Nikon
Corporate History & Strategy

The outbreak of World War I cut off imports of German military optical instruments (binoculars, periscopes, rangefinders, etc.) on which the Imperial Japanese Navy depended. At the time, virtually no Japanese company possessed the technology to manufacture optical glass, and domestic production of optical instruments became an urgent priority for the Navy. In response, Koyata Iwasaki of the Mitsubishi zaibatsu founding family decided to establish an optical instrument manufacturer to meet the Navy's request.

As the Mitsubishi zaibatsu lacked expertise in precision optical instrument manufacturing, it adopted a strategy of securing a technological base through acquiring existing companies. In 1917, it acquired Fujii Lens Manufacturing to obtain optical lens manufacturing technology, and in 1918 constructed a new factory in Oi, Tokyo, to build a mass production system for optical instruments.

In 1917, Nippon Kogaku K.K. was established with investment from the Mitsubishi zaibatsu. Its primary products were naval optical instruments including binoculars, and it aimed to build an integrated system covering everything from in-house optical glass manufacturing to final product assembly. Mass production of optical glass required ten years, with stable manufacturing finally achieved in 1927.

Under a business structure entirely dependent on military demand, Nippon Kogaku expanded rapidly, growing to approximately 25,000 employees and 20 domestic factories by the end of the war in 1945. However, this 100% military-dependent business structure inherently carried the risk of losing all demand upon the war's end, which foreshadowed the massive layoffs of approximately 20,000 employees during the postwar transition to civilian production.

In the 1970s, the Japanese government promoted semiconductor industry development as a national policy, and in 1976, MITI (now METI) launched the 'VLSI Technology Research Association.' Five major electronics companies—NEC, Toshiba, Hitachi, Fujitsu, and Mitsubishi Electric—participated, and joint research on next-generation semiconductors commenced. Nikon joined this research association as a supplier of optical and precision technologies and began R&D on semiconductor manufacturing equipment.

For Nikon, entry into semiconductor manufacturing equipment also represented a breakthrough against the stagnation of existing businesses. President Koakimoto expressed his concern: 'Optical products such as cameras, microscopes, and eyeglasses have all reached the maturity stage. None of them will see dramatic growth going forward.' He explicitly advocated for developing growth businesses beyond cameras. Semiconductor manufacturing equipment was a field where Nikon's accumulated optical technology (lenses) and precision technology (positioning) could be directly applied.

The stepper concept originated from a non-mainstream department within Nikon. The Special Instruments Division, where Shoichiro Yoshida (later president) worked, was a custom-order production unit handling specialized products for universities and research institutions, working with technologies outside the mainstream such as ruling engines and Micro-Nikkor lenses. The development of a coordinate measuring instrument incorporating a laser interferometer in 1972 led to the stepper concept.

In 1980, Nikon succeeded in developing the NSR-1010G stepper (semiconductor lithography system). A stepper is an apparatus that projects circuit patterns onto silicon wafers, with the resolving power of optical lenses and the precision of positioning directly determining product performance. The optical glass manufacturing technology and precision machining technology that Nikon had accumulated over decades were fundamentally aligned with the technical requirements of steppers.

Deliveries of the NSR-1010G began in 1981, with the first unit going to NEC and the second to Toshiba. The price per unit was set at 130 million yen, establishing a business model of small-volume production of high-priced equipment timed to specific customers' capital investment cycles. In 1983, a dedicated stepper factory was constructed at the Yokohama Works at a cost of approximately 3 billion yen, building out the capacity for increased production.

The commercialization of steppers coincided with the period when Japanese semiconductor makers were intensifying their concentrated investment in DRAM. Major electronics companies including NEC, Toshiba, Hitachi, and Fujitsu successively expanded semiconductor production lines, generating robust demand for steppers. Nikon's steppers expanded orders based on close collaborative relationships with domestic semiconductor manufacturers.

The stepper business ramped up rapidly, with Nikon's semiconductor equipment revenue reaching 10.8 billion yen in FY1982. By FY1984, this had expanded to an estimated 45 billion yen, and in FY1985, semiconductor-related equipment revenue recorded 56.7 billion yen. Within five years of development, the business had grown to exceed 50 billion yen in revenue and became an earnings pillar on par with the camera business.

Nikon secured the world's top market share immediately after entering the stepper market in 1983. Japanese domestic semiconductor manufacturers were the primary customers, and collaborative technical relationships with electronics companies formed the foundation for market share acquisition. Canon was a competitor, but Nikon leveraged its first-mover advantage to maintain a leading share.

A stepper business born from non-mainstream department technology transformed Nikon's business profile from a 'camera manufacturer' to a twin-pillar structure of 'cameras plus semiconductor manufacturing equipment.' However, the stepper business of this period was structurally dependent on collaboration with Japanese semiconductor manufacturers, inherently carrying vulnerability to the geographic shift of the semiconductor industry from Japan to Taiwan and South Korea that would occur from the 1990s onward.

