George Eastman, who in 1888 founded the company that would become Eastman Kodak, said his goal was to make photography "as convenient as...
NEW YORK — George Eastman, who in 1888 founded the company that would become Eastman Kodak, said his goal was to make photography “as convenient as the pencil.”
But thanks to digital technology, photography has become a little too convenient for Kodak’s own good.
Executives acknowledge that they repeatedly miscalculated how quickly the world would embrace digital cameras. Kodak let other companies take an early lead in a field that it could have pioneered in the same way its $1 Brownie camera brought film photography to the masses.
Now executives are trying to catch up, using the treasured Kodak brand name to hype its cameras, printers and services. The question is whether they’ve waited too long.
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“We knew from the beginning that film was going away. It is going away faster than we thought,” said Kodak Chief Executive Officer Antonio Perez at a meeting last month with institutional investors in New York.
In that meeting, Kodak lowered its projections for this year’s operating profit, citing a slowing economy and setbacks in the company’s health-imaging unit. That marked the fourth time in a year the company has lowered its financial forecasts.
The company also has announced up to 25,000 layoffs since 2004, leaving it with a work force of about 50,000.
Not much brighter
The picture was hardly brighter this month, when the company reported a $1.03 billion loss in the third quarter, mostly attributable to a one-time tax charge. But even excluding that and other charges, analysts said Kodak missed Wall Street forecasts. Sales rose 5 percent to $3.55 billion.
“They’re doing what they can in the situation,” said Mark Lanyon, an analyst with Morningstar. “It’s a miserable situation no manager would want to be a part of.”
Digital-camera sales first surpassed those of film cameras in 2003, according to Photo Marketing Association International. Kodak had been experimenting with digital-photography technology since the 1970s, and it introduced its first pocket-size digital camera, the DC20, in 1996.
But executives continued to pour investments into the film business. Like razor blades and printer cartridges, silver-halide film has long been seen as a cash cow, an item consumers constantly have had to replace, creating a steady stream of income.
Film might eventually go away, Kodak executives reasoned, but it would generate plenty of cash before it disappeared. That money could be used to invest in digital technology.
“They were trying to protect their turf in film when they could have been more forthcoming and aggressive in digital technology,” said Ulysses Yannas, a broker at Buckman, Buckman & Reid.
By 2003, though, the company was acknowledging that it wouldn’t be able to rely on cash from film much longer. Then-CEO Daniel Carp, who is now chairman, aggressively cut costs and investments in the traditional film business, a process that continues today.
Perez, who joined Kodak from Hewlett-Packard in 2003, took over as CEO this year. At a company that has retained some executives for decades, he is seen as a relative outsider, an executive steeped in consumer electronics instead of chemical processing.
At the investors meeting, in an auditorium in Manhattan, he predicted Kodak would no longer rely on film by 2008, when it would generate $3 billion to $4 billion in sales compared with about $14 billion in digital sales.
That trend became starkly evident in third-quarter figures, which showed for the first time the company generated more sales from digital imaging, $1.89 billion, than from film-based photography, $1.66 billion.
Last year, about $5.5 billion of Kodak’s $13.5 billion in revenue came from digital photography.
“There are lot of experts out there in the decline of film,” and Kodak isn’t going to try to predict when it will disappear, Perez said. But by 2008, “we either have a truly successful digital company, or it doesn’t matter how long film is going to last.”
Consumers are a big part of Kodak’s digital plans, along with commercial printing and the health-care industry. This year, the company introduced its most ambitious digital camera, the EasyShare-One. The device can wirelessly transmit pictures to a computer or printer over a Wi-Fi network.
The company’s line of printers is tied closely to its cameras, allowing users to dock cameras on top of the printers to print out photos. The company also believes consumers will gravitate to its photo-printing kiosks in drugstores. And the digital-photography products have the same name as Kodak’s online photo-sharing service, EasyShare.
The strategy gives Kodak a new cash cow, Yannas said. Printer cartridges replace film, while consumers buy photographic paper to print at home or buy prints through the kiosks or the Web site.
But digital-camera owners don’t print every photo they shoot, noted Ron Glaz, an analyst at International Data. And as technology evolves, they may be even less compelled to print, he said.
“There will be networks in the home and digital frames,” he said. “You’re going to be constantly viewing pictures.”
Notwithstanding Perez’s experience in the consumer-electronics industry, Kodak is fairly new to the gadget world. Consumers trust the quality of its film, and the company has high rankings in brand-awareness studies. But it’s unclear whether that will transfer to technology products.
“When you’re coming into things that have traditionally been the domain of HP and Lexmark, can you shift this powerful, resonant brand on a dime in consumer consciousness?” Lanyon asked.