Kodak's Photo Op

Let Kodak CEO Daniel Carp focus the future of photography for you just as sharply as he can: for all the talk about the digital revolution, the rumors about the death of film--and along with it, Kodak--have been greatly exaggerated. Sure, a growing number of shutterbugs are capturing pictures on microchips instead of silver halide. But more than 90% of us, he points out, are still happily taking shots the 19th century way.

Even as more people switch to digital cameras to share and edit photos online, Carp adds, they are going to need Kodak's paper, chemicals and technical savvy to complete the picture and make great prints. And in key emerging markets like China and India, where a digital camera can cost a month's salary, film will remain king for a long time. In the U.S., single-use film cameras are flying off the shelves as never before.

"We'll be by far the leader," says Carp, a tall, hulking, 30-year Kodak veteran and an avid hoops player who took over the helm from George Fisher more than a year ago. "You trust your memories to a brand synonymous with pictures."

Yet Kodak's strategy of playing at both ends of photo technology isn't developing as planned. Last week Big Yellow, blaming a flagging film market on the nationwide economic slump, announced that its first-quarter net earnings were off almost 50% from the prior year. More troubling to Wall Street was that Kodak, citing the soft outlook, backed away from its previous forecasts for the second half of the year. "These are my picture takers that companies are laying off," Carp told analysts. Kodak is adding to the pile too. As part of its streamlining, the company will cut 3,000 or so jobs from an already depleted workforce. As Carp put it, "I think we're a bit in the eye of a storm."

When the current downturn ends, though, the $14 billion-a-year image maven faces a much more serious threat on the digital horizon. As prices for digital cameras continue to fall, consumers will abandon film in greater numbers. That means Kodak's high-margin film franchise, which brings in about a third of the company's profits, will bear the brunt of the switch. So even though Kodak has lost some market share over the past few years in a brutal price war launched by Japanese rival Fuji, it still captures a commanding 65% of a sunset business. "I don't see how Kodak can be as profitable, or have the same level of dominance, as before," says Douglas Rea, professor of digital photography and imaging at Rochester Institute of Technology. Many skittish investors agree. In the past year, Kodak stock has dropped 30%, hitting a six-year low last fall and ending last week at $43.

In this new digital arena, Kodak isn't the yellow monster. It's just one of the pack, which ranges from such tech titans as Sony and Hewlett-Packard to brash online photo start-ups like Shutterfly, Photopoint, Ofoto, Zing and Snapfish (see box). Says Eva Manolis, co-founder of Shutterfly: "We're driving our business by hope of gain rather than fear of loss."