PENTAX Corporation — Company History

A start split across two legal entities, both burnt out in the war

In November 1919 Asahi Kogaku Kogyo Goshi Kaisha (旭光学工業合資会社), a limited partnership, was founded at Nishi-Sugamo in Toshima-ku, Tokyo. What it made were spectacle lenses and projection lenses for cinema, and the substance of the business lay in the grinding of glass. In December 1938 a separate joint-stock company, Asahi Kogaku Kogyo (旭光学工業株式会社), was established alongside the partnership, with Kajiwara Kumao (梶原熊雄) becoming its president. The business was divided into two legal persons not in order to expand it. Because the partnership had been designated a factory under military control, the manufacture and sale of the civilian goods it had handled until then — centred on lens grinding — had to be carried on through a separate legal person. Alongside lens design, the joint-stock company began manufacturing camera lenses and binoculars.

The separation made in order to keep civilian production alive did not hold for long. The joint-stock company was itself designated a factory under military control, and the two firms were still running side by side when the war ended; both were burnt out in air raids. Reconstruction was attempted on both sides, but in February 1948 the partnership was dissolved and only the joint-stock company remained. What was left in hand was nothing but the lens-grinding technique carried on since 1919 — the factories and the products had burnt. In September of the same year the company began producing binoculars and telescopes for export, and at the same time took up the making of prototype cameras. Binoculars and telescopes were among the few civilian goods able to earn foreign currency in occupied Japan, and they became the immediate means of subsistence. The cameras, for their part, remained prototypes with neither a buyer nor a format decided.

An entry made by choosing the format nobody was mass-producing

Asahi Kogaku Kogyo narrowed the target of its prototyping to the single-lens reflex camera. It is a format in which the image passing through the lens is seen as it is photographed, and it was without precedent among the Japanese cameras of the day, when coupled-rangefinder models were the mainstream. In May 1951 the company succeeded in building Japan's first prototype single-lens reflex camera, and in the following year, 1952, began manufacturing it as the Asahiflex I. It did not carry a sales organisation of its own, concluding instead a distributorship contract with the watch dealer K. Hattori & Co. (株式会社服部時計店). For a company rebuilt from a burnt-out site, laying a nationwide sales network by its own effort would have taken time, and borrowing the shop fronts of a watch retailer was quicker. In April of that same year, 1952, it moved its head office and factory to Maenocho in Itabashi-ku, Tokyo, renewing its production base as well.

The single-lens reflex had one long-standing defect. When the shutter was released the mirror flipped up and did not come back, so that the image in the viewfinder vanished from that instant onwards. In 1954 Asahi Kogaku Kogyo developed, ahead of the rest of the world, an instant-return mechanism that brought the mirror back automatically, and removed the inconvenience. Only here did the single-lens reflex — a camera on which the next composition could be followed immediately after a shot — become a practical tool. The 1971 introduction of newly listed companies in Shoken (証券) wrote of this development that it thereby laid the first step towards today's age of the flourishing single-lens reflex camera. More than the title of being first in Japan, it was this mechanism that carried the product lines of later years.

How the name of a single model became the name of the company

In March 1955, in order to widen distribution, the company separated its sales division and entrusted the selling of its products wholly to Asahi Optical Trading (旭光学商事株式会社). Free to concentrate on manufacturing, Asahi Kogaku Kogyo developed in 1957 the Asahi Pentax, a single-lens reflex fitted with a pentaprism. The five-sided prism corrected the image both left to right and top to bottom, so that the composition could be followed while looking through the finder, and the mechanism became the standard for single-lens reflexes thereafter. The company improved on it in turn through the K, S2, S3 and SV models, arriving in 1964 at the SP with TTL (through-the-lens) metering. Measuring the light that had passed through the lens itself, this model settled the company's standing in single-lens reflexes.

The product name changed what the company itself was called. The sales company established in 1955 later altered its trade name to Pentax Sales (ペンタックス販売株式会社). The overseas sales subsidiaries followed the same road: the Belgian entity set up in 1962 was named Asahi Optical Europe at its founding but was later renamed Pentax Europe N.V. In the United States in 1976, West Germany in 1977, Canada in 1978 and the United Kingdom in 1979, the sales companies lined up across the principal Western markets within four years, and every one of them bore the Pentax name. The parent's own trade name, however, did not change from Asahi Kogaku Kogyo to Pentax until 2002, so that a state in which the product name had overtaken the company name lasted for close to half a century. One model name born in 1957 rewrote first the sales network and, forty-five years behind it, the name of the legal person.

