In the last few days since Kevin Raber at LL published his editorial, I’ve received at least 100 emails asking ‘is it true?’ and ‘is this the end?’ Hopefully by now the internet hysteria has died down and most of us can take a collective deep breath and look at the situation with a bit more objectivity, it’ll become clear that the sky isn’t falling. Indeed, it’s quite likely to be the opposite. However, knowing how quick people are to accuse, react and generally come to (often wildly incorrect) conclusions without complete information, I have to state my position clearly upfront:
- Yes, I am a Hasselblad ambassador but am not involved at all in the operations, finances or strategic decisions of the company. I use the cameras, answer questions, and that’s really about it.
- This post was neither solicited nor compensated for by the company or any other party, and solely represents my own opinions.
- Whilst I am only a photographer now, I did work in M&A, private equity and at senior operational positions for the better part of 10 years beforehand. So I do know something about the issues at hand.
- I am of ethnic Chinese descent (why this is important will become clear later on).
- We’ll look at the situation with as much commercial objectivity as possible.
With that, let’s get on with the analysis.
The official word is that there has been no change in the identity of the major owners in Hasselblad: they remain Ventizz Capital and DJI. Even if* at some point in the last few months, DJI increased their stake from the initial position in 2015, it can only be interpreted as a positive move for two reasons: firstly, DJI itself is a successful company, but limited by the nature of their product** and market (consumer, i.e. price sensitive). Secondly, if you take a small stake in something that isn’t working, why would you subsequently take an even larger stake later on? That is nothing but sheer insanity. Clearly, therefore, the people making decisions at DJI know something that the rest of us public do not – and this gives them confidence that any investments will generate the desired returns, which in turn can only mean there’s something to sell.
*Even so, without official confirmation, we are simply speculating.
**Drones are becoming increasingly commoditised, which means lower margins and higher investments required for product differentiation – in the long run, this is a bad, high-capital and low-margin business.
If I had to guess, Hasselblad’s biggest challenge now is twofold: firstly, they have a competitive product lineup that is in demand (X1D, H6-100) but need to make significant investment in production to satisfy far greater than expected demand. The cameras are shipping, though demand remains strong and waiting times longer than anybody would like. I would imagine that the capital commitments are both high and far in advance of any revenue coming back in: you need to lock in the most expensive component (the sensor) months or years in advance, which in turn requires payment. However, you probably won’t see any cashflow in return until the product sells to the end consumer (by the time you factor in dealer credit terms etc.).
On top of this, even with a relatively long-lived product like a medium format camera, the life cycle may not be more than a few years – so the economics are even more challenging. There are huge cash outflows in the R&D and early production periods, and you don’t get anything back until the product ships – upon which you’ve only got a year or so to recover most of that cost whilst the demand is still hot. I think it’s pretty obvious where higher than expected demand is a good thing, but at the same time can cause some cashflow consternation and delay if you have to order 4x or 5x the number of sensors you initially planned for. The Kumamoto earthquake in 2015 affecting what is pretty much the main supplier of photographic sensors (Sony) has made things even more challenging: here’s a textbook example of why monopolies are a bad thing for all parties in the long run.
One thing I haven’t yet seen postulated is that the DJI investment was not necessarily a buyout: it may well have been an expansion with issue of new shares (Note: I don’t actually know if this is the case). This makes quite a bit of difference to the interpretation, because buying something over implies that the other party has decided there are better uses for their capital, as opposed to perhaps having to maintain portfolio diversification, or not having more to invest being a closed fund. This kind of corporate action is quite common when companies have to raise more capital for expansion.
I cannot speculate as to the motivations behind Kevin’s post, but I don’t think it’s as gloomy as he paints: the simple reality is that Asians (and specifically Chinese) do not invest in things we believe will be unprofitable; if anything, the opposite. (And it isn’t exactly in Phase One’s interests not to have competition, either.) Whilst this might seem like a flippantly racist comment, being of ethnic Chinese descent myself and living in the three-plus-culture melting pot that is Malaysia, I can state with some certainty that the Chinese are savvy businesspeople. I suspect it’s a historical thing: post-cultural revolution, the population in Mainland China is simply so large that if you’re not willing to go that extra step – you simply won’t be competitive. Outside it, migrants had to build new lives and fend for themselves in societies that might not have been that welcoming – if anything, Chinese are consummate opportunists. It’s also not the first time Hasselblad has been under Chinese ownership – Shriro became majority shareholder in 2003, and continues to be the regional distributor for China/HK and SE Asia.
From a photographer’s standpoint, the natural fear is that this opportunism is going is likely to result in a complete erasure of history at worst, and some astronomical mistakes* at worst. Whilst we Chinese are generally savvy businesspeople, I’ll be the first to admit that we aren’t exactly always the epitome of taste, either. I would be more concerned about this scenario if the earlier Sony rebadged-product hadn’t happened, meaning the temptation would be there to ‘sell the brand’ to the mass of unknowing nouveau riche consumers; however, history has proven this was perhaps not the best idea at a holistic level, and it is therefore unlikely to happen again. I come back to the same fundamental principle again: it isn’t going to happen if there isn’t money to be made.
From a business standpoint, no company invests in another to lose money. Investment for technology sharing or simple return on capital happens all the time in other industries – I really don’t see why it’s such a big deal in photography; we don’t beat our breasts and pull out our hair when our washing-machine manufacturer moves production or gets bought over. More objectively, even if another cobranding exercise were to happen, and money was made that would be used to further develop the flagship H, X and CFV series products – or bring to fruition the V1D concept – then why not? Leica has long been doing the same with first Fuji and later Panasonic, which enabled them to pull back from the brink of bankruptcy in the early to mid 90s. In the long run, even if the rebranded products are a success – it would leave the company doing the rebranding as little more than a middleman, at the mercy of both supplier and market for product innovation and fickleness of taste/demand respectively. The only way to build a sustainable business would be to convert those ‘entry’ buyers to your higher end proprietary product: and for that you still need said halo product.
*Lunar, Stellar, etc.
Bottom line, or TL:DR version:
- An increase in investment amount by a party that likely knows what they’re doing and is already in the photographic industry is a good thing: it means there’s investor confidence, much as if the same were to happen in any other industry.
- A change of ownership does not mean a change of strategy (that would be silly, given it would also remove the attractiveness and relative predictability of the investment), but more likely doubling down.
- Chinese do not invest in anything that’s unlikely to be profitable.
And whilst history may repeat, objectively, if the outcome is the desired one (more capital for other things) – then it isn’t necessarily a bad thing. After all: a lot of similar noises were made about the Volvo-Geely deal; several years later, we’re now seeing the rather impressive results of that: if anything, Volvo is firmly back in the game and in touch with its roots than ever. MT
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