Founded: 1880
Incorporated: 1901
NAIC: 325992 Photographic Film, Paper, Plate, and Chemical Manufacturing; 333293 Printing Machinery and Equipment Manufacturing; 333314 Optical Instrument and Lens Manufacturing; 333315 Photographic and Photocopying Equipment Manufacturing; 334119 Other Computer Peripheral Equipment Manufacturing; 511210 Software Publishers; 518210 Data Processing, Hosting, and Related Services; 812921 Photofinishing Laboratories (Except One-Hour)
SIC: 3555 Printing Trades Machinery; 3827 Optical Instruments & Lenses; 3861 Photographic Equipment & Supplies; 3577 Computer Peripheral Equipment Nec; 7372 Prepackaged Software; 7374 Data Processing & Preparation; 7384 Photofinishing Laboratories
Long known for its film products, Eastman Kodak Company has been restructuring itself in the early 21st century to lessen its reliance on film and transition into the digital world. Still a producer of films, one-time-use cameras, photographic papers, and photographic chemicals as well as a provider of wholesale photofinishing services, Kodak's digital activities center around consumer digital imaging products and services and graphic communications products. The company's consumer digital imaging unit produces digital cameras, home photo printers, and all-in-one inkjet printers; offers retailers a full range of digital printing hardware and media, including photo kiosks; and operates online imaging services, such as Kodak EasyShare Gallery, where consumers can view, store, and share their digital photos with others and which also offers a variety of imaging-related personalized merchandise. Kodak's graphic communications division manufactures digital presses, supplies, and peripherals for commercial printers.
Late 19th-Century Origins: Photography for the Masses
The company bears the name of its founder, George Eastman, who became interested in photography during the late 1870s while planning a vacation from his job as a bank clerk in Rochester, New York. Taking a coworker's suggestion to make a photographic record of his intended trip to Santo Domingo, the 24-year-old Eastman soon found that the camera, film, and wet-plate-developing chemicals and equipment he had purchased were far too bulky. Instead of following through with his original vacation plans, Eastman spent the time studying how to make photography more convenient. He discovered a description of a dry-plate process that was being used by British photographers. He tried to replicate this process in his mother's kitchen at night after work.
After three years Eastman produced a dry glass plate with which he was satisfied. In 1880 he obtained a U.S. patent for the dry plate and for a machine for preparing many plates at one time, and he started manufacturing dry plates for sale to photographers. Henry A. Strong, a local businessman impressed by Eastman's work, joined him on January 1, 1881, to form the Eastman Dry Plate Company. Eastman left his position at the bank later that year to give his complete attention to the new company.
The new venture almost collapsed several times during its early years because the quality of the dry plates was inconsistent and Eastman insisted that the defective plates be replaced at no charge to the customer. Despite these setbacks, he was determined to make the camera "as convenient as the pencil."
As his business grew, Eastman experimented to find a lighter and more flexible substitute for the glass plate. In 1884 he introduced a new film system using gelatin-coated paper packed in a roll holder that could be used in almost every plate camera available at that time. Also that year, the company was reorganized as Eastman Dry Plate and Film Company. Strong was president and Eastman treasurer and general manager of the 14-shareholder corporation. The company also opened a sales office in London in 1885 to take advantage of the growing European photography market.
In 1888 Eastman's company introduced its first portable camera. Priced at $25, it included enough film for 100 pictures. After shooting the roll of film, the owner sent both the film and the camera to Rochester for processing. For $10, the company sent back the developed prints and the camera loaded with a new roll of film. This breakthrough is considered to be the birth of snapshot photography. It was also at this time that Eastman trademarked "Kodak," which he invented by experimenting with words that began and ended with his favorite letter, "K." The company advertised its new camera extensively using the slogan, "You push the button, we do the rest."
The following year, the Eastman Photographic Materials Company was incorporated in the United Kingdom to distribute Kodak products beyond the United States from its headquarters in London. The company built a manufacturing plant in 1891 outside London to accommodate the growing product demand overseas and set up additional distribution sites in France, Germany, and Italy by 1900. In 1889 the firm's name was changed to Eastman Company and in 1892 to Eastman Kodak Company of New York.
Eastman was committed to bringing photography to the greatest number of people at the lowest possible price. As his company grew and production of both the camera and film increased, manufacturing costs decreased significantly. This allowed the firm to introduce a number of new cameras, including the Folding Pocket Kodak Camera, the precursor of all modern roll-film cameras, in 1898. It also introduced the first of a complete line of Brownie cameras, an easy-to-operate model that sold for $1 and used film that sold at 15 cents per roll, in 1900. The following year, the company was reorganized and incorporated in New Jersey as Eastman Kodak Company.
Continuing New Product Success
Over the next 20 years, the company continued to introduce photographic innovations. In 1902 Kodak brought to market a developing machine that allowed film processing without benefit of a darkroom. The 1913 introduction of Eastman Portrait Film provided professional photographers with a sheet film alternative to glass plates.
In 1912 George Eastman hired Dr. C. E. Kenneth Mees, a British scientist, to head one of the first U.S. industrial research centers. Based in Rochester, New York, this lab was where various tools and manufacturing processes that provided the company with a continuing stream of new products in the 1920s were invented. These new products, which included 16-millimeter Kodacolor motion picture film, the 16-millimeter Cine-Kodak motion picture camera, and the Kodascope projector (all of which debuted in 1923), were targeted at the mass market and priced appropriately.
Kodak developed other new products to support the country's involvement in World War I. In 1917 the company developed aerial cameras and trained U.S. Signal Corps photographers in their use. It also supplied the U.S. Navy with cellulose acetate, a film product, for coating airplane wings, and produced the unbreakable lenses used on gas masks. Following the war, Eastman became president of the company upon Strong's death in 1919.
