Morningstar | Contraction of Camera Market Will Be Compensated by Other Businesses, Cut Canon's FVE to JPY 3,600
Over the past 70 years, Canon has established defensible market positions in its core office and consumer segments, but secular headwinds and shifting industry dynamics limit its long-term growth potential. Canon's office segment--which sells multifunctional devices, copiers, and industrial and personal laser printers--accounts for 50% of consolidated sales. The firm benefits from partnerships with the original equipment manufacturer, or OEM, of laser printers Hewlett-Packard, which represented approximately 18% of Canon's total revenue in 2017. The firm also generates reliable, high-margin revenue through printer supplies and service contracts whenever a business installs a Canon system. Global hardware and print spending has been decreasing, and we believe this trend will continue. Further, digitalization of documents and electronic workflow have changed businesses' behavior and generated an integrated document management system, which is becoming a threat to Canon’s business model.The imaging system segment--which includes products such as cameras and inkjet printers--is largely driven by the success of the Canon's professional-grade digital single-lens reflex, or DSLR, camera. While progress of smartphone cameras and the diffusion of high-end mirrorless interchangeable lens cameras is a threat to the business, we believe the combination of a DSLR camera and lenses produces the best-quality pictures, and thus solid demand for DSLRs will remain. Canon makes the widest variety of lenses and we believe these provide a hook to keep customers within Canon’s ecosystem.As existing businesses are facing challenges, Canon is restructuring its business portfolio. Under the new medium-term plan Phase V (2016-2020), Canon has specified four new business areas on which it will focus: network camera, commercial printing, nanoimprint technology for semiconductor production equipment, and medical. We believe these businesses have synergies with Canon’s existing businesses and praise the swift acquisitions of related companies. We believe Canon's ability to offset the contraction of existing businesses will influence the fair value of its shares.Canon and its subsidiaries are engaged in the manufacture and sale of office multifunction devices, plain paper copying machines, laser printers, inkjet printers, cameras and lithography equipment. Co. sells its products principally under the Canon brand name and through sales subsidiaries. Each of these subsidiaries is responsible for marketing and distribution to retail dealers in an assigned territory. As of Dec. 31, 2017, Co.'s manufacturing is conducted primarily at 30 plants in Japan and 18 plants overseas. Co. operates its business in four segments: Office Business Unit, Imaging System Business Unit, Medical System Business Unit, and Industry and Others Business Unit.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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