Olympus was once the major leaders of the photographic industry, with the OM series revered for its svelte lines and high-quality manufacturing. Revitalized by mirrorless in the modern age through its partnership with Panasonic, their OM-D collection is iconic. So, why were they bought by the private equity firm Japan Industrial Partners — experts in restructuring — and what holds for their future?
Olympus has been a corporation since 1919, but its Imaging business started in 1936 with the selling of a camera using the Zuiko photographic lens. The groundbreaking Pen camera series was introduced in 1959, and the Olympus brand became a household name synonymous with digital cameras. However, smartphones have happened and Olympus has not been immune to the tightening on the camera manufacturers.
Like for a range of camera firms, it was in the 1980s that it started to crumble. Up to this level, the manufacturers have always been optical firms, which had developed into the manufacturing of lenses and then into the precision engineering of camera bodies. But the 1970s saw the integration of electronic operation: the ones that embraced it thrived, and this is no better exemplified than the integration of autofocus. Minolta was at the forefront of this revolution (and formed the basis for Sony’s current imaging division) with the 7000AF; Olympus’ lackluster response was the 1986 OM-707, which was a commercial disaster and subsequently dropped. The 1990s was therefore a decade they would probably rather forget about in terms of SLR development.
Olympus’ success from 1990 to 2010 was largely based on the bridge camera, the first film, and subsequently the digital camera. Its Stylus and Camedia ranges were at the forefront of resolution wars, persuading consumers to buy cameras in their batches. It was a golden age in the development of cameras, as sales increased year by year, for many who made successful products and were willing to produce them in quantity reaping the benefits. That said, it is hard not to make money in a rising market.
With high sales, if you have a product, someone would purchase it, and for Olympus, that means they might minimize profits by reviving their SLR line, which they did in the form of E-1 in the defining year of 2003. Partnering with Kodak, they designed a four-thirds DSLR built from the ground up, which was probably counter-intuitive at a period when Nikon and Canon were upgrading their 35 mm systems. It was innovative, incorporating the first ever sensor dust removal system, but not quite competitive with the leading brands.
It’s perhaps odd to think that it was in 2003 that Olympus nailed their future strategy to the mast, one that they haven’t seen since: consumer bridge / compact cameras and Four-Third DSLRs. This business direction was taken as a result of their failure to develop a winning AF solution for the original OM back in the 1980s.
With no SLR line to produce in significant numbers in the 1990s, they found a winning formula in producing the Stylus and Camedia lines. These were hardly high-brow cameras, but the strategy of pile it high and sell it cheap (and not so cheap models targeted higher up) was successful and largely created the bridge camera market.
However, they needed an ILC alternative, something to place on the top tier, and this is where the E-1 came in. Developing Four-Thirds was a fascinating move and genuinely different at the time. It wasn’t unsuccessful, but it wasn’t the direction the market took either; however, they innovated over the lifespan of the system, including the introduction of IBIS and live view. In fact, it was during this “golden period” that Olympus introduced many of the features we now take for granted with mirrorless, as well as expanding its long-term sensor partnership with Panasonic. However, two bombshells caused this turn around to stutter.
The first of these was the infamous accounting scandal that rocked Olympus and the Japanese industry more widely. This involved the discovery of more than $1.5B of investment losses, kickbacks, and bribes, wiping out three-quarters of the company’s valuation in the process. This dated back as far as the 1980s, with ~$600M of bribes from $7B of sales in the US alone between 2006 and 2011 resulting in a ~$650M fine. This was bad enough for the company, but also coincided with the collapse of the digital camera market. Olympus didn’t know it, but by 2013, industry sales would halve in size and lead to year-on-year losses culminating in a $157M loss in 2019.
The cash cow, which was compact cameras, died easily, leaving Olympus with an outstanding (but small) MFT system. The initial plan of the 2003 Compact / Four Thirds was especially weak. Drawing an comparison, Nikon was faced with a similar problem with the small demand for compact cameras and the increasing sidelines of DSLRs. The winning strategy was APS-C/FF mirrorless, one that Sony has leveraged to great effect. For Olympus, the blind adherence to MFT has continually pushed it into a corner, where the benefits of sensor size (cost, system size, and reach) have increasingly become less important to consumers and not valued by pros. The release of the E-M1X only made that more perplexing.
Olympus isn’t a small company, employing over 35,000 people and generating a turnover of more than $7.5B. However, while it has championed the Four Thirds sector, it is its medical instruments (endoscopes) and science divisions that regularly post the strongest earnings: imaging accounts for just 6% of sales. It’s clearly the combination of division losses and a bleak outlook that has ultimately led it to the decision to jettison the group.
Olympus requires a leaner and more flexible division to succeed in the camera market. Whether that is enough remains to be seen; however, Japan’s Industrial Partners (JIP) strongly believe that — at the right price — it is worth buying. JIP are private equity firms specialized in spinning out non-viable divisions of big corporations to form viable medium-sized businesses that can then be sold on.Their most notable acquisition is Sony’s Vaio laptop brand, which has successfully maintained core sales (with Sony maintaining a 10% stake) since they purchased it. This broadly looks positive.
With Panasonic shifting its strategy to both MFT and FF, Olympus’ sole focus on MFT seems unsustainable in the long run. They don’t have the ability of Sony, Nikon, or Canon to quickly rotate their R&D, increasing production to meet these needs. Given how grim the camera market is now, what will the resurrected Olympus do? It can’t be the status quo, whatever it is.
There is, of course, another possibility to consider here: the Olympus Imaging Division is not worth purchasing and that the JIP is simply a tool for coping with the transfer of “liabilities,” and is not subject to any job legislation. In short, they ‘re going to be paid to take part in the competition. What they do then remains to be seen. If the focus is solely on the bottom line, then the business will be about stripping assets (principally the patent portfolio) and licensing brands. It sounds as though Olympus will be just fine and probably relieved not to have to worry about selling cameras anymore.
Check out my related post: How did Kodak fall?