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Nikon stays optimistic amid losses

Posted: 25 Jun 2010 ?? ?Print Version ?Bookmark and Share

Keywords:Nikon rehab plan? lithography? extreme ultraviolet? fab tool?

Camera and fab tool maker Nikon Corp. has lost share in the lithography market amid losses, but it has gained ground in the LCD stepper front. The company's other main businesscamerasis also under pressure from a new wave of SLR products.

"Nikon's current outlook for profits in the total stepper division is 3 billion yen ($33.4 million), which is bolstered by the profitable LCD stepper (line), but dragged down by IC steppers, which are still in the red for most of this year in our projections," said David Rubenstein, an analyst with Global FXA Securities Ltd, in a report. "If Nikon is able to gain market share in IC steppers, profit recovery could be significant next year."

In lithography, Nikon is losing share and has struggled to keep up with rival ASML Holding NV. As previously reported, ASML and Nikon will share the 22nm lithography business at Intel Corp. At 32nm, Nikon was the sole leading-edge lithography vendor at Intel. Intel is Nikon's largest customer.

Nikon is continuing to conduct basic research into extreme ultraviolet (EUV) lithography but is falling behind its rival ASML, according to an analyst's note from Nomura.

Nikon's fab tool business saw its net sales drop by 31.7 percent from the previous fiscal year to 150.1 billion yen ($1.6 billion). The unit also incurred an operating loss of 58.6 billion yen ($632.2 million) for the year, compared with operating income of 8 billion yen ($86 million) in the previous fiscal year.

Amid losses for the group, Nikon recently named Makoto Kimura as president. He assumed that title from Michio Kariya, president, chief operating officer and CEO, who became chairman. Kimura, who had been executive VP and president of Nikon's imaging company, is supposed to jumpstart the company's growth, according to reports.

This week, Nikon formulated a three-year medium term management plan that will run from fiscal 2011 to 2013. One of the goals is to bring the fab tool business back in the black. The fab tool unit is projected to see sales of 280 billion yen ($3.1 billion) and an operating profit of 28 billion yen ($311 million) in the current fiscal year.

"Nikon's shares have fallen 15 percent and underperformed the market by 10 percent since we downgraded our 'Buy' recommendation to 'Neutral' on May 12," said Rubenstein in the report. "After an update from the company, we gather that almost all major products are doing better than expected this quarter. We believe that there are two major positive catalysts on the near-term horizon for Nikon."

Now, the analyst has upgraded his recommendation to "Buy" from "Neutral."

Improved outlook
The problem is the lithography sector. Nikon has strong technology, but ASML has beaten the company to the punch. ASML has basically won the business at the foundries, memory houses, and, now, Intel.

The trends are alarming for the supply chain. The leading-edge lithography business needs two strong vendors in ASML and Nikon. The third lithography supplierCanonis out of the leading-edge game. Two players keep the market somewhat honest.

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