Exports past the halfway mark, and the flotation around 1970

The sales channels turned outward early. In 1959 the company concluded a distributorship agreement with Honeywell of the United States covering the whole of America and Mexico, and it placed local entities in Belgium in 1962 and in Brazil in 1967. Exports as a proportion of sales stood at 48.8 per cent in the year to June 1967 and reached 57.5 per cent in the year to June 1969. In the year to June 1970 the figure fell back to 51.4 per cent, but that was the result of following an understanding within the camera industry that domestic demand should be met as far as possible while the Osaka Expo was running; this was the only term in which it fell. Sales passed $27.8M (¥10bn) for the first time in the year to June 1969, at $30M (¥11bn), and in the year to June 1970 came to $37.5M (¥14bn), up 25.0 per cent on the previous term.

On the production side the company began building, from September 1967, a factory at Mashiko-machi in Haga-gun, Tochigi Prefecture at a total cost of $8.3M (¥3bn), completing it in November 1969. That the growth of sales slowed in the year to June 1968 even as domestic demand recovered was because the company had run up against the limit of its productive capacity, with utilisation at 97.5 per cent; the Mashiko plant was built to remove that constraint. The construction, however, brought increases in interest paid, in depreciation and in consumable tooling, and the ratio of cost of sales to turnover rose from 66.5 per cent in the year to June 1968 to 71.2 per cent in the year to June 1970. Room to raise output had been opened up, but the growth in sales came coupled with a fall in the margin. In December 1970 the company listed on the second section of the Tokyo Stock Exchange, and in November of the following year, 1971, moved to the first section.

The terms of specialisation for a company that entrusted 96 per cent to one product line

At the time of its flotation the company was shaped differently from the other camera makers. Of the $37.5M (¥14bn) of sales in the year to June 1970, 96.2 per cent was taken by single-lens reflex cameras and their accessories. Its competitors earned between 20 and 50 per cent of their sales from optical products other than cameras. Classified as a general optical manufacturer, it was in substance a specialist in single-lens reflexes. Only two other firms specialised in the same way at the time, Miranda Camera (ミランダカメラ) and Zenza Bronica Industrial (ゼンザブロニカ工業), and of these Miranda made only for export while Zenza Bronica handled only the 6×6 format. The company had 2,453 employees, an average age of 24.6 and an average length of service of 4.5 years; it operated a job-based pay system that avoided seniority ranking, and distributed one sixth of annual after-tax profit as a year-end bonus.

Specialisation was a strength and a constraint at once. From about 1965 the various makers switched production from 35mm coupled-rangefinder cameras to single-lens reflexes, and as domestic output rose the company's share of the single-lens reflex market fell year by year. The company that had established the format first lost part of its take through the very spread of that format. Against this, Asahi Kogaku Kogyo extended its business into the range its optical and lens-processing technology could reach: spectacle lenses in September 1972, automatic drafting machines in November of the same year, and medical equipment in December 1977. The work of raising businesses that earned outside cameras went on from this period for more than twenty years.

In March 1978 President Matsumoto Saburo (松本三郎) died suddenly of angina, and the vice-president Matsumoto Toru (松本徹) became president at the age of 42. He had graduated in applied physics from the Faculty of Science and Engineering at Waseda University in 1958 and joined the company; after taking a degree in industrial management at the Massachusetts Institute of Technology in 1963 he became a director in August of that year, a managing director in 1966 and vice-president in 1968. His father, the previous president, had led the company from within with a forceful personality, saying that the company matters more than my wife, more than my children. Tanaka Shunji (田中俊二), a director of Yamaha Motor who had lodged in the same house during his studies abroad, said that hearing him tell of the struggle to develop the pentaprism had left him with the impression of a man of very great originality. The ideal the new president set out was the opposite of his father's: he did not adopt a style of management in which he himself stood at the front.

Endoscopes and dental implants: twenty years in medicine, entered last of all

In the medical equipment business it had entered in 1977, the company put endoscopes at the centre. Its entry, though, was the latest in the industry, and with Olympus Optical holding close to eight-tenths of the world market, Asahi Kogaku Kogyo began from the bronchial field. The world market for endoscopes was small — around $1.6B (¥200bn) even at the start of the 1990s — and yet demand was growing. On the other side of its medical business, the company announced the Apaceram (アパセラム) dental implant in March 1983 and entered the artificial tooth root market in 1984. The material was apatite, a compound of calcium and phosphoric acid, close to the constituents of bone and readily accepted by the body. In November 1987 it obtained manufacturing approval for a composite type in which titanium was clad in apatite.

