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Micro 4:3

Olympus Divestment Next Steps and Reflections

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On September 30th 2020 the announced deal between Olympus corporation and Japanese Industrial Partners has been signed. Despite all sort of hysteria that is out there on the internet the deal structure is quite simple and there is good information released by Olympus Global on this link.

The Birth of OM Digital Solutions Corporation

The data provided tells us that the current head of the camera business will transfer to the new company that will be headquartered in Tokyo. OM stands for Olympus Maitani however the word Olympus does not feature in clear in the company name perhaps because Olympus corporation did not want to have any ambiguity or misunderstanding going forward on who is Olympus.

So the first indication is that Olympus as camera brand effectively ends when the deal completes on 31st December 2020. What continues is the legacy of Yoshihisa Maitani who originally invented the OM system.

What is included in the deal

This is the official text in the news release.

The agreement applies to Olympus’ global Imaging business, which includes all R&D and manufacturing facilities currently dedicated to its Imaging business. The New Imaging Company will continue to provide high-quality, highly reliable products. Built on a solid foundation, including the Zuiko and OM brands, which are grounded in optics and digital imaging technologies cultivated by Olympus over many years, the New Imaging Company will be appropriately positioned to further pursue new developments. Head of sales and marketing, R&D and designing departments for imaging products will be relocated to the headquarters of the New Imaging Company in Hachioji, Tokyo. Production will continue at the location in Dong Nai province, Vietnam, where imaging products are currently manufactured. The New Imaging Company will continue to provide customer support for the imaging products which have been manufactured and sold by Olympus. Following the transfer of the Imaging business, Olympus will concentrate on Medical and Scientific Solutions, in our ongoing efforts toward making people’s lives healthier, safer and more fulfilling.

So what does this mean? Today Olympus operates as a single company and the imaging business is included in it so they needed to work out what exactly they were selling. From that list this includes:
• The Zuiko and OM (Olympus Maitani) brands
• The R&D department
• The Sales and Marketing Department
• The factory in Vietnam
And Olympus will focus on the medical and scientific business. The new OMD company will take on the after sales responsibility and warranty usually associated with provisions for repairs and returns.

What is NOT included in the deal

What is not included in the transfer is usually anything not specifically mentioned as included so a few considerations here expressing my view on the deal.

The factory in Nagano, Japan is not transferring but according to JIP news release will become a supplier to the new company. This is good for JIP as the factory in Vietnam is less than 3 years old and is in a market where workforce arrangements are more flexible than Japan. The Japanese factory that makes some components for Vietnam and in some cases full lenses will remain as supplier. Olympus also uses Sigma designs for some lenses like the 75mm 1:1.8 and the new 100-400mm 5-6.3 this will continue with OMD.

The Olympus Supply Chain is currently shared with the medical division there are a number of regional and local warehouse that will remain with Olympus together with any stock that is in there. All stock at customers (distributors or resellers) remains the property of those third parties. This is an important implication because it effectively means that OMD starts at zero stock and all the inventory sitting in those warehouses are Olympus corporation problem to clear, we have already seen aggressive promotions on OMD EM1MKII with a free 1.2 Pro prime lens. I bought one of those units and it was manufactured in February 2019 so clearly Olympus corporation distribution network is sitting on years of old stock.

The Olympus commercial network also remains with the seller and this means those entities will continue to trade in the respective markets until such time OMD decides to build their network, they may even decide to use distributors and focus on manufacturing and continue to use Olympus corporation or anyone else as they see fit, what is clear is that OMD is a manufacturing company not distribution. It will remain to be seen how the after sales services will be performed however this could simply mean customers get a replacement product or goods are sent all the way back to Vietnam for fixing or they establish 3rd party service centre to deal with this issue. Panasonic currently does that.

Future Direction of OMD

JIP has mentioned that they will focus more on video and on business customers this is good news as MFT strength really is in those two sectors. Panasonic has exploited that success while Olympus was only sticking to photos and suffering more the smartphone competition. We have seen an announcement that the newer OMD EM1 MKIII E1X will work in ProRes RAW with the Atomos Ninja a first step to get in that territory. Security is a big topic in MFT too as the back illuminated sensor in the GH5s is excellent in low light.
Will JIP review the product range? For sure any situation like this sees a range rationalisation exercise. This means some SKU may be discontinued and some products in future roadmap never go to market. Olympus America website quickly put up a Q&A to that regards the three key answers are here, on the left what it says on the right what I think it means as the writing is not as black and white as you probably would like.

