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Jul 30, 2009

What Hath Tech Wrought?

Here's a paragraph from today's WSJ that neatly captures some of the themes I've been exploring about technology's impact on business models, corporate life-cycles and investment horizons.

"Kodak spent $3.4 billion from 2004 through 2007 converting the bulk of its 129-year-old business from high-margin film to more competitive electronic technology. It is in the midst of cutting 3,500 to 4,500 jobs, which could reduce its work force to a 1930s-era low of 19,900 from a 1988 peak of 145,300."

It's worth noting that the enterprise value (equity value plus net debt) of EK is a little under a billion dollars today (at roughly $3.00 per share.) Including pension liabilities of $2.4 billion in the net debt calculation increases the enterprise value to roughly $3.4 billion, equal to the amount Kodak invested over four years to convert from a film-based to an electronic imaging company.

Under the most generous interpretation, the market is valuing Kodak's 129-year history at zero right now, despite it's highly recognized brand and long tradition of technological innovation.

3 comments:

  1. The market may be right. I am a little bit older than you Bob but when I think of Kodak, I think of cheap plastic cameras. I do not think of them as a "high-tech" company because of the junk they produced.

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  2. Richard - Thanks for commenting. I agree with your assessment of Kodak cameras... have they had a hit since the Brownie?

    But they must've been pretty darn good at chemistry and process engineering to sustain their leadership in film technology.

    The over-arching problem seems to be that those skill sets don't obviously transfer over to computer memories and displays or internet photo-sharing sites, which seem to be the preferred way of storing, displaying and sharing photographs in the digital era.

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  3. ""Film will never come back," Mr. Perez said. "Those very, very, very high gross margins that film had will never come back. I don't know of any digital businesses that will even have half of the margin that film had." - EK CEO, Antonio Perez on June 25, 2010

    Kodak Chief Perez Plans to Curtail Patent Lawsuits

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