[Pixalo]

(Reuters) - Canon Inc. posted a 15.7 percent gain in quarterly operating profit in line with expectations on Monday thanks to robust sales of digital cameras and color copiers, and forecast an eighth consecutive year of record earnings in 2007.

Tokyo-based Canon is enjoying hefty returns from its No. 1 market share in digital cameras and color copiers while introducing more factory automation and squeezing the number of suppliers to shave costs.

Profit margins at Canon outperform those of rivals such as Xerox Corp. and Nikon Corp. thanks to its strong higher-end lineup such as color engines that use up more ink and advanced cameras and lenses aimed at photo enthusiasts.

Canon earned an operating profit of 195.9 billion yen ($1.61 billion) in the fourth quarter ended December 31, up from 169.3 billion a year earlier. That compares with a mean estimate of 195.5 billion based on forecasts from five brokerages polled by Reuters Estimates.

For the calendar year 2007, Canon expects operating profit to rise 8 percent to 765 billion yen. The market expects Canon to post 771.7 billion yen in profit this year.

Canon, which earns more than 75 percent of its sales outside Japan, has benefited from a weaker yen.

The lower yen also boosted earnings at smaller printer rival Seiko Epson Corp., which reported better-than-expected earnings on Friday.

Tokyo-based Canon supplies laserbeam devices to the world's No. 1 printer maker Hewlett-Packard Co., and competes with Nikon as one of the only two manufacturers of steppers used to make liquid-crystal displays.

Canon is preparing to make digital commercial printers, a market where smaller rival Ricoh is also aiming to expand. Ricoh said last week it would buy IBM's commercial printer business for $725 million.

Separately, Canon is set to face a litigation in the United State against Nano-Proprietary Inc., which has claimed the Japanese firm's plan to develop a new type of displays with Toshiba violates an earlier patent agreement.

The dispute pushed Toshiba this month to agree to give up its stake in the venture it had with Canon, adding an unexpected twist to Canon's endeavour to enter the booming TV industry.

Shares in Canon closed unchanged at 6,500 yen in Tokyo before the company announced its results on Monday, underperforming the overall market, which rose 0.28 percent.

The stock jumped 8.8 percent over the last quarter, outperforming a 4.5 percent gain in Japan's precision machinery index, and the Nikkei average's 6.8 percent increase.