Nikon — Company History

Ten years to make optical glass at home, on military demand alone

The prehistory of Nippon Kogaku reaches back to the first stirrings of a domestic optical industry in the closing years of the Meiji period. Optical machinery of the day, military and civilian alike, was imported; at home only the Army and Navy arsenals and a handful of private firms — the optical instruments division of Tokyo Keiki Seisakusho, the Fujii Lens Manufacturing Works — were carrying out research and building prototypes, mostly of optical weaponry. Self-sufficiency in the optical glass that telescopes and rangefinders depend on was still far off, and what private expertise existed lay scattered, with no consolidated basis for volume production. Until the First World War abruptly raised the stakes of making these things at home, Japanese optics had not moved beyond prototypes built around imported goods.

The outbreak of the First World War severed altogether the import route on which the Imperial Japanese Navy depended for German optical equipment. Unable to supply for itself the optical components essential to rangefinders, binoculars and periscopes, the Navy found the maintenance of its own fighting strength in question. Pressed hard by the Navy, Iwasaki Koyata (岩崎小彌太) of the Mitsubishi zaibatsu resolved to gather the country's private optical engineers into one firm, and in 1917 established Nippon Kogaku. Immediately after founding it he acquired the Fujii Lens Manufacturing Works to secure an existing base of technique, and in 1918 built the new Oi plant to begin constructing a proper production system. Stabilising the glass melting furnaces and drawing homogeneous blocks from them repeatedly took nearly ten years of trial and failure; only in 1927 did the company reach stable volume production of optical glass. The exacting tolerances demanded by military work deepened the optical foundation on which its later move into civilian markets would rest.

Having achieved volume production, Nippon Kogaku expanded while deepening its dependence on military demand. After the Great Kanto Earthquake it took over, in a single sweep, the optical operations and the technical personnel of both the Army and the Navy, becoming very nearly the sole manufacturer of optical weaponry in the country. From 1933 it pushed capital investment hard, raising munitions plants in quick succession at Hiratsuka and Mizonokuchi. Its mainstay was naval optics — rangefinders, binoculars, gunsights, periscopes — and from the middle of the Pacific War its output of Army ordnance climbed steeply as well. By the surrender in 1945 it employed some 25,000 people across twenty plants in Japan, a vast armaments conglomerate; but that growth was also an extreme dependence on a single customer and a single kind of demand. A business structure that was 100 per cent military carried within it the risk of losing all of its demand in one night at the war's end, and foretold both the contraction that followed and the turn to civilian markets that came out of it.

Twenty thousand let go, and a breakthrough into civilian cameras

With the surrender in 1945, Nippon Kogaku resolved to close nineteen of its plants immediately, keeping only Oi, dismissed some 20,000 employees, and set about starting again with a workforce of just 1,724. During the war the company's business had centred on optical equipment — lenses and rangefinders — and it had almost no experience of building finished camera bodies in volume itself. It judged nonetheless that a move into finished products was indispensable if it was to turn to civilian demand, and from 1946 development of the camera body proper began in earnest. This was an attempt to reapply the lens design skill and high-precision machining built up in wartime to a small civilian camera; with no serious maker of premium cameras yet established in Japan, it was a management decision to bet on a high-end line built for export.

Officers and men of the occupation forces stationed in Japan after the war recognised in the field the resolving power and colour rendition of Nippon Kogaku's lenses, and word spread through the lenses they carried home to the United States. In December 1950 the New York Times reported that a staff photographer for Life magazine, covering the Korean War, had used Nikkor lenses and judged them far more accurate than the lenses of German miniature cameras (New York Times, 10 December 1950). A special issue of Diamond in September 1961 drew the contrast between the two firms — that Nippon Kogaku had made the finest possible product its first aim, whereas Canon had pursued what would sell and what would earn (Diamond special issue, 10 September 1961) — and recorded how Nikon had opened its export markets on a principle of quality first. Volume production of cameras and lenses formally began in 1948; exports were pushed in earnest from the following year, and the company's international standing as a maker of premium cameras was established. The discontinuous turn from a giant of military supply to a premium optical brand for civilians is exceptional even in the industrial history of post-war Japan.

A lithography system born out of a sideline technology

In September 1964 Diamond took up the excess and shake-out in the camera industry, writing that around thirty firms had gone under in the two years 1954 and 1955, and some twenty more had disappeared in the three years from 1956 to 1958 (Diamond, 28 September 1964). The same article observed that many companies were putting effort into sideline divisions in order to avoid leaning too heavily on cameras (Diamond, 28 September 1964), and reported that breaking out of camera specialisation — Ricoh and Minolta moving into office machines, Canon developing desktop electronic calculators — was a problem the whole industry shared. Nikon's own move into lithography systems had its motive in this demand arising from the structure of the industry. In 1976 Nikon joined the VLSI Technology Research Association, launched under the direction of the Ministry of International Trade and Industry, taking a part in a national project to make semiconductor production equipment in Japan. The driving force behind the association's formation was the wish of the domestic chipmakers to escape their dependence on American suppliers of steppers.

The man who led the project inside Nikon was not from the camera business but from the special-equipment division, which had handled sideline precision optics such as ruling engines and Micro-Nikkor lenses: Yoshida Shoichiro (吉田庄一郎). The coordinate measuring machine incorporating a laser interferometer that his group had developed in 1972 became the technical foundation for the positioning accuracy of the later stepper. Development of the first machine, the NSR-1010G, succeeded in 1980, and deliveries of production units to NEC and Toshiba began the following year, in 1981. Having been able to offer the accuracy and productivity Japanese chipmakers needed sooner than its American rivals, Nikon took the world's leading share in steppers in 1983. In December 1984 Nikkei Business wrote that the momentum was such that Nikon might come to be called the Nikon of semiconductor production equipment rather than the Nikon of premium cameras (Nikkei Business, 24 December 1984), and reported a record level of net profit. In FY1984 sales of semiconductor-related equipment expanded to $238.7M (¥57bn), a second pillar of earnings standing alongside cameras.

