What’s Happening with Kodak? (Part 2)

Jim Hamilton
Nov 4, 2011

Kodak announced its third quarter 2011 financials yesterday and the picture is not a pretty one: sales down from Q3 2010 and a loss of $222 million. Kodak positioned the news as “Kodak Makes Steady Progress in Digital Transformation During Challenging Times.” The Wall Street Journal took a much dire view, saying “Eastman Kodak Co. warned Thursday that it will have trouble staying in business if it can’t squeeze more money out of its patent portfolio or raise new funds by selling debt.”

In October I wrote about a conversation I had with Kodak President and Chief Operating Officer Phil Faraci about Kodak’s financial situation and particularly about three specific items: Kodak’s plans to sell some intellectual property, the news of the hiring of the Jones Day law firm, and Kodak’s move to take advantage of its revolving loan. I closed my blog about Kodak’s financial position with the point that Kodak would have to prove to the market via financial results that it can achieve profitability. Kodak’s third quarter results don’t help support that point. Antonio Perez, Kodak’s Chief Executive Officer, said in the financial analysts’ call that their fourth quarter results would be better. I hope this will be the case.

With a share price hovering around a dollar and a market cap of about $325 million, it’s easy to speculate that Kodak could be acquired. Yet the “poison pill” that Kodak adopted in September of 2011 makes that prospect less likely. The most optimistic scenario for Kodak is to sell or license some of its intellectual property and parlay those resources to drive sales of its various digital product lines so that the company can reach overall profitability as soon as possible. I think this is more likely than a Kodak acquisition. Of course this puts even more pressure on Kodak to show strong fourth quarter 2011 results and close licensing or sales agreements for some of its patents. I had a conversation again yesterday with Phil Faraci and he remains confident that signs are pointing to a strong fourth quarter that would set the stage for a profitable 2012.

With the rapid decline of its film business Kodak was faced with arguably the most difficult business challenge any company has encountered over the past two decades. Fully replacing film revenue with digital offerings was not possible and so the company has shrunk to a shadow of its past glory. But I’m not ready to write Kodak’s obituary. There is too much talent, there are too many good products, and they have a sizeable impact in many markets. The production printing industry benefits from a strong Kodak and I have confidence that this will be a turning point in their history. It will be a smaller Kodak, it will be a digital Kodak, and it will continue to play an important role.

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