April 25, 2012
You can't live in Rochester without knowing Kodak employees and retirees, and those of us who have never worked there draw a lot of our picture of what happens inside the Big Yellow Box from what we hear from family and friends. But an image of Kodak created by secondhand accounts is a little like a portrait painted by listening to someone describe the subject instead of seeing it for yourself. After all, like the blind men and the elephant, most Kodak employees see a small piece of the operation, and we're getting a small story from them.
But over the last year as Kodak slid toward, then into, bankruptcy, I have heard a consistent story from a variety of smart, skilled people from different parts of Kodak's operation: the story of the consumer inkjet business. In February 2007, I traveled to Manhattan to attend Kodak's investor briefing and the rollout of the new inkjet printers. The appealing pitch: high-quality ink at very low cost, designed to broaden the market by letting consumers print as much as they wanted without worrying about cost. Attendees received sample photos and they looked great.
The only problem is that 5 years later, the consumer inkjet business is still not yet profitable, and much of Kodak's Consumer Digital Group (CDG) is being dismantled. This is where the listening part comes in. I can't reasonably paint that picture from a story I hear from one or two people. But over many months I've pieced together an image from different parts of the company. Like the Kodak market researcher who reported that their group told management that the inkjet business had a major entrenched competitor (Hewlett-Packard), thin profit margins, and a shrinking market (people just don't print many photos). Like the two senior researchers in Corporate Research & Engineering who report that their group told management that the inexpensive ink was ruining the printer heads and needed more work before going to market. Like the members of the finance staff who report that Kodak has been losing money on each printer sold, with no change in sight. In each case, current and former employees say, warnings were ignored by senior management and the printers were rushed to market. Result: overwhelming number of defective printers (one source says 100% in the first months), loss of retailer support, and a business that 5 years later loses $50 on each printer Kodak sells.
Kodak didn't listen to its own employees: skilled, dedicated, hardworking people. So who is Kodak listening to now? Bankruptcy consultants and lawyers, at a cost of tens of millions of dollars and counting.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).