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Kodak official says firm is developing, though some analysts remain doubtful

Halfway through a four-year digital makeover, as its quarterly losses mount, Eastman Kodak Co has some analysts wondering if the picture-taking pioneer is headed for a breakup.

But even as Kodak reported a US$1.03 billion loss for the third quarter, its new leadership -- largely recruited from digital heavyweights like Hewlett-Packard Co -- say the results show they're making real progress symbolized by one historic milestone: Sales of digital products now exceed revenue from film-based photography for the first time.

Patent-rich Kodak, they also point out, is No.1 in sales of digital cameras and digital X-ray systems in the US and photo kiosks, thermal home printers and online photo services worldwide.

"Overall, we're expecting a year of good progress in a historic transition," said chief executive Antonio Perez, a former Hewlett-Packard stalwart who took the helm in June.

Others, however, predict that the multiyear transformation, which includes the elimination of 25,000 jobs, almost inevitably will lead to even bigger changes in the years ahead.

"They'll probably make it to digital but it may not be the Kodak we know," said Christopher Hayes, chief investment officer of Hayes-Fischer Capital Management of Rochester.

"As you go from a monopoly to a commodity type of business, you could see Kodak split up in different pieces," he said. "I think people feel that way more, now that you have non-Kodak people running the company. There's not as much allegiance," he said.

At an investor's meeting last month, Perez scaled back short-term profit expectations -- in part because of fears that high gasoline prices and Gulf Coast hurricane damage will slow the economy. But he was bullish about prospects for next year and beyond.

"We are at the phase now where digital is still coming up," Perez said. "You'll start to see it next year very clearly. Three years ago, film was still here, so it was covering up a lot of the sins. And last year ... it was still covering up some of the sins. So we are at the worst possible place."

Kodak shares briefly hit a two-year low on Wednesday when the company reported its fourth quarterly loss in a row, which included US$900 million in non-cash charges related to its huge overhaul.

The biggest news in the earnings release may have been that digital sales surged 47 percent to US$1.89 billion.

Kodak is hoping film, its cash cow for a century, will continue to bring enough cash as it steadies on its new bearing. But the clock is running down.
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