Following the 1980 launch of the NSR-1010G, Nikon's steppers rapidly expanded orders, driven by Japanese semiconductor manufacturers' concentrated investment in DRAM. The dedicated factory at the Yokohama Works could no longer keep up with demand for increased production, and it became necessary to build a full-scale mass production system for steppers. Steppers are high-value equipment costing several hundred million yen per unit, and precision assembly within cleanrooms required securing a dedicated production facility.

Nikon's Precision Equipment Business (semiconductor manufacturing equipment) had reached revenue of approximately 50 billion yen within just a few years of entry, growing into an earnings pillar comparable to the camera business. President Koakimoto's stated policy of 'developing growth businesses beyond cameras' was being realized through steppers.

Meanwhile, the structural challenge that business performance would be heavily influenced by semiconductor manufacturers' capital investment cycles was also becoming apparent. Robust demand emerged during semiconductor booms, but orders would plummet during downturns. This high sensitivity to economic cycles was an important consideration in designing the scale of the mass production system.

In 1984, Nikon constructed the Kumagaya Works in Saitama Prefecture, commencing operations as a dedicated stepper mass production facility. From 1989 to 1998, four phases of expansion were carried out, with successive expansions of cleanroom capacity. In 2000, the Building 7 cleanroom was expanded to progressively increase production capacity. At Tochigi Nikon, a new production building for stepper lenses was also completed in 1991, strengthening the lens supply system.

R&D investment also intensified, with the Precision Equipment Business continuously investing tens of billions to 10 billion yen annually in R&D. Capital investment was maintained at levels of 10 to 20 billion yen per year, advancing next-generation stepper development and capacity expansion in parallel. Since the resolving power of optical lenses and positioning precision directly determined product competitiveness, sustained R&D investment was essential.

Nikon's steppers maintained the world's top market share from 1983, securing 30–50% share through around 1998. Primary customers were Japanese semiconductor manufacturers such as NEC, Toshiba, Hitachi, and Fujitsu, whose capital investments underpinned Nikon's performance. The company maintained its first-mover advantage over competitor Canon.

Throughout the 1990s, Nikon's business structure transformed from camera-centric to semiconductor manufacturing equipment (Precision Equipment Business)-centric. While the consumer camera and lens business suffered from chronic losses, the Precision Equipment Business supported overall performance in both revenue and profit. During boom periods, operating income exceeded 50 billion yen, and a structure where the Precision Equipment Business earned the majority of Nikon's profits became established.

However, since the Precision Equipment Business was strongly correlated with semiconductor economic cycles, operating losses exceeding 20 billion yen could occur during downturns. Steppers are delivered in conjunction with new semiconductor production line installations, making large demand fluctuations and performance volatility unavoidable. The business structure of absorbing downturn losses with boom-period profits was predicated on maintaining global stepper market share.

From 1998 onward, ASML of the Netherlands emerged and began eroding Nikon's share. ASML established collaborative relationships with rapidly growing semiconductor manufacturers in Taiwan and South Korea, and rapidly expanded share with 300mm wafer-compatible models. While Nikon continued to focus on collaboration with Japanese domestic semiconductor manufacturers, the center of gravity of the semiconductor industry had shifted to East Asia.

The rapid yen appreciation following the 1985 Plaza Accord severely eroded the profitability of Nikon's camera and lens business based on domestic production for export to Western markets. Cameras are precision instruments requiring many workers for assembly processes, and rising domestic labor costs directly pushed up costs. Nikon depended on overseas markets for much of its camera and lens revenue, and the loss of price competitiveness due to yen appreciation was a business-critical challenge.

From the 1960s through the 1980s, Nikon had developed production subsidiaries domestically, including Tochigi Nikon, Mito Nikon, and Sendai Nikon, building a system that leveraged lower regional labor costs. However, the post-Plaza Accord exchange rate fluctuations reached levels that could not be absorbed by any domestic facility, making overseas production transfer unavoidable.

In 1990, Nikon established a local subsidiary in Thailand, and the following year in 1991 constructed a new factory in Thailand to commence local camera production. Thailand was selected within Southeast Asia due to its relatively stable political environment and abundant available labor force. The Thailand factory was positioned as Nikon's primary overseas production facility, with camera bodies and lenses progressively transferred for mass production.

The Thailand operation rapidly expanded in scale, with the local subsidiary reaching 7,964 employees by the fiscal year ending March 2007. The ratio of overseas camera production rose year by year, and Nikon's imaging business production system transitioned to a Thailand-centered structure.

In 2021, Nikon ended camera production in Japan (handled by Sendai Nikon) and completed the production transfer to Thailand. Thirty years after commencing local production in Thailand, domestic camera production had ended, and Thailand became the sole production base. This structure is maintained as of 2024.

