Canon Inc.

Company Profile
Publication Date: 23 Jul 2010

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Canon Inc.

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Canon Inc.
TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................4 Key Facts...............................................................................................................4 SWOT Analysis.....................................................................................................5

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Canon Inc.
Company Overview

COMPANY OVERVIEW
Canon Inc. (Canon or “the company”) is one of the leading suppliers of copying machines, printers, cameras, optical products and industrial equipment. The company also supplies laser beam printers on an original equipment manufacturing basis to Hewlett-Packard, which accounted for 20% of total revenues in 2009. The company primarily operates in Japan, the US, and Europe. It is headquartered in Tokyo, Japan and employs about 25,683 people. The company recorded revenues of JPY3,209,201 million (approximately $34,338.5 million) during the financial year ended December 2009 (FY2009), a decrease of 21.6% compared with 2008. The operating profit of the company was JPY2,17,055 million (approximately $2,322.5 million) in FY2009, a decrease of 56.2% compared with 2008. The net profit was JPY131647 million (approximately $1,408.6 million) in FY2009, a decrease of 57.4% over 2008.

KEY FACTS
Head Office Canon Inc. 30-2 Shimomaruko 3-chome Ohta-ku Tokyo 146 8501 JPN 81 3 3758 2111 81 3 5482 5135 http://www.canon.com

Phone Fax Web Address

Revenue / turnover 3,209,201.0 (JPY Mn) Financial Year End Employees New York Ticker Tokyo Ticker December 25,683 CAJ 7751

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Canon Inc.
SWOT Analysis

SWOT ANALYSIS
Canon is one of the leading suppliers of copying machines, printers, cameras, optical products and industrial equipment. The company has a strong brand value that gives the company competitive advantage, aiding in increasing the reach of the products in new markets and hence profitability is escalated. However, competitive pressures from players like Nikon which is going to reduce price on its product D500 pose a threat to the company affecting profitability. Strengths Among 30 most successful Japanese brands Diversification enhances chances of generating more revenues New technologies bolster Canon’s business Leverage in-house development and production capabilities to bring out innovative products Opportunities Business expansion into China and other Asian countries Rise in demand for digital cameras Growth in commercial digital printing market Weaknesses Reliance on Hewlett Packard increase business risks Consistent decline in operating margins from 2007 to 2009

Threats Nikon’s lowered prices and new products a concern Exposure to Foreign Markets makes Canon susceptible to foreign currency fluctuations

Strengths

Among 30 most successful Japanese brands Canon, world-leader in imaging solutions, has retained its fourth position in Interbrand's “Japan's Best Global Brands 2010”, an annual ranking of the 30 most successful Japanese brands. Canon's brand value, according to Interbrand, remained the same as in 2009 at USD 10.469 billion, bucking the trend of 24 other brands which declined in brand value. Canon was far ahead of its competitors including Nikon at 14th position, Ricoh at 15th position, Olympus at 16th position in the list of thirty companies. The company was ranked 36th on the list of top 100 global brands in 2008, published by Interbrand and 33rd in 2009. Strong brand image gives the company competitive advantage which helps in increasing the reach of the products in new markets. Diversification enhances chances of generating more revenues

