Eastman Kodak (NYSE: EK) is the worldwide producer of imaging products and services, developing, producing, and selling both digital and traditional imaging products worldwide. Though perhaps best known for its iconic disposable cameras, Kodak has restructured its business to adapt to digital camera technology and move away from traditional film. In FY2010, Kodak reported revenues of and net income of $7.2 billion and a net loss of $687 million.
The negative revenue growth rate has decreased in FY2010, which reflects the success of the investments that Kodak is making in new products and growth businesses. Kodak is also benefiting from digital revenue growth in key emerging markets around the world, intellectual property licensing agreements, improved profit margins, and a lean cost structure. .
Eastman Kodak is best known for its products and services related to imaging products. Kodak offers cameras and printing services for both digital and "traditional" films. Kodak's business can be broken down into three segments:
Consumer Digital Imaging Group ($2.74 billion in revenues in FY2010): CDG consists of digital cameras, digital picture frames, snapshot printers, home imaging accessory products, and printer media. In its Kodak Gallery, customers can easily share and view images and videos with family and friends. Given that the bulk of the products and services offered within this segment is discretionary, it is vulnerable to weaknesses in the global economy.
Film, Photofinishing and Entertainment Group ($1.77 million in revenues in FY2010): FPEG includes Kodak's consumer and professional film, one-time-use cameras, graphic arts film, aerial and industrial film, and entertainment imaging products and services.
Graphic Communications Group ($2.68 million in revenues in FY2010): GCG is Kodak's largest division, offering software, hardware, and media products to a variety of customers in commercial printing, packaging, newspaper, and other similar media segments. This segment is also closely attuned to the global economic fluctuations, as they determine firms' willingness to undertake capital investments in the printing space.
Kodak is most known for its iconic disposable cameras, but traditional film sales have been consistently declining due to the increasing popularity of digital imaging technologies. The company's traditional film segment has two main parts: consumer film and entertainment film.
The significant decrease in traditional film sales has caused Kodak's management to refocus the companies efforts on the digital imaging market. This trend shows no signs of reversing, meaning that Kodak's Photofinishing Group is likely to continue decreasing both in terms of overall sales and in significance to the company as a whole.
Kodak now develops and markets digital cameras and printers, operates photo kiosks, and provides online photo sharing and photo merchandise. As such, Kodak is able to capture revenue from its customers at several points; consumers can buy a Kodak camera, print photos on Kodak paper using a Kodak printer, and purchase high-quality digital prints from Kodak's in-store kiosks.
The digital camera could be considered Kodak's most notable innovation. Kodak has made a number of modifications to the digital camera in an effort to set its cameras apart from its competition's, including the first addition of full-color displays and producing the smallest digital cameras on the market.
Kodak has had problems maintaining strong profit margins since its entry into the digital imaging industry, leading the company to outsource its digital camera production and distribution to Flextronics International. This strategic move will help Kodak keep operating expenses down, maintain efficiency, and achieve higher profit margins. Kodak will still conduct research for, design, and own the intellectual rights to its digital cameras, easing fears that Kodak's reputation for quality might be jeopardized.
Kodak invented the first printer with a built-in dock for digital cameras in 2003, and the company is still a leader in at-home photo printing. Kodak kiosks, which provide photo printing services, operate in major chains such as CVS, Wal-Mart, and Target. Printing has become an increasingly important aspect of Kodak's focus on digital imaging. Kodak's customers include large corporations and other businesses of various sizes who turn to Kodak for their printing needs, as well as consumers who use its photo printers in their homes. In addition to producing strictly photo printers, Kodak also released three all-in-one inkjet printer models, hoping to leverage its brand reputation in order penetrate the non-photo printing market.
For its inkjet printers, Kodak employ a rather unique pricing strategy; the printers themselves are relatively expensive, but their ink cartridges cost around half the price that Kodak's competitors charge. Kodak's cheapest model costs the same as a higher-end Hewlett-Packard or Lexmark, but ink refills are substantially cheaper for the former. Kodak's different approach banks on customers' readiness to pay a premium upfront in order to save money on future ink cartridge purchases. To make its pricing strategy successful, Kodak is striving to educate consumers about the potential savings over the total life of the printer.
The pricing strategy will most likely attract consumers who print large quantities of documents and images. The majority of consumers, however, are more attracted by low upfront costs than they are by potential future savings. This pricing strategy is somewhat unorthodox for a printer manufacturer, but it could, if successful, substantially alter pricing practices throughout the industry.
The Kodak Gallery, a part of Kodak's network of digital imaging products and services, is a photo-sharing website that sells photo merchandise like frames, customizable calendars, and photo books. The Kodak Gallery also allows its 50 million members to print photos from their computers. Though it has a number of partnerships with large companies, the website doesn't generate a significant amount of revenue; it is used more as a marketing tool for Kodak.
Kodak has a huge patent portfolio that covers all of its products and proprietary technologies. Its most noted inventions are the roll of film (which made photography accessible to the average person and made motion picture film possible), digital cameras, and a digital camera with e-mail capabilities. One of Kodak's most recent inventions is a light sensor technology that will eliminate the need for a flash. These inventions have been (or will be) revolutionary to the photo industry and set Kodak apart from its competitors.
Considering the lucrative nature of Kodak's past inventions, intellectual property and patents are among the company's most important assets. Any expiration of patents could harm Kodak's profits as once-exclusive technology becomes available for other companies to replicate. While this is unavoidable, violations of any patents still in effect is another area of concern for the company.