George Eastman had always been civic-minded; even as a struggling bank clerk he donated money to the Mechanics Institute of Rochester. As Kodak grew, his philanthropy extended to such institutions as the Massachusetts Institute of Technology, the Hampton and Tuskegee Institutes, and the University of Rochester. He was instrumental in starting numerous dental clinics around the world, and he enjoyed a reputation as a paternalistic employer because of his profit-sharing programs and insurance benefits for workers. In 1932 George Eastman committed suicide at the age of 77, leaving a note that read, "To my friends. My work is done. Why wait? G.E."
That same year, the company introduced the first 8-millimeter motion picture system for the amateur photographer, consisting of film, cameras, and projectors. Three years later, it made 16-millimeter Kodachrome film available , the first amateur color film to gain commercial success. Similar film products for 35-millimeter slides and 8-millimeter home movies were introduced in 1936.
New photographic products continued to be introduced over the next decade, even as the company devoted a portion of its manufacturing capability to the production of equipment and film for the military during World War II. Following the war, Kodak focused its total attention once again on amateur photography with the introduction of a low-priced Brownie 8-millimeter movie camera in 1951 and the accompanying projector one year later.
In 1953 the company formed Eastman Chemical Products, Inc., to market alcohols, plastics, and fibers for industrial use. These substances were manufactured by Tennessee Eastman Company and Texas Eastman Company, two subsidiaries that had been formed in 1920 and 1952, respectively. The company had begun to manufacture these items because of its own use of chemicals in film manufacturing and processing.
Until this point, the company had always included the cost of film processing in the cost of film. A consent decree filed in 1954 forced Eastman Kodak to abandon this practice, but it also provided an opportunity for the company to serve a new market, independent photofinishers, with its film developing products. Kodak acquired several photofinishing laboratories, including Fox Photo and American Photographic Group, to form an independent joint venture known as Qualex with Colorcraft Corp., owned by Fuqua Industries.
By 1958 the company had made significant advances in 35-millimeter color slide technology and introduced the first completely automatic projector, called the Kodak Cavalcade. A line of Kodak Carousel projectors introduced three years later became highly successful.
In 1963, one year after astronaut John Glenn had used Kodak film to record his orbit of the earth, the company introduced the Instamatic camera. Using a film cartridge instead of film roll, the Instamatic revolutionized amateur photography and became a commercial success because it was easy to use. Two years later, Kodak brought out a similar cartridge system for Super8 format Instamatic movie cameras and projectors. In 1972 five different models of a pocket version of the Instamatic camera were launched and proved immediately popular. The following year, the company acquired Spin Physics, a San Diego, California-based producer of magnetic heads used in recording equipment.
Diversifying and Losing Ground amid Increasing Competition
In the early 1970s, Eastman Kodak became the defendant in a series of antitrust suits filed by several smaller film, camera, and processing companies. These legal actions alleged that Kodak illegally monopolized the photographic market. The most widely publicized suit, filed by Berkey Photo, charged that Kodak had violated the Sherman Antitrust Act by conspiring with two other companies, Sylvania Companies, a subsidiary of GTE Products Corporation, and General Electric Company, to develop two photographic flash devices. Berkey requested that Eastman Kodak be divided into ten separate companies and asked for $300 million in damages. The case was settled in 1981 for $6.8 million.
In 1975 Kodak introduced the Ektaprint 100 Copier-Duplicator, putting itself into direct competition with two firmly entrenched rivals, Xerox Corporation and International Business Machines Corporation. Kodak considered this market to be a good fit with its existing microfilm business. In addition, the company had already established a foothold with a similar product, the Verifax machine, which had been introduced in 1953. This copier used a wet process like that used in photography, but it had become obsolete when Xerox introduced a technological advancement called xerography, which was less messy and produced better quality copies than previous systems. After careful research and planning, the Ektaprint copier was developed to serve businesses with large-scale duplicating needs. Not only could the Ektaprint produce numerous copies at high speed, but it could also collate them while duplicating, a unique feature at the time.
In 1976 Kodak took on another well-established firm when it challenged Polaroid Corporation's 30-year lock on instant photography with a new line of instant cameras and film that developed pictures outside the camera within a few minutes. Kodak had missed an opportunity to get in on the ground floor of this technology in the 1940s when it declined an offer to market an instant camera invented by Polaroid founder Edwin Land. The general feeling among Kodak's management at the time had been that Land's camera was a toy and the quality of its pictures not up to the company's accepted standards. Kodak had, however, also gained from Polaroid's success. It had become the exclusive supplier of negatives for Polaroid's instant, pull-apart color film in 1963. In 1969 Polaroid elected to take over this part of film manufacturing itself. At the same time Polaroid cut prices drastically to bring its instant cameras more in line with the Kodak Instamatics. Kodak was convinced that Polaroid's instant photography products posed a threat to the company's market leadership. When Kodak finally introduced its own instant camera four years after the decision was made to develop it, the company was plagued by production problems and a near-instant Polaroid lawsuit alleging patent infringement. Although the company captured about 25 percent of the U.S. instant camera market within its first year, reports of quality flaws with the camera's instant photographs and Polaroid's response with another new instant camera stifled sales. Polaroid successfully exploited the business applications of instant photography--identity cards, for example--and retained its strong position in the market.
During this period, Kodak's president and CEO, Walter A. Fallon, and chairman, Gerald B. Zomow, oversaw product development. When Zomow retired in 1977, Fallon assumed the chairmanship and was succeeded as president by Colby H. Chandler. Employed with Kodak since 1941, Fallon had worked his way up from production to direct the U.S. and Canadian photographic division. He had been responsible for the launch of the pocket Instamatic camera line. Chandler had joined the company in 1951 and, as Fallon's successor as division chief, he was directly responsible for both the instant camera and the Ektaprint copier.
