And in the surveillance camera area, we strengthened our software capabilities by bringing Milestone into the Canon Group.
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- Lewis Fletcher
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2 One year ago, at last year s Corporate Strategy Conference, I emphasized our aim to strengthen our B2B business portfolio as a growth strategy to realize growth capable of swiftly responding to changes in the market environment. At that time, I explained our thinking regarding how we intend to expand new businesses in the future, highlighting select medical equipment and industrial equipment development projects in which we were making progress as well as some new businesses that were already launched. Over the past year, we have made further progress in several of these projects, one of which involves nanoimprint lithography. With the acquisition of Molecular Imprints, we have accelerated the development of this technology with the aim of commercialization. And in the surveillance camera area, we strengthened our software capabilities by bringing Milestone into the Canon Group. Our ability to secure important elemental technologies for new businesses as well as cultivate new businesses one after another is linked to efforts to strengthen our financial structure and build a structure that generates cash flow. This year, which marks the final year of Phase IV of the Excellent Global Corporation Plan, we will complete preparation for growth that we have been carrying out as a means of significantly accelerating growth over the course of our next five-year plan. Today, I will explain the concrete strategies with which we plan to realize our return to a growth trajectory.
3 First, a review of Phase IV. In 2010, the global economy was emerging from the shock following the collapse of Lehman Brothers, showing strong movement towards growth. Accordingly, we viewed 2010 as the first year in a new era of growth as we embarked upon Phase IV, aiming to achieve sound growth by strengthening existing core businesses and cultivating new ones. In actuality, however, due to several factors such as the Great East Japan Earthquake, Thai floods, the expansion of bad times linked to Europe s financial problems, along with the significant impact of extreme yen appreciation, which advanced into the 70s against the U.S. dollar, on our performance, we could not achieve the level of performance we were aiming for. During this time, however, we worked to further refine our production engineering technologies, raise manufacturing, and build a structure that generates profits. At the same time, we also laid the groundwork for the cultivation of new businesses, utilization this profit. In order to overcome the challenges posed by the current times, we changed course from a focus on volume to a focus on quality, as we judged it important to secure profits, accumulate cash reserves, and strengthen our financial structure in order to return to a growth trajectory.
4 And at last, we are finally starting to see improvement in market conditions. The U.S. economy has been showing clear signs of a pickup while in Japan, Abenomics has been gradually relieving anxiety over the future. With market conditions now starting to improve, we are looking to change course again, reformulating our growth strategies. Within this, we believe our camera business, based on a broad perspective, could once again drive Canon s growth. This is because, for us, cameras represent an area in which we boast superior technologies compared with our competitors.
5 As things stand, a portion of the compact camera market is shrinking due to the impact of smartphones. Additionally, demand for interchangeable-lens cameras is shrinking due to a completed cycle of users replacing their analog cameras with digital ones. This just shows that the market has entered a new phase. A significant change in demand for cameras themselves has not occurred. We expect the market to bottom out in the near future, followed by a return to stable growth. By further refining the lens technologies we have built up over many years, as well as sensors and other technologies, we will respond to user needs, realizing advances in functionality to further generate demand in the B2B market.
6 A Canon 4K camera was selected for use on the International Space Station. Additionally, Canon lenses and mirrors are used in the construction of the Subaru telescope. We have also successfully developed a CMOS sensor that delivers an image resolution of approximately 120 megapixels, the world's highest level of resolution. By thoroughly raising our powerful camera related technologies, which also includes aspherical lens, and through horizontal expansion into new business spheres mainly B2B, we believe Canon s camera technology has the power once again drive Canon s growth.
7 A recent example of our success to expand horizontally is our Cinema EOS system. The System got its start from video-enabled SLR cameras, which could be paired with various lenses to produce high-quality video footage, helping to create a new market within the motion picture industry.
8 And now, we are devoting great attention to surveillance cameras. Amid an increasing need for safety and security worldwide, the shift from analog to digital surveillance cameras is proceeding rapidly, coinciding with advancements in digital technology and network environments. These changes have become a driving force, supporting expansion in the market. Furthermore, the popularization of cloud services along with advances in big data management has provided a significant tailwind for the market, and we expect the network camera industry, including video solutions, to grow significantly in the future. The market for network cameras, including peripherals and software, is expected to continue to grow by a yearly rate of nearly 20%, reaching a market size of 2 trillion in In response to these market trends, we proceeded apace with full-scale business expansion, setting up a dedicated organization in 2013, however, our standing in Japan remains low, and on a global basis, we are still fighting a tough battle.
