View Full Version : Investor Rebellion at Kodak? Blood in the streets of Rochester??

John Kasaian
26-Oct-2003, 21:05
Can this be?? Not to open up old digital vs. film wounds, but I was surfing websites looking for the illusive 14" R Claron when I happened on Mel Pierce Camera www.melpiercecamera.com and found a link to todays Denver Post in the MPC News box on the site. It appears as major investors are on the warpath against the Great Yellow Father in Rochester for dancing with Digital Buffalo while leaving Princess Film in the teepee! .......... verrry interestink, as Arte Johnson would say.

Steve Baggett
26-Oct-2003, 21:51
Interesting article. Here's the link (http://denverpost.com/Stories/0,1413,36%7E33%7E1714108,00.html?search=filter)

J.L. Kennedy
26-Oct-2003, 21:52
The same thing was in the Wall Street Journal. Seems that a significant number of institutional investors think that Kodak's planned strategy of making acquisitions in order to stake their future on digital photography and printing is overly risky, with the likes of Canon, Epson, Lexmark, etc already heavily competing in this market. These investors think that Kodak should continue to capitalize on the film market which, though declining, is still very much a cash cow. I tend to agree.

Mark Farnsworth
27-Oct-2003, 01:08
Kodak has every intention of continuing the film business. They know it is a cash cow. They have 2 choices:

1. See their business slowly decline over the next 10 years to almost nothing, milking the film business (cash cow), laying off the majority of its 75,000 workers (they had over 100,000 workers 5 years ago), and paying out the profits to it's shareholders. US film sales declined 10% in 2002, and will probably decline much more in 2003, with no end in sight.

2. Take the profits from the film business, and invest in new technologies. This investment will be jump-started by a cut in the stock dividend to help pay for the new investments. As others have noted, there is a lot of risk with this strategy, but probably the only chance of Kodak has of remaining a $13 billion company (rather than a $1-$2 billion dollar company).

Either way, the film business will continue so long as consumers purchase film. The professional film business (which includes B&W) is irrelevant to Kodak's strategy of success, but will likely continue either inside or outside of Kodak.

I am glad I don't have to make these decisions.

Mark Sampson
27-Oct-2003, 06:01
Blood in the streets of Rochester? That's called rain... something not often seen in California. The real bleeding lies in the fact that in 20 years Kodak has gone from 80,000 employees in Rochester to about 24,000, it's a wonder that the city is still here at all. I agree with Mr. Farnsworth about the nature of the questions facing Kodak, but when he says "I wouldn't want to have to make that decision", remember that the decision-makers are being paid millions of dollars yearly and are completely insulated from the consequences of failure- they will retire wealthy no matter what.

Brian Ellis
27-Oct-2003, 07:12
Is anyone actually surprised that shareholders don't like a cut in dividends? Or that shareholders are more concerned with the results of this quater's operations rather than what the results might be five years from now? I can't remember the title but I remember the book that came out a few years ago comparing publicly held Japanese corporations with publicly held American corporations. The author concluded that many American corporations declined relative to the Japanese because the emphasis in American corporations was on keeping the investment community happy by doing things that boosted the price of the stock today at the expense of the future whereas the Japanese did things for the long range good of the company. The fact that shareholders don't like Kodak's announcement is no surprise but I don't see how Kodak has any choice if they want to stay in business. How can a company ignore the fact that the market for its principal products is disappearing?

Frank Petronio
27-Oct-2003, 08:58
I'm in Rochester, I see this first hand. Luckily Rochester has been able to absorb many of the laid off workers, and while growth continues to negative, it isn't as bad as it would be if it were an unskilled workforce being displaced. When you consider that we have Kodak, Xerox, and Corning all in our area - three of the largest declining companies - it's amazing that the community is functional at all!

The transformation to digital is going much faster than I ever thought. A lot of pros here are using slighter older, lesser cameras - Canon 10D, Kodak 760, Nikon D1 - for their everyday shooting, while more prosperous ones have all gone to Canon 1Ds. I only know of 3 people using Kodak ProBacks (or Leaf, Imacon, etc.), and fewer jobs that actually require ProBack resolution. There simply isn't the need for that many posters or large format images - and often the projects that need large images - like packaging with large printed images wrapped around the box (a classic 8x10 job) - are collages done from multiple lower res images. So if Kodak could refine their 14D into a more robust product, I think they could sell a lot of them against the Canon 1Ds. But they used up a lot of good will with a flawed initial release.

The inkjets are so cheap and so good that I don't see how Kodak could make an inroad here. The only possibility I see is if they package their cameras and printers as being the absolute best at color matching and color quality - but it's an almost impossible job to actually be the best at something so subjective.

I follow Leica prices on eBay and they have been rapidly declining – you can buy decent M2s for under $500 now; M4 and M6s for $850-900. To me this signifies that even serious amateurs are selling at least some of their Leicas to pick up Canon 10Ds.

That leaves the amateur P&S market. Kodak makes those cameras overseas, and other than the software I don't see a qualitative difference between them and the other major manufacturers. Kodak's interface is different, and in many cases better, but having a better interface isn't always the deciding factor (Apple vs. Wintel).

Kodak has an very difficult job ahead of itself. I don't see how they can do it unless they do something bold like buy Canon's digicam unit, or partner with Epson. Like the previous guy said, "I'm glad I'm not making those decisions...."

27-Oct-2003, 11:59
Isn't the low end consumer digital already on the way out? We've got phones with cameras. Soon enough everything from kids video games to lap tops will come with built in digital cameras. That will kill off the digital camera at the low to middle of the market. All that leaves you is the pro market and the advanced hobbiest. The pro market already seems happy with current levels of performance. They will likely pay for faster, longer battery life and less weight. Will they pay for higher quality? That leaves the niche markets. I can't see those markets supporting the sort of investment needed for anything more then current performance. That creates a world that the low cost supplier ends up the only supplier.