Upon becoming president, Chandler faced a challenge to Eastman Kodak's dominance in the photographic paper market from several Japanese competitors and U.S. suppliers, including Fuji Photo Film Co., Ltd., and 3M Company. These firms undercut Kodak's prices for a paper product of similar quality. Fuji also had the advantage of competing against a strong U.S. dollar, a factor that conversely reduced Kodak's profits significantly in foreign markets. The company responded with price reductions of its own, but suffered lower earnings and a decreasing level of investor confidence. Losing the title of official film of the 1984 Summer Olympics to Fuji added further insult to injury.
As the U.S. economy entered a recession in the late 1970s and sales growth in the company's consumer photographic products slowed, higher sales in other areas such as chemicals, business systems, and professional photofinishing pushed profits upward once again. Several prior years of flat earnings across product areas were attributed in large part to a lack of strategic planning. At the end of 1978 company operations were reorganized to consolidate the U.S., Canadian, and international photographic areas into one division. The company's first director of corporate planning also was hired to speed the product development process and institute the controls needed to enable new products to become profitable more quickly.
1980: 100 Year Anniversary and New Challenges
The year 1980 marked the company's 100th anniversary. That year Kodak introduced the Ektachem 400 blood analyzer. This entry into the health sciences field represented a natural application of the company's film manufacturing technology and reinforced its already strong presence as a supplier of X-ray film to hospitals and other healthcare facilities.
During the 1980s the company faced intensifying Japanese competition in photography and a continuing decline in product demand. Rapid technological breakthroughs by other firms threatened to replace Kodak's core product line with more advanced equipment. The company instituted several measures to improve its performance. These included a stronger emphasis on nonphotographic products with high profit potential, a more aggressive approach to protecting its chemical imaging capabilities, a broader international marketing strategy, and a sharper focus on making acquisitions to bring the company up to speed technologically, particularly in electronics.
In 1981 the company purchased Atex, Inc., a major supplier of electronic text editing systems used by publishers. Formed as an entrepreneurial venture in 1972 and the leader in its field at the time of the acquisition, Atex later lost ground to fast-changing computer technology as Kodak's traditionally slow-moving product development process was unable to keep pace with the industry.
Despite its shift in priorities to other areas, Kodak continued to support its bread-and-butter line of photographic products. In 1982 it introduced a line of small cameras that used film discs instead of cartridges and was considered a replacement for the pocket Instamatic camera.
Since the company's founding, Kodak had maintained a policy of treating its employees fairly and with respect, earning the nickname of the "Great Yellow Father." It was George Eastman's belief that an organization's prosperity was not necessarily due to its technological achievements, but more to its workers' goodwill and loyalty. As a result, company benefits were well above average, morale had always remained high, and employees never felt the need to unionize. This protective culture came to an end in 1983, however, when the company was forced to reduce its workforce by 5 percent to cut costs. Competitive pressures from the Japanese and domestic and international economic problems had slowed product demand. Even the widely publicized disc camera failed to sustain its initial "hot" sales rate.
Upon Fallon's retirement in 1983, Colby Chandler took over as chairman and, in an attempt to keep up with the pace of change, pointed Kodak toward the electronics and video areas in earnest. During the 1970s the company had brought out products that either lacked quality or important features, or arrived too late on the scene to capitalize on new opportunities. Of all the products introduced during Fallon's tenure, only the Ektaprint copier was considered a success, although it gradually lost its marketing advantage to competitive offerings with greater speed and more features. Neither the instant nor the disc cameras had met original expectations. The company's X-ray film business also took a beating as hospital admissions dropped and attempts by medical institutions to control costs increased.
The company's new electronics division consisted of its Spin Physics subsidiary, a solid-state research laboratory, and another facility dedicated to the production of integrated circuits. Many of the products later introduced by the division, however, resulted from acquisitions or joint ventures with other companies. For example, in 1984 Kodak launched its first electronic product, a camcorder that combined an 8-millimeter video camera and recorder, in conjunction with Matsushita Electric Industrial Co., Ltd., of Japan. This represented a major departure for Kodak, which historically had been self-reliant in everything from manufacturing cardboard boxes to maintaining its own fire department.
Also in 1984 Kodak introduced complete lines of videotape cassettes for all video formats and floppy discs for use in personal computers. It bolstered the latter area in 1985 with the purchase of Verbatim Corporation, a floppy disc manufacturer. After five years of disappointing sales, Verbatim was sold to Mitsubishi Kasei Corporation of Japan.
1985: Reorganization
Kodak underwent another major reorganization at the beginning of 1985 to capitalize more quickly on growth opportunities. Seventeen business units and a new Life Sciences Group were formed, the latter division to be involved in developing biomedical technology. Each of the 17 operating units, which had previously existed as a centralized group under the photographic division, were given more autonomy and flexibility to run their businesses as independent profit centers.
The company reentered the 35-millimeter camera market in 1985 with a product made by Chinon Industries of Japan. Fifteen years earlier, it had withdrawn from the market because of doubts about the 35-millimeter camera's mass appeal.
In 1986, ten years after Polaroid filed its patent-infringement suit over Kodak's instant camera, a federal appeals court upheld a lower court ruling and ordered Kodak to leave the instant camera business. Kodak voluntarily offered its customers trade-in options for their obsolete cameras but was forced to make a somewhat different offer as a result of a class-action lawsuit. The financial implications of this development and the continuing struggle to boost earnings led the company to institute another workforce reduction in 1986, this time by 10 percent. Although the domestic picture was somewhat grim, the fact that nearly 40 percent of the company's sales came from overseas helped produce strong bottom-line gains over the previous year. A weakening U.S. dollar blunted the impact of foreign competition and allowed Kodak to reclaim lost ground in its core businesses while also entering new ones. An employee's suggestion to apply the company's manufacturing capabilities to the production of lithium batteries resulted in the successful introduction of a complete line of alkaline battery products under the Supralife brand in 1986.
