Group net profit came to 1.1 billion yen (9.9 million dollars) in the quarter down from 9.1 billion yen for the same period last year, the company, which is also the world's largest endoscope maker, said in a statement.

Current profit dropped 87.7 percent to 1.9 billion yen.

Sales rose 5.0 percent to 147.3 billion yen "thanks to brisk sales of digital cameras particularly in Asia and Europe," the company said.

However earnings fell sharply "due to higher general costs and a decline in prices of digital cameras," particularly in Japan, Olympus said.

Sales of digital cameras account for 41 percent of Olympus' revenue.

"Sales of our digital cameras jumped 53 percent from a year earlier to 2.3 million units in the first quarter, giving us a 17 percent share of the global digital camera market, up from 15 percent a year earlier," Olympus director Hideo Yamada said at a news conference.

"In terms of sales, we got off to a good start and are on course to achieve year to March 2005 global sales of 11 million units, or a 17 pct share."

However, falling prices of digital cameras amid stiffer competition and a shift in consumer interest to low-end models ate into profitability in the first quarter.

"The average price of our digital cameras dropped by some 18 percent in the first quarter from the average price in the full year to March 2004... way above the projected 10 percent decline in the average price," Olympus finance department manager Kazuhiro Watanabe said a press conference.

"Because of falling prices, combined with the deterioration of the product mix stemming from a shift of consumer interest to low-end models, operating profit of our digital camera division dropped to almost zero in the first quarter."

Olympus left its full-year earnings forecast for the year to March 2005 unchanged, saying it foresees a recovery in the profitability of digital camera operations with the expected launch of new products in the second half.

The company has forecast net profit for the year at 32.5 billion yen with current profit at 56 billion yen and revenue of 730 billion yen.

"Taking advantage of the plan to aggressively launch new models towards the end of this year, we also aim to earn operating profit of 15 billion yen in the digital camera division in the year to March, in line with the original estimate," Watanabe said.

"But, in the second quarter operating performance of the digital camera division will be around break-even, because there are no new model releases," he added.

SPACE.WIRE