Japanese electronics giants announce merger 

Tokyo - Konica Corp. and Minolta Co., two of Japan's biggest camera and office equipment makers, will merge later this year to fend off larger competitors at home and low-cost rivals abroad.

Like many Japanese manufacturers, the firms, which will form a holding company this August, are trying to squeeze out profits in crowded industries increasingly dominated by the likes of Canon Inc., Ricoh Ltd. and Sony Corp. By combining resources, they hope to slash expenses and pool research as they fight for market share in the United States and other key markets.

The new company, Konica Minolta Holdings Inc., will have combined sales of 1.1 trillion yen ($9.2 billion) and employ nearly 39,000 workers worldwide. Konica will focus on its film and lens businesses, while Minolta will add its camera and printer technology to the venture. Together, the companies hope to boost sales by 18 percent and more than double their profits to 150 billion yen ($1.25 billion) by March 2006.

"We should win a large share in the fields we think are valuable," said Yoshikatsu Ota, president of Minolta. "I don't think we will lose out" to bigger rivals. To compete, the companies will eliminate about 4,000 jobs, or 10 percent of their combined workforce, during the next three years. Executives from the companies offered few details about how much they would reduce debts, only saying that they would continue their current restructuring plans. The companies will release details of their planned stock swap on January 16th.

In anticipation of that announcement, investors dumped Konica's shares and bought Minolta's, a reflection of Konica's stronger balance sheet. Minolta is one of the most indebted companies in its industry with more than five times more debt than equity. It has also lost money the past two years and Moody's Investors Service rates its debt at B2, five notches below investment grade.

Analysts also question whether the two companies can boost profitability simply by combining sales. Even after they merge, the two companies will still lag Canon Inc., Fuji Photo Film Co. and Ricoh, which also make digital and analog camera, copiers and other office equipment. Digital cameras are selling well, but growth in older analog cameras one of Minolta's strengths is slowing.

Konica's film sales are strong in China and other parts of Asia, but have never gained ground in the world's most lucrative market, the U.S., where Kodak and Fuji Film dominate. The most effective way to boost profits, analysts say, is to exit money losing operations altogether.

"Globally, the Japanese are still technology leaders, but there are too many competitors," said Carlos Dimas, an analyst at West LB Securities in Tokyo. "The market for digital cameras and office equipment is still flooded regardless of whether they are Chinese, Korean or Japanese." -- New York Times

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