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Executives

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

Analysts

Caroline Sabbagha - Lehman Brothers

Benjamin Lu - Seligman

Matthew Troy - Citigroup

Shannon Cross - Cross Research

Canon, Inc. (CAJ) Q1 FY08 Earnings Call April 24, 2008 8:30 AM ET

Operator

Welcome to the Canon's Fiscal Year 2008 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. Today's call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to Mr. Osawa. Sir, you may begin.

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

Hello, everyone and welcome to Canon's conference call. My name is Masahiro Osawa. I am in-charge of Finance and Accounting.

Please note that all financial comparisons made during my presentation will be on a year-on-year basis, unless otherwise stated.

Please refer to slide two. This slide outlines today's agenda.

Please turn to slide three. I will now summarize our first quarter performance. During the quarter, we faced rapid and substantial appreciation of the yen and economic environment that was more challenging than we had originally expected as well. Higher depreciation charges due to a change in the depreciation method. As a result, we posted net sales and profit that were lower than the strong prior year period. Despite this, we maintained high level of profitability and on local currency basis, achieved an increase in sales verifying the underlying strengths of our business.

Please refer to slide four. Despite continued strong sales of printers and digital cameras, first quarter net sales decreased 3.1%, due to the significant impact of the strong yen and the economic environment that was more challenging than originally expected.

As for first quarter profit, which also reflect higher depreciation charges, resulting from a change in depreciation method, despite the 6.3% decline in gross profit, we secured our high gross profit ratio of nearly 50% by increasing the sales of higher profitability products and strong [ph] progress in cost reduction efforts.

Operating profit and the net income decreased 17.6% and 18.7% respectively, reflecting increased R&D spending towards the development of new business domain and the impact of the change in depreciation method.

In terms of profitability, operating profit and the net income as a percentage of net sales was 17% and 10.6% respectively, which is basically inline with the high profit ratios we achieved for the full year last year.

Please turn to slide five. I will now explain the factors that impacted first quarter net sales and operating profit in more detail. Compared with the same period last year, the yen's significant appreciation against the U.S. dollar had a major impact on both net sales and operating profit. The effect of the change in depreciation method on operating profit was a reduction of ¥17 billion. As for changes in sales volume, although improven by trading [ph] business confidence, the overall impact was positive on both net sales and operating profit as we expand unit sales of printers and digital cameras.

And for the other category, the negative figures under net sales reflects the unbearable [ph] price decline mainly for copying machines and digital cameras, due to aggressive pricing by competitors. As for operating profit categorized as others, although price decline was a negative factor, we were able to limit the impact through efforts aimed at reducing cost and expenses.

Please turn to slide six. I will now discuss our first quarter results by product group, starting with Business Machines. First quarter net sales of Business Machines decreased 3.3%, reflecting the yen's appreciation. In local currency terms, however, net sales increased about 3%. Some strong sales of printers offset sluggish sales of copying machine in North America [ph].

As for operating profit, although the yen's appreciation and the impact from the changing depreciation method was significant, strong sales of printer consumables continued or contributed to profit growth, enabling us to limit the decrease in profit to 7.6%.

Please refer to slide seven. I will now discuss Business Machines by product, starting with Office Imaging Products. First quarter, net sales of Office Imaging Products decreased 5.9%, mainly due to a weaker than expected U.S. market and yen's appreciation. As for monochrome copying machine, unit sales declined 1%, reflecting market shrink in Japan, significant drop in the Americas due to focus on color and expanded sales in Europe and Asia. Net sales however, declined 14%. As for color copying machines, unit sales increased 19% as well had a large order placed by a Japanese convenience stores [ph] have maintained stronger sales in [indiscernible]. Net sales, however, decreased 3.7% mainly due to the U.S. economic disturbance.

And for the other category, net sales increased 9.4%, due to steady growth in solution-related sales and inclusion of Argo 21 to the Canon Group.

