Kodak Missed the Big Picture in Electronics

There’s a disturbing story of an American institution and the implications of technology in Eastman Kodak, creator of the family photograph, which announced Wednesday that it was restructuring, again.

Chairman Colby Chandler, responding to falling profits, said Kodak would drop 4,500 employees, freeze salaries at its Rochester, N.Y., headquarters and sell some businesses in an attempt to cut costs.

Trouble is, however, it’s the fourth time in six years that Kodak has felt the need for such restructuring. Something chronic seems to be wrong with the company, which was once a model for U.S. corporations--a technological innovator and a generous employer.

But Chandler, a 39-year Kodak veteran who has led the company since 1983, didn’t acknowledge the possibility of chronic illness Wednesday as he spoke of “sharpening our focus to improve financial performance.” The stock market, mindful that Kodak earnings have risen after previous restructurings, gave the stock price a quick boost.

Rally to Relapse

Yet one year’s results, or even one decade’s, are not the issue. The real question is whether Kodak, which dates to George Eastman’s invention of film in 1884 and the box camera in 1889, has the goods for long-term success. If it does, it will prosper in the 1990s and beyond; if it doesn’t, last week’s restructuring will only lead to others, as a sick patient goes from rally to relapse.

First, the good news. Kodak is more than holding its own in the film business, which accounted for about 60% of its $17 billion in sales and a similar percentage of its $1.4 billion in profit last year.

To be sure, film profits are down this year because film makers from Fuji and Konica in Japan to Agfa in Europe to Polaroid, a newcomer to Kodak’s side of the film business, are expanding capacity and slashing prices.

But Kodak, whose film accounts for more than half of the 40 billion pictures that the world takes each year, is matching them price for price and picking up market share in Japan as well as the United States and Europe.

Elsewhere, however, Kodak is not holding up so well. Analyst Alex Henderson of Prudential-Bache Capital Funding points to a worrisome list:

* Kodak’s graphics arts products--used in color printing of magazines--are losing ground to new computerized technology.

* Kodak’s microfilm is losing out to computerized information retrieval.

* Kodak’s X-Ray film is losing out to computerized scanning, ultrasound and magnetic resonance technology.

* Kodak’s motion picture film is losing to advances in videotape.

Missed the Boat

Even Kodak’s photographic film market is not secure, as family pictures increasingly are taken with camcorders on videotape--products that Kodak doesn’t make. Kodak’s top executives acknowledge that the long-term future of photography is in electronics, not film.

But if that is so, why isn’t Kodak a leader in electronics? Because it missed the boat. In one case, back in 1970, it came up with the technology for the videotape recorder, but--thinking that it would be too expensive a product for mass markets--decided not to pursue it. So, Japanese companies developed VCRs and camcorders and became proficient in videotape.

Similarly, Kodak’s shyness in electronics cost it the 35-millimeter camera--the simple kind, usually from Japan, that you can point and shoot. Kodak, which had invented the simple Brownie of earlier times, had made 35-mm. cameras for years, says Chairman Chandler. “But those cameras had 250 parts and had to have labor-intensive manufacturing,” he explains. “Well, in the postwar era, Japan had labor costs that were 1/20th of ours. So we got out of that business in 1974, losing money.”

Instead, Kodak devised mechanical cameras that could be manufactured cheaply, the Instamatic, and later the Disc--which was a failure because electronic 35-mm. cameras took better pictures.

(Kodak also tried belatedly to get into instant photography, but wound up infringing on Polaroid’s patent and soon will have to pay Polaroid a damage award that could run to $1 billion.)

Kodak now sells 35-mm. cameras, some made for it in Japan and Hong Kong, but in all this time--almost two decades--it has never made a serious effort in electronics, even though its president, Kay R. Whitmore, acknowledges that “the capability to do electronic photography grows out of a knowledge of consumer electronics.” The business of TV sets and Sure Shot cameras has seemed too unprofitable to Kodak.

But that may be the wrong perspective. For as electronics has developed, products have come and gone, while the technology has created whole new markets and opportunities--camcorders to replace movie cameras, videotape to displace motion picture film.

Meanwhile, Kodak has diversified, paying $5 billion last year to buy Sterling Drug Co.--as a hedge against the future decline of its photographic film business.

The fine old company, which spends $1 billion a year on research, should not be counted out, of course. But increasingly it seems that an American institution risks becoming an American tragedy.