SAN JOSE, Calif. -- Can Nikon Corp. regain its focus?
The Japanese camera and fab tool maker has lost share in the lithography
market amid losses, but it has gained ground in the LCD stepper front. The
company's other main business--cameras--is also under pressure from a new wave
of SLR products.
''Nikon’s current outlook for profits in the total stepper division is 3
billion yen ($33.4 million), which is bolstered by the profitable LCD stepper
(line), but dragged down by IC steppers, which are still in the red for most of
this year in our projections,'' said David Rubenstein, an analyst with Global
FXA Securities Ltd., in a report. ''If Nikon is able to gain market share in IC
steppers, profit recovery could be significant next year.''
In lithography, Nikon is losing share and has struggled to keep up with rival
ASML Holding NV. As previously reported, ASML and Nikon will share the 22-nm
lithography business at Intel Corp. At 32-nm, Nikon was the sole leading-edge
lithography vendor at Intel. Intel is Nikon's largest customer.
Nikon is continuing to conduct basic research into extreme ultraviolet (EUV)
lithography but is falling behind its rival ASML, according to an analyst's note
Nikon's fab tool business saw its net sales drop by 31.7 percent from the
previous fiscal year to 150.1 billion yen ($1.6 billion). The unit also incurred
an operating loss of 58.6 billion yen ($632.2 million) for the year, compared
with operating income of 8 billion yen ($86 million) in the previous fiscal
Amid losses for the group, Nikon (Tokyo) recently named Makoto Kimura as
president. He assumed that title from Michio Kariya, president, COO and CEO, who
became chairman. Kimura, who had been executive vice president and president of
Nikon's Imaging Company, is supposed to jumpstart the company's growth,
according to reports.
This week, Nikon formulated a three-year medium term management plan that
will run from fiscal 2011 to 2013. One of the goals is to bring the fab tool
business back in the black. The fab tool unit is projected to see sales of 280
billion yen ($3.1 billion) and an operating profit of 28 billion yen ($311
million) in the current fiscal year.
''Nikon’s shares have fallen 15 percent and underperformed the market by 10
percent since we downgraded our 'Buy' recommendation to 'Neutral' on May 12,''
said Rubenstein in the report. ''After an update from the company, we gather
that almost all major products are doing better than expected this quarter. We
believe that there are two major positive catalysts on the near-term horizon for
Now, the analyst has upgraded his recommendation to ''Buy'' from ''Neutral.''
The problem is the lithography sector. Nikon has strong technology, but ASML has
beat the company to the punch. ASML has bascially won the business at the
foundries, memory houses, and, now, Intel.
The trends are alarming for the supply chain. The leading-edge lithography
business needs two strong vendors in ASML and Nikon. The third lithography
supplier--Canon--is out of the leading-edge game. Two players keeps the market
A monopoly--and weakened Nikon--would be problematic in the sector. Tool
prices, which are already high, would soar out of control--if ASML were to gain
a monopoly, observers said. ASML's latest 193-nm scanner runs $45 million--each.
The outlook for Nikon is improving, however. ''We believe that the outlook
for (Nikon's) S620 double patterning ArF immersion steppers, the key leading
edge gear, is improving. We understand that Nikon is gaining traction with three
of the four major chipmakers where its market share is low or zero, while it
concedes some dominant market share to rival ASML at its large U.S.-based
client,'' Rubenstein said in the report. That customer is reportedly Intel.
''In addition, the fourth major customer, a foundry, appears to be showing
interest in Nikon’s new tool,'' he said. ''Nikon’s current forecast of 48 units
for IC steppers is too low in our view, as order trend is better than expected.
We gather that both memory and foundry orders are strong with pull-ins
prevalent. Lead time is six months or over, and thus much of the high level of
orders this year should spill over to the 1H of FY3/12.''
LCD stepper orders are robust. ''We gathered that the order trend in LCD
steppers is also strong and over plan. Nikon’s market share is highest at 7-8G
at 65 percent, which allows for higher profit margins than the IC stepper
business,'' he said.
''LCD stepper sales might peak later than IC steppers due to delays in China
if the government does not approve applications from Samsung, LG, AUO, Sharp,
etc. This is a risk factor for the LCD stepper business, but could also lengthen
the current cycle if delays are imposed on construction projects,'' he said.
Nikon is strong in another segment. ''We gather that all camera products are
strong and over plan, thanks to China, the Americas, and Japan. We believe that
China unit sales are up over 30 percent year-over-year in Q1 (April, May), while
North America and Japan are (up) 10-20 precent,'' he said.
The threat of ''mirrorless'' cameras appears to be muted. ''SLR mirrorless
cameras at Panasonic, Olympus and Sony have been a large hit product in Japan,
but we understand that there is almost no activity overseas,'' he said.
''Japan is only 12 percent of the total worldwide SLR market. We estimate
that 20 percent of domestic SLR sales currently are mirrorless cameras, and thus
2-3 percent of global SLR sales are mirrorless cameras,'' he said.
''Nikon hinted last week in its mid-term explanatory meeting that it was
working on a new type of SLR camera. We believe that Nikon will introduce its
own hybrid-type SLR in CY2011, which would compete with mirrorless SLRs, but
still utilize its profitable replacement lenses,'' he said. ''Nikon’s projection
for FY3/13 SLR camera total market is 19 million units, higher than our previous
projections. FY3/11 is higher than expected (13-14 million versus previous 12
million assumption), and thus its assumptions for FY3/12-FY3/13 have been