Digital cameras are Canon's major growth area

It made a profit of 80.8bn yen ($782m;�416m) in the three months to 31 December from 74.96bn yen a year ago.

The company benefited from increased sales of its digital cameras, which account for a quarter of its revenues.

Sales rose 9.6% to 981.1bn yen during the quarter, as the firm continued to focus on higher-margin products.

Higher-margin focus

Canon president Fujio Mitarai's cost-cutting and decision to focus on higher-margin products helped the firm counter the falling prices that are affecting the earnings of rival firms like Sony.

For 2004 as a whole Canon saw profits rise 19.7% to a record 543.79bn yen, as revenues surged 8.4% to 3.47 trillion yen.

Tokyo-based Canon predicted, in a statement, that profits this year will increase by 5.4% to 573bn yen. It said it expects sales to increase by a similar percentage to 3.63 trillion yen.

Digital camera shipments will total 16.8m million units this year, compared with 14 million units in 2004, as Canon increases sales in Europe and other regions where the market isn't as saturated as in Japan, senior managing director Toshizo Tanaka said at a press conference in Tokyo.

The average price of digital cameras fell about 15% in 2004 and will drop 10% this year, according to the company. But it has managed to increase revenues and expects to ship 16.8 million cameras this year, compared with 14.8 million units in 2004.

It expects to increase sales of digital single-lens reflex (SLR) cameras to 1.8 million units in 2005, from 1.3 million units last year.

Canon's business machines division, which accounts for 70% of revenues, saw sales grow 9.3% in the fourth quarter.