That same year, Kodak also formed the Eastman Pharmaceuticals Division to establish an even stronger presence in healthcare. Joint venture agreements and licensing arrangements with existing pharmaceutical companies initially occupied division management's attention. In 1988 Kodak acquired Sterling Drug Inc., a manufacturer of prescription drugs and such consumer products as Bayer aspirin and Lysol cleaner, to make the company more competitive in the pharmaceutical industry. The $5.1 billion acquisition, however, was viewed unfavorably by the company's shareholders, in part because Sterling had a second-rate reputation as a pharmaceutical manufacturer. One year later, this negative perception seemed correct. Intense competition had reduced the sales of Sterling's existing pharmaceuticals, while new products under development showed questionable effectiveness during testing.
In 1988 evidence came to light indicating that toxic chemicals from the company's Rochester plant had leaked into the area's groundwater, posing a possible health hazard to local residents. In April 1990 the company admitted that it had violated New York's environmental regulations and was fined $1 million. It also agreed to clean up the site of its Kodak Park manufacturing facility and reduce chemical emissions from the plant.
Under the direction of Mr. Kay Whitmore, who became chairman and CEO in 1990, profits of the goliath company grew steadily. The positive results that emerged from the company's restructuring of 1985, however, were eroded by the recession of the early 1990s. Coupled with the recession was the Persian Gulf War, which seriously dampened the tourist and travel industry and hurt sales of photographic equipment. The year 1991 also finally saw the culmination of the Polaroid suit against Kodak, with the latter agreeing to pay the former a settlement of $925 million.
1990: Continued Restructuring and Cost Cutting
Once again, Kodak embarked on a path of restructuring and cost cutting. As a cost-cutting incentive, management in 1990 devised an early retirement plan that would trim approximately 5,800 people from the workforce. One year later, however, the plan backfired somewhat when 6,600 decided to retire early. With a shortfall of employees, the company was forced to hire 1,600 new workers. Management also was trimmed. Only three of the 12 managers who retired in 1991 were replaced.
Of the four business segments that had been in place since the previous restructuring--photographic, information, health, and chemicals--management merged photographic and information into a single group named Imaging. Three group presidents were appointed to head the three divisions. Downsizing, cost cutting, restructuring, and a "suspicion of red tape," as one market analyst described it, injected new growth into Kodak and returned the company slowly to profitability.
The Imaging Division, the largest unit, focused on Kodak's core business of photography and photofinishing, as well as copying machines, computer printers, and software. As part of its exploration of various new technologies, including digital photography, the division in 1992 developed a camera able to store photographic shots on a compact disc that could be displayed on a CD player. Such advances, including Kodak's introduction in the fall of 1992 of a writable compact disc publishing system (enabling the consumer to write, store, and retrieve information on a CD), enabled Kodak to retain its position as the world leader in electronic imaging. To maintain this lead, the company established a small Center for Creative Imaging in Camden, Maine, an artistic haven, to encourage imaging innovations in a creative atmosphere. Meantime, one piece of the former information business segment, Atex, was sold in 1992 following the dwindling of its market position because of its outmoded technology.
Kodak's Health Product Division also was restructured with the 1991 merger of two pharmaceutical companies into one entity, Sterling Winthrop, which manufactured both pharmaceuticals and nonpharmaceutical consumer products. Sterling Winthrop in turn formed a joint venture with the French firm Sanofi in 1991, enabling it to penetrate the European pharmaceutical market more easily than before. The joint venture placed Kodak's Health Division among the top 20 pharmaceutical concerns in the world. Included within Kodak's Health Division was the Clinical Products Division, which originated in 1980 when Kodak introduced its Ektachem blood analyzer. Other businesses within the health group included X-ray machines and electronic health imaging products.
The third division of Kodak, the Chemical Product Division, manufactured and marketed chemicals, fibers, and plastics. As of the early 1990s Eastman Chemical Company was the 15th largest chemical firm in the United States. The focus of the Chemical Division was on expansion and overseas sales. As a result, the Chemical Division became a global enterprise, with joint ventures in many foreign countries. In 1991 Eastman Chemical entered the propylene business with the purchase of propylene interests as well as the urethane polyols business of ARCO Chemical Company. In the early 1990s, the Tenite Plastics division of Eastman Chemical was the largest plastic bottle and container supplier in the world.
1993-99: Refocusing on Imaging with an Emphasis on Digital
Despite the restructuring efforts, Kodak remained, according to Peter Nulty writing in Fortune magazine in early 1994, "one of the most bureaucratic, wasteful, paternalistic, slow-moving, isolated, and beloved companies in America." The company continued to lose market share in its core film and photographic paper operations. Not only was Kodak reluctant to fully embrace the digital future out of fear of undermining its chemical photography business, it also had been slow to recognize huge opportunities in that chemical core, such as the explosive growth of 35-millimeter film sales following the debut of "point-and-shoot" 35-millimeter cameras. The moves to diversify outside imaging, most notably the move into pharmaceuticals, proved ill-advised and saddled the company with more than $7 billion in debt. With earnings stagnating and no turnaround in sight, the board of directors, under pressure from outside investors, fired Whitmore in late 1993. Replacing him as chairman and CEO was George Fisher, who left the top spot at Motorola, Inc., to join Kodak, thereby becoming the first outsider to head the company.
