Net profit remained at the same level as the last fiscal year mainly due to the sale of investment securities during the third quarter. 1
In SG&A expenses, personnel expenses decreased following a fall in performance-linked bonuses. 2
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Canon BizAttenda Inc., a Canon Marketing Japan Group company, which had been included in the "Enterprise segment until the second quarter of FY2018, has been transferred to a new organization established in July in the head office management division for the purpose of strengthening the BPO business. As a result, the January-to-June net sales of the Enterprise segment announced in the second quarter have been revised from 94.7 billion yen to 93.3 billion yen and sales of the Other segment have been revised from 13.5 billion yen to 12.2 billion yen. The impact of this change on operating income is negligible. 5
<Digital SLR Cameras> The number of units sold fell 26% year on year due primarily to a decrease in the market size and a general shift to mirrorless cameras. <Mirrorless Cameras> The number of units sold grew by 94% year on year thanks to exceptionally strong sales led by, for instance, EOS Kiss M, the first mirrorless camera in the EOS Kiss series, which gained the largest market share. <Digital Interchangeable Lens Cameras> As a result, the total number of digital interchangeable lens cameras decreased 7%. <Compact Digital Cameras> The number of units sold increased 19% year on year thanks to the growth of our market share while competing manufacturers lost share. <Inkjet Printers> The number of inkjet printers shipped rose 3% thanks to strong sales, particularly of new models of business inkjet printers released in September. Sales of inkjet cartridges declined 14% year on year due to a reactionary fall from the last-minute surge in demand before the price increase in the same period of the previous year. <IT Products> Among IT products, sales of peripherals such as gaming PCs and mobile batteries were strong and segment net sales significantly increased. 6
Operating income for the third quarter was 1.9 billion yen, an increase of 40 million yen year on year, as a result of efforts such as a reduction in SG&A expenses, which offset a decrease in gross profit caused primarily by low gross profit from the sale of laser printers to financial institutions and a temporary unprofitable project of CITS. <Financial> The segment sales decreased due to the temporary off-season of projects after the completion of large SI projects for financial institutions, despite having received contracts for a BPO project from a bank and multiple large laser printer projects from insurance companies. <Manufacturing> Sales grew thanks to orders such as a large office development project for a chemical manufacturer and a production management system project for an electrical machinery manufacturer. <Distribution> Sales rose based on projects such as a document management system for an airline company. <Other> While sales in the Education sector declined due to a temporary decrease in projects, total segment sales remained strong thanks particularly to a migration project at Kyoto City Hall, a large infrastructure project for a general incorporated foundation, and a significant increase in sales of business PCs and other IT products. <Major Business Equipment> Shipments of business equipment in the Enterprise segment decreased as a result of a reactionary fall from a large MFP project in the previous year. Sales of maintenance services dropped due to a unit price reduction. The number of laser printers sold grew considerably, mainly as a result of multiple large projects. Sales of cartridges have been growing, particularly among existing users. (Subsidiaries and associates) [Standalone Performance of Canon IT Solutions] Sales of SI services increased 7% year on year thanks to steady sales to manufacturers and public bodies despite a decrease in projects for financial institutions for being in an off-season. In IT infrastructure services, sales of data center services and security products such as ESET remained strong and large infrastructure projects contributed to a 16% year-on-year increase in sales. Sales in Engineering rose 2% year on year thanks to external sales of embedded software and CAD license sales that continued to grow. As a result, we recorded sales of 22.7 billion yen, an 8% increase from the previous year, and 1.5 billion yen in operating income, which is growth of 0.1 billion yen. [Orders and Order Backlog] Orders received declined 16% and the order backlog decreased 1% due to full occupation at Nishi-Tokyo Data Center, which had significantly grew in the previous year. When the effect of the data center is excluded, the volume of orders received was mostly the same as the previous year and the order backlog has increased. 7
<Business Equipment> Shipments of office MFP units declined primarily due to a decrease in shipments for small-sized businesses. Sales of maintenance services fell due to a drop in the unit price. The number of laser printers shipped remained at the level of the previous year thanks to efforts such as proposals in line with the replacement of business PCs. Sales of cartridges rose as a result of a last-minute surge in demand before the price increase in September and steady shipments to specific industries. <IT Solutions> Sales of IT products substantially grew thanks to demand of small-to-medium-sized businesses for business PC replacement that remained high particularly at Canon System & Support. In addition to IT services, including PC setups and troubleshooting of networks and devices, proposals for software applications for basic systems and operations systems contributed to the strong sales. In response to the growing demand for Microsoft Office 365 in the market, sales of the HOME IT support service for small-to-medium-sized businesses rose sharply. As a result, sales of IT solutions in this segment increased. (Subsidiaries and associates) [Canon Systems and Support] Sales decreased 2% year on year, to 28.5 billion yen, due to low sales of business equipment despite the strong results of the IT Solution business. Meanwhile, operating income rose 0.3 billion yen year on year, to 0.9 billion yen, thanks to reduced SG&A expenses and other efforts. 8
