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Wednesday, 21 June, 2000, 11:26 GMT 12:26 UK
Kodak looks to digital salvation
Kodak is hoping to move capitalise on the move to digital images
Kodak is hoping to capitalise on the move to digital images
by BBC News Online's Steve Schifferes

The world's most famous film company is hoping that the digital film revolution will come to its rescue.

Kodak is betting that consumers will move rapidly to adopt digital technology to take pictures, and that it can become the high-tech leader of the new digital revolution.

Dan Carp, Kodak's chief executive, told BBC News Online that he was "very frustrated" by the low share price for his company which is trading at around 10 times earnings despite five quarters of record profits.
Chief Executive Dan Carp: share price 'frustrating'
Chief Executive Dan Carp: share price 'frustrating'

"There is no question that digital imaging is going to expand the use of photography .. and make it more user friendly," he explained to News Online during a whirlwind tour of Europe.

"What's holding us back is some scepticism that the digital revolution is yet to be finalised," he said.

But he asserted that the new digital imaging systems would "fundamentally change the way pictures are taken."

Fresh investment

Mr Carp told the BBC that the company would invest two-thirds of its $900m research and development budget in digital technologies.

It was also spending over $1bn in buying back its own shares in order to boost their price.

Kodak shares have dropped nearly 25% over the year since reaching a high of $78 per share.

Analysts say the share buybacks are needed to boost the company's earnings per share which have been diluted by employees cashing in some 20m stock options last year.


Photos can be sent via the internet
Photos can be sent via the internet
Mr Carp said he was not worried by the threat of a takeover.

"You have to focus on what you can do best, and have a strategy that delivers results," he said.

"Then it is up to the market to decide whatever happens."

However, he admitted that the marketplace for digital imaging technology was likely to be more crowded than traditional photography, with companies like Sony vying with Kodak, Fuji, and Olympus.

Kodak had been slow to introduce full digital technology, fearing that it would hurt sales of existing photographic products.

But it now aims for 45% of its sales, and 27% of profits, to come from digital sales by 2005.

Internet potential

Mr Carp said that the introduction of broadband and other high-speed internet connections would speed the take-up of digital technology.


Kodak's digital milestones
1990: professional digital camera
1992: Photo CD system
1995: consumer digital camera
1998: Kodak acquires PhotoNet online digital system
He said that simplifying the transmission of pictures would ensure that consumers made full use of the new technology.

And it would also help the company bypass distribution channels in countries like Japan, where the traditional retailing system has made it difficult for Kodak to penetrate.

There were more than 4m digital cameras sold in the USA, and 1m in Europe, last year, and Kodak has a 25% market share.

Kodak was targeting Europe for expansion, particularly in regard to internet products.

Kodak was also rolling out its system of transferring existing photos to CDs to retail stores, where they can be sent directly over the internet as e-mails.

Investing in China

Mr Carp said that Kodak was focusing on its investments in emerging markets like China, where it was investing $1bn in new capacity.

China was already Kodak's second biggest market, although only 15% of households take pictures at the moment.

China's market is expected to expand even further when it formally joins the World Trade Organisation, which will require China to further open its trade and investment to Western companies.

Kodak's expansion abroad comes after years of consolidation. In 1997 the company was forced to layoff around 20,000 workers.

Mr Carp said he did not foresee any more mass redundancies, although the company would need to keep a tight control on costs in order to ensure it could invest enough in its strategic priorities.

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See also:

15 Jul 98 | The Company File
Kodak sharpens its image
06 Dec 97 | Business
US threatens Japan with trade war
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