Nikon (7731 JP): Uncertainty, Not Sony, Is the Biggest Risk

Sony Mobile: Rave Reviews for XZ3 Display Show Continuing Innovation; Profitability Still a Concern

Equity Analyst, LightStream Research

Farha Sabri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Digital camera market on a downtrend: The digital camera market has been struggling to compete with the increasing quality of smartphone cameras which are the preferred choice for most users (apart from professional photographers). The digital camera market which has been on a declining trend since 2010 (CARC – 23.6% over 2010-16) experienced a slight pick-up last year (3.3% YoY growth over 2016-17).Mirrorless camera sub segment grows despite decline in DSLR sub segment: The gap between DSLR cameras and mirrorless cameras shipped also started to narrow last year. While the number of mirrorless cameras shipped remained stagnant up to 2016 (3.2-3.6m units), the market grew noticeably in 2017, narrowing the gap in volume between DSLR cameras and mirrorless cameras. This is a result of more professionals and amateurs alike increasing the usage of mirrorless cameras since they are less bulky and subsequently easier to use than a DSLR.Sony secures strong market share with a first mover advantage: According to Sony, it is the number one player in the mirrorless camera market. The company was one of the first players to enter the market and as such, today, its Alpha series is a very popular choice for those looking for mirrorless cameras. The company also is the market leader in the key US and China markets even though it is in third place in Japan.Nikon and Canon’s mirrorless camera line up to be introduced this year could further erode the DSLR market: Nikon and Canon hold a duopoly in the professional camera market due to their strong presence in the DSLR segment. Threatened by Sony’s strong position in the emerging mirrorless market, Nikon and Canon too have plans of introducing mirrorless cameras in the near future. We believe that this could harm the DSLR segment further and possibly have an adverse effect on Nikon and Canon’s long-term market share, enabling Sony to ultimately strengthen its own share on the overall camera market. The key is whether Nikon and Canon successfully execute their full frame mirrorless camera launches as poor showings would likely strengthen Sony’s position and reputation within this growing market while the move into mirrorless is also a tacit admission that the DSLR market is in true decline in our view.Positive outlook in store for Sony’s Imaging Products and Solutions segment: We expect the company to at least slightly beat its unit sales forecast of 3.8m units for FY03/19, based on its competitive position and current momentum. We expect the mirrorless camera market to grow at an average of rate of approximately 8% per year over the next couple of years. Sony should slightly outperform its own segment revenue forecast for the next year (approximately 2%-4% higher than the company forecast) with the OP being in line with the company forecast. In the long run, we expect the company’s OPM to improve to around 12% by FY03/21 with the top line growing at a CAGR of 3-4% over FY03/19-21.

Digital camera market on a downtrend: The digital camera market has been struggling to compete with the increasing quality of smartphone cameras which are the preferred choice for most users (apart from professional photographers). The digital camera market which has been on a declining trend since 2010 (CARC – 23.6% over 2010-16) experienced a slight pick-up last year (3.3% YoY growth over 2016-17).Mirrorless camera sub segment grows despite decline in DSLR sub segment: The gap between DSLR cameras and mirrorless cameras shipped also started to narrow last year. While the number of mirrorless cameras shipped remained stagnant up to 2016 (3.2-3.6m units), the market grew noticeably in 2017, narrowing the gap in volume between DSLR cameras and mirrorless cameras. This is a result of more professionals and amateurs alike increasing the usage of mirrorless cameras since they are less bulky and subsequently easier to use than a DSLR.Sony secures strong market share with a first mover advantage: According to Sony, it is the number one player in the mirrorless camera market. The company was one of the first players to enter the market and as such, today, its Alpha series is a very popular choice for those looking for mirrorless cameras. The company also is the market leader in the key US and China markets even though it is in third place in Japan.Nikon and Canon’s mirrorless camera line up to be introduced this year could further erode the DSLR market: Nikon and Canon hold a duopoly in the professional camera market due to their strong presence in the DSLR segment. Threatened by Sony’s strong position in the emerging mirrorless market, Nikon and Canon too have plans of introducing mirrorless cameras in the near future. We believe that this could harm the DSLR segment further and possibly have an adverse effect on Nikon and Canon’s long-term market share, enabling Sony to ultimately strengthen its own share on the overall camera market. The key is whether Nikon and Canon successfully execute their full frame mirrorless camera launches as poor showings would likely strengthen Sony’s position and reputation within this growing market while the move into mirrorless is also a tacit admission that the DSLR market is in true decline in our view.Positive outlook in store for Sony’s Imaging Products and Solutions segment: We expect the company to at least slightly beat its unit sales forecast of 3.8m units for FY03/19, based on its competitive position and current momentum. We expect the mirrorless camera market to grow at an average of rate of approximately 8% per year over the next couple of years. Sony should slightly outperform its own segment revenue forecast for the next year (approximately 2%-4% higher than the company forecast) with the OP being in line with the company forecast. In the long run, we expect the company’s OPM to improve to around 12% by FY03/21 with the top line growing at a CAGR of 3-4% over FY03/19-21.

Mirrorless Cameras to Replace DSLR Cameras; Is Sony at an Advantage with the Alpha Series?

Sony Corp

Mirrorless Cameras to Replace DSLR Cameras; Is Sony at an Advantage with the Alpha Series?