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Canon Inc.
SWOT Analysis

Canon offers products under three major categories, namely, office business unit, consumer business unit and industry and others business unit. Its office products offerings includes office network digital MFDs, color network digital MFDs, personal-use network digital MFDs, office copying machines, personal-use copying machines, full-color copying machines, laser printers and large format inkjet printers.The industry and others business unit mainly offers semiconductor production equipment, mirror projection mask aligners for LCD panels, medical equipment, components, computer information systems, document scanners and personal information products The consumer business unit mainly includes digital SLR cameras, compact digital cameras, interchangeable lenses, digital video camcorders, inkjet multifunction printers; single function inkjet printers, image scanners and broadcasting equipment. This diversified portfolio increases Canon’s revenue generating capacity. New technologies bolster Canon’s business Canon recognized the increasing importance of an open innovation approach—in other words, creating new technologies and products. To make its products stand out from those of its competitors, Canon continuously strengthens the development of key components and devices. The company’s leading edge technological offerings aid in developing these key products. The technological offerings include: DigitalImagingIC (DIGIC) image processors and Complementary Metal Oxide Semiconductor (CMOS) sensors, both of which are key components of digital cameras, as well as Diffractive Optics (DO) lenses, which help realize smaller and lighter telephoto lenses, and organic photo conductor (OPC) drums employed in electrophotographic processes. Presently, Canon is promoting cross-media imaging, which it defines as achieving advanced synergies between imaging devices. Leveraging the imaging technologies, the company is providing clients with quality communication experience which will leads towards a stronger brand image. Leverage in-house development and production capabilities to bring out innovative products Canon has an advantage of in-house development and production capabilities, to launch innovative products. Canon proactively aimed at expanding its digital camera lineups. The company focused on reinforcing mid-range and high-end products, among which the EOS (Electro-Optical System) 5D Mark II, EOS 7D and PowerShot S90 bore fruit. One of Canon’s key strategies is to use a single platform packed with innovative technologies, such as DIGIC, and thereby ensure high product quality throughout its lineups. Canon introduced high-value-added items to attract new high-volume production users. In the first half of 2009, the PIXMA Pro9500 Mark II and PIXMA Pro9000 Mark II, both of which garnered high praise, particularly in the United States, were launched for professional and advanced amateur photographers for use in combination with EOS cameras. In the second half of 2009, Canon renewed the consumer product lineup with models to meet growing demand for wireless LAN printers. Canon became one of the first to adopt the image per minute (IPM) speed measuring method based on ISO global standards. In 2009, Canon held a 44.7% share in the market for digital SLR cameras, high-end models with interchangeable lenses, followed by Nikon with 34.3%.The company’s launch of innovative products enable photographers to take more than pictures, providing the technologies and features that allow users to take stories with the best possible image quality. It is expected to further strengthen its brand recognition among users and dealers and boost market presence.

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Canon Inc.
SWOT Analysis

Weaknesses

Reliance on Hewlett Packard increase business risks Canon is highly dependent on Hewlett Packard (HP). A substantial share of Canon’s revenue is from the sales to HP. Canon sells laser printers on an OEM (Original Equipment Manufacturers) basis to HP; such sales constituted approximately 20%, 23% and 22% of consolidated net sales for the years ended, 2009, 2008 and 2007, respectively and are included in the office business unit.Contract termination by HP can affect the business of the company to a great extent. Thus high dependence on one customer for significant portion of its total revenues puts Canon at a risk. Consistent decline in operating margins from 2007 to 2009 Canon has shown declining operating margins for three consecutive years. The overall operating margins have declined from 16.9% in 2007 to 12.1% in 2008 and further to 6.8% in 2009. This was due to the decrease in operating income of all the three business divisions - office business unit, consumer business unit and industry and other business unit. Operating margins provides an indication of the company’s operational performance. A declining operating margin indicates that the company has not been able to manage its cost structure efficiently. There have been reductions in operating margin over the years but if further declined, profitability of the company will be weakened

Opportunities

Business expansion into China and other Asian countries Canon will focus on capturing significant portions of markets in China and other parts of Asia, where significant growth beyond that of the industrialized nations can be expected. Canon India is betting big on government projects for up to 44% growth in its revenue.The increasing realization by ministries and government departments of the importance of better technology solutions to improve internal processes and reduce costs has created many business opportunities for Canon.These opportunities include digitizing files, records and archives, cost-effective printing works and certain niche areas like high- end surveillance cameras. In 2010, Canon is targeting about 20-25% of its revenue to come from government projects alone. Canon India is working on a few important government projects. One of these is for maintaining digital images of people applying for passports. Another project it is working on is the photo identity cards for fishermen in the coastal areas, post- Mumbai terror attack. Canon is already working with government hospitals where it will maintain the family records of patients in digital format. Canon also expects sales in China to top $10 billion in seven years. Sales in China are expected to grow 10% and expect overall sales to grow 6.6% to 25.7 million units. Canon also predicted that China will surpass the US to become the largest camera market as early as 2015. Thus with focus on China and other parts of Asia, Canon can tap the growth potential of these markets.

