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 user 2005-05-16 at 10:01:00 am Views: 72
  • #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

    The 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.

    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.

    WELL-DEVELOPED TALENT.  Kodak’s predicament was brought into
    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.

    Can Perez
    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 his
    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.