so just what IS the deal with Kodak?

[chris jordan]

I've been reading all the hype about Kodak, and a few jokes along the way, and people suggesting to stock up on film, but does anyone know what's the actual scoop? Should I buy a couple of years worth of Portra or is this all a bunch of rumors?

~cj

www.chrisjordan.com

[Michael S. Briggs]

Film is a shrinking business, but it is the main source of Kodak's profits. The obvious business strategy is to be frugal with investments and to milk the product for profits as a "cash cow". Kodak would be crazy to abandon all film production. The only other business strategy that would remotely make sense is to sell the film business to someone else. Far more likely is for Kodak to retain their film business as a source of profits and funds to use to subsidize digital R&D.

As long as enough people want to buy film, someone will make it. The choices will shrink, but film will be available for a long time.

[Alan Davenport]

We can probably all agree on one thing: it takes money to make money -- Kodak, or any company, has to invest money in the plant to produce film or anything else. It's probably also obvious that any company has a finite amount of resources to invest. What they are after is the best return on that investment. That said, I believe there will come a day, when the pencil pushers at Kodak will be able to tell the board, "Look here, we can make more profit by investing all of our money into digital, rather than continuing to make film." The next day, Kodak will cease to produce film.

In the meantime, I'm going to keep taking pictures the way I want. Make hay while the sun shines, you know.

[Edward (Halifax,NS)]

I might not be in the loop but the only thing that I have heard is that Kodak is not going to be selling film cameras which were all 35mm or APS point and shoot. This is not going to effect any of us so I don't see any need to worry. Is there some other "the sky is falling" report that I should be aware of?

[Frank Petronio]

Film's profit margin is fantastic - it cost pennies to make, and sells for a huge profit. Don't worry - as long as you're buying film, they'll be making it.

The only thing Kodak is screwing up is their public relations writing. One faction of stockholders wants them to abandond digital and only make film; another wants aggressive progress in digital - their press releases need to answer to both, which leads to vagueness.

Would you give up a multiple billion dollar business that had a 1000% profit margin, even if it was declining?

[Michael Kadillak]

Yes, film is a profitable business as Frank said but revenues after expenses at the corporate level as reported to the financial community are the real drivers. Kodak has had a history of making bone headed decisions costing them many millions as they struggle with what they want to be when they grow up. Their competitors have been chipping away at their market share for years and the results speak for themselves. In mid 1999 their stock was $80 and it dropped to $20 in the third quarter of 2003. When ta corporations stock price drops to a certain level and it adversely affects their corporate bond rating and their capitilization, their fundamental ability to function in a corporate world is seriously at risk. Make no mistake about it, Kodak is in the fight for their very existance as we speak.

That said, anyone that uses Kodak LF film will be just fine. Worse case scenario even in bankruptcy mode, the coating machines will still be turning in their core business to keep the money flowing (because as Frank said - it is their highest margin opportunity) while the lawyers do their thing. Should be an interesting story to follow in the months ahead.

Cheers!

[Chad Jarvis]

Sorry to put too fine a point on it, but there is no such thing "revenues after expenses". Revenue is, simply put, gross income. Revenue minus expenses equals gross profit in very simple terms. A company such as Kodak can still remain VERY healthy, even with reduced revenue, providing their expenses are cut, such as what's happening with their reduction in workforce and closing of film production plants around the world. Keep in mind that the plant closings do not necessarily indicate that Kodak will be selling, or will even INTEND to sell, less film; it could simply mean a consolidation of efforts or outsourcing to other, more efficient manufacturers.

Also, stock price is certainly not the only indication of corporate health. Assets (including outstanding A/R), liabilities (including outstand A/P) and cash flow all need to be considered, and probably should be considered, BEFORE thinking about a company's price per share.

Another point about stock price: Kodak's current price is around 26.50 with a P/E that is still over 34! That means that when Kodak's stock was trading at 80 (five years ago), the stock was trading at more than 70 times (current) earnings. That's crazy. What this indicates to me are several things: - Kodak has too many oustanding shares of stock (anticipate a reverse stock split sooner rather than later). - Kodak's existing shareholders have been caught holding the bag; i.e. they were greedy and should have sold two years ago. - While earnings were goings down, the per share price kept going up, indicating that the public was still caught up in a buying frenzy - probably due to overzealous (read greedy) analysts, who were interested in reaping the quick rewards of commissions.