The market for dental implants was small. As of 1989 its scale was some ¥2bn and a little more, annual usage did not reach 100,000 units, and the price stayed at the level of $145 (¥20,000) to $217 (¥30,000) apiece. More than thirty companies were crowded into it counting those still at the research stage, and Kyocera held around seventy per cent. That none of them withdrew nonetheless was because the dental implant was the entrance to artificial bone, artificial joints and bone-filling materials. Hidaka Tsuneo (日高恒夫), general manager of Asahi Kogaku Kogyo's New Ceramics Division, said that a dental implant needs each company to have a philosophy of its own. It was an attempt to carry the glass and the precision machining polished on cameras straight over into materials to be placed inside the body.

The four causes of the ¥9.3bn loss in the year to March 1993

The consolidated accounts for the year to March 1993 showed a net loss of $84.1M (¥9bn), a second consecutive year in deficit. There was not one cause but several. A settlement of about $25.2M (¥3bn) in the autofocus camera patent suit brought by Honeywell of the United States, and some $16.2M (¥2bn) of exchange losses caused by the rising yen, were compounded by an operating loss of $5.8M (¥650m) and a financial deficit of more than $27M (¥3bn). Operating profit in the camera division fell from $68.7M (¥9bn) in the year to March 1991 to $7.7M (¥851m) in the year to March 1993. The equity ratio was above 40 per cent on an unconsolidated basis but below 20 per cent on a consolidated one. The losses ran deeper on the consolidated side, which took in the overseas sales subsidiaries, than in the parent's own accounts.

The patent case and the exchange rate were burdens that came from outside; the principal cause of the loss lay elsewhere. The Zoom 60X compact camera released in April 1991 was left as inventory when the bullish demand forecast of the American sales subsidiary proved wrong, and the Z-series autofocus single-lens reflexes, the company's first new SLRs in four years, did not sell either. To clear the excess stock the company cut production in the year to March 1993, and the fall in utilisation worsened the returns further. Cameras still accounted for 60 per cent of sales, the highest proportion in the industry. The company had for years held up the goal of bringing that below 50 per cent through diversification, but more than twenty years after moving into spectacle lenses in 1972 it had not got there.

A rebuilding designed to leave people out of what was cut

In November 1992 a rebuilding organisation committee was formed, chaired by President Matsumoto Toru and made up of directors of managing-director rank and above. Beneath the committee were placed nine working groups on themes such as materials purchasing, transport and general expenses, together with seven executive committees, one for each division. President Matsumoto set out three objectives: to improve profitability in the camera division and give it resistance to recession, to grow the divisions that were in the black such as endoscopes, and to review the loss-making divisions such as optical instruments and return them to profit quickly. On the calculation of Mori Katsuo (森勝雄), a director serving as head of the accounting department and of the president's office, the effect of the cost reductions would be more than $36M (¥4bn) in the first year alone, of which more than half was to be generated in the camera division.

Where the company put its hands was the layout of production and the narrowing of its businesses. The manufacture of single-lens reflexes and high-grade compacts, carried until then by the two plants at Mashiko and Ogawa, was concentrated in the subsidiary Tohoku Seiki (東北精機), and the production subsidiary in the Philippines was to double its annual output from 400,000 to 800,000 units as the base for mid- and high-grade compacts. The proportion of cameras made overseas was to be raised from 50 to 70 per cent within three years. In the autumn of 1992 the company decided to withdraw from 8mm video cameras, a business it had entered in 1986 on an OEM supply from Hitachi. Suzuki Minoru (鈴木実), senior managing director and head of the production division, explained that we cannot stand against the price competition of the appliance makers, who are prepared to run at a loss, and since there is no prospect of turning to profit we have decided to withdraw.

People were left untouched. From March 1993 onwards 110 employees were redeployed, 40 of them into the endoscope division. Reductions were left to natural wastage, on a plan to shed 100 a year and 300 over three years to reach a workforce of 2,300, and no voluntary redundancy was sought. Of the redeployment, Director Mori said that for us it was on a scale unlike anything in recent years. Having excluded people from the things to be cut, the company had no choice but to take its costs out of materials purchasing, transport and general expenses instead. Yet in return for protecting employment the scope for cutting fixed costs was limited, and the recovery of earnings depended on the number of cameras sold. More than one analyst regarded the sales volumes the company forecast as too high.

Matching the company name to the product name, and turning into a buyer of components in the early 2000s

The consolidated accounts for the year to March 2002 showed a net loss of $40.2M (¥5bn) on sales of $838.9M (¥105bn). In the same term the company closed its Ogawa works in Saitama Prefecture. Around that closure, in October 2002, it changed its trade name from Asahi Kogaku Kogyo to Pentax Corporation, and at the same time entered the in-vitro diagnostics business. A model name of 1957 had, forty-five years on, become the name of the legal person. From the following year sales recovered — $932.5M (¥108bn) in the year to March 2003, then $1.2B (¥134bn) and $1.2B (¥134bn) — and net profit returned to the black. In medical equipment the company took over the biomaterials business of Mitsubishi Materials in October 2004, and in December of the same year acquired Microline Inc. of the United States, a maker of laparoscopic surgical instruments.