Please turn to slide eight. Next, I will discuss Computer Peripherals, starting with laser beam printers. For the quarter, we posted unit sales basically inline with our projection, as demand for laser beam printers remained strong. And the unit sales were high during the first quarter of last year because our OEM partner decided to significantly accelerate purchasing. First quarter unit sales this year dropped by [indiscernible]. Despite the lower unit sales, however, we achieved positive net sales growth on a local currency basis, exceeding the high level of net sales that we achieved in the first quarter of last year. This reflects an improved product mix and significant growth in consumable sales. Due to the yen's appreciation however, net sales decreased 3%.

Next I will discuss inkjet printers. During the quarter, we strived to expand sales of our broad line-up of inkjet printers, achieving 9% growth in unit sales amid a mature market. This represents a good first step towards our three year target of 8% in sales growth. For the quarter, we achieved net sales growth of 6.1%, which translates to double-digit growth in local currency terms. This represents a significant contribution from the steady growth in sales of consumables. As a result, despite significant impact from the strong wins, net sales were basically inline with the year ago period.

Please refer to slide nine. Next I will discuss Cameras. First quarter, net sales of Cameras decreased 1.6%, but grew about 5% in local currency terms. Although we steadily expanded unit sales of compact digital cameras and maintained strong sales of digital SLR cameras and interchangeable lenses, decisions made by some competitors to lower prices on mainly compact models to reduce inventory had significant impact on us from a price perspective, but we were selling mainly models we launched last year.

As for operating profit, in addition to adjusting prices on existing models in response to price cutting by competitors, reducing the inventory, the yen's appreciation and the change in depreciation method had a combined 4 point impact on our operating profit ratio. As a result, operating profits declined 24.5%. At the end of the first quarter, inventory reduction efforts by competitors seems to be winding down. We believe that this together with the fact that we will be selling mainly new product as we head into the second half, will make some improvement in profitability possible.

Please turn to slide 10. Next I will discuss Cameras in little more detail. First quarter net sales of digital cameras decreased 1.8%, mainly due to the significant impact of the yen's appreciation along with aggressive pricing by competitors. Unit sales, however, increased 18% as we expanded sales of compact models, not only in emerging markets but in North America and Europe as well, and maintained strong sales of SLR models. As for interchangeable lenses, we achieved strong sales growth, reflecting expanded segment. As for video cameras, although we began launching strategic new models in response to market development regarding recording media, net sales declined by 16.2% due to the changeover period.

Please refer to slide 11. Next I will discuss Optical and Other Products. First quarter net sales decreased 5.1%, mainly due to lower unit sales of IC steppers. Lower unit sales comes with the change in depreciation method had a negative impact on operating profit, which declined 70.4%.

Please refer to slide 12. Next I will discuss Optical and Other Products in more detail, focusing on semiconductor production equipment. As for IC steppers, first quarter unit sales were down 4 units to 43 including one ArF derived [ph] tool, reflecting a difficult market situation, characterized by declining prices for semiconductor devices. As for LCD aligners, while we are starting our market recovery from the second quarter, first quarter unit sales increased only one unit to 6. As a result, first quarter net sales of the semiconductor production equipment declined 14.3%.

Please turn to slide 13. Next I will discuss our first half and full year projections for 2008. This slide shows our exchange rate assumptions and the projected impact that one yen change in the rate would have on projected net sales and operating profit for the remaining three quarters.

Please refer to slide 14. This slide highlights some key points regarding our current projection for the remaining three quarters of this year. As you can see, we expect to face a challenging situation. However, as we showed in the first quarter, the actual condition of our business is solid. On top of this, we see our new products that we feel are more competitive than in past years, enhancing our lineup and acting as an accelerator for sales expansion in the second half of the year.

Additionally, through an expected recovery to sales growth of semiconductor production equipment and video cameras, the Group-wide efforts to thoroughly reduce cost and expenses, we believe we can achieve our ninth consecutive year of sales and profit growth.

Next slide summarizes our projected results for the first half and full year. And for the first half, given the yen's appreciation, impact from the change in depreciation methods and economical environment that remains challenging, implementation of various measures that would prove effective in such a short period of time would be quite difficult. As a result, we're projecting a decline in net sales and profit.

