Japan's Canon Inc <7751.T> raised its annual outlook closer to market expectations on Monday after robust demand for digital cameras and printers powered up its quarterly profit by more than fourfold.

The result marked Canon's second straight quarter of year-on-year profit growth after eight quarters of decline and underscored a budding recovery in office equipment that is also boosting rivals Xerox Corp and Ricoh Co <7752.T>.

Canon benefited from growing demand for single-lens reflex cameras as the customer base continued to spread from professional photographers and camera enthusiasts to casual users thanks to the launch in recent years of introductory models.

Canon is the world's top maker of digital cameras ahead of Sony Corp <6758.T> and dominates the lucrative SLR segment along with Nikon Corp <7731.T>.

The demand for digital cameras continues to be strong, and chip equipment demand is also coming back, so the business environment is cyclically improving, said Kazuyuki Terao, chief investment officer at Japanese fund manager RCM Japan Co.

The trend toward yen weakness is also positive, so the business environment is good. There are few negative factors right now.

Canon said it now expects an operating profit of 360 billion yen ($3.8 billion) for 2010, up from its previous forecast of 330 billion yen, though still short of the 371.2 billion yen consensus in a poll of 20 analysts by Thomson Reuters I/B/E/S.

The latest forecast compares with a 217.06 billion yen profit last year.

Analysts on average expect Canon to post double-digit profit growth for another two years before expansion slows in 2013, according to Thomson Reuters data, though growth in its compact camera business could be threatened if price competition intensifies further.

Canon Executive Officer Masahiro Haga said the office equipment market had hit bottom and would recover gradually.

Laser printers along with their consumables are recovering strongly. As for copiers, the degree of recovery varies from region to region, Haga told reporters after a news conference.

But judging from the overall operating environment in the first quarter, our business seems to have hit bottom and is heading for a mild recovery.

Canon said in September that it would start providing its multi-functional printers to Hewlett-Packard , in a move to broaden HP's lineup of office equipment and boost Canon's hardware sales.

The Tokyo-based company also took over Dutch printer maker Oce NV this year to strengthen its product lineup and broaden its distribution channels.

For January-March, the maker of IXY and EOS brand digital cameras posted an operating profit of 86.84 billion yen, up from a profit of 20.03 billion yen in the same period last year amid the depths of the global economic downturn.

Quarterly sales jumped 10 percent to 755.5 billion yen.

In light of growing demand for high-end cameras, Canon raised its digital SLR camera sales target by 4 percent to 4.9 million units.

In 2009, Canon held a 44.7 percent share in the market for digital SLR cameras, high-end models with interchangeable lenses, followed by Nikon with 34.3 percent, according to research firm IDC.

Canon's result comes three days after rival Xerox posted stronger-than-expected first-quarter operating profit, driven by demand for its document management and printing services.

Before the announcement, Canon shares closed up 3.5 percent at 4,395 yen, outperforming the Tokyo stock market's electrical machinery index <.IELEC.T>, which rose 2.6 percent.

Canon shares have gained 12 percent so far this year versus a 15.5 percent rise in the sector index. ($1=93.91 Yen) (Additional reporting by Sachi Izumi in TOKYO and Anshuman Daga in SINGAPORE; Editing by Chris Gallagher)

Japan Sony