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Mark Peters : May 17th 2005 - 21:55 CET

Olympus shares fell after news about cutting jobs

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OlympusOlympus shares fell after news about eliminating jobs : Shares of Olympus Corp. fell 2.3 percent on Wednesday as investors doubted plant closures and job cuts would put its loss-making digital camera business back on track. Olympus unveiled plans on Tuesday to eliminate 4,000 jobs in its camera division and consolidate domestic production into one factory as part of a major overhaul aimed at saving 13 billion yen ($123.2 million) in costs in the business year to March. But investors were not impressed, pushing the firm's already slumping stock price down another 2.29 percent on Wednesday to 2,130 yen, near a 2005 low of 2,080 yen and underperforming the benchmark Nikkei average's 0.35 percent decline.
Olympus shares fell after news about cutting jobsOlympus - Aggressive measuers
Analysts said Olympus would have to come up with more aggressive measures to ensure a long-term recovery at its imaging division, which lost 24 billion yen on an operating basis in the year ended on March 31, hit by sliding digital camera prices. Olympus is the world's fourth-largest digital camera firm after Canon, Sony and Eastman Kodak , but is considered one of the industry's weaker players because of inefficient production and a relatively weak brand.

Olympus - Digital camera business requires restructuring
"What the digital camera business requires is not steps aimed at making it more profitable in the near term, but a much more thorough restructuring that includes consideration of whether the business is still viable," Deutsche Securities analyst Yoshikazu Higurashi said in a note to clients. Higurashi cut his rating on the stock to "hold" from "buy" and lowered his target price to 2,250 yen from 2,570 yen.

Olympus cuts the workforce by 30%
To help restore profitability, the company said it would cut the workforce of its imaging division by 30 percent to 10,000 by March. Mainly composed of digital cameras, the division accounts for about one-third of consolidated revenues of 814 billion yen. As a group, Olympus employs about 32,000 people worldwide. But most of the job losses will be at two camera factories in China, where wages are relatively low. The company is targeting headcount savings of 3 billion yen in this financial year, meaning each job cut will reduce costs by only 750,000 yen. "I don't think we can really call this bold reform," said JP Morgan analyst Hisashi Moriyama, who rates Olympus "underweight".

Olympus first loss since 1978
On Monday, Olympus posted a net loss of 11.83 billion yen ($112.1 million) for the year ended March 31 as it was forced to dispose of digital camera inventory at a heavy loss. It was the first loss since it began reporting consolidated results in 1978. At a briefing on Tuesday, Olympus President Tsuyoshi Kikukawa blamed the company's failure to launch popular cameras in a timely fashion, such as the ultra-thin models with large liquid crystal displays that have been especially popular in Japan. As a result, the company has been unable to distinguish its products and has suffered from sharp price falls. Olympus estimates the average price of its digital camera fell 18 percent last business year, roughly double the industry-wide average.

Olympus strengthening its position in the SLR market
Kikukawa said the company would bolster its line-up of high-priced compact cameras while strengthening its position in the fast-growing market for digital single lens-reflex (SLR) cameras, high-end models which use interchangeable lenses. Kikukawa said Olympus would hold a briefing in the next few months to offer a longer-term vision for the camera division, and analysts say future stock performance depends on whether it comes up with more drastic steps such as tying-up with another maker.

Olympus plans to shutter its Ohmachi and Sakaki plants
Olympus also unveiled plans to shutter its Ohmachi and Sakaki plants and consolidate the entire production process from component to assembly at its Tatsuno factory by March. All three factories are located in Nagano prefecture, central Japan. The Ohmachi and Sakaki factories, which mainly produce lenses and other parts, have a combined work force of about 220. Most of those employees will be transferred to the Tatsuno headquarters but some are expected to accept early retirement packages.

Olympus plans to shutter its Ohmachi and Sakaki plants
Olympus and Matsushita Electric Industrial Co. grabbed headlines in January by announcing an alliance to jointly develop technologies and devices for digital SLR cameras, and there has been speculation this tie-up would extend to compacts. Kikukawa has not ruled out that possibility, but some analysts say it is unlikely that Matsushita, which has recently made great strides on its own in the digital camera market, would want to expose itself to that kind of risk. Either way, steering the digital camera operations back to health has become a top priority for Olympus management, especially since it faces growing competition in its traditional stronghold of medical endoscopes, a cash cow for the firm.

Olympus top maker of flexible endoscopes
Olympus is the world's top maker of flexible endoscopes, tubes equipped with tiny cameras used to inspect the intestinal system, with a market share of about 70 percent. Fuji Photo Film Co. and Pentax Corp. are its main rivals. "The camera business is consuming cash generated by its endoscopes operations. The company needs to change that trend," Moriyama said.

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