In digital single-lens reflexes, lateness of entry translated directly into a gap in market share. Where Canon and Nikon had put products out continuously from the late 1990s, Pentax and Olympus did not launch until the autumn of 2003, and as of 2006 the share of each of the two stood at around 5 per cent. That was no larger than Konica Minolta, which withdrew from the camera business altogether. In the era of silver-halide cameras optics and mechatronics were the core technologies, and they fell squarely within the strengths of a precision manufacturer. In digital, CCDs, liquid crystal displays, image-processing engines and batteries had to be bought in from outside, and the high proportion of purchased components translated directly into the weight of cost.

What the company chose in response was to join with a partner that held the components. In October 2005 it allied in digital single-lens reflexes with Samsung Techwin, the digital camera arm of the South Korean Samsung Electronics group, and at the end of January 2006 put a jointly developed product on the market. The aim was to obtain better terms in procuring devices, but Samsung engineers were stationed permanently at the development site. Torigoe Ko (鳥越興), head of the imaging systems business division, said that we are protecting the core optical part. The products themselves were well received. The K100D, which built image stabilisation into the camera body, and the K10D that followed it won support on price against performance, and at the start of 2007 the company was buoyant over the sales of its new models.

The agreement to integrate, and a revolt that dismissed the president

In December 2006 Pentax announced a business integration with HOYA, with a merger planned for October 2007. The market took favourably to the combination of HOYA, which earned high operating margins on devices built around glass, with Pentax and its optical technology. The merger ratio, however, left the major shareholders Sparx Group and Fidelity Investments dissatisfied. In addition, President Urano Fumio (浦野文男) had not told most of the directors that integration talks were taking place until the morning of the day of the announcement. At the end of January 2007 HOYA's chief executive Suzuki Hiroshi (鈴木洋) referred to the possibility of selling off the camera business, whose profitability was low.

At an extraordinary board meeting on the morning of 10 April 2007, one of the eight directors moved for the dismissal of President Urano Fumio, and the motion carried by a majority. Senior Managing Director Mori Katsuo, who had kept in step with Urano, was removed from his post as well, and Watanuki Yoshiji (綿貫宜司), the most junior director, was raised to the presidency. The merger too was withdrawn for the time being. What moved the opposing camp was alarm at HOYA showing interest in nothing but the medical equipment division. As long as the digital single-lens reflexes were selling, a view emerged among the executives that the company could survive on its own. Judged by the competitiveness of the products at that moment, the opposition's reasoning held. What they miscalculated was that good products do not change the size of a company.

The month and a little to acceptance, and the end of an independent company

On 23 April 2007 HOYA announced that it was abandoning the merger planned for October, and stated that, with a period for consideration running to the end of May, it would aim at a friendly tender offer from June onwards. Sparx Group, the largest shareholder, submitted a shareholder proposal for the general meeting of 22 June that would keep the dismissed former president Urano Fumio and others on the board and refuse to let the incumbent management continue. The medium-term business plan the new management announced on 11 May — concentration on three core businesses and an operating margin of close to 6 per cent the year after next — was weak material on which to sustain independence. On 16 May President Watanuki conveyed his acceptance of the integration at a meeting with chief executive Suzuki Hiroshi. It was settled a little more than a month after the dismissal. After the general meeting in June, President Watanuki also stepped down, and Yajima Nobuaki (谷島信彰), who had come from the old Asahi Optical Trading and had run the European business and corporate planning, became president.

Pentax's market capitalisation was a little under $849.1M (¥100bn), less than the operating profit HOYA earned in a single year. Sparx Group had $14.4B (¥1.7tn) of assets under management. What decided the outcome was not the quality of the products but this difference in scale. In August 2007 HOYA's tender offer succeeded and Pentax became a consolidated subsidiary; in March 2008 it was absorbed by merger and its shares were delisted. Seventy years from its establishment in 1938, or eighty-nine counting from the lens grinding of 1919, its history as an independent company was over. The camera business went on making losses inside HOYA, and in July 2011 HOYA announced that it would transfer the Pentax-brand digital camera business to Ricoh. The transfer was set for October that year, and the brand survived under Ricoh. That transfer confirms that the aim of the acquisition had lain in the endoscopes.