Japan's Canon Inc raised its annual outlook as it cuts costs and benefits from

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a weakening yen, after a slump in demand for copiers and printers knocked its quarterly profit down by 88 per cent.

Demand for office machines and supplies such as toner cartridges remained weak as a global financial crisis means businesses keep hold of their copiers and printers for longer and use them less heavily.

Fujifilm Holdings, a rival in digital cameras and office equipment which has been hit much harder by the downturn, forecast a 90 billion yen ($923 million) annual operating loss as it scraps equipment and cuts 5,000 jobs.

Canon, which also competes against Xerox Corp and Ricoh Co Ltd, earlier this month delayed building a toner cartridge parts plant in western Japan for a second time, underscoring weak demand.

But Canon's overseas sales have been boosted by a softer-than-expected yen. The company also said it would aim to cut 172 billion yen in costs this year, 60 billion yen more than originally planned.

Canon raised its 2009 operating profit forecast by 12.5 per cent to 180 billion yen, though that is still down 64 per cent on the year. It trimmed its sales forecast by 5 per cent to 3.33 trillion yen.

Mizuho Securities analyst Ryosuke Katsura said the operating profit forecast change was effectively a downward revision after stripping out currency effects, but the results show Canon is holding up relatively well.

"Some had expected losses for Canon's first quarter, so I think it's positive it managed to post profits," he said. "Its cost-cutting efforts should be given some credit, but I have yet to see how the company achieves growth."

TOUGH YEAR AHEAD

Canon itself is bracing for another tough year. "It will probably be a while before the economy stages a convincing recovery, and the yen is likely to stay much higher than a year ago," said Managing Director Masahiro Osawa. "We will continue operating in a tough business environment."

Canon did not offer an annual dividend forecast. Rival Xerox last week forecast a weaker-than-expected quarterly profit and cut its annual outlook nearly in half, while Ricoh predicted a 13 per cent fall in operating profit for the year to next March.

Ricoh last October bought major US office equipment distributor Ikon Office Solutions for $1.6 billion, delivering a heavy blow to Canon, whose machines had represented 60 per cent of the products Ikon had handled, but which have rapidly been replaced with Ricoh equipment.

Operating profit at Canon, the world's largest digital camera maker ahead of Sony Corp and Nikon Corp, dropped to 20.03 billion yen ($205 million) in January-March, from 170.83 billion yen a year earlier.

Fujifilm said it would book restructuring charges of 145 billion yen in the year to March 2010 as it sheds jobs and streamlines operations, resulting in an estimated operating loss of 90 billion yen this financial year, a reversal from a 37.3 billion yen profit a year earlier.

Canon shares closed up 6.1 per cent before its earnings, beating a 4.4 per cent gain on the Tokyo market's electrical machinery index. Fujifilm ended down 0.6 per cent.