As of September, 2021
Creation of a Prosperous Future
Guided by its corporate philosophy of “Trustworthiness and Creativity,” Nikon has continued to contribute to the development of society and culture by providing a diverse range of products and services based on the core opto-electronics and precision technologies it has fostered over its history spanning more than a century.
In recent years, our operating environment has been undergoing a transformation driven by the rapid pace of technological progress, diversifying customer needs, and emerging social issues. The global COVID-19 pandemic has also had a significant impact on Nikon’s business activities. This backdrop has created the need for us to redefine our business, and this new definition must be formulated with a vision for a prosperous future 10 or 20 years down the line as well as a commitment to fully utilizing our assets to resolve the issues faced by society and customers, without becoming overly conservative in our approach. As part of this redefinition process, the Medium-Term Management Plan announced in May 2019 has positioned the three-year period concluding with the fiscal year ending March 31, 2022, as a period for “Establishing a Foundation for Growth,” and we are advancing various initiatives for solidifying foundations to this end.
Steady Progress in Establishing a Foundation for Growth
Looking back at the second year of the Medium-Term Management Plan, I have no problem saying that we have made steady progress toward our goal of establishing a foundation for growth. One indicator of this progress is our outlook that the newly established Components Business segment will enter the phase of producing profits in the fiscal year ending March 31, 2022. This feat is expected to be achieved as a result of the success of our efforts pertaining to optical components and extreme ultraviolet lithography (EUVL) components. In the Digital Manufacturing area, we have made tangible progress in the Material Processing Business by moving forward with open innovation and customer development, entering into the contract aerospace component manufacturing business, and providing contract material processing services. We look to accelerate growth in these businesses with an eye toward global expansion going forward.
In the Vision Systems/Robotics area, we are developing solutions that capitalize on Nikon’s strengths and technologies with regard to sensors, robots, and smart cameras. As for the Healthcare area, we are growing earnings through sales of products such as biological microscopes and retinal imaging devices while pursuing growth through drug discovery support services, contract cell manufacturing services, and other offerings.
We currently believe that it will be difficult to achieve the target for return on equity (ROE) of 8% or more set for the final year of the Medium-Term Management Plan due to a greater-than-expected downturn in the performance of our existing Imaging Products and Precision Equipment businesses. While the COVID-19 pandemic was certainly a major factor behind this outcome, we cannot deny that management is also culpable due to our inability to effectively absorb the impacts of such external factors. We will continue to pursue this target in the future by accelerating efforts to boost the productivity of all segments and to improve capital efficiency.
The operating environment has been changing at breakneck speed since I took up the mantle of president in 2019. Despite this external change, there has been no change to our policy of strengthening business profitability and developing new growth engines to return to sustainable growth. Accordingly, we will be focusing on creating new pillars of earnings and heightening our long-term profit-generating capability in order to achieve ongoing improvements in corporate value.
Advancement of Imaging Products Business Restructuring and Expansion of BtoB and Other Business Areas
Extensive reforms to the business structures of the Imaging Products Business were implemented through the restructuring measures announced in November 2019. In the fiscal year ended March 31, 2021, we recorded losses in this business, as was also the case in the fiscal year ended March 31, 2020, but we were nonetheless able to achieve our initial target for reducing business costs ahead of schedule. At the same time, we moved ahead with other measures, including the recording of approximately ¥30.0 billion in impairment losses on fixed assets and inventories based on an exhaustive assessment of future risks as well as a reduction in business staff of more than 2,000 people, the consolidation of production operations, and the reorganization of sales companies.
In the fiscal year ending March 31, 2022, we will continue to focus on the market for mid- to high-end products for professionals and hobbyists through means such as launching the new Z 9 full-frame flagship mirrorless camera and expanding our lineup of Nikon Z mount system lenses to nearly 30 offerings. Meanwhile, we will seek to expand our base of younger customers by introducing entry-level models that are more affordable while still featuring improvements to video and other functions and by supplying software that supports expression through imaging.
