Canon Inc on Tuesday became the first major Japanese firm to cut its annual outlook due to Thai flooding and the strong yen, two problems that are clouding the outlook for many of its rivals ahead of the lucrative year-end shopping season.

Thailand has become a major manufacturing base for Japan's high-tech sector, with rivals like Sony Corp and Nikon Corp both forced to close plants. The auto sector has also been hit hard by the parts shortage and PC makers are facing a shortage of hard disk drives.

Canon, which competes with Xerox in printers and Nikon in cameras, said the Thai disaster would likely cut annual sales by 50 billion yen ($657 million) and operating profit by 20 billion yen for the financial year to the end of December 2011.

Canon cut its annual operating profit forecast by 5 percent to 360 billion yen ($4.7 billion) from 380 billion yen, blaming a combination of the floods and the strong yen, as well as the bleak economic outlook in the United States and Europe. The figure was partially offset by cost-cutting and a faster-than-expected recovery from the March earthquake.

The new forecast is below market expectations of a 383 billion yen profit, based on 20 analysts surveyed by Thomson Reuters I/B/E/S.

BETTER THAN PEERS

The cut in the forecast bodes ill for Canon's rivals due to report earnings in the coming weeks.

Nikon has been hit even harder by the flooding and its factory at Ayutthaya, where it makes most of its interchangeable lens cameras, has been closed since October 6. Nikon is due to announce earnings on November 4.

Sony, which has delayed camera launches because of the floods, will report quarterly earnings on November 2.

One fund manager said the market would likely be reassured by the relatively minor effect of the disaster on Canon.

I think there will be relief, said Shigeo Sugawara, a senior investment manager at Sompo Japan NipponKoa Asset Management. I don't think shares will fall on this. In fact, Sony and Nikon are worse affected by the Thai problem, so there will likely be an opportunity for Canon to grab more market share in the pre-Christmas season.

He added that the company's estimates were generally conservative and that an upward revision could come later.

Shares in Canon, the world's biggest maker of digital cameras ahead of Sony, closed down 1.8 percent at 3,490 yen on Tuesday. Canon shares have fallen 3.6 percent since April 1, compared with a 10 percent fall in the Nikkei average.

The maker of EOS and IXY cameras said camera parts suppliers had been flooded in Thailand and that while it was trying to obtain parts from other suppliers, year-end sales were bound to be affected.

It cut its 2011 compact camera sales outlook to 19 million units from 20 million units, and its interchangeable lens camera outlook to 7.2 million units from 7.3 million.

Canon has also been forced to close an inkjet printer plant in Thailand, but expects to make up some production at other factories. [ID:nL3E7LC1UJ]

In the July-September quarter, Canon earned an operating profit of 122.5 billion yen, compared with 104.4 billion yen in the same period the previous year and beating a market consensus of 107 billion yen based on seven analysts polled.

The company said it was assuming exchange rates of 77 yen to the dollar and 105 yen to the euro for the October-December period.

The yen is the best performing currency among the world's most liquid currencies and has risen nearly 7 percent so far this year.

($1 = 76.110 Japanese yen)

(Additional reporting by Mayumi Negishi; Editing by Edwina Gibbs and Matt Driskill)

Thailand Japan