Polaroid shifts focus with hope that new profits will develop

``Polaroid is in a very unenviable position right now,'' says Robert Maney, an analyst with Prudential-Bache Securities Inc. in Rochester, N.Y. ``I really and truly think they have made themselves some major problems.'' The instant filmmaker announced on Tuesday that it was going to go head to head against the Eastman Kodak Company and Fuji Photo Film Company by introducing conventional film to the $7 billion worldwide market.

The move points up one of the company's most formidable difficulties: For the past several years, people have been buying less and less instant film, Polaroid's key product. The reason? Today's smaller, automatic 35-mm cameras and faster film processing have eroded instant film's popularity.

In the beginning, at least, Polaroid's new conventional film will be supplied by other film manufacturers, as the company tests the waters.

Polaroid did not name who would provide the film, but the company has been selling conventional film in Spain and Portugal, bearing its name but made by West Germany's Agfa-Gevaert, says Brenda Landry, an analyst at Morgan Stanley & Co.

Virtually all of Polaroid's $1.76 billion in sales last year involved instant-film products for commercial and consumer use. But the consumer sector has been declining 10 percent annually in the past decade.

For this reason, and because the conventional film market was up 7 percent last year, Ms. Landry thinks Polaroid's diversification was a good move.

``They need something,'' she says. ``They've got to get those revenues going.''

But other analysts pan Polaroid's decision, arguing that the risks outweigh any potential gains.

``I would not want to be in their shoes competing with Kodak and Fuji in this market,'' says David Presson, an analyst with Edward D. Jones & Co. in St. Louis.

Mr. Maney at Pru-Bache also says that Polaroid stands very little chance of successfully penetrating a market dominated by Kodak and Fuji - Polaroid's name recognition and marketing apparatus notwithstanding.

``I really question that judgment,'' says Maney. ``I just think very frankly they made a mistake.''

Ironically, Polaroid faces a further difficulty on the instant-photography front in the form of the patent-infringement suit it won against Kodak in 1985. Although Polaroid has sought up to $5.7 billion in damages, Kodak has asked for a stay of the ruling, alleging that the judge may have had a financial interest in the case.

``I think that the decision will be thrown out,'' says Calvert Crary, an analyst at Martin Simpson & Co. A retrial of the case would be a blow to Polaroid, he says.

But while debate rages over the wisdom of the entry into conventional film, there is general agreement that Polaroid has helped to thwart takeover threats by the restructuring it announced Tuesday.

``What they're essentially trying to do is make Polaroid much more flexible,'' and therefore more profitable, says Landry.

One step will be to cut the work force by 8 percent, eliminating 500 to 800 jobs through attrition and early retirement.

``Obviously business has been lousy for them, so they're laying off 800 people,'' says Raymond Cowen, an analyst at Value Line Investment Survey.

Other actions include scaling down research and development and a repurchasing of $300 million of company stock.

The stock purchase is applauded by Maney. ``They may need that $300 million on the film side,'' he says.

And Mr. Cowen says the purchase also helps protect the company from a takeover.

``When a company reorganizes - when it buys back all the stock it says it's going to buy back - it's definitely a defensive move,'' says Cowen.

Staff writer Mark Clayton contributed to this report.

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