New Hand Will Guide Kodak

The $17 billion conglomerate is in the midst of a huge transformation - its fourth since 1984. CHANGE AT THE TOP

THIS June, Kay Whitmore steps into the hot seat at Eastman Kodak Company and will attempt to guide the troubled photographic giant into the 1990s. Mr. Whitmore, the new president, will take on additional duties as chairman and chief executive officer. It will not be easy to fill the shoes of Colby Chandler, who will retire, for the problems at Kodak are sending tremors throughout the entire photographic industry.

The $17 billion conglomerate is in the midst of a huge transformation - its fourth attempt to right itself since 1984. Last August it announced plans to sell or consolidate about 20 businesses with $1.25 billion in sales. The goal is to generate $1 billion in operating cash flow during 1990.

Profits have gyrated since 1983. Last year Kodak wrote off about $500 million to shed some 5,000 jobs, ending the year with four consecutive quarters of red ink. Nevertheless, company executives remain sanguine.

``We're bullish on the prospects for growth opportunities in the 1990s,'' says Peter Palermo, vice president and general manager of Kodak's Consumer Imaging Division.

``We see a lot of opportunities, particularly in the Eastern bloc countries, where there is a significant pent-up demand for high-quality color photography.''

To many observers, Kodak's woes illustrate the danger of overconfidence. For most of its 102-year history, Kodak handily beat off competition, remaining the major global player in the silver-based imaging materials business. From its base in Rochester, N.Y., Kodak turned out scores of products that went virtually unchallenged. Even today, Kodak commands 80 percent of the US color film market, and 50-60 percent in Western Europe.

But after so many years of success, Kodak's nearly invincible image has eroded. Competitors are getting stronger.

More fundamentally, products and trends like the 35mm camera, and more recently, the emergence of the disposable camera, are expanding the photographic market - one that Kodak and Whitmore cannot take for granted.

Whitmore will be running Kodak on his own - without the services of either Mr. Chandler or Phillip Samper, the company's vice chairman and chief marketing strategist, who resigned after Whitmore's appointment. Whitmore is chiefly noted for engineering in 1988 the $5.1 billion acquisition of Sterling Drug Company, which Kodak is still trying to digest.

Along with Sterling, the company faces problems on the legal front. A patent-infringement damage award to Polaroid Corporation of perhaps as much as $2 billion is still pending. A decision could come as early as this year.

At the same time, Kodak has been busy restructuring key operations as part of its ongoing effort to pare itself down to its core business.

It has revamped its all-important Photographic Products Group, which has been struggling with profitability. In the Consumer Imaging Division, it has combined photo finishing, US sales, and battery units.

Moreover, it has siphoned off such lackluster operations as minilab equipment and its prerecorded video business.

In addition to restructuring, Kodak is trying to position itself better in foreign markets, where it already has substantial revenues and market share. To this end, it has reassigned key executives like Wilbur Prezzano, who now manages a new international group, overseeing Kodak's business abroad. He replaces William Fowble, former senior vice president and general manager of manufacturing and distribution, who now heads up photographic products.

Industry observers view this as a significant change since nearly half of Kodak's worldwide revenues from non-US markets is projected to be above US growth through the 1990s. Bringing in somebody such as Mr. Fowble with a manufacturing and distribution background, they say, could imply an emphasis on cost efficiencies in the future to maintain profitability in that key segment.

Similarly, it could mean that Kodak will probably continue to rely on photographic products in its international growth strategies, since Mr. Prezzano's background is in this area.

``It could mean that he is being groomed in international experience in order to assume the post of president,'' speculates Jacques Kauffmann, president of IMAC International, an imaging industry consulting firm in Wilmette, Ill. Whitmore has said that it may be as long as 18 months before a new president is named.

Not only is Kodak expanding abroad, but it is entering new markets at home. It has formed a new business unit, the Integration and Systems Products Division, in which it will create computer-based imaging products for new markets and enhance support for Kodak's current systems business in traditional markets.

In the future, Kodak plans to put more emphasis on electronics technology. For example, it is seeking extensions of its photographic technology expertise in such emerging electronic technologies as high-definition television, an industry still in its infancy but with bright prospects.

Mr. Palermo cautions, however, that electronics is not likely to displace traditional silver halide technology.

``We view the growth in electronics as an excellent opportunity for the development of silver halide electronic hybrid products,'' he says. ``We plan to take the best of silver halide technology and marry that with the best of electronic imaging technology, the result of which we expect to be very exciting imaging opportunities in 1990 and beyond.''

Where will Kodak turn next? ``We're going to continue the trend toward segmentation and moving photography closer to the individual consumer lifestyle,'' Palermo says. ``That's evidenced by the growth of the single-use camera category, particularly the fling camera, the stretch, and the weekend camera,'' he continues.

Popularly referred to as disposable, throwaway cameras, all three single-use products use 35mm film. The stretch model produces unique 3.5 by 10-inch panoramic prints, while the weekend camera allows consumers to take pictures underwater at depths up to 12 feet. Kodak has contracts with Walt Disney Corporation to sell these along with conventional cameras at all its theme parks.

Basically, observers say, the disposable market is strongest in Japan, and is having its greatest impact there.

In addition, Kodak plans to play an increased role in environmental activities, notably in photo-finishing chemicals. ``We've launched 12 new products and we are going to continue the trend in 1990,'' Palermo says. Recently, the company began a pilot program to recycle plastic film containers.

Of course, competitors are hardly standing pat. Besides Fuji, with 10 percent of the US market, Kodak is jousting with Polaroid and others.

A major player for decades in instant film, Polaroid jumped into the conventional film market for the first time last year, offering in competition its OneFilm. Some photo critics, however, have labeled it a dud. There's also Konica USA Inc., the American arm of Konica Corporation of Japan, with 1.7 percent of the US market. Recently, it opened a manufacturing facility in North Carolina for photographic paper.

All this activity may be a sign that exposure growth in the photographic market has leveled off, and now it's a fight for market share.

``Basically, the film market in the US is slowing in its rate of growth, probably primarily due to camcorder sales, and the completion of the conversion of the camera market to 35mm format,'' says Ian Robinson, president of Photographic Consultants Ltd., Cambridge, Mass.

``With Polaroid's substantially discounting conventional film,'' contends Alex Henderson, an analyst at Prudential-Bache Securities Inc., ``it's very unlikely that Kodak will be able to make a price hike stick.''

For its part, Kodak believes it will be able to sustain the increases. ``We're looking at the increase as it affects 1990,'' says Palermo, adding that ``with the brand franchise, quality, and innovation we have, we will sustain our price premium on the marketplace.''

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