QuestionOfficial AnswerMy Interpretation
Will the Olympus brand name continue to be used?While our official company name will be OM Digital Solutions, you can expect the Olympus brand name to stick around for the foreseeable future. Olympus branded products will continue to be available even after January 1, 2021.The brands that will transfer are OMD and Zuiko. Olympus supply chain is sitting on a lot of old stock and currently all products being made are still branded Olympus, this will continue like that until the transaction closes. The Olympus  brand will continue to be used also because the medical company continues.
This does not mean that the cameras produced under JIP ownership will be branded Olympus and there are strong indications they will be called OMD as the word Olympus is associated with the medical company in the deal information and is not part of the new company name.

Will the new lenses announced as under development for sales in 2020 still be introduced?
There are no plans to change our product launch plans within 2020. Products that have been announced as under development will be introduced to the market as planned. You can find the most up to date information on product launches by visiting: http://www.getolympus.com
Olympus can only guaranteed what happens when they own the camera business. All things planned for Winter 2020 are going to happen if they happen before 31/12/2020 afterwards they do not know.

What is the future of Micro Four Thirds? Is there any change to the proposed lens roadmap? Will there be a future replacement for my Olympus product?		We are not able to comment on future product development at this time. For the most up to date information on Olympus products in the Americas, please visit: http://www.getolympus.comThe lens roadmap is an Olympus document what JIP will do with it is not something they know. In fact it is very likely to change if those projects are not going to provide a solid business case. They can also not comment on future cameras nor Micro-Four-Thirds are that is no longer their business

Also to be noted Micro-Four-Thirds is an open standard the fact that Olympus runs the four-thirds website does not mean anybody has to pay Olympus to make an MFT camera. So there is no issue of licensing rights connected to the MFT standard which only relates to AF and AE this is the reason you see many manual lenses not following the standard or not being listed.

Conclusion


The divestment of Olympus Imaging business is a sad moment for most as it marks officially the end of a legacy for what concerns Olympus corporation. With the performance that the business has had in the last years this was not avoidable. The new ownership will start with a streamlined business, a focus on manufacturing and a clean slate with no debts or old inventory to clear. OMD will also start with some good assets the IBIS and Auto Focus developed by Olympus are very effective and can play well especially if the new focus is on video. New more dynamic businesses like BlackMagic Design and Zcam are having success with the MFT format for video and this is an opportunity that Olympus missed entirely and hopefully the new company will grab. Will this be enough to save the MFT format from extinction? Definitely video is a more profitable segment where there are no smartphones that can really compete for those who want to be really doing a good job because the devices heat up, run out of battery and finally the editing process is still too complex that requires a workstation. I hope the OMD business can fully realise the full potential of MFT and provide a truly hybrid system, something Olympus failed to deliver with their still focussed product line. In the short term, and by this I mean the next two years, not much will change to the user experience, but we need to understand if Micro-Four-Thirds will have enough traction to continue for photography with new models or it becomes a video specialist segment.

Micro 4:3, Underwater Photography, UNDERWATER VIDEO

Olympus vs Panasonic for Underwater Use

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I have been shooting MFT underwater since 2014 coming from compacts but I have also owned DSLR cameras for land use. As I initially focussed my underwater imaging on video I adopted Panasonic MFT cameras as they have an edge in terms of video use coming from Panasonic long established video and broadcast legacy.

Recently, just days before the divestiture announcement, I have purchased an Olympus OMD EM1MKII. I have decided on this camera as during lockdown I have been attempting pictures of birds in flight and the autofocus of my Panasonic G9, that I was using since February for land pictures, was not satisfactory.

I have since pondered if it made sense to switch to Olympus also for underwater use and I have considered the pro and cons of this choice compared to Panasonic semi pro models GH5 and G9. I thought of sharing my thinking with you so that if you are considering an MFT system as your next investment for underwater imaging you have a point of reference.

Note: I am only considering the top range Olympus cameras as others do not offer in my opinion any benefit over Panasonic range.

Strengths of OMD System

Olympus OMD Auto Focus system

At time of writing the OMD EM1 series and the EM5 Mark III use an Olympus specific on sensor phase difference detection auto focus system. Note this is different to DSLR phase detection and more similar to Sony hybrid AF system.