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As I explained earlier, both the Enterprise and the Area segments have been performing well. Sales of ESET continued to grow and contributed to a 1% increase in sales of the Security segment. We will improve the Group network in the Security business and seek larger growth while expanding the product lines we offer. 11
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The increase in sales and income in the BtoB business could not offset the fall in the BtoC business, and as a whole, we expect a decrease in sales and income. 14
[Consumer] In the fourth quarter, we will actively seek to boost the sales of mirrorless cameras with a focus on EOS R. On a full-year basis, while we were expecting a year-on-year increase of 65% in the number of units sold, we will change it to 55%, taking into account the progress during the first three quarters. We were expecting the number of digital SLR cameras sold to decrease 32% year on year; however, we will change it to 34% due to the sluggishness of the market that continues longer than we projected. We expect the sales of compact cameras to grow 10% year on year in the fourth quarter based on a further increase in market share. The full-year forecast for the number of units sold, however, will be reduced from a year-on-year decrease of 4% to 7% based on the progress during the first three quarters. While we expect an increase in business inkjet printers, sales of home-use inkjet printers are likely to decline due to the sluggish market, and we expect that the total number of inkjet printers shipped will decrease 5% year on year. Sales of inkjet cartridges fell during the fourth quarter of last year due to the price increase in October. This year, we expect a 1% year-on-year increase as a reactionary rise. We will reduce the full-year forecast from a year-on-year decrease of 3% to 5% in view of the third-quarter sales that are below the forecast. Based on the above, despite an expected decrease in sales, we anticipate an increase in operating income for the fourth quarter due to growth in gross profit as a result of increased sales of highly profitable products of mirrorless cameras such as EOS R and the reduction in SG&A expenses. [Enterprise] We forecast that fourth-quarter sales of the Enterprise segment will be 45.9 billion yen, a year-onyear decrease of 1% mostly due to a reactionary fall from a large infrastructure project for an educational institution and a large office MFP project in the same period of the previous year, despite the scheduled increase in the solution business particularly for manufacturers. We have forecast that operating income will be 1.7 billion yen, a year-on-year decline of 0.5 billion yen, due to a large, lowprofitability laser printer project that continues from the third quarter and an expected decrease in gross profit due to a temporary fall in sales of cartridges and other factors. We have not changed the full-year forecast from the one previously announced. 15
[Area] In the Area segment during the fourth quarter, IT solution business, including security, support services for the introduction of various IT products, and the operation and maintenance of such IT products, will continue to increase and shipments of main business equipment will also grow. However, sales are expected to decline slightly year on year, to 64.2 billion yen, mainly given the declining sales of maintenance services and the decrease in reaction to a last-minute increase in demand for laser printer cartridges during the third quarter. We expect a fall of 0.9 billion yen in operating income, to 2.6 billion yen, primarily due to a decline in sales of businesses with high gross profit ratios such as maintenance services and laser printer cartridges and an increase in expenses associated with the sales promotion for office MFPs. We expect that full-year net sales will be 255.0 billion yen due to a downward revision of 1.5 billion yen from the previous forecast based on the downturn during the third quarter and forecasts for the fourth quarter. We have not changed the forecast for operating income. [Professional] The Professional segment is expected to achieve an increase in sales and income during the fourth quarter, reflecting steady performances attributable to a shift of business negotiations to the fourth quarter in the healthcare business and planned major projects of 4K displays in the visual solutions business. With progress in healthcare slower than expected, we forecast that full-year net sales will be 54.4 billion yen, or almost unchanged from the previous year, reflecting a downward revision of 1.1 billion yen from the previous plan. Operating income, which will be revised downward by 0.1 billion yen from the previous plan for the same reason, is expected to fall 1.3 billion yen, or an improvement of 0.6 billion yen from a year ago, due to income growth in the industrial equipment segment during the first half of the fiscal year. 16
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