Closeness to domestic customers, breeding success and fragility together

The sharp appreciation of the yen that followed the 1985 Plaza Accord ate deeply into the margins on camera exports and made it economically difficult to keep production in Japan. Nikon established a local subsidiary in Thailand in 1990 and began shifting camera production abroad in earnest, over thirty years concentrating very nearly all of its domestic camera output at the Thai plants. Employment there reached 7,964 people by 2007, a defensive line against currency swings and the gap in labour costs. The camera business secured its export margins even against the headwind of a strong yen, and went on expanding in overseas markets with its brand intact. The contrary movement — domestic employment shrinking while the overseas site grew vast — was another discontinuous management decision, following the turn to civilian demand in the post-war recovery.

The stepper business, meanwhile, held a world share of 30 to 50 per cent steadily on the strength of close collaboration with Japan's semiconductor makers. The joint-development model with domestic customers — NEC, Toshiba, Hitachi, Fujitsu, Mitsubishi Electric — was a mechanism that fed on their exacting technical demands to hone the machines. Yet this very source of success, the closeness to domestic customers, at the same time carried within it a structural fragility: the geographical concentration of its customer base. That did not surface for years. Even as the centre of gravity of the semiconductor industry moved from the late 1990s towards emerging makers in Taiwan and Korea, Nikon went on running the business around its relationships with existing customers, planting within itself the cause of its lateness in turning to the new ones. That the profits from steppers were ample dulled the sense of crisis inside the company — a point management itself would later look back on.

Too slow to follow the customers, and the lithography share is lost

Through the second half of the 1990s the geography of the semiconductor industry changed dramatically, as emerging Taiwanese and Korean makers such as Samsung Electronics and TSMC grew rapidly and redrew the map of the business. ASML of the Netherlands moved at an early stage to build collaborative relationships with these new customers, putting in place a development organisation and a service network that answered their demands immediately, and ate into Nikon's share. Nikon posted consecutive net losses: $159.9M (¥18bn) in the year to March 1999, $47.9M (¥6bn) in the year to March 2002 and $69.9M (¥8bn) in the year to March 2003. Lens fabrication for the immersion ArF systems of the time was likened to printing forty lines across the cross-section of a single human hair, so far had the contest over line width advanced into the extremely fine. In May 2006 Nikon booked $135.9M (¥16bn) in patent-litigation settlement money from ASML and others as an extraordinary gain — it was in direct conflict with its rival as well.

Where Tokyo Electron, a fellow maker of semiconductor production equipment, carried out a sales shift towards overseas customers, Nikon kept the centre of gravity of its management on its existing collaborative relationships with domestic ones. Losing share shrank the very source of its research and development funds, and it fell into a vicious circle of being financially outmatched in developing the next generation of machines. In 2012 it announced a strategic business tie-up with Intel, but this was not enough to overturn an oligopoly in which ASML held about 80 per cent of the world market. As the main battleground of lithography moved from immersion ArF to EUV, Nikon's position changed to that of a company fighting off the mainstream while carrying the memory of its former lead, and the lithography business was no longer of a scale to determine the fortunes of the whole company by itself. Here the winning formula of the 1980s — closeness to domestic customers — is shown to have become a constraint once the map of customers was redrawn.

Both pillars stall at once, and mid-term restructuring follows

From the middle of the 2010s the camera business lost the entry-level market to the spread of the smartphone, and found itself on the receiving end of the wave of mirrorless conversion in which Sony and Canon had gone first. Even in the press and professional high-end segment that had been Nikon's post-war signature, it grew harder to secure the development resources needed to answer a new generation of machines combining on-sensor phase-detection autofocus with an electronic viewfinder, and earnings went backwards. Two mainstay businesses — semiconductor lithography and cameras — falling into difficulty at the same time was a signal that the post-war model itself was shaking at its foundations. The need for structural reform was widely shared inside the company, and voluntary redundancies and the reorganisation of sites were carried through in succession. President Ushida Kazuo (牛田一雄) set out as his policy for this period the recovery of share in semiconductor lithography while repeatedly making clear that the founding businesses of optics and precision engineering would not be abandoned, placing restructuring and the inheritance of the founding trade side by side as the two wheels of the company.

In FY2020 the effects of the pandemic added to the fall in sales, and even as results recovered it remained hard to draw a picture in which the two mainstay businesses grew again together. Umatate Toshikazu (馬立稔和) had set out from his appointment in 2019 the policy of cultivating a further pillar of growth alongside semiconductor lithography and cameras, and in 2022 announced that up to $2.3B (¥300bn) would be made ready as a war chest for mergers and acquisitions, putting inorganic growth at the front. The digital manufacturing business built around SLM Solutions of Germany, made a wholly owned subsidiary in 2023, then ran into slowing adoption of metal 3D printers in general industry and the rise of Chinese competitors, and its future plans had to be reconsidered. In the third quarter of the year to March 2026 the company decided to book an impairment loss of $584.9M (¥93bn) on that business, an exercise in re-evaluating in concrete figures a growth story that had once been expected of it. Through a reorganisation into four businesses — imaging, precision equipment, healthcare and components — Nikon is pursuing the search for a new axis of growth and the tidying-up of unprofitable operations at the same time.