Japanese market.

Nikkei.com is reporting that Olympus now says the break-even point for profit with mirrorless cameras is 1m units, and the goal for this year is to boost sales 20% to 730k units. Thus, it won't be until their next fiscal year that they actually believe they'll get to break-even with mirrorless (which tends to contradict what they said at their full year financial results review, where they said they'd be break-even for all cameras, even the rapidly declining compactsin the next two quarters ofthe current year). [I've added Olympus' new statements to my Claims to Remember page.]

To achieve this new claim, Olympus would have to manage a 28% market share worldwide this year to make their goal, a 39% market share to achieve break-even. I should point out that two very large financial investment firms both predict that Olympus won't manage even 730k units this year (can't really say any more than that, as their reports are private and the specifics are for paying customers only). I actually would tend to dispute those analysts: Olympus is fully in control over how many cameras they ship and book as sales. They could simply produce-to-the-numbers and claim victory. Of course, that's what got us to the current situation: both Panasonic and Olympus clearly overproduced to demand, and you see that reflected by all the overhanging inventory that has been remaindered at significant discount (and probable write-down losses) to both companies. I don't think they want to repeat that costly mistake.

There's also an interesting smoke-and-mirrors thing going on in the CIPA numbers and the numbers that the camera companies are talking up with the business community. Remember, CIPA numbers come from the camera makers themselves. Let's look at a few of those numbers:

  • Actual CIPA sales-to-date project to — 3.4m units
  • CIPA forecast for year — 4.9m units
  • Previous year CIPA actual — 3.9m units

So the camera companies are forecasting 26% growth in mirrorless camera sales, but the current market is actually 13% down over the first third of the year. Now here's where the smoke and mirrors come in: a number of companies are going around claiming that they have X% market share (let's use 25% as an example, as one company is claiming they're currently at that number). Great, so they multiply 4.9 by .25 and you imply they'll sell 1.25m units. But what if the actual sales-to-date is more accurate than the original CIPA forecast? Now we're at 850k units. As I noted above, Olympus is saying that it will take 1m units for them to get to break-even. So if this were Olympus that I was using as an example (;~), the difference between the CIPA estimate and the CIPA actual so far is the difference between significant profit and significant loss.

Thus, we find that with the more naive and Japan-friendly press, the camera companies—and believe me, that's a plural here; this isn't limited to one company's practices at the moment which is why I didn't name the one claiming 25% market share—use the self-interested CIPA forecast to pretend things are rosy, but the savvy financial analysts are starting to note the huge discrepancy between "expectations" and "reality" and putting that in their market reports to their paying audience. You'd have to think that the accounting departments at the camera companies are seeing the same thing the analysts are. But the real issue is that we've now got some investors shorting stocks based upon the discrepancy. As more Western investors put money into the Nikkei stock exchange with the lure of the now in decline yen, we've got a lot of Big Money looking at the consumer electronics world and wondering what the reality of the situation is.

That said, Goldman Sachs, I believe currently lists Olympus as a stock to "buy." But they also seem to believe that there won't be significant losses out of the camera group moving forward.

It seems that every time I write about all these data points, claims, and numbers, a number of people attack me, not the data. Attacking the messenger is a common ploy on the Internet these days. Why anyone thinks that achieves anything useful, I have no idea. Okay, consider me shot. Gee, I'm still reporting what I see. Feel better, though?

So why do I write these stories? Because we're all trying to figure out whether to put our hard-earned money into what are expensive systems. If you look around, you can already see a number people complaining that all the fire sales on mirrorless camera inventory overhang has basically depressed the used market: people aren't getting the amount of money out of their old camera they expected when they decide to upgrade. That's true for DSLRs, too, though a bit less so. I'm a little concerned that the mirrorless companies are essentially conditioning the consumer to wait for fire sales. Nikon 1? 80% off. Panasonic GF/G/GH? 50% off. Olympus Pen? Free last generation cameras with purchase of lens. The list goes on.

Personally, I want to see Olympus succeed. I've got a fair amount invested in their gear, and I enjoy using it. As I've noted elsewhere, the OM-D E-M5 is my usual choice for long backcountry hikes. But it definitely worries me when they continue to say one thing and the market numbers seem to be saying something entirely different. You can't make reliable decisions from made up data. You can from real data. I didn't start this site to gloat as mirrorless dies and DSLR rules the world (not going to happen, see my previous story on this, especially the last part). I started this site to provide reliable, useful information about mirrorless cameras and to foster a debate about what that information means and how you can use it.

Unfortunately, in this market environment, we have to worry about the longevity of everycamera maker.

If I were in charge of Olympus, here's what I'd do: I'd come clean. As in: "We're not making money at cameras, but we will continue to invest in them because we believe that long-term, we not only can make them profitable, but distinctive from our competition in ways that are meaningful to consumers and eventually increase our market share. We pioneered dust reduction, multi-axis IS on sensor, and much more. Our products are already great and will get better. But we failed to market them well, we failed to cut costs enough, we failed to see the quick collapse of the compact camera market soon enough, and thus we have a number of short-term issues to work through. Fortunately, we're a small part of a healthy, profitable company, and have the time to work through these things. Starting today we promise to give everyone accurate accounts of how we're doing and what our real forecasts and assumptions are. To that end, I can say that we shipped 590k, or 15% of the mirrorless cameras, in the last fiscal year. We had originally projected that to grow to 730k with the market growth originally estimated by CIPA, but the reality is that the market isn't yet growing again. Thus, to make any gains in mirrorless this year, we'll have to take market share for other tough competitors. That will not be easy, and we're in the midst of reconsidering our original 20% growth projection for the year. We will let you know as soon as possible what our new projections are and how that might slow our return to profitability in cameras." Then, I'd back that with renewed, targeted marketing that's direct, bold, and clearly tells people (what I already know): those Olympus m4/3 cameras are darned good; you should consider buying one.

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