In the second half however, we will want to expand net sales and profit by accelerating the launch of new products that we feel will be much more competitive than past models and by leveraging our expanded product portfolio. We'll also focus more attention on the implementation of measures aimed at solely reducing cost and expenses. Through these efforts, we feel we can minimize the impact of the yen's appreciation in the second half. And so, the net sales and profit decline projected for the first half, and continue the trend of net sales and profit growth for the full year.

Please turn to slide 16. I will now compare our current projections with our previous forecast. Changes in the exchange rate assumptions had a negative impact on current net sales and operating profit projections, full [ph] changes in sales volume within the Office Imaging Product segment. We do not expect to meet our previous projections. Hence, recovering from the first quarter drop will prove quite difficult. However, since channel inventory levels seems to have improved in the U.S. market, we expect that to pickup from the second quarter, and we focus on expanding sales of new strategic color models for the office and POD market.

As for Computer Peripherals, we expect sales of inkjet printers will be basically inline with our previous projection in the first half and for the full year. With regard to laser beam printers, although we project changing the product shipping timing for our OEM partners, which affects both the first half and the second half forecast, our current projection for the full year remains basically unchanged.

Our new cameras, we expect new models to begin contributing to sales from the second quarter, which is basically inline with our original trend. Furthermore, 10 strategic new products that we will steadily launch from the second quarter will contribute to sales expansion. We expect to achieve our previous projections.

For Optical and Other Products, we expect to exceed our previous projection, although some IC stepper customers are delaying investments in the first half until the second half. Full year unit sales of LCD aligners are projected to surpass our previous projections. As for operating profit within the other category, this forecast reflects ¥90 billion in cost of savings, ¥10 billion greater than our previous projection. Amid rising material prices, due to group-wide effort to thoroughly reduce cost and expenses however, we expect to achieve total improvement of about ¥45 billion.

Please refer to slide 17. We will now discuss our first half and the full year projections by product groups, starting with Office Imaging Products. As for color copying machines, we expanded our lineup of low to mid speed machines with the launch of 4 models, including the 23 page a minute imageRUNNER C2550. We have high expectation for this model as it addresses low speed machine market, the fastest growing segment of the market. Furthermore, in the POD market, in which we can also expect significant growth, we launched our 60 page per minute imagePRESS C6000 and the C6020. The C6000 in particular has been highly evaluated, receiving the Best of Show Award for Process Color Digital Printing Equipment this year On Demand show. Through this new product, which we plan to actively start selling in overseas market, mainly from the second quarter, we expect full year color unit sales to increase 19%, which will in turn drive net sales including consumables for growth of about 12% in local currency.

As for monochrome copying machine, for the full year, we are projecting unit sales growth of 5%, mainly driven by expanded sales in Europe and Asia. This is expected to slow the decline in full year net sales to 9%. For the other categories, we are projecting full year net sales growth of 7.4%, reflecting growth in solution-related sales and acquisition of Argo 21. As a result, net sales of office imaging products are projected to decrease 2.3% in the first half, but basically inline with last year for the full year. However, in local currency terms, we project an increase of about 6% for full year.

Please turn to slide 18. Next I will discuss Computer Peripherals, starting with laser beam printers. According to attached [ph] company data, we extended our worldwide market share within both the monochrome and the color laser beam printer markets in 2007, exceeding 60% and 50% respectively on an [indiscernible] basis. Despite our challenging economic situation, we expect the strong growth of laser beam printer markets to continue supported by growing demand in emerging markets and the color adoptions. Amid this condition, we will promote the advantage of our products such as fast printer speed and high durability to secure profitability and to expand sales. As for colors, we are planning to launch new low to high-end products from this April which will further strengthen our product portfolio, and will in turn enable us to achieve 26% growth for the full year in terms of unit.

And for monochrome, we will strive to expand sales of mid-range and high-end models for its networking capabilities, to drive further print volume expansion. With global expansion of our installed base of laser beam printers, we also expect to achieve high double-digit growth of consumables in local currency terms. As a result, we expect full year net sales of laser beam printers overall to grow 12% in local currency terms. Taking into account the end appreciation however, net sales in the first half is expected to decrease 6.1% and for the full year to be basically inline with the previous year.

