Canon Inc. (ADR) (CAJ): Even with a Cheap Yen, These Japanese Companies are in Trouble

Canon’s products are becoming obsolete

Canon Inc. (ADR) (NYSE:CAJ) isn’t a maker of heavy machinery, but investors should probably avoid it, too. The products it makes could see demand declines of their own, though it won’t have much to do with China.

Frankly, it’s hard to imagine a company with a worse product portfolio than Canon Inc. (ADR) (NYSE:CAJ)’s. Roughly 85% of the company’s revenue comes from the sale of cameras, printers and copiers — all devices that are arguably going away.

In July, the company posted worse-than-expected earnings, and lowered its outlook for the rest of the year. Canon Inc. (ADR) (NYSE:CAJ) cited a weak global economy, but in reality, it’s that its products have become obsolete.

For the first five months of year, shipments of digital cameras declined by an incredibly 42%. No doubt, the rapid proliferation of smartphones had much to do with it. In the US, smartphone saturation has surpassed 60%.

For a consumer with a smartphone, a dedicated digital camera is largely unnecessary. High-end phones like Samsung’s Galaxies and Apple’s iPhone sport cameras just as good as consumer-grade Canons.

Likewise, the demand for printers and copiers has also been on the decline. As tablets become cheaper and more ubiquitous, actual printed documents are increasingly rare.

The drop in printing has been reflected in the performance of other printer-related companies. Lexmark and Xerox both whiffed on earnings last quarter, and Hewlett-Packard’s printing business has been in decline for several quarters.

Investing in Japanese stocks

With Abe at the helm, Japanese stocks have been a great buy. That kind of impressive performance could continue as long as the Bank of Japan keeps printing.

But some Japanese companies could struggle even with a cheap yen. Komatsu and Kubota, through their focus on heavy machinery, are exposed to a Chinese economic slowdown. Meanwhile, Canon’s primary products (cameras, printers) are becoming obsolete.

Investors might do well buying the Nikkei, but when it comes to picking stocks, Komatsu, Kubota and Canon Inc. (ADR) (NYSE:CAJ) should probably be avoided.

The article Even with a Cheap Yen, These Japanese Companies are in Trouble originally appeared on Fool.com and is written by Sam Mattera.

Joe Kurtz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Sam is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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