The once red-hot markets for personal computers and mobile phones may be slowing down, but digital cameras are holding firm as the world's fastest-growing sector in consumer electronics.
Japanese manufacturers, which make about 80 per cent of the world's digital cameras, are scrambling to boost their stakes in the booming market, where falling prices and print-quality pictures are attracting a rush of consumers while sales of traditional cameras languish.
But analysts and industry executives expect a shake-out in the crowded digital field and say profit margins may soon come under pressure.
Japan's four best-selling brands - Sony, Olympus, Fuji Film and Canon - have each targeted a global market share of 20 to 25 per cent.
Meanwhile Kodak and Hewlett-Packard are aggressively chasing share in the United States - their home market and the world's largest.
"I think the industry map could end up with a big five, or a big four, or even a big three," says Kazuya Hosoi, a senior executive in digital imaging at Canon, a powerhouse in film cameras but a latecomer to digital. "It'll get tough."
For now, Japanese industry executives expect robust growth, with a further 40 to 50 per cent rise in global sales forecast for this year after a doubling last year to about 11 million units.
"I think the biggest market share gainers have won 12 to 13 per cent margins of the hardware itself so far, but the problem is I don't think the martins will get any bigger because the market's getting competitive and the growth rate's coming down," says Merrill Lynch analyst Richard Kaye.
Views vary on who might be the winners and losers and where long-term profitability may lie, but two recurrent themes have emerged: market share will matter, and much of the opportunity may lie in related areas such as digital printing.
"Of course share is most important," says UBS Warburg analyst Masahiro Ono.
He expects the digital camera market to start this year or next to follow a pattern seen in digital camcorders.
"Once the market is relatively established, anyone with the brand power to maintain a 20 to 30 per cent share could achieve 20 to 30 per cent operating margins."
Ono says, because the market is growing so fast and all the major players are offering something unique, it is too early to say who will fall by the wayside once the shake-out comes.
"I think if you look just at Sony's share you should assume it will rise, but you can't say generally whose share they'll be eating," he says.
In the meantime, as the shift to digital whittles away the lucrative film franchise of Eastman Kodak and Fuji Photo Film, it opens up opportunities not only in digital cameras, but also in "consumables" such as printer paper and cartridges, and services such as online photo albums.
Several analysts say Kodak and Hewlett-Packard, which are selling digital cameras from Japanese suppliers under their own brands, appear to be sacrificing margins on the cameras to boost share and promote their printer or online businesses.
This, they say, could put pressure on Japanese manufacturers' profits.
But for many Japanese manufacturers, digital cameras - still a tiny portion of total sales at big firms such as Sony and Canon - are more than just pieces of hardware to sell for a profit.
For Sony, the digital camera is part of a grand design for networked consumer electronics: a way to capture images for input into Vaio PCs or Sony photo printers, all interconnected with camcorders, audio players and other gadgets via its Memory Stick data storage device.
"We're thinking of digital cameras as an input device, a portal for the input of images," says Shigeki Ishizuka, president of Sony's personal imaging company.
For Canon, one of the world's top printer makers, and Fuji Film, which recently acquired new printer and copier operations, analysts anticipate some link between digital cameras and digital photo printing.
"My guess is that the synergy for Canon and Fuji comes on the printer side, trying to cultivate a consumables earnings stream from digital camera development," says Merrill Lynch's Kaye.
In the meantime, while Japan's makers of films and film cameras hedge their bets by building up their own digital businesses, they insist it is too early to count film out of the picture.
The Japan Camera Industry Association estimates film camera shipments by Japanese manufacturers dropped 6.4 per cent last year to about 31.7 million units, and another 7.3 per cent drop is forecast for this year.
But Nikon, which aims to boost its share of the global digital camera market from 7 to 10 per cent, managed to buck the industry trend by boosting unit sales of 35mm film cameras in the year to March with a slew of new models.
"The market will shrink, but not collapse," says Makoto Kimura, general manager for strategic planning at Nikon's imaging company. "Although there's nothing that digital can't do, it hasn't been perfected yet."