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Canon Inc.
SWOT Analysis

Rise in demand for digital cameras The company may be benefited by a positive outlook for digital single-lens reflex (SLR) cameras. The demand for the bulkier and expensive digital SLR, which features better performance and range of interchangeable lenses, is likely to be relatively high. According to IDC (International Data Corporation), digital SLR shipments are expected to increase 9% to 8.5 million units by 2011. Asia Pacific digital cameras market (excluding Japan) is expected to grow at a compound annual growth rate (CAGR) of 17.9% from 2006 to 2013. Canon is the world's top maker of digital cameras ahead of Sony and dominates the lucrative SLR segment along with Nikon Corp. In light of growing demand for high-end cameras, Canon raised its digital SLR camera sales target by 4% to 4.9 million units. In 2009, Canon held a 44.7% share in the market for digital SLR cameras, high-end models with interchangeable lenses, followed by Nikon with 34.3 percent, according to research firm IDC. Canon also achieved a significant milestone in lens production in 2009, manufacturing the company’s 50 millionth EF lens, following strong demand that saw over 10 million lenses produced in just under two years. The company is well positioned to seize this opportunity for growth in digital cameras and expand its presence. Growth in commercial digital printing market Digital printing is entering a new era that is reshaping the commercial printing industry. Encouraged by such developments as “transpromo documents” (personalized business documents containing advertising materials); dramatically improved workflow/productivity solutions; new applications like printable electronics & digital fabrication; integrated multimedia campaigns (conventional/personalized direct mail, web, email, display graphics, etc.); Smart Labels, PLUS tremendous digital printing technology capability advancements – unparalled business opportunities exist for tomorrow’s printing industry. Specifically, printing capacity, which formerly had been concentrated among major printers, is being distributed throughout the industry. This shift will bring the expansion of the light/medium production market. Canon will target this promising market with competitive products and services.

Threats

Nikon’s lowered prices and new products a concern Nikon is Canon’s biggest rival. Nikon has wide gap to be built to reach Canon’s product specialty and quality. Canon’s Kiss X4 is the new model in cameras. It is tough for Nikon to compete with Kiss X4. Nikon has decided to drop prices significantly on its D5000 and other models competitive with the Kiss X3 (earlier version). It is also expected from Nikon to launch competitive new products around mid-2010, making it likely that Canon will lose momentum in second half of 2010 in terms of its product cycle. Thus Nikon’s lowered prices and new products is a concern for Canon’s products. Exposure to foreign markets makes Canon susceptible to foreign currency fluctuations

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Canon Inc.
SWOT Analysis

Canon is exposed to significant currency exchange risk as it is highly dependent on overseas market. International sales account for a major share of the company’s revenue.In the FY2009, the overseas sales accounted for 78.1% of the net sales which was 75.6% in FY2008. Of the 78.1% overseas sales, approximately 29% of the revenues come from US dollars and 31% from the Euro. Thus Canon is basically exposed to the exchange rate risk of Yen against the US dollar and Euro. Although, the company uses derivative financial instruments to reduce the risk, this may not completely protect it from foreign exchange fluctuations losses. Strengthening of Yen against the US dollar or Euro will have a negative affect on the company's results. For instance, the exchange rate for Japanese Yen during the FY2009 was fluctuating between JPY89.8 and JPY92 against the US dollar and the average exchange rate for Japanese Yen during FY 2009 was JPY131.2 against the Euro. Americas contributed JPY894,154 million (approximately $9,567.4 million) revenues in 2009 when $1= JPY92 and the total revenues were JPY3,209,201 million (approximately $34,338.45 million). For instance, if $1 = JPY89.8 (yen appreciates) the revenues from Americas will decline to JPY872,772 million (approximately $9,338.6 million) which will also lead to a decrease in overall revenues to JPY3,187,819 million (approximately $34,109.6 million). This reflects that a minor change in exchange rate can substantially reduce the revenues of the company. As exchange rates are dynamic in nature, a further appreciation in Y will affect the operating performance of the company.

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