UPDATE 2-Canon Q2 drops 12 pct on strong yen, slow copiers

(Adds executive comment, details)

By Kiyoshi Takenaka

TOKYO, July 24 (Reuters) - Japanese camera and office equipment maker Canon Inc (7751.T) posted a 12 percent fall in quarterly profit due to sluggish copier demand and the stronger yen, but kept its forecast for a ninth straight year of earnings growth.

Canon has enjoyed brisk demand for high-end cameras but profitability at its office equipment operations has come under pressure with businesses putting off buying or replacing copiers as the global economy slows.

The company, which competes with Xerox Corp (XRX.N), Ricoh Co Ltd (7752.T) and Konica Minolta Holdings Inc (4902.T) in printers and copiers, is also grappling with the soaring cost of raw materials and the profit-slicing impact of a stronger yen.

"We expect the yen to remain strong and for high raw materials and fuel prices to continue. The operating envrionment is tougher than we had originally thought," Canon Managing Director Masahiro Osawa told a news conference.

Canon said its group operating profit dropped to 160.15 billion yen ($1.48 billion) in the April-June quarter from 181.47 billion yen a year earlier. Net profit fell 13 percent to 107.84 billion yen on sales of 1.11 trillion yen, down 1.9 percent.

But Canon stood by its operating profit forecast of 770 billion yen for calendar 2008, which exceeds a market consensus of 743.8 billion yen in a poll of 18 analysts by Reuters Estimates and would mark a ninth straight year of higher profits.

The company tweaked its annual sales forecast higher, to 4.59 trillion yen from 4.57 trillion yen.

Canon had cut its annual profit outlook in April, citing a stronger yen and slower copier demand. It earns more than three-quarters of its revenue overseas, the value of which falls when converted back into a stronger Japanese currency.

Canon is still cashing in on strong demand for digital single-lens reflex cameras, which are high-end models with interchangeable lenses. Canon is the world's No.1 digital camera maker, offering IXY and EOS brand models.

Canon and Nikon control a combined 83 percent of the digital SLR market, the fastest growing and most lucrative segment of the overall digital camera industry. Smaller rivals include Sony Corp (6758.T), Nikon Corp (7731.T) and Olympus Corp (7733.T).

Rival Ricoh reports quarterly results on Friday and Sony on July 29.

Prior to the earnings announcement, shares in Canon closed up 3.7 percent at 5,360 yen, outperforming the Tokyo stock market's electrical machinery index .IELEC.T, which rose 2.9 percent.

Canon shares have slipped 0.6 percent this year through Wednesday, while the subindex lost 13.6 percent. (Reporting by Kiyoshi Takenaka, editing by Kim Coghill)