Magazine Article


Feeling Digital's Bite, Kodak Cuts Jobs, Merges Divisions

"Adjust," as many people know, can often be industry-speak for "cut." And one of Kodak's first "cuts" came as a surprise: it will combine its long-separate consumer and professional photography divisions into a consolidated, new business unit called Consumer & Professional Imaging products and services. The new division will incorporate "most of the operations of the formerly separate Consumer Imaging and Kodak Professional products and services divisions," but Kodak has positioned the move as "aimed at strengthening the performance of two core photography businesses," rather than calling it a cost-cutting decision. In a joint statement, Freund and Smith-Pilkington commented that Kodak has already had success doing this in some parts of the world, seeing "dramatic improvement in key product categories after these moves. We anticipate similar-if not greater-improvements with this global implementation."

Antonio Perez, Kodak's recently hired president and Chief Operating Officer, said, "The combined Consumer Imaging and Professional Imaging organization will be better positioned to service our customers' current and future needs, leveraging a broader technology and product portfolio in analog and digital imaging. For our customers and consumers, this move will result in a stronger organization better positioned to supply their product and service needs; for our employees, it will ultimately mean a more efficient and advantaged position from which to compete and thrive in the industry." In Perez's comment, the phrase "more efficient" may be the most significant.

In all, Kodak plans to eliminate 4,500 to 6,000 jobs by the end of the year, roughly six to nine percent of the company's current worldwide workforce. After the cuts, Kodak will have about 61,000 employees worldwide. The company has eliminated about 28,000 jobs since 1997. About 2,000 to 3,000 of the job cuts will be at the company's home base in Rochester, New York, leaving fewer than 18,000 Kodak workers there, the lowest figure since the late 1930s.

Putting this in the context of the continuing decline in consumer film sales, Carp commented, "I'm a little nervous this could open up on us, which is why we're taking costs out to stay ahead."

Investors, however, liked Kodak's cost-cutting-the price of its stock jumped by 7.3 percent the day the announcement was made.

Some analysts are still not sure Kodak understands how important the shift to digital photography will be for the company. Even Buckman, Buckman and Reid's analyst Ulysses Yannas, who was still giving Kodak shares a "buy" rating, argued recently in The New York Times that "They are contracting out some manufacturing, but I want them to outsource all of it."

As one of the positive notes in the mostly bleak Q2 results, Kodak noted its digicam sales are up by 65 percent. The key to success in the digital photography era will be making it easy for consumers to get prints of their digicam photos, according to Yannas, and Kodak has the brand name and the technology to profit from digicam printing. He added he also thinks Kodak's film sales will not drop as quickly as some pessimists believe, partly because of the company's massive investments in Asian markets such as China and India.

"Kodak has taken the lead" in these growing markets, Yannas said.

In a conference call with financial analysts, Carp said Kodak will have to cut the cost of support services such as finance, accounting, legal, and public affairs-a shift from the company's previous restructurings, which have mostly made cuts in manufacturing costs. There will be some cuts in manufacturing jobs, he said, and in research and development as well, aimed at reducing corporate overhead related to consumer and professional photography.

In related news, Kodak also announced last month that it would buy dental information technology company PracticeWorks for $500 million in cash. The purchase is aimed at helping Kodak become the market leader in the lucrative field of dental digital imaging.