Ricoh buys Pentax camera division

[gnd]

As seen across the web, Ricoh bought the Pentax camera division from Hoya.
People have been predicting Hoya selling off the Pentax camera division ever since they bought it in 2008.
What are your thoughts about this development?

 

[Bonch]

It's interesting to me that it sold for so little (about $124 million). It's pocket change to companies like Apple, who will settle misc claims out of court for $100 million here, $100 million there.

 

[TheReef]

From official press release:
(http://www.hoya.co.jp/english/news/latest/d0h4dj0000001fv8-att/d0h4dj0000001fwi.pdf)

Through this acquisition, Ricoh plans to 1) enhance its digital camera businesses (especially the interchangeable lens camera market which is expected to grow), 2) create value-added businesses for taken photographs (creation and development of value-added services that encourage seeing, storing and refinishing photographs and utilize photographs as communication tools), and 3) expand to other fields (study of entry into the image archiving business using medium-format digital cameras and enhancement of security-related products)

I think this is fantastic news.

 

[compuwar]

As seen across the web, Ricoh bought the Pentax camera division from Hoya.
People have been predicting Hoya selling off the Pentax camera division ever since they bought it in 2008.
What are your thoughts about this development?

I'm not sure it's a good thing- on the one hand, since Hoya's CEO was pretty clear in the beginning that they wanted the endoscopy business and not the camera business it's a good thing Hoya doesn't have to keep floating Pentax unwillingly, but Ricoh has been in decline for the last two years since buying IKON, I'm not seeing anything particularly cheery on the horizon for Ricoh- especially since the encroachment of smart phones and tablets into the business market is likely to lead to less printing rather than more printing. Furthermore, they don't have a large retail sales channel. Nothing in their 2010 Annual Report strikes me as particularly advantageous to retail camera sales or R&D. At this point, one has to wonder how much talent has fled from the Pentax->Hoya->Ricoh instability.

Paul

 

[cube]

Ricoh is known for not not succumbing to marketing and making interesting cameras. It's a good sign.

 

[Phrasikleia]

...the encroachment of smart phones and tablets into the business market is likely to lead to less printing rather than more printing...

Which is probably why Ricoh is keen to expand their digital camera businesses and develop new businesses related to photography (photo sharing, storing, processing, utilizing, archiving, etc.). Their plans sound rather grand.

My understanding is that Ricoh still has very deep pockets (it's a much larger company than Hoya). The combination of substantial financial resources and ambitious goals can only be good for Pentax.

 

[compuwar]

My understanding is that Ricoh still has very deep pockets (it's a much larger company than Hoya). The combination of substantial financial resources and ambitious goals can only be good for Pentax.

Their 2010 annual report doesn't read that well to me, did I miss something?

While sales appear to be about 5x Hoya's, income for 2010 was about 30% less (though admittedly Hoya's income was up about 50% for financial reasons.) Hoya had about 5x the operating margins too. Let's not forget though that Hoya's net sales are about 25% larger than Nikon's.

Ricoh hasn't done particularly well in the retail arena, and there's nothing that really indicates they have a new strategy there- without the wider retail distribution channels it's going to be a hard row to hoe. Throw in a Medium Format play from someone who really doesn't have a camera store presence, and it's an uphill fight. Add in what has to have been a lot of attrition in R&D over the last acquisition and without a strong partner, I just don't see how they can make even a dent in the market with a brand that's been losing market share.

Hoya wins out here, they've been wanting to ditch the Pentax camera business since the original acquisition.

It may be different in Japan, but in every US acquisition I've seen in the last 20+ years, all the talent flees at the first one except one or two high-end folks who get courted heavily- but by the second acquisition, they're ready to move on and they've already made their bonus money the first time around.

I don't think Pentax has "throw money at it" problems-- there's simply not room for another major player in the DSLR market-- Canon and Nikon are strong, with popular and well-performing products and Sony's offering a good third-place run-- any run by Pentax would have to eat into all three's sales in relatively major ways, and Ricoh doesn't have the retail channels that those three do, and they're not likely to offer anything ground-shaking technology-wise. Ricoh wants to do online file storage- do they honestly think they're going to be a big cloud player?

Since IDC doesn't seem to be splitting interchangeable lens cameras from DSLRs, we'll go with the best numbers we can for 2010:

Canon 44.5
Nikon 29.8
Sony 11.9
Oly 5.1

That leaves ~8.7% between Pentax, Sigma, Samsung, Leica, Panasonic and all others. Given u4/3rd's penetration, that really doesn't give Pentax a lot of maneuvering room. Let's say that Pentax runs about 50% of the remaining share- they're not likely to pick up share from their group, so that leaves the "big three." There's intense competition between Canon and Nikon, especially at the entry-level price point- and they have wide sales lanes into box stores, membership warehouses and electronics retail- and they're not likely to give up shelf space willingly. I don't see it, just as I don't see how Ricoh thinks they're going to make major plays in photo editing and online storage against a pretty full house. Even with a huge advertising budget, retail simply isn't their strong suit- going from the ground up in this economy isn't going to be easy- and let's face it, Pentax hasn't been doing well at that itself.

