Smartphone cameras overshadow Canon, Nikon

With industry revenue falling to the lowest level in a decade amid surging smartphone sales, Nikon Corp., the world’s No. 2 camera maker, has cut prices to attract consumers. Market leader Canon Inc. may follow suit to keep pace, according to UBS AG, putting pressure on smaller producers and possibly leading them to retreat from the business.

“There are too many players,” said Ryosuke Katsura, an analyst at UBS in Tokyo. “It’s going to be tough for smaller camera makers even to remain in the business as competition between Canon and Nikon will likely intensify,” said Katsura, who recommends selling shares of both industry leaders.

In a quick comparison, since Apple has introduced its flagship smartphone, the two top camera producers Canon and Nikon have lost more than half their value as demand has withered in an industry they have dominated for over a decade. Nikon is the worst performer in the Nikkei 225 index this year, falling 34%.

Camera shipments are estimated to fall another 30% this year to 69 million units, according to Morgan Stanley MUFG Securities Co., even as manufacturers try to slow the decline by adding smartphone-like features such as Wi-Fi and Bluetooth.

In August, Nikon cut its 2013 net income target by 23% while Canon lowered profit and sales forecasts in July.

On top of all that smartphones launch more sophisticated cameras. Samsung Electronics Galaxy S4 is equipped with a 13-megapixel sensor. Sony’s latest Xperia Z1 has a 20.7 megapixel camera and an optional zoom-lens attachment. Nokia in July unveiled its Lumia 1020 with a 41-megapixel camera. By contrast, Canon’s EOS-1D X, which sells for $6,799 on the company’s U.S. website, has an 18.1-megapixel sensor though pixel count is only one of many factors that affect image quality.

As Nikon and and Canon consider diversification and by the time they implement changes, earnings are going to remain under pressure as smartphones take advantage. According to analysts the trend is not easily reversible.

The current consensus among 20 polled by Money CNN investment analysts is to hold stock in Nikon Corp. This rating has held steady since September, when it was unchanged from a hold rating. Analysts also recommend to buy stock in Canon Inc.