Eastman Kodak Co. has two years to find its place in the world of digital photography to avoid fading into history, warned incoming Chief Executive Antonio Perez, a former Hewlett-Packard Co. stalwart who is taking the reins from Kodak veteran Daniel Carp.
The world’s biggest film manufacturer said Wednesday that Perez, its No. 2 executive, will replace Carp at the helm on June 1 — a hand-over that both men said has been on the cards ever since Perez’ arrival two years ago. Perez also will succeed Carp as chairman next Jan. 1.
Kodak shares rose after the news.
Kodak acknowledged in 2003 that its chemical businesses, led by silver-halide film, were in irreversible decline. The 124-year-old company is now betting its future on digital terrain — from cameras and online photofinishing to minilabs, X-ray systems and commercial printers.
Perez, 59, who was recruited by Carp in April 2003 to help guide Kodak’s development in the faster-paced, more crowded digital imaging arena, said he expects digital businesses to account for about 70 percent of Kodak’s sales by 2007 — up from 41 percent last year.
As analog photography rapidly wanes, “we have to grow the digital part of the company really fast because we are still small relative to the competitors we have,” Perez told reporters after Kodak’s annual shareholders’ meeting.
“Our plan is to finish this year with slightly higher revenue from digital than from analog, but still two-thirds of profit will come from the analog business. Those numbers will be changing significantly. ... That’s why we call the next two years as the critical years.”
The transition is proving painful. Kodak is eliminating 12,000 to 15,000 jobs by 2007, which will lower its work force to around 50,000 from a peak of 145,300 in 1988.
“A company that doesn’t grow is inevitably going to be doing layoffs,” Perez said. “The only opportunity for growth is in digital. ... So that’s the answer, let’s get the growth as soon as we can or else we’ll be over.”
Kodak shares rose $1.13, or 4.4 percent, to close at $26.58 on the New York Stock Exchange. Its shares have traded in a 52-week range of $24.63 to $35.19.
Kodak became a global corporate icon on the strength of its traditional film, paper and photofinishing businesses. But Carp led it on a painful path to expand its reach as a digital heavyweight in photography, medical imaging and commercial printing.
Carp, 57, joined Kodak in 1970 as a statistical analyst, became president and chief operating officer in January 1997 and was elected to its board in December of that year. In 2000, he succeeded George Fisher, who stepped down as CEO after a turbulent six-year reign.
Perez has been groomed to take over since his arrival at Kodak as president and chief operating officer. “We need a strong CEO — I’m telling you we’ve got one,” Carp said.
Before leaving Hewlett-Packard in 2001, Perez oversaw its $16 billion-a-year digital imaging and electronic publishing business. A native of Spain, he then spent 1 1/2 years as chief executive of French smart-chip maker Gemplus International SA.
Carp shook up a stagnant corporate culture at Kodak that stifled creativity, replaced almost the entire management team by bringing in outsiders seasoned in digital technologies and accelerated the shift of manufacturing operations overseas, particularly to China.
In January, he wrapped up a nearly $3 billion shopping spree to extend Kodak’s reach in digital technology. Kodak overtook Japanese rival Sony Corp. in U.S. shipments of point-and-shoot digital cameras in 2004, and retained its market-share edge in the first quarter.
Kodak also retained its edge over Japanese rivals Sony Corp. and Canon Inc. in U.S. shipments of point-and-shoot digital cameras
“Although he was an insider, he did a lot of firing,” said Ulysses Yannas, a broker at Buckman, Buckman & Reid in New York. “In the past, when a guy was given a task and he wouldn’t perform, they’d move him someplace else. Carp essentially changed that by telling people, ‘You have a year to do the job. You don’t do it, you’re out the door.”’
In the first quarter, Kodak posted a $142 million loss because of a steeper than expected slide in sales of film and higher-than-expected costs to cover job cuts.
While describing the performance as disappointing, Carp said short-term volatility is to be expected as Kodak transforms into a digital company to compete with the likes of Hewlett-Packard, Sony and Lexmark International Inc.
Major credit ratings agency, meanwhile, cut their ratings on Kodak debt to speculative or junk status in a move that could make it more costly for Kodak to borrow money.
With the era of soaring sales and fat profits from silver-halide film now departed, Kodak expects digital products and services to become its biggest source of revenue this year for the first time.
Despite the weak first quarter, it reiterated a full-year forecast of $2.60 to $2.90 a share in operating profits on sales of $14 billion to $14.6 billion. It expects to earn $3 a share in 2006 on sales of $16 billion — up from $13.5 billion in 2004.
Digital accounted for around $5.5 billion of sales in 2004 but will vault above $7 billion this year, Kodak said. Chemical-based businesses will account for around $6.6 billion in 2005, down from $8 billion last year.