Next I will discuss inkjet printers. As we expect the inkjet printer market to basically flat. In terms of the unit, we are planning to further raise our presence in [indiscernible] and improve our market share by steadily launching new product for the year end trading season.

Additionally, we aim to enhance our lineup of MFDs with FAX capability and actively promote sales of business use models. Through that measure, our aim is to expand print volume in both the home and the business market. We will also work to expand sales in emerging markets, where solid demand for SFDs remain strong. Through our broad lineup and regional sales strategy, we expect to grow unit sales by 8% for the full year. Our results through unit sales growth leading to the continued steady expansion of consumable sales, we project inkjet printer sales to grow 2.9% in local currency terms, we project a double-digit increase.

Please refer to slide 19. Next slide we'll discuss Cameras starting with digital cameras. In 2008, we expect the digital camera market to grow by around 10% to 129 million units including 8.8 million digital SLR cameras. Amid this market condition, we expect to realize higher than market growth through the launch of competitive new products. Our unit sales projection continues to be 29.4 million units, including 4.4 million SLRs, representing unit growth of 20%.

As for video cameras, the trend of flash memory as a mainstream recording media under high definition, I don't want to exercise our technological strengths of the traditional and digital camera manufacturer, will get through extend [ph]. Already highly evaluated in Japan, we plan to expand sales of our new lineup worldwide from the second quarter. As a result, net sales of cameras in the first half is projected to be basically inline with the same period last year, and up 2.3% for the full year. In local currency terms, first half and full year net sales are expected to grow around 10%.

Please turn to slide 20. Next I will discuss semiconductor equipment starting with IC steppers. This year, we expect the market for IC steppers to shrink by around 20%, due to an extended slump in semiconductor device prices. Amid this market condition, we will concentrate all our energies into sales of our ArF immersion and write tools. We'll recover our competitiveness in the [indiscernible] lithography market.

As for LCD aligners, we expect the market to almost double to around 120 units. Amid this market condition, we will concentrate all our energies into securing an overwhelming number one position, more than doubling our unit sales to 68 as we leveraging the competitiveness of our new next generation products. As a result, in the first half, we project net sales decline of 6.2% due to lower unit sales of IC steppers. For the full year, however, due to expected sharp recovery in demand for LCD aligners, we expect to post net sales increase of 23.5%, representing positive growth for the first time in three years.

Please refer to slide 21. I will now discuss operating profit by product group for the first half and full year. As for Business Machines, despite the stronger yen and other factors, we are projecting an increase in profit for the full year and expect to maintain higher gross profitability inline with last year. In addition to continued strong growth of consumable sales, we expect to achieve this by leveraging new products in the second half and additional thorough cost reductions.

As for Cameras, by maintaining our price premiums through the launch of competitive new products and improvement in our product mix and the proportion of such products of SLRs and interchangeable lenses increases as well as continued cost reduction, we aim to accelerate the improvement in profit structure as we look towards the second half. As these initiatives and events unfold from the second quarter, we expect to negate the impact of stronger yen and increase profit for the full year.

As for Optical and Other Products, despite expectation for lower profit in the first half, due to lower units sales of IC steppers, we are projecting operating profit to more than double for the full year as we expect our full scale LCD aligner market recovery in the second half. Although many uncertainties exists; particularly this year, we will devote all our energies towards achieving our ninth consecutive year of sales and profit growth. This ends my presentation. I would now like to use the time remaining to answer any questions you may have.

Question And Answer

Operator

[Operator Instructions]. And our first question comes from Caroline Sabbagha with Lehman Brothers.

Caroline Sabbagha - Lehman Brothers

Good morning, thanks for taking my question. My question is going to be on the consumables business. You talked about strong consumables business in the laser this quarter and also in the inkjet. Can you give us a better feel for what those numbers ended up being in the quarter?

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

Sales of consumables for first, LBPs were up by 11% in terms of local currencies and were up by 2% in yen terms. When it comes to sales of consumables; for inkjet printers, sales were up by 20% in terms of local currencies and they were up by 16% in terms of the... in yen terms.

