After long overhaul, Kodak pursues digital foothold

ROCHESTER, N.Y. -- The boom in digital photography triggered a series of aftershocks at Eastman Kodak Co. as one after another of its aged factories was dynamited.

Since 2004, the world's biggest film manufacturer has eliminated 27,000-plus jobs, cast off major operations and invested billions to gain a firm foothold in the highly competitive arena of electronic imaging. It now offers an alluring patchwork to help people harness their photo collections: a 70-million-member online service, 80,000 retail kiosks and an array of digital cameras, printers and other devices.

The most perilous turnaround in Kodak's 127-year history is officially over, and fourth-quarter results due Wednesday will spell out the final four-year toll — upward of $3.4 billion.

But questions about the photography pioneer's prospects are intensifying: Will it adapt and flourish, propelled by a rich portfolio of patents? Is it destined for a breakup? Might it even join forces a few years from now with Xerox Corp., its historic cross-town rival?

"Their strategy makes sense, they're doing the right things ... but the competitive reality they face is extremely daunting and will only grow more challenging over time," said Citigroup analyst Matthew Troy.

Chief Executive Antonio Perez, who ran Hewlett-Packard Co.'s digital printing operations before succeeding Dan Carp at Kodak's helm in June 2005, "is doing an excellent job," Troy said. "It's just that, with what he has, I don't know if anyone can do that job."

Ten of 11 key analysts rate Kodak neutral or advise selling its stock. The shares, which topped $94 in 1997, skidded to a 30-year low when they closed at $18.04 on Jan. 15. Kodak's payroll, which peaked at 145,300 in 1988, has shriveled to around 30,000, a level not skimmed since the Great Depression.

"Supposedly the restructuring is done. Now show us in 2008!" implored George Conboy, president of Brighton Securities, a money-management firm in suburban Rochester. "What they need to convey is the image of a transformed company, and they are far from having done that."