Olympus Imaging was a money-losing business

… and was therefore sold off. This is a story that has been told over and over again for decades, and that doesn’t make it any more true. From a purely accounting perspective, it was true. The division reported as ‘Imaging’ in the financial statements had, for decades, largely been posting losses. They were proud of breaking even, and on the rare occasions they did post a profit, the champagne corks popped, company representatives could barely walk at press conferences for sheer excitement, and they fantasised about market leadership.

The reality turned out to be quite different, as can be seen from Olympus Corp’s share price. Following the sale of the Imaging division, the market capitalisation soared, only for the company to subsequently lose half its value. A surprise? No. Anyone with half a brain could have seen exactly that coming. There was even an internal report that predicted precisely this outcome.

They sold Imaging anyway.

Why was Imaging important?

The camera division had been set up back then because the company was manufacturing microscopes. And users wanted to take photographs of what they were seeing. It was practical, as it meant you could then include a photo of the nasty bacterium in the patient’s medical records. However, there was no camera industry in Japan. So Olympus first developed suitable lenses, and then purchased camera bodies that were rather brazen copies of the German Baldax models. I wrote the full story here in 2019. The lens division was, so to speak, making a loss at the time – nobody wanted to buy the lenses. It wasn’t sold off, however, because the company needed the expertise for the microscopes. That was precisely why it had been set up in the first place.

And the Olympus camera division served exactly the same purpose right up to the end. It was all about expertise, development and, above all, production volumes. Olympus’s medical technology division needed sensors, thermal management technology and image processing. Why were Olympus’s colours always the best? Because in the medical sector, it’s absolutely crucial that the colours are spot on. Why were Olympus cameras always able to pack maximum performance into such small bodies? Because they had to have thermal management under control. If the endoscope ‘grills’ the bowel from the inside, that’s not good for sales.

In fact, it was the case that some technologies were first trialled in cameras for the consumer market. They could see what failed during mass production and what performed reliably. Because if anything could break – photographers managed to ruin it.

Of course, there was another problem in medical technology: electronic components. To hold your own against competitors like Fuji and Sony at the top of the market and be able to command competitive prices, you have to be better than the rest. Significantly better. It’s not enough to simply buy off-the-shelf components – because the others can do that too. You also have to be innovative when it comes to components. Accordingly, Olympus held dozens of patents in the sensor sector, and Olympus developers were regulars at the major sensor forums. Development like that doesn’t come cheap, but if you can sell a surgical robot for 5 million in return, then it pays off.

And what does that have to do with imaging? Exactly that. You can develop a sensor like that. And you can also cobble together a prototype. But you can’t get the volumes you need. Not reliably. The scrap rate is immense. And that is precisely what is simply not tolerable. Not in medical technology. So you need a large company that has mastered the relevant manufacturing processes and can deliver reliable volumes. But they won’t start manufacturing a complex sensor if the customer only needs 10,000 units. Retooling the fab and fine-tuning the process is so expensive that nobody can afford it. It only becomes viable from 100,000 units onwards. And from 250,000 units, the prices become affordable for end customers. But the medical sector never needs 250,000 sensors – and you can’t simply stash these things away in a high-bay warehouse for the next ten years; they’re stored in cold stores. So – as mentioned above – they build cameras, test technologies, and the end customers are happy with cool gadgets whilst medical professionals are pleased with reliable devices. And the company’s shareholders benefit from consistently good share prices thanks to consistently good profits.

The entire imaging division is therefore nothing more than a research and development and testing laboratory. And it always has been. It’s just that the camera developers had a certain degree of creative licence. Back in the OM days, they developed the craziest lenses, cameras and adaptors. The ‘MDN’ or the ‘O-Product’ “.

Terada even had a few digital Olympuses converted into steampunk contraptions after I told him at a Photokina that he should try building a camera with a steampunk design. I’d love to have the resulting PEN-F; it simply looks fantastic. I found photos of all the cameras and lenses on a Hungarian website.

So the imaging division was an integral part of the medical division’s development process.

Yes, but why was it sold off? Following the accounting scandal, Sony acquired 5 per cent of the shares to prop up the share price, which was plummeting at the time. After a few years, Olympus had recovered; the share price was back to normal levels and Sony wanted to sell its 5 per cent stake and, naturally, make a hefty profit in the process. Sony offered to sell the shares back to Olympus, but Olympus wasn’t interested in helping Sony make such a massive profit. So Sony sold the package to an American investor. This investor suddenly found himself with a significant stake in Olympus and began to meddle in the company’s affairs. Eventually, he threatened to replace senior management if Olympus did not significantly boost its share price. So the microscopy division was sold off, as was the imaging division. The share price soared as planned and has, unfortunately, since then almost returned to the level seen at the time of the accounting scandal. Adjusted for inflation, it’s actually below that level. But the American investor – as planned – made a quick buck.

In the long term, this was the expected disaster for Olympus.

We in the West have now been so brainwashed that we equate ‘slumps in profits’ with ‘heavy losses’. And if a company fails to meet ‘analysts’ expectations’, it’s already in crisis. And that a short-term rise in the share price might have anything to do with the company itself. No, shares are securities that the company has sold and which are now being traded. Like stamps. A stamp is a voucher for the postage of a letter. Whether I sell that 90-cent stamp privately for 10 cents or 100 euros is of no concern to the Post Office. I get exactly one letter delivered with it.

If an R&D department and a service department are making a loss, but the company as a whole is wealthy, then it’s obviously doing everything right.

In this context, the issue of paid firmware updates is also interesting. ‘The company has to make money!’ Strange. The E-M1 era was the most successful period for Imaging. Despite the free firmware updates. Why? Because people were walking around completely free of charge and telling all their mates what a brilliant company it was. Back then, Panasonic released a paid firmware update which caused them real damage to their reputation and was hacked within a short space of time. They haven’t tried that again.

In the short term, some ideas might look really cool – in the long term, they often turn out to be a complete flop.

Cover photo: Toshi Terada at the presentation of the E-M5 in Amsterdam in 2012.