Caroline Sabbagha - Lehman Brothers

Good, thank you very much. And one quick follow-up. Where do you think channel inventories are currently for both the laser and the inkjet business? And do you think they're at the right place or are they too high or too low going into the second quarter? Thank you very much.

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

The inventory level has been kept at a very healthy level.

Caroline Sabbagha - Lehman Brothers

Thank you.

Operator

Okay, thank you. And our next question comes from Eric Yu [ph] with Bernstein.

Unidentified Analyst

I see that you're forecasting quite a significant improvement to Camera margins for the second half of this year. I wonder if you could provide some more detail as to how you expect that margin improvement to occur.

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

It was in the second part, I mean the latter part of March when we launched new products into the market. So, up until the first half of March; that is in January, February and also again the first part of March, we had to compete with our competitors with our existing models which we had launched last year. When it comes to this year, our competitors have launched their new products ahead of us. Again in Q1, we had to compete with our competitors with our existing products, again launched last year. So, we had this impact resulting from the appreciation of the yen. We also have this increase in depreciation charges. We also had to respond to our competitors' initiatives to lower their prices with our existing products. That should explain the reason why with the margin deterioration in Q1.

The yen strengthened a lot more than we initially expected in the month of March and we do anticipate some impact to continue into the second quarter resulting from the appreciation of the yen. But again, in the latter part of March, we did launch new products, which are very competitive and which are higher margin products for us. And these newly launched products are being gradually accepted in the market. But again, in the early part of the second quarter, we do anticipate some impact to remain resulting from the appreciation of the yen. But, we do hope that margin should improve in Q3 and Q4.

And talking of new products actually, those SLR new products, which we have launched, are very competitive and they actually improve our product mix with which we should be able to exert our price premiums. So, these should explain the reason why we are anticipating improvement in margin in the second half.

Unidentified Analyst

Just one quick follow-up, is there... what is the latest status of your policy towards share repurchase?

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

We have not changed our basic policy towards our share repurchase program. And that we continue to hold on to this policy where we will have to exercise the share repurchase program with flexibility while watching how the market is doing.

Unidentified Analyst

Is it possible that you would do very major repurchases similar to mid-2007 purchase?

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

I think today we cannot say anything or we haven't considered doing that I think on today.

Unidentified Analyst

Thanks very much.

Operator

And our next question comes from Ben Lu with Seligman. Your line is open.

Benjamin Lu - Seligman

Great, thank you. I have two questions. One, you are looking for the IC stepper market in 2008 to decline by 20% on a unit basis. Now, obviously with a lot of push-outs from some of the NAND companies such as IM Flash as well as Hynix and with you are depending... or if you talk to ASML or Nikon, they are looking for industry units to be down 30 to 50%. What gives you confidence that the industry will only decline by 20%, especially given a lot of recent lower than expected Q3 orders from a lot of the semi-cap companies?

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

Our forecast here is that the market is going to contract by 20% or more, and that the market is going to be... the type of the market is going to shrink to 450 units or smaller.

Benjamin Lu - Seligman

Okay great. And then you said you will concentrate all your resources on immersion and I know your guidance for this fiscal year is two units. Can you talk a little bit about progress with your immersion units? What we've heard is that one of your customers Elpida has already returned one of your immersion units, because it wasn't working. Can you comment on your future success of immersion?

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

Unfortunately, we cannot provide you information on our business with specific customers here. But our plan here is to book two units out of the several units which we have shipped already.

Benjamin Lu - Seligman

Great, thank you. And my last question is a very quick question. With your new proximity concept for your 10G LCD stepper, can you talk about the benefits of your proximity concept versus your existing single-mirror concept and can you compare that to Nikon's multiple lens scanning methods?

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

8G models have been very well accepted in the market and we have already made a technological breakthrough in terms of the 10G technology. So, we're just waiting for customers request now. Talking of our difference, our technology difference from our competitors because our technology uses a bigger, larger mirror and it is a seamless. So, we do believe again just like we have enjoyed with 8G technology we should be able to have a competitive advantage, overall competition with 10G as well.

Benjamin Lu - Seligman

Great, thank you.

Operator: And our next question comes from Matt Troy with Citigroup.

