The Cost Of Going Digital: Kodak Sets More Job Cuts

ROCHESTER, N.Y. (AP) -- Eastman Kodak Co., which turned picture-taking into a hobby for the masses a century ago, is cutting 12,000 to 15,000 more jobs--close to a quarter of its work force--as it struggles to make the wrenching transition from film to digital photography.

The chemical-photography franchise that turned Kodak into an American icon and one of the world's most recognizable brand names has been on the wane for over a decade, but its decline accelerated in the 21st century as filmless digital cameras became hot sellers.

The world's biggest photography company is now betting its future on new-wave photography, digital printing, and health imaging, which are fast-growing but highly competitive markets. Without a swift, well-honed conversion, analysts warn, Kodak risks fading into history.

"We've got good momentum, particularly in our digital portfolio," which turned a profit for the first time last year, chief executive Dan Carp said Thursday at an investors' conference in New York.

Kodak has a three-year plan to ensure we stay ahead, he said. "We believe 2003 marks the bottom and we'll build on our performance going forward."

The latest job cuts in the signature film business, spread over three years, will slash Kodak's global payroll to World War II-era levels. They came as Kodak posted a fourth-quarter profit of $19 million, or 7 cents a share, down sharply from $113 million, or 39 cents, a year ago.

Excluding restructuring and other one-time items, however, earnings were $199 million, or 70 cents a share. That beat the consensus forecast of 52 cents a share among analysts surveyed by Thomson First Call. Sales rose 10 percent to $3.78 billion from $3.44 billion.

"With strong declines in film volume ... this wasn't really a huge surprise," said analyst Shannon Cross of Cross Research-Soleil Securities in Short Hills, N.J. "It's needed, but it radically increases the risk profile of the company. You've got a company that's going from oligopoly to a very competitive landscape."

Kodak also said Thursday it has launched a $35 million tender offer to buy the remaining 41 percent stake in Japanese digital camera supplier Chinon Industries that it doesn't already own.

The company plans to trim about 2,500 to 3,500 jobs this year. It eliminated up to 6,000 jobs in 2003, shrinking its payroll to 64,000 from a peak of 136,500 in 1983. It employs 35,500 people in the United States, including 20,600 at its fading manufacturing hub in Rochester.

It will take charges of $1.3 billion to $1.7 billion through 2006, including up to $900 million in severance costs.

Founded in 1881 by George Eastman, Kodak turned point-and-shoot photography into an overnight craze when it came out with a $1 Brownie in 1900. By 1927, it held a virtual monopoly of the U.S. photographic industry.

By the 1980s, Kodak still cornered nearly two-thirds of color-film sales worldwide. But excessive caution in exploiting new markets, such as point-and-shoot 35mm cameras, was quickly taking its toll.

The innovative Japanese have not only plundered Kodak's fat profit margins. Tokyo-based Fuji has jumped from obscurity 25 years ago to within a whisker of edging out Kodak as No. 1. In the faster-paced digital marketplace, where margins are far tighter, caution could spell extinction.

Kodak has poured more than $4 billion into digital research in the last decade, securing hundreds of patents and developing a vast array of products and services. Some are innovative, competitively priced, and proving popular with consumers, such as its Picture CD software, online photo-sharing service and easy-to-use line of digital cameras.

For all that, Kodak is still struggling to find its footing against entrenched rivals such as Hewlett-Packard Co. and Canon Inc. The digital segment generated only $4 billion of Kodak's $13.3 billion in 2003 sales, and it is having to shift its cost structure to keep pace.

Last week, Kodak said it will stop selling reloadable film cameras in North America and Western Europe this year. In 2003, filmless digital cameras, which record snapshots on computer chips, began outselling traditional film cameras for the first time in the United States.

In September, Kodak slashed its annual dividend from $1.80 to 50 cents to help fund $3 billion in acquisitions and internal growth. The move infuriated investors, who drove the stock down to 18-year lows.

Kodak has already spent about $750 million for five companies. The biggest deal was its $486 million buyout of PracticeWorks Inc., an Atlanta-based dental-imaging and software maker.

The company wants to boost its revenues to $16 billion by 2006. It expects digital imaging to account for half of its profit and 60 percent of sales by 2006, up from nearly 30 percent now.

In its photography division, Kodak's fourth-quarter sales rose 9 percent to $2.6 billion as consumer digital camera sales leaped 87 percent. Revenues from its online photo-sharing service surged 55 percent and ink-jet paper sales were up 11 percent.

Commercial imaging sales also rose 9 percent to $432 million and health imaging sales jumped 14 percent to $704 million.

U.S. sales of consumer film products, including 35mm film and single-use cameras, sank 10 percent amid heightened competition and a sharp drop in retailer orders.