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Kodak Caught in Changing Times

By    |   Thursday, 23 Jun 2011 12:41 PM

Eastman Kodak (EK) has a long and storied history since its founding in 1888. For years, it stood as the pre-eminent photography company in the United States, with its stellar lineup of film and cameras. But the digital age hasn’t been kind to this American icon, cutting demand for Kodak film and photo printing.

Kodak has tried shifting to digital photo products without much success. Revenue dropped 46 percent from 2006 to 2010. The company has three main divisions:

• The graphics communications group, which includes production technologies for commercial packaging and printing, accounts for 36 percent of sales.

• The digital imaging group, including cameras, printers, and software for consumers, makes up 34 percent of sales.

• And the film product group, which includes old-school film for photography and movies, accounts for 30 percent of sales.

The dependence on film products is a problem given the rapid change in the industry. Experts say Kodak's bountiful intellectual property portfolio represents its strongest asset. It owns more than 1,000 patents and earned about $630 million from licensing them last year.

The problem there is that licensing revenue is volatile, and the company will eventually run out of patents to license.

Kodak may strike it rich yet in a possible settlement involving a patent for electronic camera technology with Apple (AAPL) and Research In Motion (RIMM). Excluding that potential windfall, the company anticipates garnering $250 million to $350 million in annual revenue from licensing agreements through 2013.

Roadblocks ahead

Kodak suffered a first-quarter loss of $249 million, reversing a profit of $119 million in the year-earlier quarter. Revenue dropped 31 percent to $1.32 billion.

Performance suffered from surging prices for silver, which is a part of film. And last year’s earnings included a $550 million one-time licensing payment.

Analysts are pessimistic about Kodak’s future. "We continue to view EK's core business as challenged and under severe secular pressure," Chris Whitmore of Deutsche Bank Securities recently wrote. He rates the stock a sell.

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Eastman Kodak (EK) has a long and storied history since its founding in 1888. For years, it stood as the pre-eminent photography company in the United States, with its stellar lineup of film and cameras. But the digital age hasn t been kind to this American icon, cutting...
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Thursday, 23 Jun 2011 12:41 PM
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