9 In the network camera market, camera hardware is just one part of the overall business, which also includes video management software that records captured images, and applications that analyze collected video. All of these components must be integrated into a system and then delivered to customers. The needs of the market are also expanding to include surveillance not only from the standpoint of safety, but also for supervising manufacturing processes at factories, gathering market information at business establishments, and for caring of the elderly. Therefore, to achieve growth in this market, we need to secure indispensable components such as video management software and video analysis solution technologies and link this with cameras, an area where Canon excels. Furthermore, we need to strengthen our partnerships with system integrators and resellers, who combine these components into systems that are then sold to customers. For us, above all else, because this was an area of weakness, we needed to address this topic as soon as possible.
10 Last year, we brought Denmark-based Milestone, the leader in video management software, under our umbrella. And now, we are preparing to welcome Axis, the leader in the network camera market into the Canon Group. I personally met with one of its founders, Mr. Martin Gren, as well as Axis management team and major investors for direct negotiations, during which I discussed our thoughts about building a winwin relationship through synergies and our vision of the future. I truly respect Mr. Gren, an innovator and founder of Axis. Additionally, from various perspectives such as the company s product development capabilities, well-established sales network and also from a financial standpoint, Axis is a truly impressive company. Through the negotiation process, I strongly felt that, by joining up with Axis, Canon would be able to help the company to further secure a top position in the network camera market.
11 Axis biggest strength lies in its sales capability and the unique sales network it has constructed. As previously mentioned, the network camera market comprises vendors that offer cameras, software solutions, and integrators that mold these components into systems. As the pioneer and leader of the network camera market, Axis has been expanding its business by deepening its cooperative relationship with integrators and reinforcing this through the proprietary partnership program that they provide. This program, is not limited to just supporting sales, it also supports partners in other ways such as offering development tools and technical guidance, contributing to building strong partner trust. Last year, Axis added 10 thousand partners, and now has a total of 75 thousand located in 179 countries around the world. Their ability to expand is overwhelming, not only preventing the competition to follow, but also contributing to their unshakable top worldwide position.
12 Furthermore, Axis s product development capabilities, which builds on its excellent network image processing technologies, excel sin terms of both quantity and quality, which is one of the reasons why so many system integrators make use of the company s products. In this way, Axis, which stands out in terms of sales and product development capabilities, has maintained its global No. 1 spot for such a long time.
13 By adding Milestone and welcoming Axis to the Canon Group, we will have concentrated top players in each area that makes up this market. At Canon, our strength lies in our optical, sensor and image-processing technologies. Milestones strength lies in video management software, while Axis strength lies in its network technologies and its well established sales network.
14 By leveraging the complementary strengths of all three companies, we will be able to offer advanced high-performance network solutions and significantly enhance the competitiveness of our products. Furthermore, this combination offers immeasurable benefits for our intellectual property portfolio and production technologies, as we as for each company s brand strength.
15 The Axis transaction will also significantly advance us toward the realization of the Three Regional Headquarters management system that we have been making progress with. As you know, Axis is a Sweden-based global company that conducts business worldwide. In addition to Océ s commercial printing equipment, we expect our major companies in the network camera segment to be based in Europe, and as we lay the groundwork for our medical division in the United States, in the future, each company will oversee its own business with prompt decision making handled in Japan, the United States, and Europe. Accelerating management speed and achieving growth while keeping pace with the changing times, this is the goal we aim to achieve with the completion of our Three Regional Headquarters management system.
16 Another pillar of our growth strategy is to become the world s No. 1 printing company. We have a broad product lineup that includes not only copiers and laser printers, but also inkjet printers as well as commercial and industrial-use printers. Due to time constraints, I did not include a detailed discussion of this strategy in today s presentation. I would, however, like to discuss this and our other business strategies at Canon EXPO, an event we hold once-every-five-years.
17 At Canon EXPO, which makes its first of four stops around the world in New York in September, we will be showcasing our technological capabilities. In addition to network cameras, we are also promoting product development in other areas, and extensively researching new business possibilities, and targeting those markets that seen to have high growth potential. From those, we will select projects that are in latter stages of commercialization or innovative product designs, or even leading-edge technologies that will play an important role in the future to showcase Canon s vision of the future.
18 In this way, the time is now ripe for us to head into our next five-year plan. This year, the final year of Phase IV, the entire company will make its best effort to ensure that we achieve new growth over the course of our next five-year plan.
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