Monday, August 03, 2009

Kodak: How The Mighty Have Fallen

Friday's Wall Street Journal reported on Kodak's recent quarterly performance.

It wasn't pretty. The headline for the article proclaims "sales fall 29%." The firm lost $189MM in the quarter.

There were all sorts of the usual verbiage from the company's earnings report explaining expense cuts, revenue declines, etc. Kodak announced that it expects this year's total revenue to fall by 12-18% from the prior year's $9.42B.

As it happened, I saw a Kodak infommercial the next day for one of its printers. All I could think of was,

"Has it really come to this? Kodak is hawking printers with an ex-sitcom co-star on weekend cable television? Complete with the requisite "studio audience" and cutesy comments from the faux-production personnel?"

Yes, it has.

Schumpeterian dynamics have struck, and struck hard, at Kodak. Image capture, distribution, storage and, if you want, printing, in the digital world are finally nearly free, and very easy.

Long gone are the days, when I was a teen-ager, of buying film, taking it to the local drug store for developing, and then hiding the pictures in their bags for decades.

As Schumpeter correctly described, expensive products like film photography spurred radical technological replacements that, first, erode, then just eviscerate revenues and profits of the old-line producers. So low are the new prices that old competitors are crushed and their business models simply disintegrate to mere fractions of the old revenues and profits.

That's basically Kodak today. There really isn't enough of a business left to sustain an entire company with consistently superior profitability. What does still make money at Kodak could be just a copier or printer division at Dell, HP, Ricoh, Canon or Lexmark.

If you had a few billion dollars today, and Kodak's technologies, you probably would not waste the money to found the firm in its current incarnation. What you now see is a snapshot of a firm in the process of dissolving, apparently at an accelerating pace.
As the nearby 5- and 1-year price charts for Kodak and the S&P500 Index display, the company has not experienced prolonged positive returns in five years. It's had roughly -80% price drops over both the 5- and 1- year periods, suggesting it's on a sort of constant rate of decline on an ever-shrinking base, far underperforming the S&P over both periods.
I can't imagine who would still be an owner, besides those unfortunate enough to work at Kodak and have it in their 401Ks. Who wouldn't just dump this company's stock as it plummets toward no value at all, having lost almost any uniquely advantageous business attributes with which to stave off death by digital imaging?

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