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International International: Kodak's moment: once-great brand hopes to become global name again

International: Kodak's moment: once-great brand hopes to become global name again

Author | exchange4media News Service | Thursday, Oct 12,2006 8:34 AM

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International: Kodak's moment: once-great brand hopes to become global name again

Slow to react to the rise of digital cameras, the company has had years of painful restructuring ensued

Antonio Perez, the chief executive of Eastman Kodak since May 2005, has a dream. The once-mighty global brand leader in film lost its way, but he wants to transform it into the world's No 1 digital camera company. That would not be by making what he calls today's "filmless cameras" but by investing in mobile phone technology to make what he calls "digital capture devices".

The transformation began three years ago but is coming at a heavy price. Kodak has shed more than 20,000 jobs and expects its payroll to have been cut by 27,000, maybe 30,000, by next year.

The restructuring will cost up to $3.4bn (£1.8bn), adding to the firm's debt of $3.5bn. But Mr Perez told the Guardian at the Photokina trade fair that Kodak, which is paying off $800m debt this year, could be debt-free next year.

Within the next few weeks he hopes to raise substantial sums by selling off the whole of Kodak's medical imaging business or creating a joint venture with a partner. "We don't want to be in a business where we can't be No 1 five years from now unless we invest a few billions. We don't have that choice," he said. "We have to pick our path."

Mr Perez, a Spaniard who was at Hewlett-Packard for 25 years before losing out in the race for chief executive to the now-discredited Carly Fiorina, is determined to avoid a repeat of Kodak's mistake in reacting too slowly to the introduction of digital cameras. The company went into a spiral of decline before belatedly pulling out of making traditional cameras and reducing its reliance on making 35mm film.

"If I don't make that decision now, it will be like going back 10 years and not doing anything about film and digital. We want to face the music as soon as it starts to sound and not wait for the end of the song," he said.

Mr Perez has spent $2.6bn on four companies in commercial digital printing, including Heidelberg's Nexpress. Kodak's graphic communications group contributed $22m of earnings in the second quarter this year.

Sidehead hereish

He wants the commercial digital business, which should account for half of overall sales, to raise its operating margin from 4% to 5% this year, and then in short order raise it to just under 10%. He makes it plain he wants to use his HP experience - he headed the inkjet printer business for five years - and move into that area. "It made 130% of HP's profits, so why not?" he said. "We have the technology, the know-how and the intellectual property and we can actively participate in the market and are planning to do so."

But his main focus is on the digital consumer business, which he hopes will break even this year and make a profit in 2007. Last month Kodak handed over manufacturing and distribution of its digital cameras to Flextronics, the Singapore-based designer and manufacturer. While Mr Perez rules out making Kodak a "virtual" company outsourcing all its manufacturing, he indicates this trend will continue.

"We are not a low-cost, high-volume company. We don't pretend to do that and don't want to do that. We are manufacturing hi-tech such as commercial printers and CMOS [metal oxide] sensors used in cameras ... We are always going to be asset-light."

Mr Perez signed a deal with Motorola earlier this year to provide silicon sensors for the cameras in the group's mobile phones. "We are going to collaborate and co-design cellphones so they become real cameras," he said.

"We can offer that industry the intellectual property and know-how it doesn't have and the secret is to design these two features from the beginning of the architecture."

Kodak expects 1bn mobile phones to be sold worldwide next year and 60% of them will include digital cameras. By 2009 there will be more than 800m phones sold in Europe alone, most of them equipped with cameras. "We're not just talking about pictures or voice, data or text; we're talking about information and imaging becoming one," he adds.

So far, Mr Perez's vision has failed to win investor confidence, with dividend cuts and Kodak shares down 10% this year. Net losses in the second quarter widened to $282m from $155m, but Mr Perez insists the turnaround is almost complete. "I believe we are terribly undervalued and the break-up value is close to double the market cap of around $6bn," he said. "My dream is of waking up in 2008 with a great balance sheet and a growing digital company. By 2010 we want to be the indisputable leader in digital capture for consumer applications.

"You can't disassemble and transform a 130-year-old company in a year; we won't be a larger company but a good one."

Source: MediaGuardian

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