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Kodak Plans to Cut 10,000 Jobs As Digital Imaging Replaces Traditional Film

Posted on: Thursday, 21 July 2005, 03:00 CDT

Jul. 21--Eastman Kodak Co., an icon of photography for more than a century, said Wednesday that it is shedding as many as 10,000 more jobs, as digital imaging devours its traditional film business at a faster-than-expected pace.

Analysts say Kodak is in a race to build sales of its digital cameras and, more importantly, its photo printers and other digital supplies. Meanwhile, sales of traditional film products are plunging faster than the company's executives had forecast.

The Rochester, N.Y.-based company also posted a loss for the quarter ended June 30. Analysts had expected Kodak, still the world's largest photography company, to show a small profit.

"Our disappointing start in the first half of this year makes it clear that I need to make some changes and make them now," said Chief Executive Antonio Perez. "Sales of our consumer traditional products and services are declining faster than expected."

Kodak said it now expects its traditional sales to plunge 23 percent to 27 percent in 2005, compared with a 20 percent drop forecast in April.

The company had announced last year that it would eliminate as many as 15,000 jobs. Those job cuts, and the 10,000 announced Wednesday, will mostly affect the company's film business and lower company costs by about $800 million a year. Kodak had nearly 55,000 employees at the end of last year.

Most of the new layoffs will affect manufacturing workers. The company did not specify what facilities would close, but did say its manufacturing infrastructure, worth nearly $3 billion at the beginning of last year, would shrink in value to about $1 billion. That a change was needed was obvious when Kodak released its quarterly results. It lost $146 million, or 51 cents a share, in the second quarter on revenue of $3.7 billion. It said that in June digital sales exceeded revenue from traditional products for the first time. In the year-ago period, Kodak posted a profit of $136 million, or 46 cents a share, on revenue of $3.5 billion.

Can Kodak, which invented mass-market photography when it rolled out the $1 Brownie camera in 1900, make the transition to an age when many photos are viewed only on the screen of a computer?

"I am not optimistic," said Mark Lanyon, an analyst with Morningstar. "It's an extremely competitive market."

Lanyon said Kodak has seized the low end of the digital camera market. Those sales have made it the No. 1 seller of digital cameras in the U.S., but the more profitable high-end sector of the market is held by Sony and Canon.

"Kodak has been successful at generating revenues," Lanyon said. "The profitability has been nonexistent."

Kodak remains No. 1 in nearly every digital category in which it competes. That includes high-speed inkjet printers for commercial use, medical laser printers and online photo services.

For example, analysts say that in the U.S. it has approximately 35,000 digital video kiosks at pharmacies and retail outlets, far more than its competition.

But Fuji is rapidly introducing its own line of digital kiosks, ensuring that prices for prints cannot go up but may come down.

Kodak has historically been a master at creating a mass market for its products. For example, the Brownie popularized photography among ordinary people, creating a global market for Kodak's film.

The company appears to be following a similar strategy today.

"The profit is not in the cameras," said Ulysses Yannas, a broker with the firm of Buckman, Buckman & Reed.

Kodak is making a market for its paper and thermal printing ribbons by marketing cameras with printing docks, Yannas said. That simplifies the process because it means no computer is needed.

"Sales of printer docks were up 63 percent this year," Yannas said. "That is very important."

The layoffs at Kodak might be necessary if it is to retain its stature as a digital goliath. But the job cuts come with costs, not all of them tangible.

The company said that by 2007, when the payroll reduction is complete, it will have incurred $470 million in restructuring costs.

And one executive recruiter said that productivity will suffer for a time, and Kodak could find itself losing key people it would rather retain.

"People like me start getting calls from executives," said Umesh Ramakrishnan, vice chairman of the recruitment firm of Christian & Timbers.

He said that even people who escape layoffs often start looking for another employer.

"When they do this once, then do it twice, there is nothing to stop them from doing it three times," Ramakrishnan said.

Kodak stock lost 64 cents, to $28.10, on the New York Stock Exchange.

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Source: Chicago Tribune

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