Fisher almost immediately moved to refocus the company on its imaging core. Fisher and a newly installed top financial team went ahead with the spinoff to shareholders of Eastman Chemical at the beginning of 1994. This divestment had been in the works under Whitmore. Later in 1994, Kodak sold Sterling Winthrop to SmithKline Beecham plc for $4.6 billion, its diagnostics products division to Johnson & Johnson for $1 billion, and several other nonimaging units for about another $2.4 billion. These businesses had together accounted for $7.4 billion in revenues in 1993 but only $46 million in pretax profit. The asset sales reduced the debt load to a manageable $1.5 billion and returned the company to its roots.
Next, Fisher moved to transform Kodak into a digital company for the 21st century. Rather than viewing the digital future as a threat to the chemical photography past, Fisher saw digital photography as a great opportunity to revitalize Kodak's core, as he related to Forbes in early 1997: "I think there was a fear of what digital was all about, whereas I was coming here because I believed digital imaging and the core photography business had a symbiotic relationship, which was, in fact, exciting." During 1994 Fisher created a new division called Digital and Applied Imaging, and hired Carl Gustin, a marketing executive who had previously worked at Digital Equipment Corporation and Apple Computer, Inc., as its head. Among the early developments of the new division was the 1995 relaunch of the Kodak Photo CD with a new design aimed at desktop personal computer users and the introduction that year of a full-featured digital camera priced at less than $1,000.
Back on the chemical photography front, under Fisher's leadership Kodak took a more aggressive approach to trade disputes with its archrival Fuji Photo Film. In 1995 Kodak accused the Japanese government and Fuji of illegally restricting access to the Japanese market for film and photographic paper. The U.S. government took the case to the newly formed World Trade Organization (WTO) in 1996, with the European Union soon joining the Kodak side. Fuji contended that Kodak's policies in pricing and marketing its products in Japan were to blame for the company's low market share, and that Kodak faced an environment in Japan similar to what Fuji faced in the United States. In fact, both companies held about 70 percent of their respective home markets, while Kodak held about 12 percent of the Japanese market and Fuji held only 10 percent of the U.S. market. In 1997 the WTO rejected Kodak's claims, ruling in Fuji's favor.
Ironically, in the midst of this legal battle a Kodak-led consortium that included Fuji (as well as Canon Inc., Minolta Co., Ltd., and Nikon Corporation) developed the Advanced Photo System (APS), an effort to revitalize the stagnant still-photography market. APS, which was a hybrid between conventional and digital photography technology, offered drop-in film loading and the ability to select from three photo sizes (4 inch by 6 inch, 4 inch by 7 inch, and a panoramic 4 inch by 10 inch) as photos were taken. In February 1996 Kodak unveiled the Advantix brand, which it used for its APS film, cameras, and related equipment and services. APS proved to be an instant success, and Kodak quickly captured 85 percent of the U.S. market for APS film.
In December 1996 Daniel A. Carp was named president and chief operating officer of Eastman Kodak. One month later Kodak completed the sale to Danka Business Systems PLC of its loss-making imaging services unit, which sold and serviced copiers and provided document management services. Later in 1997 Kodak acquired Wang Laboratories' software business unit, which focused on imaging and work management software. The following year Kodak beefed up its health imaging division through the $530 million purchase of the bulk of Imation Corporation's medical imaging business, including the DryView laser imaging system. Divestments in 1998 included the Fox Photo, Inc., photofinishing chain, which was sold to Wolf Camera. Also in 1998 the company introduced the Kodak Picture Maker, a digital imaging kiosk through which consumers could manipulate, enlarge, and/or crop and then reprint an existing photograph. These stations were later renamed Kodak Picture Kiosks.
Despite all of Fisher's maneuvering, Kodak was still vulnerable. In the summer of 1997 the seeming turnaround turned sour when Fuji Photo initiated a brutal price war in the U.S. market at the same time that a strong U.S. dollar and the emerging Asian economic crisis wreaked additional havoc overseas. The nascent digital division, for all its innovative new products, was on its way to losing $440 million for the year. In late 1997 Fisher announced a major restructuring, involving a workforce reduction of 20,000, a shakeup of top management, and a goal to cut more than $1 billion from annual costs. After having nearly all of its profits wiped out by a $1.46 billion restructuring charge in 1997, Kodak returned to post net income of $1.39 billion in both 1998 and 1999, on revenues of $13.41 billion and $14.09 billion, respectively.
During 1999 Kodak continued its drive to divest underperforming units through the sale of its office imaging unit, which included digital printers, copiers, and roller assemblies, to Heidelberger Druckmaschinen AG of Germany. In January 2000 Fisher stepped down as CEO, remaining chairman until the end of that year; Carp was named his successor. Although Kodak had managed to make a profit of $20 million from its digital businesses in 1999, it was far from clear whether Kodak would be a major player in the digital world of the 21st century. For his part, Carp announced in mid-2000 that the company expected 45 percent of revenue to be generated from digital imaging in 2005, which would be a huge increase from the 17 percent of 1999.
Early 21st Century: Shrinking Workforce, Digital Ventures
Kodak made additional inroads into the digital world in 2001. That April, the company introduced its line of digital EasyShare cameras, which made a strong debut and went on to become the hottest-selling digital camera of that year's holiday season. Unlike Kodak's higher-priced digital models of the past, EasyShare cameras were much more affordable, ranging in price from $200 to $400, and they also made downloading images easier for users and offered longer battery life than comparable models. In June 2001 Kodak completed an acquisition that meshed well with its digital camera offerings, purchasing Ofoto, Inc., for around $58 million. Ofoto, later renamed Kodak Imaging Network, Inc., offered online photo sharing and printing services through a web site that eventually was renamed the Kodak EasyShare Gallery. Also during 2001, Kodak's workforce continued to shrink as more than 3,000 additional jobs were cut as part of a further restructuring. In the fourth quarter the company reported its first quarterly loss in four years because of after-tax restructuring charges of $262 million as well as the ongoing decline in its traditional photography business. Net income for the entire year totaled just $76 million thanks to after-tax charges totaling $594 million, while revenue was down more than 5 percent to $13.23 billion.