I found this system to be very effective with birds in flight once locked on the subject and much faster in locking on subjects as long as the background was clear; with this I mean this system still struggles if there is a busy background to acquire focus. In particular the CAF with tracking is very effective for birds that do not move too fast in the air or are about to take off from a fixed spot. It also effectively tracks at higher frame rate any type of object in motion. This system is superior to Panasonic CAF that is based on motion estimation for shots following the first one of the burst. More specifically it is harder to acquire focus for the first time with Panasonic and the following shots are estimated using a motion prediction algorithm without  continuous autofocus. This feature is the one that sets Olympus camera that have phase detection AF apart from Panasonic and from more economic Olympus model such as the OMD EM10 series. Another useful feature is that in review mode it tells you what the camera focussed on.

Example Birds in Flight Shot OMD EM1MKII
This shot is taken on a Panasonic G9 using the Pre-Burst functionality

Other features of OMD system for land use

If you shoot at night another very useful feature is live composition, this is very useful for fireworks or star trails but not effective for real astrophotography for which you need a star tracker or use stacking. Other features that are present in the newer EM1MKIII like starry AF are in my opinion not useful if you know how to focus on stars.

Milky Way with Panasonic GH5 shows no tangible difference to OMD Shots

Olympus Housing Costs

As Olympus bodies are smaller and simpler the housing cost compared to Panasonic G and GH series is 30% lower this is material in the scheme of things as Panasonic Pro housing are almost as expensive as an APSC DSLR. This for me is the single most important factor.

OMD EM1MKII €1,856 list price Weight 1.95kg Dimensions 305mm (W) × 175mm (H) × 116mm (D)

Drawbacks of Olympus Cameras

Lack of on Screen Manual Focus Guide

The most evident one for macro shooters is the lack of on screen MF guide as displayed in Panasonic cameras. This very useful for macro but also for astrophotography and video as you know if your camera is at the macro or tele end. For macro underwater photography this means you know if you have hit the minimum working distance and maximum magnification so now you can focus on getting the shot using peaking. 

Olympus does not offer a guide but you can pre-set a mode called Pre-MF to minimum distance however I found the on screen peaking to be really poor and ultimately getting less magnification in macro shots.

AARGH!
Typical Macro Shots where the MF Guide feature is useful to ensure maximum subject size

Exposure Aids

While Panasonic offers customisable Zebra on screen Olympus only offers a red and blue colouring and the levels only offer limited customisation on a 0-255 8 bits scale. This is OK for checking clipping in absolute but not good for specific exposure targets.

Video Mode

The video modes of the OMD are simply poor and the codec quality just good for your occasional video. The lack of exposure aid and support for manual focus make the whole video experience very very dissatisfactory.

Framing

With Panasonic you can set framing guides on the screen for 1:1 5:4 whatever you like without changing the image aspect ratio, this is useful if you want to frame a shot for a specific platform. Olympus lacks this feature entirely.

Image Quality

I can confirm that for underwater and land use I see zero difference in performance between my OMD EM1MKII and the GH5 in the range ISO 200-1600. It is true that the Jpeg settings are different and the color rendering is different for Jpeg however shooing RAW files this becomes irrelevant and I can’t distinguish the shots when the calibrated adobe profiles are used in Lightroom. I believe at some point that Olympus images were sharper however this was due to the images being better in focus when it comes to birds and subjects fast moving.

In terms of JPEG rendering Olympus choices are better for nature and landscapes with more saturated colours, for portraits I prefer the Panasonic rendering. Again those settings are not relevant for RAW files.

Nauticam GH5V a whopping €2,862 due to the M21 Valve weights 2.36 Kg

Conclusion

In my opinion the most attractive feature of Olympus cameras for underwater photography use is actually the reduced cost and size of the housing. While the extra strength are surely worth for land wildlife photography I truly do not think they make any difference underwater. For sure it would be better to do a field test, this so far has not been possible and if anybody gives me an OMD EM1MKII housing to test I would be very happy, however using the tools made available by Panasonic I do not get almost any shots out of focus and those there are blurred are because I forgot to change a setting on the camera.

For video I cannot recommend the Olympus system at all, Panasonic is way ahead on this on a number of accounts. 

In conclusion if you are 100% focus on photography and just take an occasional video the OMD system is light more compact and less expensive. It will not give any edge to your images as the sensors are identical. If you shoot a mix of video and photos the choice is Panasonic. Rest assured none of the AF strength of Olympus will improve your hit rate, if your shots are blurred you are likely using the wrong settings with your camera. The housing costs tho are higher and the rigs are less portable.