The 1990 entry into Thailand was one of the most important decisions in Nikon's camera business. Beyond the initial motivation of yen appreciation response, the Thailand facility became established as the production infrastructure supporting Nikon's imaging business. On the other hand, the concentration in Thailand carried natural disaster risk, and the 2011 Thai floods also affected Nikon's production.

Throughout the 1990s, the geographic structure of the semiconductor industry underwent major changes. Japanese semiconductor manufacturers (NEC, Toshiba, Hitachi, Mitsubishi Electric, etc.) curtailed aggressive investment in DRAM, partly due to trade frictions associated with the U.S.-Japan Semiconductor Agreement. During this period, Samsung Electronics (South Korea) and TSMC (Taiwan) rose rapidly, and the center of gravity of semiconductor capital investment shifted to East Asia. Nikon's steppers had maintained the world's top market share based on close collaborative relationships with Japanese semiconductor manufacturers, but as these primary customers reduced investment, the premise of Nikon's competitive advantage began to erode.

ASML of the Netherlands established collaborative relationships not with Japanese companies but with the rapidly growing semiconductor manufacturers in Taiwan and South Korea. It aggressively introduced 300mm wafer-compatible models and built a system that directly captured customers' development needs. ASML established a virtuous cycle of reinvesting equipment sales revenue into R&D, expanding its technological advantage over Nikon.

Nikon explored approaches to overseas customers, but transitioning from a business model built on long-standing domestic customer collaboration was not easy. Stepper development requires customizing equipment to match customers' manufacturing processes, and building trust with new customers takes time. With ASML already having established collaboration with major customers in Taiwan and South Korea, Nikon's scope to break in as a latecomer was limited.

Tokyo Electron, another semiconductor equipment manufacturer, executed the customer transition from domestic to overseas companies during this period and maintained its global market share. The contrasting fortunes of Tokyo Electron and Nikon come down to a single point: whether or not they executed the geographic transition of their customer base. Shoichiro Yoshida (then advisor) also noted that 'the stepper's massive profits every few years allowed us to maintain a laid-back corporate culture,' suggesting that boom-period profits may have dulled the internal drive for transformation.

From 1998 onward, Nikon rapidly lost stepper market share, recording net losses of 18.2 billion yen in FY1998, 6 billion yen in FY2001, and 8.1 billion yen in FY2002. Three net losses within five years indicated a fundamental change in the stepper business's revenue structure. The loss of market share reduced equipment sales revenue, shrinking the pool of funds for R&D in a vicious cycle.

ASML invested the revenue gained from customer collaboration into massive R&D spending, establishing technological superiority in next-generation equipment development. Having lost customers, Nikon could not secure sufficient R&D funding and fell behind financially in next-generation stepper development. Significant investment in both optical and control systems is required to improve equipment performance, and the decline in market share and insufficient R&D funding mutually reinforced each other in a structurally disadvantaged position.

The early 2000s was a period of rapid proliferation of digital cameras, with the transition from film to digital cameras entering full swing. Digital cameras have more components than film cameras, and since electronic component procurement costs directly affect product pricing, mass production of low-end models required production bases with even lower labor costs than Southeast Asia. Nikon was already producing cameras locally in Thailand, but judged that China's labor force and supply chain were better suited for mass production of compact digital cameras.

In 2002, Nikon established Nikon Imaging China and commenced mass production of digital cameras in China. The target products were general-purpose compact digital cameras, establishing a product-specific division of labor where Thailand handled SLR cameras while China handled compact models.

The 2008 financial crisis temporarily reduced production in China, but at that point it was perceived as a temporary adjustment due to economic fluctuations. However, in the early 2010s, smartphones proliferated worldwide, and the rise of smartphone cameras equipped with high-performance image sensors structurally reduced demand for compact digital cameras. By the late 2010s, the compact digital camera category had virtually disappeared from the market.

In 2017, Nikon decided to cease local camera production in China. With the disappearance of demand for compact digital cameras handled by the China factory, there was no longer a rational basis for maintaining the facility. Overseas production was consolidated around Thailand, which handled SLRs and mirrorless cameras.

The span from China entry to withdrawal was approximately 15 years. The China factory, established as a mass production base during the digital camera proliferation period, lost its raison d'etre when the compact digital camera market was eliminated by the emergence of smartphones. Nikon's overseas production system reverted to a Thailand-only concentration, returning to the structure that existed before the China entry.

The China withdrawal symbolized the severity of structural change in the camera market. Nikon depended on Sony for image sensor supply rather than developing its own, and was unable to capture the structural demand shift caused by smartphone proliferation as its own growth. Facing a shrinking market as a camera manufacturer, a fundamental review of the imaging business became unavoidable.