By the end of 2002 Kodak's workforce had been slashed by an additional 5,000, to 70,000 workers, less than half the company's 1984 peak employment level of 145,000. As it continued its efforts at restructuring, Kodak also turned outside its ranks for its next leader, bringing Antonio M. Perez onboard in the spring of 2003 as president and COO. Perez was a former vice-president at Hewlett-Packard Company, where he had been in charge of that firm's consumer business, which encompassed laptops, digital cameras, and printers. That October, Kodak bolstered its health imaging division by purchasing PracticeWorks, Inc., a leading provider of dental practice management software and digital radiographic imaging systems, for about $475 million. Around this same time, Kodak slashed its semiannual dividend by more than 70 percent to free up around $1.3 billion in cash through 2006 for its transition to digital technology. At the time, the company estimated that the erosion of its traditional film business would cost $1.8 billion in earnings for the period between 1998 and 2006. Not coincidentally, in 2003 digital cameras outsold film cameras for the first time in the United States.
With these trends as a backdrop, Kodak in January 2004 made the dramatic announcement that it would stop selling reloadable film-based cameras in the United States, Canada, and western Europe by the end of the year. As part of this move, Kodak pulled the plug on one of its most ballyhooed and expensive, but ultimately disappointing, ventures: its Advantix APS cameras. The company continued to sell traditional 35-millimeter film and Advantix film as well as one-time-use cameras throughout the world, while also continuing with its sales of film-based cameras in China, India, eastern Europe, and Latin America, areas where sales had remained strong and there still appeared to be possibilities for growth.
About a week later, still in January 2004, Kodak ventured forward with another stunning announcement that it planned to eliminate up to an additional 15,000 jobs worldwide, more than a fifth of its total workforce, over a three-year period to cut annual operating costs of its film business by as much as $1 billion. After Perez succeeded Carp as CEO in mid-2005 and as chairman in January 2006, the cutbacks grew even deeper. Film sales were falling even faster than anticipated, and the hope for growth from film in emerging markets proved ill-founded. Consumers in China, for example, were gravitating toward digital cameras at a quicker pace than Kodak had expected. By the end of 2006, Kodak had laid off 23,000 workers since the beginning of 2004, reducing the workforce total to just 40,900. As many as 7,000 more jobs were slated to be cut as part of this multiyear restructuring, which was estimated to involve total charges of around $3.5 billion. These charges contributed to the net losses that Kodak posted for both 2005 and 2006.
In the meantime, a significant portion of the investment funds that had been earmarked for digital technology was subsequently used on acquisitions to transform the graphic communications division (formerly the commercial printing division) from a relatively minor player in its sector to one of the world's leading suppliers of digital presses, supplies, and peripherals to commercial printers. In January 2004 Kodak acquired Scitex Digital Printing, a producer of high-speed, variable-data inkjet printers used to print banking bills, credit-card statements, scratch lottery tickets, and direct-mail materials. This company, acquired for $239 million, was subsequently renamed Kodak Versamark, Inc. In May 2004 Kodak became the sole owner of a former joint venture with Heidelberger Druckmaschinen called NexPress Solutions LLC. This entity specialized in high-end, on-demand digital color printing systems. The following April, Kodak spent around $720 million to buy out another joint venture partner, Sun Chemical Corporation, and take full control of Kodak Polychrome Graphics, one of the world's leading manufacturers of products used to transform computerized text and images directly into plates used for printing. Kodak rounded out this acquisition spree in June 2005 via the $967 million purchase of the Canadian firm Creo Inc., which also produced devices to directly convert computer-generated printing files into printing plates. Integrating all of these deals took center stage in 2006, by which time Kodak's graphic communications business was generating $3.6 billion in revenue, more than one-quarter of the company total.
Overall, as the painful workforce reductions carried on and the resulting red ink continued to flow, Kodak appeared to be making progress on its move into the digital world. In 2005, for the first time, more than half of the company's revenues were derived from digital products and services, meeting the goal that Carp had set in 2000. Then in 2006 earnings from digital products and services increased by $271 million, reaching $343 million. This increase was larger than the $214 million decline in earnings posted by Kodak's traditional business, another first. During 2006 the company made another significant shift. It began outsourcing the manufacturing of Kodak-branded digital cameras rather than producing them at its own factories in China and Japan.
Kodak also placed its health imaging unit up for sale in 2006, having concluded that with that sector consolidating, it was unlikely to become a leader of the field. In May 2007 the company sold this unit to Toronto-based investment firm Onex Corporation for $2.35 billion in cash and potential additional performance-based payments of $200 million. Part of the proceeds was used to pay down a large portion of Kodak's hefty long-term debt load of around $3.3 billion. This divestment removed another 8,100 employees from the company payroll, so that by June 2007 Kodak's workforce was down to just 30,600 workers.
Jettisoning the health unit also freed up funds for Kodak's risky and expensive entry into the consumer inkjet-printer market. Three years in the making at a cost of $300 million, the new printer line turned the traditional model used by printer manufacturers on its head. While printers were typically sold inexpensively to consumers, who were then forced to buy expensive ink cartridges to keep the machines operating, Kodak opted to charge slightly more for its printers but offer its ink cartridges for about half the prevailing price. As a result, the company was able to tout a much lower cost per page than that of competing printers. Kodak viewed this approach as revolutionary, but even if successful the printers were not expected to generate a profit before 2009. In the larger picture, Perez had set a goal of Kodak becoming consistently profitable by 2010. During the first half of 2007, Kodak's losses narrowed, providing some hope that this goal might be met and that the company might still manage to successfully complete its wrenching transition into a digital-based company.
