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On Jun 17, 2013, we maintained photographic image company, Fujifilm Holdings Corporation (FUJIY - Analyst Report), at Underperform based on the company’s disappointing business prospects.

Why Underperform?

Fujifilm has been facing a continuous downward trend in its traditional businesses over the past few quarters with no visible signs of improvement. The introduction of smart phones as well as digital cameras has been usurping the company’s market share.

Fiscal 2013 revenues were negatively impacted by a reduction in demand for compact digital cameras, resulting in reduced revenues for the Imaging Solutions segment. Further, a decline of 30.0% is feared in the electronic imaging business in the coming fiscal year. Moreover, a reduction in the demand for IT equipment also hampered revenues. 

A significant amount of revenue is derived from Fujifilm’s Documents segment, which has been performing poorly, of late. The segment experienced a decline in its operating profit to the tune of 7.2% year over year in fiscal 2013. This was a result of change in product mix as well as declining unit selling prices. Moreover, total shipments by Fuji Xerox Corporation diminished during fiscal fourth quarter.

Also, the recent downturn of the European economy was a major blow to the company’s financials in fiscal 2013. Additionally, the company’s results are hurt by the ever increasing prices of raw materials. This may induce high cost of production, impacting margins.

Other Stocks to Consider

Due to its diversified product offerings, Fujifilm faces stiff competition from various market players. Although, there aren’t many companies which offer the same range of products as Fujifilm, the company has to contend with its peers, which makes it even harder for Fuji to keep innovating and experimenting. Some of the companies that compete with Fujifilm are Alliance Fiber Optic Products Inc. (AFOP - Snapshot Report), carrying a Zacks Rank #1 (Strong Buy), whereas, Axcelis Technologies Inc. (ACLS - Snapshot Report) and Ciena Corporation (CIEN - Analyst Report) carry a Zacks Rank #2 (Buy), each.

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