November 04, 2003

The Fight Ahead For Fuji

The first-half results that Fuji Photo Film announced--net profits were up 22% on flat sales--belie some of the big challenges that the Japanese giant has ahead of it.

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Photography
The Fight Ahead For Fuji
Penelope Patsuris, 10.31.03, 1:50 PM ET

NEW YORK - The first-half results that Fuji Photo Film announced this morning--net profits were up 22% on flat sales--belie some of the big challenges that the Japanese giant has ahead of it.

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Specifically, Fuji (nasdaq: FUJIY - news - people ) ranks fourth behind Canon (nyse: CAJ - news - people ), Sony (nyse: SNE - news - people ) and Olympus in the sales of the digital cameras that are reshaping the photography industry, where Fuji ranks second in the dwindling film market, behind beleaguered Eastman Kodak (nyse: EK - news - people ). Also a threat: Hewlett Packard's (nyse: HPQ - news - people ) recent introduction of its own digital cameras.

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Fuji doesn't break out its film and hardware businesses, which are both included under its Imaging division. That group's sales accounted for about one-third of the company's first-half sales of 1.26 trillion yen. But as the film business that analysts believe dominates the company's sales continues to fade, camera sales will become a more crucial element for Fuji.

"Their biggest problem [with camera sales] is a lack of brand awareness, especially here in the U.S.," says Infotrends analyst Michelle Slaughter, who adds that Fuji has as complete a line of digital cameras as its competitors. But the company is working to improve that image by pushing its presence in the nascent retail digital photofinishing market, which may in turn help raise the visibility of its digital cameras.

One of the biggest hurdles between average consumers and digital photography is that they don't understand how to get the photos out of these cameras and are intimidated at the thought of having to do it themselves, according to a recent report by Future Image analyst Paul Worthington. Fuji hopes that by keeping a high profile in the efforts to ease that process, it will boost its appeal as a camera manufacturer.

"Fuji has led the push to get retailers to upgrade their labs in order to process digital prints," says Kerry Flatley, Infotrends' printing analyst. She estimates that Fuji has 46% of the installed base of digital minilabs, which are the machines behind the photo department counter that print digital photos. Fuji is second behind Kodak in the self-service kiosks that let users get their prints instantly.

Fuji's coups in the digital developing realm include getting its technology into Wal-Mart (nyse: WMT - news - people ), which has 4,700 locations, as well as behind the counter at Walgreens (nyse: WAG - news - people ) and Ritz Camera stores.

Fuji is also in the vanguard with hybrid online and offline photofinishing services that let consumers upload their photos via PC and pick them up at a local retail shop. Users can submit photos to its Web site, DigitalCameraDevloping.com, and then choose the store nearest to them to pick them up.

To be sure, Fuji's success in the printing realm is by no means guaranteed to translate into camera sales.

"The question is, What drives demand for a brand of digital cameras?" says IDC analyst Angele Boyd, "and there aren't always the logical connections that you'd expect. The halo effect won't be as strong as you would think, but it certainly can help."

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Posted by Craig at November 4, 2003 02:49 PM