Although Nikon’s previous focus has been on the sale of hardware, namely cameras and lenses, we understand the customers’ inherent desires are not for these devices, but rather for the inspiration, fun, or solutions they provide. Accordingly, we are broadening our scope to expand into new fields without being bound by prior business styles. Our proactive business-to-business (BtoB) initiatives that utilize imaging technologies are one example of these efforts. Through the steady advancement of such initiatives, we aim to generate profit in the Imaging Products Business in the fiscal year ending March 31, 2022.
Diversification of Revenue Sources to Maximize Business Value in the Precision Equipment Business
Our greatest challenge in the Precision Equipment Business during the fiscal year ended March 31, 2021, was mitigating the travelling restriction risks associated with the COVID-19 pandemic. Measures for countering these risks have included localizing system installation work and utilizing remote training to strengthen overseas operations. In the Semiconductor Lithography Business, our approach was based around transactions with major customers as we sought to develop relationships with other reliable customers in Japan and overseas. Going forward, we will carefully identify risks and opportunities while adjusting our course in response to changes in the operating environment.
At the same time, we are working to develop a multifaceted business portfolio through means such as expanding our service businesses, which include refurbishment and reuse businesses that entail repairing, adjusting, and reusing secondhand semiconductor lithography systems, and utilizing our strength in precision control and high-precision measurement technologies to explore peripheral businesses. In addition, we continued to promote Litho Booster, an alignment station that contributes to customer yield as a system for high-speed, high-precision wafer measurement and correction, in measurement and inspection markets, fields, thereby making progress in creating a new market.
Alongside the Imaging Products Business, the Precision Equipment Business is one of our principal existing businesses driving Groupwide earnings growth. Going forward, we will entrench an emphasis on profitability into the operation of these businesses as we seek to maximize business value by carefully examining customer needs and developing new products and technologies that accurately address these needs.
Monodzukuri Innovations in Material Processing Business
Given the advancing digital transformation trend, we believe that the Material Processing Business in the Digital Manufacturing area is an area where Nikon stands to fully leverage its core value. In the past, it was common for machine components to be produced by shaving down metal objects with a blade or by using a mold. With its Lasermeister series of optical processing machines, Nikon offers a completely new way of processing metal parts; this machine uses Nikon’s sophisticated opto-electronics and precision technologies to process parts with lasers. This method makes it possible, and even easy and affordable, to process metal parts with complex shapes that would be difficult to produce with conventional technologies. Since the launch of the first Lasermeister machine, we have continued to expand our lineup while boosting the performance and functionality of new offerings.
Moving on, in April 2021, we converted Morf3D Inc., a U.S. contract aerospace component processing company, into a subsidiary and thus entered into the business of processing components for small to medium-sized satellites on a contract basis. Later, in May 2021, we concluded a strategic joint development agreement pertaining to riblet processing technologies with bionic surface technologies GmbH, an Austrian company that boasts simulation technologies powered by computational fluid dynamics technologies. Riblet processing is a procedure in which microgroove patterns are etched around structures to help reduce fluid-dynamic drag and thereby increase energy efficiency. Subsidiary Sendai Nikon Corporation will utilize Nikon’s newly developed optical processing machines to supply contract riblet processing services.
We anticipate that the market for the Material Processing Business will continue to grow going forward as a result of rising demand for production automation as well as for mass customization approaches for efficiently accommodating high-mix, low-volume production. To cater to this growing market, we are aligning our initiatives with the concept of Monodzukuri innovations by leveraging our accumulated technologies and engaging in M&A activities and alliances when necessary. Furthermore, we will develop this business from the perspective of providing value to customers as opposed to focusing on a product- oriented perspective. Through this approach, we aim to earn compensation that matches our contributions to resolving the issues faced by customers and society.