That said, the company is still making money and will continue to do so. I think the latest cost cutting measures will at the very least buy them the time they need to put together a strategy to compete in an ever-changing world of new technology. They can turn it around; other companies have. Remember Chrysler in the 70s? Remember Pesi in the 40s?

[Michael Kadillak]

Completely agree with your comments Chad. I am an engineer, not an accountant. Wheither the stock price was inflated or not or wheither they have to many shares outstanding is a subject for an investor forum.

The point I want to make is that behind every successful corporate turnaround, there is a legitimate business genius that delicately extricated them from their downward financial spiral. The two cases you mentioned as sucesses - Lee Iacoco at Chrysler and Charles Guth at Pepsi are two classic examples. Another that comes to mind is Fed Ex where in a final act of desperation the owner went to Vegas with his last $35,000 and beat the odds to come home with enough earnings to make the following weeks payroll and the rest is history. On the other side of the fence there are numerous examples of less than optimal management that drove perfectly good companies into the ground with the employees and investors taking all of the hit.

Based solely upon the last couple of years of press releases and particularly the surge of them last month, I still do not have a friggin clue what the hell Kodak is trying to pursue? My personal opinion is that they are desperately trying to find a way to (successfully) enter a digital market and post a legitimate market share in a business segment that is already highly oversaturated with players that have been doing it for several years now. In my opinion, the buck stops with Senior Management. Poor investor relationship or divergent messages to the consuming public can be a good indicator of confusion in the corner offices - hence the questions of this post.

Konika was faced with the same set of negative variables in their business and they quickly implemented a strategy for the future and found a way to make it work. I wish Kodak all of the luck possible in their future decisions because in this "show me da money" world, the phrase "earnings less than expectations" can prove to be fatal.

[Chad Jarvis]

Agreed. Kodak lacks direction.

[Philippe Gauthier]

One of Kodak's strengths is its network of minilabs. I think that the point can be made that having a 4x6 print made in a minilab from your digicam is cheaper and more desirable than going through the hassle of doing it yourself. Ordinary people just love showing their albums full of small prints and I think that this is the gap in the actual digital market. Showing a lot of pictures on a monitor is even less sexy than the infamous slide projection evening of the 1970's.

That way, Kodak could continue to sell a lot of photo paper for eternity; would save its network of affiliated labs that would sell Kodak products; and would not have to invest in printer technologies where it is hopelessly behind. That, however, would require some vision, a good marketing campaign, and perhaps an improved minilab - either a do it yourself machine or a machine printing 5x7.5 inches pictures - just as they upgraded from 3.5x5 to 4x6 a decade or so ago.

This wouldn't solve all Kodak's problems, but would salvage some of its business, would be in the traditional line of the company - "Give us your disk and we'll do the rest" - and would make the survival of a moderately large film user base more likely. Or am I dreaming?

[Brian Ellis]

Edward (from Halifax, NS) - There have been two announcements by Kodak that got the investment community and the photographic community in a tizzy. One was the recent news release you mention. However, there was an earlier one in which Kodak said it was going to start emphasizing digital and deemphasizing film. There was such a hue and cry from all quarters about that one that Kodak has been scrambling to "clarify" and back away from that message ever since. I think the president of Kodak recently issued yet another pronouncement trying to minimize the fall out from the digital message.

[Wayne Crider]

Regardless of what is happening with the company, I've been thinking more and more of going to b&w Kodak film in LF instead of Ilfords. I would like to see a stronger company and hopefully a saving of american jobs.

[H.-Choong Lim]

The latest news report from Reuters says "Nikon Corp. on Monday posted a quarterly loss and a downward revision to its full-year forecast due to soft digital camera sales, joing Fuji Photo Film Co. and Olympus, which both lowered their digital camera forecasts".

Makes you wonder if any manufacturer would truly want to abandon any profitable film lines. And shouldn't they want to promote a lines of businesses which require minimal R&D, vis-a-viz digital which require high R&D and short product cycles?