Principal Subsidiaries
Laser-Pacific Media Corporation; FPC, Inc.; PracticeWorks, Inc.; Qualex Inc.; Eastman Gelatine Corporation; OREX Computed Radiography U.S., Inc.; Pakon, Inc.; Kodak Imaging Network, Inc.; Eastman Canada Company; Kodak Canada Inc.; Kodak Graphic Communications Canada Company; Qualex Canada Photofinishing Inc.; Kodak Argentina S.A.I.C.; Kodak Chilena S.A. Fotografica (Chile); Kodak Venezuela, S.A.; Kodak (Singapore) Pte. Limited; Kodak Philippines, Ltd.; Kodak Polychrome Graphics Company Ltd. (Barbados); Kodak Limited (U.K.); Cinesite (Europe) Limited (U.K.); Kodak India Limited; Kodak Polska Sp. z.o.o. (Poland); Kodak OOO (Russia); Kodak Czech Spol s.r.o. (Czech Republic); Kodak S.A. (France); Kodak-Pathe SAS (France); Trophy Radiologie S.A. (France); Kodak Verwaltung GmbH (Germany); Eastman Kodak Holdings B.V. (Netherlands); Eastman Kodak SA (Switzerland); Kodak Brasileira Comercio E Industria Ltda. (Brazil); Kodak Nederland B.V. (Netherlands); Kodak Polychrome Graphics Enterprises B.V. (Netherlands); Algotec Systems Ltd. (Israel); OREX Computed Radiography, Ltd. (Israel); Kodak (China) Investment Company Ltd.; Kodak Korea Ltd. (South Korea); Kodak New Zealand Limited; Kodak (Australasia) Pty. Ltd. (Australia); Kodak (South Africa) (Proprietary) Limited; Kodak (Egypt) S.A.E.; Kodak (Malaysia) Sdn. Bhd.; Kodak (Taiwan) Limited; Kodak de Mexico S.A. de C.V.; Kodak Export de Mexico, S. de R.L. de C.V.; Kodak Mexicana, S.A. de C.V. (Mexico); N.V. Kodak S.A. (Belgium); Kodak A/S (Denmark); Kodak Norge A/S (Norway); Kodak Societe Anonyme (Switzerland); Kodak (Hong Kong) Limited; Kodak (Thailand) Limited; Kodak Gesellschaft m.b.H. (Austria); Kodak Kft. (Hungary); Kodak Oy (Finland); Kodak S.p.A. (Italy); Kodak Portuguesa Limited; Kodak, S.A. (Spain); Kodak Nordic AB (Sweden); Kodak Japan Ltd.; K.K. Kodak Information Systems (Japan); Kodak Digital Product Center, Japan Ltd.; Kodak (China) Limited (Hong Kong); Kodak Electronic Products (Shanghai) Company Limited (China); Kodak (China) Company Limited; Kodak (China) Graphic Communications Company Ltd.; Kodak (Wuxi) Company Limited (China); Kodak (Xiamen) Company Limited (China); Kodak (Shanghai) International Trading Co. Ltd. (China); Shanghai Da Hai Camera Co., Ltd. (China).
Principal Operating Units
Consumer Digital Imaging Group; Film and Photofinishing Systems Group; Graphic Communications Group.
Principal Competitors
FUJIFILM Holdings Corporation; Canon Inc.; Sony Corporation; Xerox Corporation; Hewlett-Packard Company; Olympus Corporation; Sharp Corporation; Ricoh Company, Ltd.; Polaroid Corporation; Seiko Epson Corporation; Nikon Corporation; Lexmark International, Inc.; Agfa-Gevaert N.V.
Further Reading
Arner, Faith, and Rachel Tiplady, "'No Excuse Not to Succeed': How COO Antonio Perez Is Hustling Kodak into the Digital Age," Business Week, May 10, 2004, pp. 96, 98.
Bandler, James, "Ending Era, Kodak Will Stop Selling Most Film Cameras," Wall Street Journal, January 14, 2004, p. B1.
------, "Kodak Answers Digital's Siren," Wall Street Journal, August 22, 2003, p. B4.
------, "Kodak Shifts Focus from Film, Betting Future on Digital Lines," Wall Street Journal, September 25, 2003, p. A1.
------, "Kodak to Cut Staff Up to 21%, amid Digital Push," Wall Street Journal, January 22, 2004, p. A1.
Bounds, Wendy, "George Fisher Pushes Kodak into Digital Era," Wall Street Journal, June 9, 1995, p. B1.
Brayer, Elizabeth, George Eastman: A Biography, Baltimore: Johns Hopkins University Press, 1996, 637 p.
Buell, Barbara, and Rebecca Aikman, "Kodak Is Trying to Break Out of Its Shell," Business Week, June 10, 1985, pp. 92+.
Bulkeley, William M., "Kodak's Carp to Relinquish Top Jobs: Second-in-Command Perez to Become Chairman, CEO amid Painful Digital Shift," Wall Street Journal, May 12, 2005, p. A3.
------, "Kodak's Strategy for First Printer: Cheaper Cartridges," Wall Street Journal, February 6, 2007, p. B1.
------, "Sale Positions Kodak for Printer Push," Wall Street Journal, January 11, 2007, p. A10.
Chakravarty, Subrata N., "How an Outsider's Vision Saved Kodak," Forbes, January 13, 1997, pp. 45-47.