MFT Lenses, Micro 4:3

What Happens After the Olympus has fallen?

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On June 24 2020 Olympus corporation has announced they will divest the imaging business and sell the business to be carved-out to JIP (Japanese Industrial Partners).

The full script is here: Memorandum.

Olympus had already delayed the disclosure of financial results for the year ended 31 March 2020, Nikon had already done the same. Clearly companies need to build some accounting provisions for Covid-19 however you would argue that for the year ended on 31st of March the impact of Covid-19 was not substantial as most countries only entered lockdown in March and this is not a prime period for camera sales anyway.

As as an M&A consultant specialising in carve-outs and divestment I have my views on how this will turn out based on my experience but this is not the purpose of this post. What I wanted to do is to perform a short analysis of what I think has gone wrong and what is likely to be the most significant challenge to the newco that will be formed from Olympus imaging business.

The overall situation of the camera market

According to CIPA worldwide sales in units have fallen 87% since 2010.

The overall number of images is actually growing however as of 2017 85% of those pictures are taken on mobile phones.

According to DxOMark and other sources, mobile phones are closing the gap on cameras on a number of aspects. Mobile phones have a lot of development behind and have powerful processors that combined with multiple lenses can produce stunning images.

Most images are consumed on mobile phones and are usually limited to resolutions lower than 4 megapixels or even 1.5 megapixels like Instagram we can understand where this is all going. There is software that allows you to retouch your images directly on your phones one of the reason why instagram is so popular.

As the market for digital camera shrinks camera manufacturers feel the squeeze and this means business will disappear in the process with Covid-19 putting a final stake in what was already a walking dead: Olympus camera business.

Why Olympus?

First of all Olympus is not the first company going through this, it has already happened to Pentax though this entity was sold at profit in the golden years of digital cameras. Contrary to what most people think Olympus was not originally a camera brand but started out with medical and microscopes in 1919 only in the mid 30s Olympus started making cameras and as of today Olympus is predominantly a B2B enterprise. Olympus has also been at the centre of significant corporate fraud in 2011 and in 2016 was also in the middle of a bribery scandal in US. The last ten years of Olympus corporation history have been plagued by misconduct and therefore nobody would go anywhere near a possible acquisition of Olympus assets at least until now.

As of FY 2020 the imaging division has posted 3 consecutive years of losses with a 10% revenue reduction on FY 2019. Olympus had started the restructuring of their manufacturing operations in 2017 and has cut c45% of their operating losses as result. As a division is still loosing cash and therefore if you had to evaluate the business in terms of EBIT multiplier, a common method for corporate transactions, Olympus Imaging Division is worth nothing and actually it has negative value means it costs cash just to run.

The improvement trajectory and the nature of the distressed business has fallen in the interest of JIP who specialised in acquiring divisions of loss making companies and had already closed deals with Sony, Nec to name a few.

Some Olympus consumers have felt betrayed by this move as Olympus had repeatedly affirmed they were continuing the camera business however the reality is that nobody was likely to go anywhere near it until now and the moment they have a prospective buyers this would most likely proceed as it has happened. From corporate point of view, despite the various scandals, Olympus has been increasing their operating profits as the other divisions are all successful. Removing a loss making divisions will greatly benefit the shareholders and investors and will also allow Olympus to focus on the segments that are successful. If the proposed transaction completes Olympus will effectively exit consumer markets.

So in short Olympus is divesting the imaging division because is loss making, it dilutes shareholder value and they now have a potential buyer, it would be crazy for them not to proceed in consideration of the overall situation of the camera market.

Questionable Choices

In addition to the compression of the digital camera market, Olympus has also made some questionable choices, and is affected by the overall stagnation of imaging sensors. Olympus does not make their sensors since a long time, previously they bought them from Panasonic, then lately from Sony.

Sony who makes sensors for most brands including Nikon and Panasonic, has not released anything new in the micro four thirds segment since 2017. For this reason we have not seen a rush from Panasonic to release new models and things have been pretty quiet on their front since the G9 camera in 2018 with the rest of the range just aligning to the 20 megapixel sensor.

Olympus instead has released a few models of their flagship OMD range, the EM1X and the EM-1 Mark III, both based on the same sensor technology of the previous OMD EM-1 Mark II released December 2016.