Personally it looks to me like everybody in the digital world is facing a tough road.

Wayne Crider
27-Oct-2003, 18:12
I wonder how their going to compete without moving more and more of their operations to southeast Asia?...In fact, just as an aside, American Express customer service and Del Computers tech assistance has apparently moved to India. Bye bye American jobs. So whats next for Kodak, taking their engineering operations to India? Why not when it will save them millions contributing to the bottom line.

I can't see Kodak designing cameras, or printers for that fact, and trying to compete in the fiercely fought (digital) electronic marketplace which now reminds me of the days when Computer Shopper magazine was 2" thick. Film will undoubtetly carry them, especially since a majority of Chinese will probably buy a film camera before a digital camera.

Robert J Cardon
28-Oct-2003, 11:49
I wonder how their going to compete without moving more and more of their operations to southeast Asia?...In fact, just as an aside, American Express customer service and Del Computers tech assistance has apparently moved to India. Bye bye American jobs. So whats next for Kodak, taking their engineering operations to India? Why not when it will save them millions contributing to the bottom line.

Answer to last sentence question: The trouble is that the overseas worker isn't buying American products, nor is the laid off worker. The long term impact of eliminating good paying jobs in America will be to gut the customer base, which will reduce sales/profits, leading to more jobs shipped overseas. But aparently the CEOs really don't care about this.


Jorge Gasteazoro
28-Oct-2003, 12:20
Answer to last sentence question: The trouble is that the overseas worker isn't buying American products

I guess Mexico is not "overseas" per se, but here the predominant products are american cars, computers, etc, etc.

What chaps my hide is the fact that the same companies who come here to get cheap labor then turn around and sell their products as if they were made in the US. For example, IBM computers are made in Mexico, yet I have to pay as much for a computer here as I would pay in the US. Blockbuster always pays minimum wage to their front store emplyees, the difference is that minimum wage in Mexico is $200 a month, yet when I go to rent a movie I pay the same $3.50 you all pay in the US.

From a corporate point of view it only makes sense to move operations to countries where you can essentially get the same work done as in the US for what amounts to slave labor wages.

Frankly I am surprised Kodak made their new plant in Canada, as they have the same living standards as in the US, but I am sure they had good reasons to do so.

As to Kodak's desicion, IMO they undoubtely have to do something to become competitve in the digital area, after all it is the wave of the future for consumer imaging. I think the problem most investors have is putting all your eggs in one basket and turning a blind eye towards film, when the field still has enourmous value even if it is declining.

David A. Goldfarb
28-Oct-2003, 12:29
I suspect the Canadian health care system might be an attraction for Kodak, as compared with the U.S. system.

28-Oct-2003, 13:07
Both of India and Mexico are losing jobs to China. That's right wages in India and Mexico aren't low enough.

It doesn't suprise me Mexican prices aren't any lower then US prices. If they were at best they'd risk a dumping complaint. At worse the product would be shipped back into the US via the grey market. Just look at how Canadian drugs are being shipped into the US.

John Downie
28-Oct-2003, 15:59
There was a long thread on this topic right after the announcement, on the other lf forum.

Kodak faces the "free cash flow problem." They have a highly profitable product, film, that is in a declining market. The chief problem is that managers do not like taking actions - paying out the film-generated dividends to shareholders - that shrink the company. Instead, they piss away shareholder value by investing in negative NPV (economically money-losing) projects. It is a ludicrous pattern that Kodak has followed over and over. Just because digital is the wave of the future does not mean Kodak can make any money in it. Hybrid vehicles and photovoltaics are also likely to sell more in the future, but people do not suggest, quite sensibly, that Kodak should invest there. Just because film and digital cameras both capture images does not mean that Kodak has any business in digital. We have seen that the Kodak brand name does not carry any punch on its own, so Kodak should follow the advice of the investment community and pull the plug on this latest, value-destroying investment.

Mark Farnsworth
29-Oct-2003, 02:38
Lots of countries are loosing jobs to China because the Chinese currency does not float to a “market rate” and is fixed by the government. The rate is fixed artificially low to encourage Chinese manufacturing jobs and exports. The US and other countries have complained about this, but so far there is no sign that the Chinese will allow their currency to increase in value. This keeps people in China employed, but lowers their standard of living because imports are very expensive.

Drugs are cheaper in every country outside of the US (including Canada). This is because all other countries have regulated drug prices, and/or they do not honor drug patents (making generics much more plentiful). Health insurance purchasers and consumers in the US fund all worldwide R&D for new drugs in the pharmaceutical business. People in other countries basically just pay the cost of drug production and marketing/distribution.

IBM computers are assembled in Guadalajara Mexico, but almost all the parts are made elsewhere in the world by contract manufacturers to IBM specifications. The final assembly does have some costs, but not enough to make a big difference.

John, I agree with you that Kodak is probably wasting its money investing in digital. Even if they became a major player, they will be just a re-marketer of technology developed by others, and there will eventually be a huge shakeout in the business just like the PC business. Stockholders would be better served if Kodak just paid big dividends and milked the film business cash cow to the end (maybe 10 years max) without and major R&D. But that would not be considered to be the “responsible” thing to do from an employee standpoint or from a community (Rochester) standpoint. That’s part of the dilemma that management faces.

Tom Westbrook
5-Dec-2003, 03:59
Looks like Kodak realized they might have made an error in the Wall Street Journal article. It might be good for those who use film to take the survey: