A DIGITAL WARRIOR FOR KODAK
A DIGITAL WARRIOR FOR KODAK
2005-05-16 at 10:01:00 am #9456
A Digital Warrior for Kodak
New chief Antonio Perez is vowing to boost digital profits as the
traditional film business shrinks. The market likes him
alreadyThe sudden May 11
announcement that Eastman Kodak President Antonio Perez will replace CEO Daniel
Carp on June 1 seemed familiar. It was just six years ago that onetime
wunderkind George M.C. Fisher, who was recruited from Motorola to revive the
flagging film giant, threw in the towel. Up stepped Carp to lead Kodak into the
Digital Age. Fisher’s departure was an outright admission of failure. This time
the company is portraying Perez, long considered Carp’s heir apparent and a
former star at Hewlett-Packard, as part of an orderly transition.
MaybeWELL-DEVELOPED TALENT. Kodak’s predicament was brought into
so — yet Carp is leaving much earlier than expected. To his credit, Kodak has
defied skeptics by building a fast-growing digital business, becoming the U.S.
leader in digital camera sales. The problem is, Kodak earned just $46 million in
operating profits on its $5.3 billion digital business last year. Meanwhile, the
high-margin film business is shrinking fast. The company figures its $8.2
billion traditional businesses, which include film, will drop 17% this year,
thanks in part to a 30% decline in U.S. consumer film sales.
sharp focus when the company badly missed its earnings targets for the first
quarter, reporting a $142 million loss. Making matters worse, Kodak is taking on
$1.4 billion more in debt to fund digital acquisitions. The moves led ratings
agencies Standard & Poor’s and Moody’s Investors Service to lower the
company’s onetime AAA credit to junk-bond status in late April. By early May,
the stock had slumped some 30% below its 52-week high. “There are a lot of
risks,” says Steve Wilkinson, a credit analyst at S&P.
surmount such huge challenges? “We need a digital leader to carry us through
this transformation,” Carp conceded. The market liked the news: Kodak’s
beleaguered shares rallied 4%, to $27. And Perez certainly has an impressive
track record. During his 25-year run at HP, he spearheaded the explosive growth
of HP’s printer business into a highly profitable $10 billion giant.
Earning a reputation as a relentless hard-charger, Perez pushed hisPRINTING FOCUS. Had Carp
troops to find new, creative uses for inkjet heads and for the superprofitable
ink cartridges that go with them. First it was color inkjets, then large format,
then all-in-ones, then photo printers. “I was obsessed with creating a new
category every two years,” Perez said in a 2002 interview with
not brought Perez in, Kodak would probably be in even worse shape today. Under
Perez, Kodak’s digital unit rapidly increased its new-product launches. “I see a
lot of Antonio’s philosophy in recent product introductions from Kodak,” says
John Thompson, vice-chairman of executive search firm Heidrick & Struggles
International. “He is intense about getting the job done quickly, but also about
getting it right.”
Already, Perez is making big promises. He says Kodak
will more than quintuple digital operating earnings, to at least $275 million
this year. A key reason for the confidence: Consumers are increasingly turning
to retailers to make prints of their digital images, which is far more
profitable than selling low-margin digital cameras. “We are in the process of
proving that this year our digital profits will grow faster” than the drop in
film profits, Perez vows.
Still, as a whole, Kodak’s far-flung digital
business “is nowhere near as favorable as the traditional [film business],” says
S&P’s Wilkinson. He remains concerned about Kodak’s ability to meet its
ambitious targets. To keep wringing profits from film, Perez acknowledges that
he must squeeze out costs. “The only way to keep generating cash is to
aggressively cut costs to stay ahead of the decline” in film, he says.
Kodak still has a chance of pulling off the transformation that eluded
A&T, Polaroid, and other icons that sank as new technology undercut their
businesses. But Perez has a long way to go. And as more folks switch to digital,
he and Kodak are racing the clock.