October 25, 2018 Canon Marketing Japan Inc. Q&A at Third Quarter 2018 Results Presentation Meeting for Analysts Date and time: October 25, 2018, 10:00-11:00 Venue: Hall S at the head office of Canon Marketing Japan Inc. Answerers: ・ Senior Vice President Yoshiyuki Matsusaka ・ Senior Vice President Masachika Adachi ・ Vice President Shiro Hamada ・ Vice President Kunihiko Kubo ―――――――――――――――――――――――――――――――――――――――― [Q1] Many of the annual plans announced in the interim periods of the Consumers segment have been very conservative, but this time the plan was revised downward significantly in the third quarter. I assume that this is because the outlook differed considerably, but what was it? The increase in sales of mirrorless cameras will make up for the decrease in sales of SLR cameras; around when do you think total sales will start to pick up? [A1] It was because the market remained more challenging than assumed in the interim period. In particular, the markets for profitable middle-class SLR cameras and their associated interchangeable lenses declined more than we expected. Mirrorless cameras remained very firm this year, but they have not yet made up for the drop in sales of SLR cameras. We expect that next year, sales of mirrorless cameras will continue to grow while those of SLR cameras will continue to decrease. As a result, we do not believe that Japan’s overall market for digital interchangeable lens cameras will grow significantly. Despite this outlook, we think it is important to release profitable products according to the plan, including the EOS R that is to be released this time, in order to achieve solid profits. ―――――――――――――――――――――――――――――――――――――――― [Q2] I am well aware that the market was unfavorable, but given this fact, what do you think about the slowdown in the market as a leading manufacturer?
[A2] There is a gap between the plan and the actual with regard to middle-class SLR cameras. There is a shortage of supply in some full-size SLR cameras, but it is true that more cameras are becoming mirrorless than expected. ―――――――――――――――――――――――――――――――――――――――― [Q3] Sales of network cameras have been weak, but do you think you will be able to achieve a V- shaped recovery next year and beyond? [A3] The network camera business centered on camera units will be extremely challenging pricewise due to competition with Chinese manufacturers. In Japan, although there are differences in terms of size, the height monitoring market is greatly anticipated. In this business, we think it is very important to consider on which market we should focus. The smallest example is a set of four cameras with a recorder, but if we focus on this as our mainstay product, the business will have difficulty growing. A number of large-scale buildings are expected to be built before the Tokyo Olympics, mainly in the Tokyo area, and network cameras will be installed in these buildings. In addition, locations where numerous cameras are already installed cannot be controlled centrally, so Milestone Systems’ image platform centered on the Video Management System (VMS) can be installed in these locations. To summarize our future business, the key points will be to (1) accumulate small-scale projects while improving efficiency; (2) install a large number of cameras in large-scale new buildings; and (3) deploy a centralized platform close to SI for cameras that are already installed. Moreover, we will add the software of acquired BriefCam Ltd. and height monitoring software. The current domestic market, which has been centered on hardware, is slowing down, but we are certain that it has potential. Please stay tuned. ―――――――――――――――――――――――――――――――――――――――― [Q4] Prior to the Christmas shopping season, how do you evaluate your inkjet printer business? [A4] Until last year, we were No.1 in terms of the share of unit numbers for the fourth consecutive year, and we are now working to retain the top position for the fifth year in a row. However,
our competitors have extensive line-ups of high-capacity models, and their unit sale prices are higher than ours. We will therefore increase our market share in terms of quantity, raise unit prices, and shift to models with high printing volume in order to maintain profitability. As for home-use inkjet printers, we will increase our market share in terms of both quantity and price. Large-capacity and office-use models are behind schedule, but new products will be released at a later date. With these, we will work to catch up with our competitors. ―――――――――――――――――――――――――――――――――――――――― [Q5] If MFPs are classified into those for large companies and those for SMEs, are there any differences in terms of the situation? In addition, when you announced the second-quarter results, you revised the annual profits in the Area segment downward. I understand that the revisions were made to secure costs for sales growth in order to take customers from your competitors. How well did you do? [A5] In terms of shipments, we struggled in both the Enterprise and Area segments. In the Enterprise segment, shipments declined in reaction to the effects of lots last year, while in the Area segment, shipments decreased in the midst of expanding medium-sized companies, mainly Canon System & Support Inc. Besides, while the market is contracting, we have not attempted to reduce the price in order to increase the number of shipments. This has led to a drop in shipments. However, other companies’ devices have been replaced efficiently, and we have invested funds in them. Small and medium-sized companies are eager to invest in IT to conduct workstyle and operational reforms and to enhance security, but they are unwilling to invest in mere devices. For this reason, we were regrettably unable to achieve results in terms of business products in the Area segment in the third quarter. ―――――――――――――――――――――――――――――――――――――――― [Q6] Sales of network cameras grew by 20% both last year and the year before, and by 5% this year. Do you expect sales to grow more rapidly next year than this year? [A6] Our business models have been focused on camera units so far, and we are working to
change them. A large project on Milestone Systems’ Xprotect is coming up in the height monitoring security market, so in our next year plan, we are certain that we will be able to get the balance of sales, revenue and quantity on a growth track. ―――――――――――――――――――――――――――――――――――――――― [Q7] I would now like to ask about network cameras. In the Japanese market to date, it has been hard for business models to enter the market unless they are general contractors, etc., but is Canon Marketing Japan Inc. breaking the impasse on that, or have your models not changed much? [A7] Multi-store franchise headquarters and large-scale condominiums have a requirement to centralize a large number of cameras. In terms of cameras that are installed in shopping streets, the police have difficulty verifying the images, so they will be mounted on traffic lights and in other locations. This has been happening in the U.S. and Europe, so it is very likely to occur in Japan as well. In addition, closed monitoring systems in existing buildings have shifted to centralized or integrated systems. Milestone Systems’ software will become capable of covering numerous cameras installed around the world and also of analyzing images mechanically, rather than visually through Video Content Analysis (VCA). We consider that the market should go in this direction. Moreover, with advances in wireless technology, there will be the benefit of no need to conduct construction work in existing condominiums. This is just one example, but there have been more of these cases than there were in the past. Moreover, images are becoming crucial at several points when building an intelligent building, for example by interconnecting face recognition technology with the entry and exit of the building. These things are, as I said, very likely to occur in Japan. ―――――――――――――――――――――――――――――――――――――――― [Q8] Will the full-size sensor camera market expand in the future? [A8] We and other companies have entered the full-size sensor camera market, thereby boosting
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