Another victim - AGFA in Chapter 11

[Juergen Sattler]

I just read on a german news site that AGFA applied for bancruptcy protection and is now in Chapter 11. They supposedely applied already on May 20 but it was only made public today. There goes another one......

[Jeff Iverson]

An interesting article re the industry in today's Minneapolis Star Tribune (I cut-and-paste the whole article to save you trouble of becoming a "member" of their web site to read a link):

Digital cameras in decline?
Steve Alexander, Star Tribune
May 27, 2005

The prospect of digital cameras completely replacing their film counterparts, once taken for granted, may be fading fast.

The price and complexity of digital cameras, and competition from cell-phone cameras, have some predicting that unit sales of digital cameras will begin to decline as soon as 2007 and that future digital camera purchases will be largely to replace existing models.
Christopher Chute, an analyst at IDC in Framingham, Mass., believes that only about 55 percent of U.S. households will ever own a stand-alone digital camera.

The flaw in the digital-replaces-film scenario was the marketing campaigns waged by the digital camera manufacturers, Chute said.

"Digital cameras are aimed at affluent computer users who make an average of $70,000 a year," he said. "But there are only so many people like that. The digital camera industry missed the boat because they never looked for the next segment of users."

Others, including Chris Crotty, a consumer electronics analyst at market research firm iSuppli Corp. of El Segundo, Calif., foresee digital camera sales growth tapering off beginning in 2009.
Still, when the dollar value of digital camera sales surpassed the sales of film cameras three years ago, the question was inevitably asked: Is film dead?

Apparently not, and analysts point to several reasons why digital cameras haven't lived up to their initial promise. For starters, they are too difficult for many people to use, particularly when it comes to printing pictures.

Digital cameras cost too much -- $140 to $947 last year, according to research firm IDC, with the average selling price $354. And stand-alone digital cameras face competition from improved cell-phone cameras that soon will offer 5-megapixel picture quality, up from today's 2 or 3 megapixels.

Dan Moe, Best Buy's vice president of digital imaging, acknowledges that some consumers are baffled by digital cameras, but he predicts that digital camera sales will continue to grow for another two to three years.

"People walk into a Best Buy store every day with a camera memory card and say, 'What do I do with this?' " Moe said. "The manufacturers are prone to put features into a camera that are not well explained." To help, Best Buy offers both in-store and home training on how to use a digital camera, he said.

Not all analysts agree that only a slim majority of consumers will want a digital camera.
"In the next five years, the large majority of people are going to move from film to digital photography," said Mike Wolf, an analyst for InfoTrends/CAP Ventures of Weymouth, Mass. "Digital camera sales growth will slow, but we believe that about 80 percent of households will own a digital camera by 2010. After that, new digital camera sales will be upgrades, like PCs are today."

Part of what will fuel continuing digital camera sales is their increasing ability to take the place of videocameras, Wolf said. As the capacity of removable flash memory cards increases, digital cameras will be able to take one-hour movies instead of today's relatively short video clips.

Even those who see digital cameras failing to replace their film counterparts say the camera manufacturers still could shift digital camera sales into high gear by changing their marketing to appeal to people who aren't computer-savvy.

But the manufacturers have focused on selling greater camera complexity rather than simplicity. Complexity comes in the form of a higher-priced "single-lens reflex" digital camera (costing just under $1,000 today but expected to decline to $500 or $600 by the holiday season), Chute said. The digital single-lens reflex, like its 35-millimeter film counterpart, can use interchangeable lenses.

Another tack taken by manufacturers is to shrink digital cameras to the size of a credit card. These $220 to $430 cameras that have more limited battery life than larger digital cameras but up to 5 megapixels of picture quality.

Besides these two new approaches, manufacturers are continuing to ratchet up the megapixels in their stand-alone digital cameras in order to compete with the growing picture-taking quality of camera phones, even though analysts say that adding more megapixels won't help the average photographer.

"The 5-megapixel camera is the sweet spot for this year, but next year it will be 7 or 8 megapixels," Crotty said. "But the truth is that a camera that shoots 4 or 5 megapixels is enough for most people, because you can't tell the difference in the picture unless you really enlarge it."

