Kodak's downward spiral hit a new low today, with the announcement that the company will lay off 10,000 employees and take a US$1 billion charge. But Kodak is showing no signs of pulling back from one of its most ambitious and highly criticized businesses - digital imaging.
The company's inroads into digital imaging have been eclipsed by a tide of red ink this year following a price war in the traditional film market initiated by its chief competitor, Fuji Photo Film. While Kodak expects to lose $400 million in its digital operations this year alone, it's banking on the marketing and distribution dominance it has built from its Kodachrome past to ensure its digital future.
Kodak believes retail photo processing will be the way most people will continue to develop their pictures, and chairman and CEO George Fisher said the company intends to expand on its "market strength" in that area.
More than half the specialty photo retail stores in the country already offer digital products and services, and the market for consumer products like digital cameras is beginning to materialize. Some 800,000 digital cameras are estimated to be sold this year, which may be peanuts in comparison to the 70 million disposable cameras consumers are forecast to buy. Still, considering the high price point and nascent marketplace, digital camera sales are impressive.
To capture the still-small market for digital imaging, Kodak must prove its agility in a marketplace already packed with dozens of competitors, including heavy-hitters like Casio, Olympus, Minolta, and Cannon. "It's going to be a blood bath in the next year," said Greg Tarr, an editor at the trade magazine This Week In Consumer Electronics. "It will take a name like Kodak, though, to win that market, or even to survive."
Kodak is in good shape on two counts, Tarr said. For one thing, its newest digital cameras are "fantastic ... they have all the hot features people are looking for right now � 2X zoom lenses, 1.8-inch LCD displays, and very high resolution for the price point [around $900]." But perhaps more importantly, Kodak has shown itself to be very savvy in licensing all the major competing technologies.
Still, there are a great many variables that will ultimately determine the shakeout in the digital-imaging market, Tarr said. Take storage formats, for instance. SanDisc is leading a charge of companies developing the compact flash-format technology that Kodak and most other cameras on the market use to store and transfer images; Intel, on the other hand, is promoting a different scheme, a miniature card system; and Toshiba has a solid-state floppy-disk card technology. Kodak has adopted the compact flash format for the short run, but it also holds licenses for competing technologies.
In the end, said Rebecca Runkle, an industry analyst with Morgan Stanley, the Kodak reorganization is intended to make Kodak "stop trying to be all things to all people."
The company is focusing instead on the front and back ends of its product cycle � scaling back its R&D spending by $100 million to $150 million, focusing more on the most-promising digital technologies, and relying on existing marketing and distribution channels to sell digital products.
In the process, it is also revamping its approach to manufacturing - aggressively acquiring companies and establishing new partnerships. Kodak began moving in that direction earlier this summer when it bought a majority stake in Chinon, the Japanese company that was first to bring a digital camera to market.
