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 user 2008-12-29 at 9:53:20 am Views: 40
  • #20864
    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.