The EM1X specifically aimed at the professional wildlife photographer has a RRP of £2,699, that is the same price of a Nikon D850.

Size by Side courtesy of Camerasize.com

Combined with the Olympus 300mm f/4 prime the EM1X is 2.3 Kg while the D850 with the Nikkor 500mm f/5.6 prime is 2.4 Kg. The Nikon set up ends up being around £6K while the Olympus is £4.7K at RRP. I am not sure this is an appealing proposition considering the significant IQ difference between the two cameras and the pretty identical weight.

Also to consider that at £1,499 you can buy a Nikon D500 that has the same RRP of the new OMD EM-1 MKIII. Now it is possible that Nikon is heavily discounting items and they are going to go bust next, however you can clearly see that competing with those boys may not be a good idea.

The Micro Four Thirds Benefits

The benefits of MFT are listed in the four thirds website here.

There were 3 key items:

  1. Radical reduction in thickness, size and weight
  2. An interchangeable lens system designed to handle video in the future
  3. Continued use of four thirds lenses

Looking at the reduction in size the EM1X is not a good example for this and we can argue the Panasonic G and GH series body are neither. Panasonic had to accommodate item 2 video handling and to do that needed to include an heatsink in their models and this makes the shape of the GH5 large. Then they continued that trend with the G9: both cameras are very similar to an APSC DSLR and larger than Sony A series.

Olympus never cracked the video space, their cameras are limited in that respect while Panasonic has scored significant success and now brands like Zcam and Blackmagic Design use MFT sensor for semipro cinema cameras that perform very well in that segment.

So MFT has not disappointed as a whole, though Olympus seemed to have lost track of the manifesto, and ended up competing in territories where other players are already consolidated. It has to be said they have done that on their own accord as the OMD EM-1 MKII is a very capable camera for who does not want to invest in a large rig and with a battery grip gives you pretty much the same of the EM1X at half the cost or less at today prices.

What happens next?

It is worth looking at what is in scope and what is the envisaged structure of the imaging division after the carve-out.

Scope

There is mention that the prestigious brands of OMD and Zuiko will continue with NewCo. In short this means that OMD and Zuiko that really were product lines become brands. This is because Olympus corporation will continue and therefore NewCo cannot be called Olympus cameras or similar. There is no mention of Pen or Tough lines to be in scope of the transaction specifically, this may be simply omitted or those are not in the interest of JIP.

NewCo will also maintain the R&D and manufacturing functions, this is important as otherwise product development would not be possible. We need to understand practically what does this mean in terms of key people and which one will move along and which one will leave.

Timetable

JIP is currently performing diligence and, subject to confirmation of their assumptions, the deal would be signed at the end of September and then close at the end of 2020. JIP has now access to Olympus data and financials and this will help them confirm their offer, but potentially could also mean they back off if the situation is worse than expected. Olympus has also committed to continue the restructuring already in progress, this is important as that has an impact on the valuation of the business.

Transition Agreements & Rebranding

When the transaction is complete it is possible that there are still dependencies on the seller and therefore transitional service agreements are put in place. It is easy to imagine that those will go ahead for 18 to 24 months and the largest question mark is up to which point the NewCo will be allowed to use the Olympus brand and how they are going to deal with re-branding. Re-branding can be lethal to businesses I do not want to provide a long list but there is an intangible value to the name of a brand and is not simple to switch consumer to the new brand and keep them all, people sometimes, actually most times, go elsewhere and Panasonic will most definitely benefit from this.

The immediate future

Usually when those type of transactions are announced there are all sorts of activities to say that is business as usual, things will get better and products roadmaps and other events are promptly coming out to reassure consumers. The prime reason for that is that consumers may want to switch right now or if they were planning to buy this specific brand they may change their mind. The reality is that carving-out a business is not easy and nobody really knows how things will turn out.

Micro Four Thirds Future

The crisis at Olympus is not a good thing for Micro Four Thirds there is no doubt about it, however this should not be too much of a worry for day to day life. DSLR has been pronounced dead years ago but is still there and MFT is an important step towards mirrorless. It is evident that cameras will eventually move towards mirrorless and the advances of Olympus cameras on autofocus are an important step, today only Sony and Olympus have decent autofocus on mirrorless. Canon and Nikon are playing catch up but their pro equipment is still DSLR.

The market is shrinking and Olympus is not going to be the last company to struggle, who will survive is not necessarily linked to who has the best product, but to those who can manage the market situation and can align to consumer needs.