Kodak Aims At Digital Photo Migration

Eastman Kodak says the world of photography is going digital, and therefore, it will too.

The film and camera company said it would shift its business entirely to digital imaging products, a potentially historic move for a company that has been grappling with the digital revolution for more than ten years.

The Rochester, N.Y.-based Kodak said it recognizes its traditional film and processing business has changed, and that it must invest heavily to be a viable competitor in the digital photo market.

As part of its shift to embrace digital photo imaging systems, Kodak plans to go head-to-head with ink-jet printer makers Hewlett-Packard , Canon and Seiko Epson. Kodak also plans to expand its presence in the high-end, professional digital printing market, with plans to take on Xerox Corp. and HP.

Other financial news Kodak announced Thursday underlined the pressure it is facing as a long-time maker of film and cameras that is now looking at a world where the film is essentially merged in the digital camera. In order to shift more resources to developing a variety of new digital photographic products, Kodak said it would slash its dividend to 50 cents from $1.80.

Kodak is also said to be under pressure to improve its debt level, as the possibility of a downgrade of its bonds hangs over the company. Moody’s Investor Service currently rates Kodak’s debt at one notch above junk.

Kodak has hardly been blindsided by the photo market’s migration to digital, but it has struggled to guage how quickly to shift its products, given the number of print-based cameras still in the marketplace. Back in July, for example, Kodak said it was seeing a slump in film sales twice as fast as it expected at the beginning of the year.

Now, Kodak is saying it must push full steam ahead into the digital photography market, as it can no longer count on its traditional film business to deliver the financial results investors expect.

Kodak’s new plan calls for $3 billion for acquisitions and investments over the next three years, which could help it also acquire new revenues as its own have fallen for four straight years.

The company said it would tell investors in a meeting in New York that it has a “strategy for growth that will harness the power of digital technology to expand into a range of commercial businesses,
resulting in a more diversified business portfolio with the potential to generate $16 billion in revenue by 2006 — and $20 billion by 2010.”

At present, 70 percent of Kodak’s revenues are generated by traditional film and photography, and under the new strategy it plans to decrease that share down to 40 percent by 2006. The company is predicting it will be able to increase revenues from its digital photo ventures to increase 26 percent per year through 2006.

Kodak it will focus on the digital camera, online photo finishing and
ink-jet paper markets, and expects all three of those businesses to be profitable in 2004.

Kodak said it has plans to build on its foundation in consumer, medical and professional film imaging products and services to become a more balanced, diversified company that is a leader in the digital markets it serves.

Those plans also include leveraging its significant presence, and strong growth, in commercial markets and health imaging; refocusing research and development dollars on bigger, bolder ideas; accelerating investments in commercial markets; and acquiring other companies and technology to broaden Kodak’s portfolio of digital products and services.

Kodak’s labor force has been decimated over the past few years. Since 1997, more than 30,000 jobs have been eliminated. In July, company officials said another 6,000 workers would have to be fired, because of the continued decrease in film sales.

But Kodak’s efforts at selling digital cameras are improving. According to International Data Corp., in the first half of 2003, Kodak trailed only Sony in the U.S. digital camera market. Kodak will continue to innovate its EasyShare line of cameras, and also make a push in the professional segment of the market.

Kodak also pointed to several recent hires that reflect a new management team: James Langley is Kodak’s new president for Commercial Printing, who was hired away from HP. Kodak’s consumer initiatives will be led by Bernard Masson, formerly of Lexmark International and Yusuke Kojima, formerly of Olympus Optical Company.

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