What's more, at least some analysts say the megapixel race between stand-alone digital cameras and camera phones may be unnecessary because the two products appear to be more complementary than competitive.

Camera phones are good for spur-of-the-moment shots but are limited in their ability to share photos because users typically must pay to use the cell-phone network in order to transmit photos to other wireless phones or to conventional e-mail addresses, Chute said. Stand-alone digital cameras are more likely to be used for important photos, and the cameras make it easier to transfer a photo to a computer, from which it can be e-mailed or printed, he said.
"If you use a camera phone in the U.S., you are more likely to buy a digital camera," Chute said. "That's because camera-phone users discover digital photography and the immediate gratification it gives you."

Steve Alexander is at alex@startribune.com.

[Philippe Gauthier]

I suppose that you're talking about AGFA, not Agfafilm, the film production unit which became a separate firm last year?

If so, it's a bit ironic to hear that the digital AGFA is doing worse than the film AGFA... But then, AGFA was mostly active in very specialized niches (lab equipement, medical imagery...) and not in consumer cameras where the market is most active. It's been said, however, that because of the fierce competition, the margins on point and shoot digicams are lower than ever and even negative for some companies. I suppose that as the digital market reaches maturity, there will be some pruning of the industry, with some players leaving the industry.

[tim atherton]

"I suppose that you're talking about AGFA, not Agfafilm, the film production unit which became a separate firm last year? "

No, it's the new AgfaFoto

"If so, it's a bit ironic to hear that the digital AGFA is doing worse than the film AGFA... "

No irony there...

http://www.spiegel.de/wirtschaft/0,1518,357801,00.html

[Philippe Gauthier]

Oh... I couldn't imagine they'd run into trouble so soon after their reorganization. Sad news indeed. But there's nothing to do but wait and see.

[Ralph Barker]

I would point out that bankruptcy can be either the signal of the death of a company, or a clever financial tool that allows the company to shed the financial burden of past decisions that are no longer consistent with current business reality. Naturally, the morality of the matter depends upon which side of the bankruptcy one finds himself occupying.

I can only wish the folks at AgfaFoto the best of luck in surviving the process.

[Juergen Sattler]

Yes, this is AGFA film and I find this to be highly suspicious. How could the group of investors who bought AGFA film from AGFA Gaevert be so mislead. It's only been what - 7 months - that the separation happened and now they declare insolvency in German court. To declare the equilavent of Chapter 11 in Germany requires a more serious event than it does in the US - you're right over here (the US) it seems that many times companies or individuals declare bancruptcy because they don't want to deal with their creditors anymore (see Trump) but in Germany it is not that easy. Something stinks to high heaven here! It'll be interesting to see if and who will gobble them up.

[mark blackman]

Who or what is 'chapter 11'? anyone care to explain in plain English?

[Juergen Sattler]

Mark,

it means that the company has filed for bancruptcy protection and cannot pay its creditors anymore. They are out of cash. The courts will then appoint someone to manage their cash and negotiate with their vendors, shareholders, etc.

When this happens in germany it ypically means the end of the company - in the US many companies come out of Chapter 11 smelling like a rose with a fresh start.

Juergen

[mark blackman]

Juergen,
thanks. so this is different than the position that Ilford were in earlier on, when they had gone into adminstration?

[Juergen Sattler]

Mark,

I don't know that answer to that because I don't know what Ilford exactly went through and how the law is different from German law. There is still a chance the AGFA might come out of this smelling like a rose (credits might be forgiven, etc.) but this is a very serious event for a German company and most of them just disappear once they reach this crucial point. I guess we will find out pretty soon and I'm pretty sure we will see a press release from AGFA next week unless they really have given up completely - then there will be silence. Let's hope for some noise:-)

[mark blackman]

Ah, I see. We don't have the same thing in the UK. If a company gets into financial trouble, it can either voluntarily go into receivership, or a creditor can apply to the court to have receivers appointed. The receivers are tasked with paying off creditors, they may try rationalising the company (redundancies, reducing stock etc) even selling off parts of it (as happened at Ilford). If things get too bad, they whole lot is put up for sale (liquidation).