Throughout the 2000s, ASML expanded its global market share in semiconductor lithography equipment (steppers and scanners) to 80%, establishing a de facto oligopoly. Nikon's share had fallen substantially, and the contraction of equipment sales revenue left it facing the structural problem of insufficient R&D funding. As semiconductor feature sizes continued to shrink, lithography equipment development costs soared, with next-generation equipment development requiring investment on the order of hundreds of billions of yen. Nikon was pushed into a situation where it could not bear this investment burden independently.

As ASML's oligopoly advanced, semiconductor manufacturers also faced the risk of declining negotiating power in equipment procurement. Intel in particular, as the world's largest semiconductor manufacturer, was growing increasingly concerned about procurement source concentration on a single company.

In August 2012, Nikon announced a partnership with Intel of the United States regarding semiconductor manufacturing equipment. Specifically, the framework involved Nikon and Intel jointly sharing development costs for next-generation 450mm wafer-compatible steppers. For Intel, it was a strategic counterbalance to reduce dependence on ASML, and for Nikon, it served as a means to secure the world's largest semiconductor manufacturer as a customer and sustain its manufacturing equipment business.

However, the industry had not reached consensus on the transition to 450mm wafers itself, and there was uncertainty regarding the feasibility of the next-generation standard envisioned by this partnership. For Nikon's Precision Equipment Business, collaboration with Intel was one of the few options for business survival, but with the technology gap with ASML widening, it was not easy for the partnership alone to overturn the structural disadvantage.

Entering the 2010s, Nikon's two core businesses simultaneously faced difficulties. In the imaging business, advances in smartphone camera performance structurally reduced digital camera demand, and revenue contracted sharply from FY2012 to FY2016. Since Nikon did not develop its own image sensors and depended on supply from Sony, it could not capture the growth in image sensor demand driven by smartphone proliferation as its own revenue.

In semiconductor manufacturing equipment (Precision Equipment Business), ASML's dominance remained unshaken, and Nikon failed to recover market share. With both pillars of cameras and steppers shrinking, Nikon's performance and stock price stagnated. The ongoing medium-term management plan had not gained the confidence of institutional investors, and a management turnaround had become urgent.

In 2016, Nikon recruited Masashi Oka, formerly of Bank of Tokyo-Mitsubishi UFJ, as Executive Vice President (CFO) from outside the company. EVP Oka prioritized dialogue with institutional investors and worked to understand Nikon's management challenges. In the process, he recognized that the medium-term management plan had not earned market trust, and decided to withdraw the existing plan and implement structural reform.

In November 2016, Nikon announced the 'Implementation of Structural Reform.' As a company-wide policy, it set forth a review of the business portfolio, explicitly stating a direction of 'selection and concentration' to downsize or exit unprofitable businesses. For semiconductor manufacturing equipment, the policy shifted toward R&D cost reduction and prioritizing profitability. For the imaging business, optimization of the production and sales system was determined, including withdrawal of production from the China subsidiary. In the industrial instruments business, withdrawal from the CMM (contact-type coordinate measuring machine) business was decided.

Accompanying the business downsizing, Nikon solicited 1,000 voluntary early retirements in Japan, planning annual fixed cost reductions of 20 billion yen. Since special premium payments were offered on top of regular severance, the number of employees who accepted exceeded the target at 1,143. EVP Oka stated, 'For the semiconductor equipment business, which had been forced into chronic losses, we pursued a fundamental review of the sales policy and strengthening of customer relationships,' making the shift to a profitability focus explicit.

The structural reform represented a decision by Nikon to choose 'equilibrium through contraction' rather than 'growth investment.' With neither cameras nor semiconductor manufacturing equipment expected to grow given market changes, the policy was to restore profitability through fixed cost reduction and business selection.

In FY2016, Nikon recorded extraordinary losses of 61.3 billion yen on a consolidated basis. On a non-consolidated basis, 49.7 billion yen in structural reform-related costs were recorded, the majority estimated to be severance payments to voluntary retirees. On a J-GAAP consolidated basis, the company fell into a net loss of 7.1 billion yen, though on a consolidated IFRS basis, net income of 7.1 billion yen was maintained.

As a result of the structural reform, the semiconductor manufacturing equipment business returned to profitability in FY2017. The shift toward prioritizing profitability and fixed cost reduction proved effective, achieving an exit from the chronic loss-making structure. The imaging business also progressed toward concentration on high-value-added products, with the exit from compact digital cameras and selection and concentration on SLR and mirrorless cameras executed.

The structural reform led by externally recruited EVP Oka became a catalyst for a fundamental review of Nikon's business portfolio. However, structural reform represents equilibrium through contraction of existing businesses, and the challenge of establishing the next growth business remains. The exploration of new businesses continues, including the 2022 acquisition of SLM Solutions (3D printing).