Contributions to a Sustainable Society through Accurate Responses to Social Issues
I have positioned three concepts at the core of management at Nikon: innovation, profitability, and sustainability. Among these, sustainability is the wellspring of innovation and is thus crucial to the social meaningfulness of companies. One of Nikon’s sustainability-related solutions is riblet processing, which can be applied to the surfaces of turbine blades or aircraft to reduce fluid-dynamic drag and thereby boost fuel efficiency and lower CO2 emissions. Elsewhere, our operations in the Vision Systems/Robotics area help improve work environments while in the Healthcare area we are supporting drug discovery and pathological diagnoses. Through such business venues, we will drive business growth by accurately addressing social issues. Moreover, we aim to contribute to the sustainable development of society by helping respond to the pressing global issue of climate change by reducing greenhouse gas emissions across the supply chain and supporting society’s carbon neutrality efforts through our business.
In regard to corporate governance, we are making ongoing efforts to improve the effectiveness of the Board of Directors. In April 2021, we undertook an organizational restructuring as one facet of our reinforcement of internal control systems. This restructuring entailed establishing a division to function as a hub for our head office and to promote internal control at overseas bases as well as other measures for strengthening Group governance and control and risk management.
In addition, in April 2021, the Corporate Sustainability Department was reorganized to make it into an organization under the direct supervision of the president, tasked with promoting the Groupwide deployment of sustainability-minded management policies and strategies. We also reviewed our CSR priority issues based on changes in society and in the operating environment. These issues indicate matters needing to be prioritized in our efforts to develop our business while fulfilling our social responsibilities. In this manner, we are increasing the number of opportunities available for employees to think about social issues and sustainability in their daily work and tying this thought to action.
Evolution of Brand with the Times to Increase Value
Since its establishment in 1917, Nikon has proceeded to build a globally recognized brand by continuing to unleash the limitless possibilities of light to create new value. However, we cannot deny that the Nikon brand has fallen into a long slump recently. Seeking to reconstruct the Nikon brand, our brand strategy team, which primarily acts out of the Design Center under the direct supervision of the president, has launched a project for improving and utilizing brand value through the lens of design.
For example, we have produced a short movie entitled “Manufacturing Makes It Happen” to communicate to external stakeholders the growth strategies that give form to our vision through activities in our areas of long-term growth. This movie can be viewed on our website. In-house, we have established a branding intranet site. This site features interviews with officers and video content designed to invigorate internal communication and heighten engagement between employees and the Company.
Up until now, we have prioritized the preservation of our brand, taking a fairly conservative stance that prompted us to focus primarily on existing business areas. However, I have since realized that our brand is not merely an amalgamation of our history, it is also something living that we must evolve together with the times and in line with social expectations in order to continue heightening its value. Today, Nikon is pressed to improve its reliability and fully exercise its creativity, backed by sophisticated technologies, in an earnest attempt to address the issues and needs of society and customers. Accordingly, we are turning our attention to the true desires of customers in all of our businesses in our ongoing quest to develop ideal solutions and provide valuable products and services.
Building a New Nikon That will Unlock the Future
The fiscal year ended March 31, 2021, was a year of trials that continued on from the fiscal year ended March 31, 2020; however, I feel confident that we are in the midst of an upturn in performance, due in part to our progress in areas of long-term growth and in reforming existing businesses. This trend has led to our decision to increase dividends for this fiscal year. Looking ahead, our focus will remain as securing profits in all existing businesses while creating new businesses in growth areas as we adapt to the changing operating environment.
Before becoming president, I was in the position of overseeing Companywide technological initiatives as the chairman of the Technology Strategy Committee. This position allowed me to reaffirm the fact that the Nikon Group possesses a treasure trove of technologies with the potential to become future foundations for business. With these technologies, there are many opportunities that Nikon can take advantage of to help resolve social issues by supplying value to society. Examples of these opportunities include the fundamental transformation of manufacturing frameworks driven by the so-called Fourth Industrial Revolution and the advent of a new normal in response to the COVID-19 pandemic.
Our vision of “Unlock the future with the power of light” is symbolic of the Nikon Group’s dedication to unlocking a brighter future by addressing social issues. In closing, for our stakeholders, let me stress our commitment to building a new Nikon that unlocks the future and to realizing long-term improvements in corporate value. We hope you will look forward to Nikon’s various new initiatives for shaping the future.