By Sophie Knight and Reiji Murai
TOKYO (Reuters) - Nosy governments and nervous homeowners, among other drivers of the surveillance society, may soon upstage amateur photographers as the focus for big camera makers such as Canon Inc <7751.T> who spot growing opportunities in the security market.
Canon, the industry leader, has been hit with a sudden downturn in shipments of its top-end digital cameras, an increasingly saturated market sensitive to the recent slowdown in emerging economies and with a receding pace of innovation.
Add to that a compact camera market that has been battered by smartphones with increasingly high-resolution cameras, and companies like Canon have been left scrambling for new markets.
"A major focus for the next phase is increasing our business-to-business (B2B) sales, and of course security cameras - which is a huge market - is part of that," Canon President and CEO Fujio Mitarai said in an interview.
Canon is looking beyond digital cameras - the last consumer gadget industry still dominated by Japan Inc - and targeting industrial and corporate clients, much like Japanese peers such as Panasonic Corp <6752.T> which fell prey to foreign competition in TVs and other consumer electronics.
Canon sees surveillance cameras, which research firm IHS forecasts will swell by two-thirds to a global market of $23 billion by 2017, as a wide-open playing field with no dominant suppliers and an ideal target for its B2B ambitions.
The company, which counts the U.S. Secret Service as a customer, aims to reach annual sales from the sector of about $1 billion during its next five-year plan from 2016, Mitarai said.
Panasonic said its security camera division posted sales of 13.4 billion yen ($136 million) in the latest quarter and it was aiming for annual growth of 15 percent. Sony Corp <6758.T> said it was also aiming to leverage its image sensor technology to become a major player in the sector.
B2B, OR NOT TO BE?
The market is booming as concerns mount over crime and security, even as headlines stir worries about covert governmental and corporate surveillance operations.
Japan is the third-biggest market for security cameras behind China and the United States, with the switch to networked digital systems from analogue CCTV devices stimulating demand even in saturated markets such as Britain, which had one surveillance camera for every 16 people in 2012, according to IHS.
"The market is growing quite quickly, and is forecast to grow the most in Asia," said Jon Cropley, principal analyst for video surveillance at IHS. "But it's a highly fragmented and competitive market with lots of companies involved. Coming up with a unique selling point can be difficult."
Canon says its lens and sensor technology will position it well to shoot to the top of the sector, which is packed with smaller firms but few major players besides Sweden's Axis AB
It faced a similar challenge when it targeted the then-fledgling digital camera market more than a decade ago: a fast-growing, fragmented market that was just beginning to mature, when it marched in with a broad product line and proceeded to dominate it. Canon claimed more than a fifth of the total digital camera market in 2012, and 43 percent of the high-end market for interchangeable-lens cameras.
But this year their reliable high-end camera business has turned unexpectedly sour, with analysts reversing a double-digit growth forecast to a double-digit decline.
Worldwide shipments of Canon's interchangeable-lens cameras fell 6.7 percent in the first six months of this year, a sharper decline than the industry average of 5 percent, according to International Data Corp (IDC).
"It appears over the past nine months the interchangeable market has entered a new phase of maturity," said Chris Chute, research director of digital imaging at IDC, which last week reversed its forecast for the market of an 11.9 percent increase to an 11.3 percent drop.
"A strategy that camera companies have to take is to diversify away from one of their traditional reliably profitable markets," Chute said. "If anything, I see Canon being one of the leaders moving away from the consumer sector."
Mitarai, who returned to the helm last year to help turn around a slide in profit, says he is already steering the company in that direction in the hope of reducing its dependence on the consumer market for 70 percent of its sales.
He also said the company is constantly on the lookout to spend some of its 700 billion yen ($7.1 billion) cash pile on an M&A deal to achieve that - whether in security cameras or in another of the cutting-edge technologies it is exploring.
"Security cameras are going to become an important pillar for us," Mitarai said. "We've already made it a separate division, and think that the global market has limitless possibilities for growth."
(Corrects data source in paragraph 15)
($1 = 98.6050 Japanese yen)
(Editing by Edmund Klamann and Ian Geoghegan)