Canon: Copying success

Building on its copier dominance, Canon sets its sights on the semiconductor lithography market

By Caitlin Kelly -- Movers & Shakers, 8/15/2002

With $8.6 billion in US sales for 2001, 11,000 employees worldwide in more than 30 locations, and a rank of 171 on the Fortune 500, Canon is riding high.

Seymour Liebman, Executive Vice President and General Counsel, Canon USA

In March 2002, the company announced its continued dominance over copier sales in the United States, marking its fourth straight year in the No. 1 spot. The 2001 results also mark the 19th time in the past 20 years that Canon has grabbed the No. 1 spot in the US, and the 15th year in a row that it has sold the most color copiers.

Overall, Canon sold 557,296 black-and-white copiers in the US last year, attaining 34 percent market share, and share growth of 2.2 percent. In color laser shipments, Canon placed first with 14,316 units and a 34 percent market share. Canon also dominates the PC copier market, with a 70 percent market share. Thanks to its focus on the growing SOHO (small office/home office) market and a new digital PC copier introduced last year, Canon’s unit shipment figure is more than three times its nearest competitor, according to Gartner Dataquest research.

The company’s strengths include excellent management and efficient production, including factories in southeast Asia and China, high product quality, and a well-known brand, says Scott Foster, senior research analyst for technology with Lehman Brothers Japan. “Competition from Ricoh, other Japanese camera makers, and Xerox is very tough,” he says. “But the biggest challenge is likely to be taking their semiconductor lithography business up another notch. They want to be No. 1 by 2005—a difficult but not unreachable target. But to get there they need to win orders at top-level customers such as Intel and IBM.”

Seymour Liebman, executive vice president and general counsel with Canon USA, agrees that this ambitious goal is, at least for now, tough to realize. The lithography units sell for several million dollars apiece and, with weakness in the semiconductor market still depressing demand, business won’t likely pick up until the end of 2002.

Turning back to printers, a new partnership with German engine manufacturer Heidelberg will produce high-speed, print-on-demand machines that will sell under the Canon brand in the $250,000 range. That small market—perhaps 200 a year in the US—has long been dominated by Xerox, but is appealing to Canon because of its high profit margins for ongoing supplies and service. The machines shoot out 100 pages per minute.

Other markets where Canon hopes to grow include digital cameras and the inkjet printers that work in conjunction with such cameras to produce high-quality prints that are quick, cheap, and easy to create. The company currently offers eight digital cameras that appeal to shooters from backyard amateurs to professionals, and has claimed 14 percent market share. Canon hopes for 17 percent through the introduction of new products. “We have the technology and the reputation,” Liebman says. “In the past we have had a limited number of models. It’s a very competitive market and we’re not near No. 1.” That spot is claimed, in the US and globally, by Sony.

Yet thanks to demand for its IXY Digital and PowerShot models, and including digital video camcorders (22 percent of sales), sales increased in the first quarter of 2002 by an impressive 19.3 percent.

Fujio Mitarai, President and CEO, Canon

In inkjet printers, Canon is aiming for the top spot, thanks to improved print heads, speed, and ink. The company’s new printers will be able to print photos directly from a digital camera, bypassing a PC, and sell for $500. Their only competitors in this emerging segment are Epson and Hewlett-Packard.

Under the leadership of Fujio Mitarai, president and CEO since 1995, Canon has significantly altered the way it does, and thinks about, business. On his watch, the stock has also tripled in value. Mitarai began by shutting down money-losing divisions such as PCs, typewriters, LCDs, and optical data-storage cards—four divisions that were generating $225 million in sales but losing $75 million. He introduced cash-flow management by raising net profits, cutting operational costs, and reducing inventory so that Canon Japan now uses only 14 warehouses instead of 34. The company switched from using conveyor belts, for example, to a “cell” production system that clusters workers and offers higher productivity.

“But the biggest challenge is likely to be taking their semiconductor lithography business up another notch. They want to be No. 1 by 2005—a difficult but not unreachable target.” Scott Foster, Lehman Brothers Japan

Mitarai, who is 66 and a nephew of one of the company’s founders, boosted US revenue sevenfold, to $2.6 billion between 1979 and 1989 while president of Canon USA.

Production is shifting from Japan, where 70 percent of Canon factories are located, to lower-cost regions such as China. By the end of 2002, Canon plans to open a laser printer plant in Zhingshan, southern China, and will soon open three copier factories in Suzhou, near Shanghai.