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To: Jim Lurgio who wrote (1960)	12/5/1997 1:26:00 PM
From: jkb	Respond to of 60323

Kodak Adjusts Digital Focus (12/05/97; 9:00 a.m. EST) By Margaret Ryan, EE Times Eastman Kodak Co.'s disclosure that it is still losing money on digital cameras and other digital-imaging products after investing hundreds of millions of dollars during the past three years has raised questions about the company's ability to make the transition from silver-halide film to digital photography while remaining a leading imaging company. It has also raised questions about the viability of the digital-camera market, which is still in its infancy. Kodak executives briefed analysts in New York last month on plans to get the 118-year-old company into shape. After posting several quarters of declining profits, Kodak said it expects its digital efforts to lose $400 million in 1997. The numbers are particularly disappointing because Kodak has invested about $300 million to $500 million to develop the technology. Kodak plunged head-first into digital imaging and spent heavily on research to develop a stream of digital products, including still cameras, video cameras, film scanners, ink-jet media, color printers, photo CD players, imaging software, document management software, and document scanners. Some of the company's early research on digital imaging for the professional market served to benefit its competitors. Kodak became a major manufacturer of charge-coupled devices (CCDs), the optical scanning mechanism that stores samples of analog signals to capture an image. It became a CCD supplier to many camera manufacturers, while using the parts internally. The company also holds some early patents on CMOS imager technology. But Kodak has yet to reap any benefits. "Kodak's research efforts have paid off in products, but not profits," said Steve Hoffenberg, director of the digital photography system advisory service at Lyra Research, in Newtonville, Mass. Analysts said Kodak has not adjusted to the shorter product cycles that characterize digital-based businesses. In addition, 43 companies are now competing in the digital-camera imaging market, including consumer-electronics companies that are accustomed to taking huge hits on new products. Kodak doesn't have that same resilience. In response to its overall losses, Kodak said it plans to cut 10,000 jobs and $1 billion in expenses during the next 24 months, including $100 million to $150 million in R&D. It is still unclear how those measures will affect Kodak's digital-imaging efforts. Analysts suggest the company is too vertically integrated, has too much "fat" and too many products. Goldman Sachs analyst Jack Kelly suggested Kodak slim its digital product line and prioritize. "It can't be everything to everyone," said Kelly, who suggested Kodak might divest businesses such as the one for writable CD-ROMs. The real question, Hoffenberg said, is whether Kodak's restructuring will crimp its ability to develop new digital cameras. Kodak hasn't announced how its spending cuts will affect digital imaging, but Jeffrey Peters, vice president of the Digital and Applied Imaging Division at Kodak, said in an interview that "[chief executive] George Fisher is still very committed to digital imaging." Fisher said he believes digital imaging is of strategic importance to Kodak, Peters said. "Anyone who knows George knows he views things in the longer term; he knows he needs to be responsive to today's needs, but he's also committed to long-term goals," he said. Cuts in R&D won't detract from Kodak's efforts in digital imaging, Peters said. "In a couple of years, everyone has gotten smarter about what people want, and this allows us to focus our R&D more going forward." Other companies foresee consumers taking pictures with digital cameras, playing with them on their PCs and printing them on their home printers. But Kodak officials don't think consumers will want to spend time working with digital images any more than they do with film images. "There will be people who use home printers, but in a service economy we see more people using retail imaging kiosks," said Peters. Those kiosks -- a network 14,000 strong known as Image Magic stations -- are a key piece of Kodak's digital strategy. They let consumers do digital photo developing using a flatbed scanner and a dye-sublimation printer. Planned features include the ability to work directly with digital files -- from disk or from a memory card -- and with Internet connections to upload photos to Websites. Kodak's broader approach to digital, Hoffenberg said, might bring more long-term success than strategies concentrating only on digital cameras and printers.