Konica Minolta Cuts 05/06 Profit Target

Konica Minolta Cuts 05/06 Profit Target


Konica Minolta Holdings Inc. on Friday cut its operating profit target for the next business year by 38 percent due to higher spending on color copiers, sliding digital camera prices, and smaller-than-expected merger gains.

Konica Minolta, created in August 2003 through the merger of Konica Corp. and Minolta Co., also said it would book a 34 billion yen

The company, the world‘s third-largest maker of camera film after Eastman Kodak and Fuji Photo Film and a relatively small player in the digital camera market, said it would likely consolidate its overseas camera plants.

Konica Minolta gets more than half of its sales and most of its profit from office equipment, but its photo imaging division, which handles film and cameras, has been its Achilles‘ heel. The division is headed for a 9 billion yen loss this business year.

"We will scale down our photo imaging business in step with the shrinking of the overall market and will rush to get the business out of the red," Konica Minolta President Fumio Iwai told a briefing held to unveil a new medium-term business plan.

Konica Minolta, the world‘s number four copier maker after Canon Inc., Xerox and Ricoh Co. Ltd., now expects a group operating profit of 90 billion yen in 2005/06, down from its prior estimate of 145 billion yen.

The Tokyo-based company also lowered its sales outlook for the next financial year starting April 1 to 1.13 trillion yen from 1.23 trillion yen. Konica Minolta first announced the 2005/06 targets for both profit and sales in March last year.

Iwai attributed the downward revision to several factors.

In office equipment, he cited tumbling laser printer prices and the need to invest more on the development and marketing of color multi-function peripherals

Konica Minolta estimates it controls about 9 percent of the lucrative and fast-growing color MFP market and aims to raise that to above 20 percent by the 2008/09 business year.

"We were late in developing color MFP products and that has hurt. It led to a ballooning of costs related to the development and sales of color machines," Iwai said.

NEW HIRES

The new forecasts did not come as a surprise as analysts have said the company would need to scale back expectations. The market consensus for 2005/06 operating profit was 98 billion yen, according to a poll of five analysts by Reuters Research.

Last week, Konica Minolta lowered its operating profit forecast for the current business year to March 31 by 13 percent to 70 billion yen while cutting its sales estimate by 3.6 percent to 1.06 trillion yen, citing delays in launching new color MFP‘s and tumbling prices of compact digital cameras.

Konica Minolta said it now expected the photo imaging division to record an operating loss of 4 billion yen in 2005/06 on sales of 230 billion yen, compared with a forecast unveiled last year for an 11 billion yen profit on sales of 270 billion yen.

Reflecting deteriorating demand for photo film and color paper, and the belief that unit sales of its digital cameras would not grow, Konica Minolta said revenues in the division would fall to 160 billion yen in 2008/09, down 40 percent from 2004/05.

"We will not chase after sheer volume in the digital camera market," Iwai said, adding the company would focus on high-end digital single lens reflex cameras and shift some of its employees working on cameras to the optical devices division.




Konica Minolta also blamed the downward revision on the expectation that it would not be able to merge as many offices as originally planned. It cut its estimate for merger-related cost savings in 2005/06 to 13 billion yen from 19 billion yen.

While the company planned to downsize its film and camera operations, Iwai said it would be putting 80 percent of its management resources into office equipment and optical devices such as DVD pickup lenses and camera units for mobile phones.

Konica Minolta has cut about 4,600 workers over the past two years as part of the merger, bringing the total group workforce to 34,100, including 1,360 new hires. But Iwai said he planned to hire more and fire less over the next few years, predicting the company‘s headcount would reach 37,200 by March 2009.

"We will continue to make rationalization cuts of redundant employees, but we will be hiring more to strengthen our development and sales operations, especially in the office equipment division," the president said.

For the year to March 2007, Konica Minolta cut its operating profit forecast to 105 billion yen, down from its previous forecast of 160 billion yen. It lowered it sales estimate for 2006/07 to 1.21 trillion yen from 1.33 trillion yen.

Shares in Konica Minolta closed up 0.09 percent at 1,131 yen on Friday, in line with a 0.13 percent rise in the Nikkei share average.