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The Imaging Market-- Bullish or Bearish?



Wall Street Analysts Offer Different Takes On an Industry in Transition

"PMA’s Gary Pageau (l.) and Ulysses Yannas of Buckman, Buckman and Reid in New York.

Four top analysts offered their perspectives on the ups and downs of the photo industry at a meeting of the Photo Manufacturers and Distributors Association (PMDA) in New York City last month. While the analysts, three from Wall Street investment firms and one from an industry trade group, did their best to make sense of a market that is clearly moving through a period of great transition, they offered few cut and dry answers on what the future might hold.

After listening to about an hour of predictions and investment strategies, some in the audience seemed more befuddled than when they arrived. That reaction though might be more indicative of the turbulent times than of the meeting itself. At one point during the Q&A portion of the discussion, an audience member asked about a company an analyst had recommended—EFI, or Electronics for Printing. The analyst, Megan Talbott of Lehman Brothers had touted EFI as "the company we're most excited about in the United States right now."

But the name drew mostly blank stares from the audience of photo manufacturers, distributors and retailers. Perhaps that was because EFI deals mainly with commercial digital printing solutions—certainly an overlap into the photo industry but not a typical industry name like a Kodak or a Fuji. All of which says a lot about the current state of the photo industry where the next big trend could be coming from an unexpected place.

"I think the industry is a bit more challenging right now than it used to be. I think it's riskier," Talbott warned. "I think that risk can reap better rewards but you also have to be a lot more careful."

In looking for an imaging company to invest in, Talbott said she seeks out "good management."

"The one thing we're looking for is how do they react to change," she said. "There's a lot of change in the industry and we look at how they can meet that change. If they can meet it, that's a definite plus. It's a much more competitive industry now than it's been in the past. You need a real differentiated product in this technological world. Or you need to be able to keep reinventing yourself to stay ahead of that technological curve."

In his remarks, Jay Vleeschhouwer of Merrill Lynch addressed a topic that's been on the minds of photo retailers and manufacturers for some time.

Megan Talbott of Lehman Brothers at the May PMDA meeting in New York City.

"I don't think I'm telling you anything at all new by saying that traditional business is in decline. I think the facts are clearly evident," Vleeschhouwer said. "Digital cameras are obviously a rapidly growing business. The units are selling themselves. But it's not a high-margin business."

But where are the margins in photo imaging? According to Ulysses Yannas of Buchman, Buchman and Reid, digital imaging has actually opened up new avenues for profits. "You've had capture and output, but now you have a new category called service," he said. "And a lot of imaging has to do with service."

The versatility of the digital image lends itself to a variety of possibilities all of which can add profits, Yannas said.
"The question becomes what do we do with the images: do we keep them on the memory card, do we keep them on CD or do we print them? My personal way of looking at the industry is where the money is, and the money is in output and the money is in service."

Yannas also stressed that he believed "film will be around for a very long period of time," mostly because it's still strong in "developing countries."

"Film will probably decline faster than most people think in the developed countries but film will continue to prosper in developing countries simply for the reason that the capture device is a $20 or $10 camera which makes it compelling for countries like India or China."

PMA's Gary Pageau, the only member of the panel not from Wall Street, said he believed that consumers will eventually come back to photo retail for the printing of their digital images. "The retail experience will surpass home printing by 2006," he said, citing recent PMA research. "Home printing will always be more expensive than retail printing."

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