Matthew Troy - Citigroup

Yes, thank you. You mentioned in your comments weakness in the U.S. on the office product and in imaging side. Was it consistent through the quarter or was there a progression to that weakness, did it get worse later into March? And also was it concentrated in any specific area, was it low-end laser, was it inkjet at the low-end, computer peripherals, or was at the higher-end in office imaging and high-end production machines, if you could just provide some detail there, please?

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

I might have misled you a little bit, because I earlier in my presentation was talking about the overall business when I was talking about the weak U.S. business. Talking of the business machines segment, actually what was weak in Q1 was the copier; the copier business which wasn't largely accepted by the weaker state of the U.S. economy. Having said that, channel distribution has been reduced quite a bit already, so we do hope that things will look brighter in the second quarter than they did in the first quarter. And having said that, we will have to continue to closely monitor how the overall U.S. economy will fare. Talking of other products, actually the printers business has been inline with our initial projections and we will do our best so that we should be able to achieve and meet our full year target here.

Operator

And then does that conclude your question Mr. Troy?

Matthew Troy - Citigroup

Oh, I'm asking a follow-up on the high-end production side please. On the imagePRESS platform that was launched in the last 12 to 18 months, has that been trending relative to your expectations or has that been under pressure with the weaker U.S. economy? Thank you.

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

Well, we have been launching imagePRESS product since last year in our effort to create a new market. And actually, sales of these products have been doing very well actually, better than we initially expected. So, going forward, we are going to further broaden our product offerings in this segment for the POD market so that we should be able to further enhance this part of the market share.

Matthew Troy - Citigroup

Thank you very much.

Operator

And our last question today comes from Shannon Cross with Cross Research.

Shannon Cross - Cross Research

Yes, good morning or good evening, thank you for taking my call. My question is with regarding to pricing. Can you talk about the pricing environment within the copier market? Xerox noticed some aggressive pricing. It looks like you may have factored some in there as well. And can you talk about pricing both for the device itself as well as for the pages? And then I have a follow-up, thank you.

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

Well as we have pointed out, we are aware that our competitors have been pretty aggressive in terms of prices in certain cases. We have a stronger competitive advantage over our competitors in some regions and some product categories and not necessarily so in other product categories in other parts of the world. So we have to respond, we have to act accordingly. But our basic ideal policy here is the one where we will continue to launch new products which have high price competitiveness. And that's how we intend to effectively compete with our competitors in the market.

Shannon Cross - Cross Research

Okay. Can you... actually, one quick question and then my final one, can you give us an indication of what your expectation is for laser supplies growth for full year 2008 and how that has changed relative to what you expected in January? Thank you.

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

Well, our projections for consumables this year, full year this year are up by 15%; in terms of local currency, is actually higher than we initially expected. But unfortunately, because of the acute appreciation of the yen, this translates into a drop of 2% in yen terms.

Shannon Cross - Cross Research

And just to confirm, that's for laser beam?

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

Yes, consumables for laser beam printers, yeah.

Shannon Cross - Cross Research

Great and thank you. And my last question is if you could just discuss a bit about the distribution in the United States following Konica Minolta's acquisition of Danka and obviously Xerox's acquisition of Global Imaging. How are you looking at your distribution channels both direct versus indirect? Thank you.

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

Our basic policy here is to strengthen our direct sales network in the United States while at the same time we also want to boost our indirect sales network as well through independent dealers. Talking about direct sales network in the U.S., across the United States, we already have built about 47 operating bases. As you can see, we have made a pretty good progress here.

While talking of these 47 operating bases that we have already built, up until last year, we had three direct sales subsidiaries in the United States which we have already integrated into a single one direct sales subsidiary. This is all part of our effort to try to further enhance our direct sales activities there.

Shannon Cross - Cross Research

Okay, thank you very much. That completes my questions.

Operator

I would now like to turn the call over to Mr. Osawa for any further comments.

Masahiro Osawa - Managing Director, Group Executive; Finance and Accounting Headquarters

Thank you very much your attention and your cooperation. Thank you very much.

Operator

And thank you for participating in today's call. Please disconnect your line at this time.

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