Polaroid Waits for Research Payoff

POLAROID'S own picture is looking a bit unfocused. The company's trademark instant snapshot business has matured and film sales have slumped for a second consecutive year.

Polaroid, based in Cambridge, Mass., is banking on two new products to put it on the road to recovery: a compact instant camera and a sophisticated laser imager for medical diagnostics.

Over the past five years the company has plowed more than $100 million into developing these products and new markets, executives say. Over the long term, the company plans to diversify from its core photographic business.

With Polaroid stock selling at less than two-thirds its 1988 high and revenues inching upward, the company hopes to start seeing a return on its research and development costs by mid-summer. Cutting 455 workers this year should help financial results.

At present, 95 percent of Polaroid's business is photography, says Sam Yanes, director of corporate communications. In the next decade that will change to "not much more than 50 percent."

Polaroid sees its future strength in digital imaging, a process of electronically producing, transferring, and manipulating images. Digital imaging is used in fields as diverse as desktop publishing, medical diagnostics, and graphic arts.

Mr. Yanes predicts that while the photography business will probably not exceed 3 percent annual growth, imaging has the potential of 9 or 10 percent. Polaroid's strategy is to use the profits from its photographic base to invest in these faster-developing areas, Yanes says. Expanding product line

Until the company gets a firm foothold in the digital imaging market, where competition from computer and electronics companies is fierce, its hopes are pinned on the two new products.

Visions - a compact instant camera, with a picture-storage slot in the back - is targeted at active, affluent consumers who have not used instant photography before.

Launched in Europe last September, demand for Visions has already outstripped supply, he says. In mid-March it was introduced in Japan. Despite being the company's largest market after Germany and the US, Japanese consumers have not always embraced Polaroid cameras. "Part of that was cultural, but part was that we didn't have a product that appealed to them," Yanes says. But Polaroid is sufficiently confident this time that it has rolled out a nationwide advertising campaign - the first in five years. Th e camera is being introduced domestically this summer.

While profit margins on camera sales are low or even nil, Polaroid makes good profits on its film sales, which it hopes will be spurred by Visions. Last year it sold about 4 million cameras. Dry developing process

The new Helios Dry Imaging System - for medical diagnostics - produces high resolution radiographic films in about 90 seconds using a digital laser. It avoids the wet-process developing and time lag associated with conventional film. First deliveries of Helios went out last month. At $50,000 a piece, Helios sales should reach $50 million this year, Prudential Securities forecasts, rising to $120 million in 1994.

Leonard Aberbach, president of the medical imaging division emphasizes the imager's broader applications. Polaroid hopes to adapt the technology platform in about a year to such areas as graphic arts. Beyond speed and convenience, Helios dry imaging provides an environment free of hazardous chemicals.

Other growth areas for Polaroid include what it calls the document business: instant photos for passports, driver's licenses, company ID cards, and national identity cards among others.

One of its biggest contracts came last year when the company beat the competition to produce 40 million voter-registration cards for Mexico in time for the 1994 national elections.

Improved first quarter earnings reflected in part the $30 million sale of registration equipment to Mexico, according to Prudential Securities. Polaroid also has ID-card contracts with Angola and Indonesia. US market potential

But these are small compared to the potentially huge photo-ID credit card market at home. Credit card issuers in the United States, hit hard by fraud, are looking to photo IDs to staunch their losses. Citibank started test marketing photo-ID cards in April and has enlisted Polaroid to supply equipment and film when it rolls out the program for its 31 million cardholders. Other banks will likely follow since research shows that fraud drops 67 percent with photo IDs.

Although many of Polaroid's projects are just getting moving, analysts are generally optimistic about the company's long-term outlook. B. Alex Henderson of Prudential Securities is even bullish. But he says "fasten your seat-belt for the next few quarters."

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