Color me very skeptical.

Paul

 

[Phrasikleia]

Color me very skeptical.

OK, will do. And you can take my crayon out of the box of more optimistic colors.

I don't see what market share has to do with anything (it has never mattered a whole lot for Macs). What I think really matters for photographers is that Pentax continues to put out interesting products like the 645D and the K-5. They don't have to be "king," they just need to be profitable enough to keep providing photographers with a happy alternative to the other brands.

 

[compuwar]

OK, will do. And you can take my crayon out of the box of more optimistic colors.

I don't see what market share has to do with anything (it has never mattered a whole lot for Macs).

It's got a lot to do with market expectations and shareholder value- just like "passenger seat miles" in the airline industry. In the Japanese market, it's been more about home market share than global market share, but that's a very, very important metric to Japanese companies, and in part, corporate resources are going to be allocated based upon success in the market. I suspect with the earthquake that global market share will start to take on even more prominence. In the short term, market success equals dollars for S,G&A for the division, in the longer term it equals attracting tier one talent.

Finally, the DSLR market has been growing while Pentax's share has been shrinking. That's very, very important in a business, especially a publicly traded one. That means you're not even keeping up-- your products aren't being adopted by your potential customers because they're going somewhere else. Hoya could not float Pentax with its current sales-- that means to be successful, Pentax is going to have to grow share- that is take food off of Canon and Nikon's tables.

Actually, Apple's market share has been important, and the company's upsurge began with their major uptick in the portable market. The fact that Google was unable to draw all the top-tier talent away has come from continued high market share in the smart phone and tablet markets- if Apple's share dropped to single-digit percentage points, you'd see the major innovators fleeing the company in droves. More importantly, when Apple's market share was in the tank, it took a significant cash infusion by Microsoft to keep them in business.

Few people really want to work for number 5, 6 or 7-- and that has an effect on future products too.

Remember the same optimism for the camera division when Hoya purchased Pentax, despite all the evidence to the contrary? Let's revisit this in a year, but I know I wouldn't be investing in Ricoh stock over this one.

Paul

 

[Phrasikleia]

It's got a lot to do with market expectations and shareholder value

You abridged my words when quoting me. I was referring to what it means for photographers, not for shareholders. So long as Pentax can keep doing what it has been doing, putting out products like the 645D and the K-5, I think it can remain profitable and stay alive.

Remember the same optimism for the camera division when Hoya purchased Pentax, despite all the evidence to the contrary?

And Pentax did take a turn for the better (from a photographer's perspective), producing some great new products (see above).

Let's revisit this in a year, but I know I wouldn't be investing in Ricoh stock over this one.

I'd give it two years.

 

[robbieduncan]

Can I dare to dream that they'll combine the GXR M-Mount module with a Pentax body to create a low cost (in this market £1000 would be low cost) digit range finder? I love my R-D1 but something smaller and more modern would be nice sometimes.

 

[compuwar]

You abridged my words when quoting me. I was referring to what it means for photographers, not for shareholders. So long as Pentax can keep doing what it has been doing, putting out products like the 645D and the K-5, I think it can remain profitable and stay alive.

To remain profitable, it'd have to be profitable- in 2009, Hoya was shopping for partners with the goal of making Pentax profitable. If the business isn't solvent, then it can't do much for the customers. You can put out all the great products in the world, but if nobody buys them you can't do it for long.

Retail isn't Ricoh's strength- how much stomach are they going to have if they don't have successes? What's the board's level of commitment and how tied in is this overall editing/storage strategy? How does failure in one area affect the others? That's where I'm not seeing the business language that says "This is a full-on deal that's achievable by this company."

And Pentax did take a turn for the better (from a photographer's perspective), producing some great new products (see above).

I'd give it two years.

If they're not gaining market share after one, they may not get much of a run at year two The 645N was a great camera, but it didn't do well in the market- personally, I'd love to see Pentax take Sony out of the market, but so far I don't see an avenue for that- if Samsung or Panasonic had bought them, I'd be a lot more bullish.

I used to do technical due diligence for corporate acquisitions and investments in a past life. This isn't a deal I'd have backed.

Paul

 

[TheReef]

OK, will do. And you can take my crayon out of the box of more optimistic colors.

I don't see what market share has to do with anything (it has never mattered a whole lot for Macs). What I think really matters for photographers is that Pentax continues to put out interesting products like the 645D and the K-5. They don't have to be "king," they just need to be profitable enough to keep providing photographers with a happy alternative to the other brands.

^^This. Imo they are putting out some of the best products on the market, they deserve to do well.
I'm not going to let some marketing jibberjabber sway me from their excellent stuff.

It's an unnecessary attitude that doesn't help Pentax one bit.