Chakravarty, Subrata N., and Ruth Simon, "Has the World Passed Kodak By?" Forbes, November 5, 1984, pp. 184+.
Collins, Douglas, The Story of Kodak, New York: Abrams, 1990, 392 p.
Desmond, Edward W., "What's Ailing Kodak? Fuji," Fortune, October 27, 1997, pp. 185+.
Deutsch, Claudia H., "Kodak Cuts Another 3,000 Jobs," New York Times, February 9, 2007, p. C1.
------, "Market Place: Kodak, No Longer Able to Depend on the Moment, Is Trying to Sell More Products to Businesses," New York Times, September 8, 2003, p. C4.
------, "More Paths to Profits: Kodak Hopes Demand for Digital Images Will Sell Film," New York Times, December 2, 1996, p. D1.
Dvorak, John C., "Razors with No Blades," Forbes, October 18, 1999, p. 168.
Grant, Linda, "Can Fisher Focus Kodak?" Fortune, January 13, 1997, pp. 76+.
------, "A New Picture at Kodak," U.S. News and World Report, September 19, 1994, pp. 58-60.
------, "Why Kodak Still Isn't Fixed," Fortune, May 11, 1998, pp. 179-81.
Hamm, Steve, "Kodak's Moment of Truth," Business Week, February 19, 2007, pp. 42-45+.
Hammonds, Keith H., "Kodak May Wish It Never Went to the Drugstore," Business Week, December 4, 1989, pp. 72+.
Helm, Leslie, "Has Kodak Set Itself Up for a Fall?" Business Week, February 22, 1988, pp. 134+.
------, "Why Kodak Is Starting to Click Again," Business Week, February 23, 1987, pp. 134+.
Johnston, David Cay, "Kodak to Reduce Its Work Force by Up to 15,000," New York Times, January 23, 2004, p. C5.
Journey into Imagination: The Kodak Story, Rochester, N.Y.: Eastman Kodak Company, 1988, 32 p.
Klein, Alec, "Kodak Expects Digital Imaging to Be 45% of Revenue by 2005," Wall Street Journal, June 15, 2000, p. B14.
------, "Kodak Losing U.S. Market Share to Fuji," Wall Street Journal, May 28, 1999, p. A3.
------, "Shutter Snaps on Fisher's Leadership at Kodak," Wall Street Journal, June 10, 1999, p. B1.
"Kodak Fights Back: Everybody Wants a Piece of Its Markets," Business Week, February 1, 1982, pp. 48+.
Lublin, Joann S., and James Bandler, "Kodak Looks to Perez for No. 2 Job," Wall Street Journal, April 2, 2003, p. B4.
Maremont, Mark, "Kodak's New Focus: An Inside Look at George Fisher's Strategy," Business Week, January 30, 1995, pp. 62-68.
Maremont, Mark, and Elizabeth Lesly, "Getting the Picture: Kodak Finally Heeds the Shareholders," Business Week, February 1, 1993, pp. 24-26.
------, "The Revolution That Wasn't at Eastman Kodak," Business Week, May 10, 1993, pp. 24-25.
Maremont, Mark, and Gary McWilliams, "Kodak: Shoot the Works," Business Week, November 15, 1993, pp. 30-32.
McGinn, Daniel, "A Star Image Blurs," Newsweek, April 6, 1998, pp. 36-38.
Moore, Thomas, and Lee Smith, "Embattled Kodak Enters the Electronic Age," Fortune, August 22, 1983, pp. 120+.
Nulty, Peter, "Digital Imaging Had Better Boom Before Kodak Film Busts," Fortune, May 1, 1995, pp. 80-83.
------, "Kodak Grabs for Growth Again," Fortune, May 16, 1994, pp. 76-78.
Santoli, Michael, "Kodak's New Colors," Barron's, August 24, 1998, pp. 25-26, 28-29.
Smith, Emily T., "Picture This: Kodak Wants to Be a Biotech Giant, Too," Business Week, May 26, 1986, pp. 88+.
Smith, Geoffrey, "Film vs. Digital: Can Kodak Build a Bridge?" Business Week, August 2, 1999, p. 66.
Smith, Geoffrey, et al., "Can George Fisher Fix Kodak?" Business Week, October 20, 1997, pp. 116-20, 124, 128.
Smith, Geoffrey, Brad Wolverton, and Ann Therese Palmer, "A Dark Kodak Moment," Business Week, August 4, 1997, pp. 30-31.
Smith, Geoffrey, and Faith Keenan, "Kodak Is the Picture of Digital Success," Business Week, January 14, 2002, p. 39.
Swasy, Alecia, Changing Focus: Kodak and the Battle to Save a Great American Company, New York: Times Business, 1997, 276 p.
Symonds, William C., "A Digital Warrior for Kodak," Business Week, May 23, 2005, p. 42.
------, "Kodak Rewrites the Book on Printing," Business Week, September 4, 2006, p. 83.
Tan, Kopin, "Kodak's Moment," Barron's, November 21, 2005, pp. 25-27.
Taylor, Alex, III, "Kodak Scrambles to Refocus," Fortune, March 3, 1986, pp. 113+.
Treece, James B., Barbara Buell, and Jane Sasseen, "How Kodak Is Trying to Move Mount Fuji," Business Week, December 2, 1985, pp. 62+.
Upbin, Bruce, "Kodak's Digital Moment," Forbes, August 21, 2000, p. 106.
Webb, Chanoine, "The Picture Just Keeps Getting Darker at Kodak," Fortune, June 21, 1999, p. 206.
Winstein, Keith J., "Kodak Swings to a Profit As More Sales Shift to Digital Areas," Wall Street Journal, August 3, 2007, p. A6.
— Sandy Schusteff; Updated by Sina Dubovoj, David E. Salamie
