Thursday, January 5, 2012

Blue Chips in the Red: Kodak

In the digital world of imaging, the hardest hit in this sector, which should come as no surprise, was Kodak. The Wall Street Journal reported that Kodak may be filing for bankruptcy protection in the months to come. In the past three years, Kodak has incurred losses in 9 out of 12 quarters. For the 3rd quarter of 2011, Kodak's losses were estimated at $222 million, which had investors running for cover. Needless to say, their stock fell sharply last year. Although the company stock began the year trading at $3.00, Kodak's shares are presently fluctuating below .50 cents. Consequently, the New York Stock Exchange warned that they will move to delist Kodak if their stock price remains below $1 for over 6 months. Kodak is not quite in the "red" yet, but if the company continues operating at the same rate of quarterly losses they experienced in the third quarter of 2011, it is only a matter of time.

I remember purchasing stock in the company when I was about 18 years old, and I must have paid over $40 a share. I sold my Kodak shares when the price dipped to $23.00. That's when I realized that I really didn't have the stomach for the trading the market.

The Iconic Blue Chip, which had been a in the forefront of the imaging products and supplies for over 130 years, has lost its grip on the cutting edge. The once stellar company is struggling to reinvent itself in the new age of camera phones, desktop publishing, , and the digital transport, upload and storage of images. Let's face it, when was the last time you bought film, or dropped off film to be developed? The impact of the ever-changing technical environment couldn't be more evident, as Kodak's valuation has suffered an 80 percent loss in the past 52 weeks. Clearly, digital advancements, and steep foreign competition has taken its toll on Kodak, making them look more like a dinosaur than a ever. By June of 2011, the company's year-end target of $1.6 -to- $1.7 billion was revised to $1.3 - to- $1.4 billion, as a reflection of their reduced expectations. The third quarter earnings report was a dismal account of continued losses, shrinking their cash reserves to $862 million, from $957 million in the 2nd quarter. As it stands, Kodak is sitting on only 10% reserves, well below standard practice.

To tell the whole story, or at least put the current events in perspective, the eminent day of reckoning began nearly 12 years ago, as the tides started to shift away of processing, printing and "developing" photo images. Resisting the digital revolution, or buying time, Kodak began giving away Free Film with every film development pick-up. This was a good, albeit temporary strategy to insure repeat business. The disposable cameras was a wonderful product with a short life span,(no pun intended) but it did help to sustain revenues, and as reasonable amount of cash flow while the CEO and the his think-tank tried to come up with new "relevant" products and services. Alas, this is going to be a fight for survival with much at stake, and Kodak was seemingly not up to the challenge - or is it? Whatever the case, in the past decade, Kodak lost 95% of its value to the industry competition which bought new age, digital savvy products to the market.
Part 1 of 2

For Part 2, Click Here

K. Reilly
The Cohn-Reilly Report

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