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http://business.timesonline.co.uk/tol/business/industry_sectors/technology/article5321569.ece
Kodak faces break-up after fall in digital product sales
Wall
Street is forecasting that Kodak, one of the most famous names in
photography, will be forced to break up as the industrial icon fails to
cope with the collapse in demand for its digital cameras and printers.Kodak
gave warning on Wednesday that revenues and profits for 2008 would fall
well below Wall Street expectations as American consumers stopped
spending on all but essentials, such as food and petrol. It also said
that it had been forced to suspend some of its executive retirement
contributions and that all boardroom pay would be frozen.Shares
in the American group, which are traded in New York, sank by 12 per
cent as traders considered the gloomy prospects for the company, which
had already reduced its revenue and profit forecasts in October. The
shares, which traded at $30 at the beginning of the year, were
yesterday valued at $6.40 each.Shannon Cross, an analyst at
Cross Research, told clients: “We think Kodak will need to make some
hard decisions regarding its consumer inkjet business, Stream and
Nexpress, as investment required to support these initiatives may be
too high given deteriorating end markets.”However, Antonio
Perez, Kodak’s chief executive, sought to reassure shareholders and
argued: “We have a solid cash position, a modest debt balance and,
despite current lower overall demand, we continue to maintain our
market share in key businesses.”Yesterday’s warning, the second
in less than three months, provides new evidence that corporate America
has been surprised by the speed with which the US economy is
deteriorating. In November, Intel wiped $1 billion off its profit
forecast for the third quarter of the year as demand dried up for the
microchips that it makes, which are used in mobile phones and
computers. Circuit City, the second-biggest electronics chain in
America, filed for Chapter 11 bankruptcy protection last month.Kodak
is in a uniquely vulnerable position. The company relies significantly
on the American consumer for sales of digital cameras, demand for which
has plummeted. Consumers are buying fewer electronics, as well as
scaling back on holidays and events that typically encourage
photography.At the same time, Kodak has been hit this year by
high energy costs, with many of its photographic and printing raw
materials intertwined with the price of oil.The company also
provides commercial printing services but that business has been
affected by the fact that many of its corporate customers have been
unable to secure financing for new equipment purchases. Kodak said
yesterday that the strengthening dollar has also had an impact on
export sales.Wall Street is concerned that in the event that
the recession deepens, Kodak will struggle to strip out new costs
having only just emerged from a brutal three-year restructuring
programme, completed at the end of 2007. The programme was designed to
shift the company away from film production to the digital age.
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