WEAK DOLLAR TRIM XEROX AND KODAK SALES

Eastman Kodak Co. last week similarly said its $1.76
billion in third-quarter sales would have been slightly higher if not
for “unfavorable foreign exchange impact.” And Xerox cited “adverse
currency,” particularly issues with the Japanese yen, as one of the
reasons it plans to cut 2,500 jobs worldwide over the next 12 months.

The
basics of currency issues are simple — a weak dollar makes U.S.
products cheaper overseas and more attractive to foreign buyers. But
beyond that, there are two separate concepts that are important:
“translation currency,” which is the translating of overseas results
back into dollars, and “transaction currency,” which has to do with the
cost of sales and buying products overseas.

For Xerox,
translation currency mostly involves the euro and British pound. A weak
dollar helps because sales in Europe, when translated back into dollars,
rake in more greenbacks than they would have. But since the dollar is
stronger than it was a year ago, currency issues hurt Xerox sales by 2
percentage points.

The camera-licensing agreement with an
undisclosed rival – part of a Kodak drive to safeguard its rich array of
1,000-plus digital-imaging patents – added about $210 million in gross
profit to the quarter, Chief Executive Antonio Perez said in a
conference call with analysts.Kodak’s ability to generate licensing fees
and royalties from intellectual-property disputes – both in
negotiations and through the courts – shows no sign of slowing, Perez
said.”I look at IP the way we look at the rest of the business – we have
an asset,” Perez said.

Kodak has said it expects to generate an
average of $250 million to $350 million annually through 2011 from
intellectual property. It has already booked $770 million this year. It
is also suing Apple Inc. and Research in Motion Ltd. over camera
technology in their iPhone and BlackBerry smart phones.”It is obvious
now looking back that maybe we were too conservative with the numbers we
gave you in IP,” Perez told analysts. “The track record is nothing less
than spectacular.”

Kodak lost the equivalent of 16 cents a share
in the quarter, which compares with a loss of $111 million, or 41 cents
per share, a year earlier.Sales fell 1 percent to $1.76 billion. But
revenue from digital businesses rose 10 percent to $1.33 billion,
propelled in part by a 26 percent jump in sales of consumer inkjet
printers and ink. That helped boost the segment’s profitability for the
fourth straight quarter.Traditional film-based revenue slid 25 percent
to $431 million from $572 million, hit by industry-related volume
declines and rising costs for silver and aluminum. Operating earnings in
the photographic film, photofinishing and entertainment film unit
narrowed to $20 million from $47 million.

Excluding items, Kodak
said it lost $5 million, or 2 cents per share. Analysts polled by
Thomson Reuters expected Kodak to lose 31 cents per share on sales of
$1.61 billion.Its shares jumped 41 cents, or 10.3 percent, to $4.38 in
afternoon trading. They are trading at the low end of a 52-week range of
$3.26 to $9.08.The 129-year-old company, based in Rochester, N.Y., is
banking on replacing the huge profits it once made from photographic
film with ink revenue from promising new lines of digital inkjet
printers for both consumer and commercial markets.Those investments have
yet to pay off. Kodak doesn’t expect to generate its first profits from
home inkjet printers until 2011, or from a bevy of versatile,
high-speed digital presses until 2012.

Kodak doubled the number
of consumer injket printers installed in 2009 to more than 2 million
units. Ulysses Yannas, a broker for Buckman, Buckman & Reid in New
York, expects more than 5 million will be installed by 2011.”I’m
focusing on how well they are progressing on the printing side,” Yannas
said. “To me, that’s the Kodak story, as it used to be a film story in
the past.”