Deconstructing Kodak: The Stream Gamble

by admin on August 4, 2009


As we all know, Kodak released second quarter earnings last week, and it was brutal. While there was an attempt to bring in a little bit of sunshine for the 3rd quarter and even Christmas, cash flow looks brutal. Nevetheless, as of Tuesday, August 4th, the stock is up more than 10% to $3.65. Mind you, it's a heavily shorted stock and the market cap is under a billion so funky gyrations of the stock price are to be expected.

At present they have about one billion in cash. More than half of that will probably be gone in November. They burned through about 150 million this quarter. As Warren Buffett said, you don't need complex math to do investing, just simple arithmetic.  So unless, something changes, this time next year they have zero cash. And a lot of debt.

So what's going to change? Let us count the ways.

  1. Increased revenue from film? Nope.
  2. Increased consumer inkjet sales. Although I hear a lot of reassuring noises being made, I would put my money on picture frames this Christmas.
  3. How about CMOS? Are you kidding? What's the margin on CMOS nowadays, five, ten percent?
  4. OLED? Well your competitors are Sony and Samsung. Nice. Besides, they don't have any products, just intellectual property looking for investors.  What are the chances of Kodak releasing OLED products in the next twelve months? Zilch.

Enterprise inkjet. Okay, now we get to something that's real. If anything is going to save Kodak, it's going to be the Stream inkjet printers. The Printceo guys had a look at it and think it's great: " may not only change the game in high-speed inkjet printing, it could potentially change how a sizable chunk of general commercial printing is done. It appears that Kodak has raised the bar in inkjet printing."

Okay, so they have a potential killer product coming down the pipe that could carry the company into the next decade. But they are running out of cash. It's a race really, and the crucial question to ask is how long until they can ramp up manufacture and roll-out of the Stream printer line? Six months, okay, that may be quick enough. One year? Uh-oh. Eighteen months? Forget it. And now let us look at a short list of problems that could delay rollout:

1.  What is the failure rate of the inkjet heads? Do they even have enough real-world experience to predicate the failure rate? Are the service groups up and trained in replacing the heads? Do they have a sufficient supply of heads at the local repair depots?

2. Does the millionth sheet of printed copy look the exact same as the first copy off the press? In other words, are there repeatability issues?

3. Is there consistancy in the formulation of the ink? Does the color drift? How is the ink supply? Does the ink degrade in storage?

4. Is the workflow ready? Have all the connectivity bugs been sorted out? This not trivial, the Prinergy to Lotem Quantum connection was delayed for months because of bugs that had to be worked out just in the firmware and software.

And there are a million other logistical questions that have to be worked out. Like you can't get a damn thing through the system until all the part #s are entered into SAP. A trivial exercise? Hah, let's see you figure that out in less than 2 months.

All in all, it's a big gamble.

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November 9, 2009 at 2:31 am


Gordon Pritchard August 5, 2009 at 8:51 pm


“When it comes to business models that should scare an investor away, you can put Kodak at the top of the list.”

tony cruz-uribe August 12, 2009 at 8:27 am

If it comes from anywhere, the cash flow is more likely to be generated by the much overlooked VL2000-VL6000 series of PIJ web presses which Kodak is placing now.

MC November 12, 2009 at 6:45 pm

So, what do you believe Kodak should do to survive?

Merge? Sell? Close the door?

admin November 12, 2009 at 10:40 pm

Well, for starters, I think they shouldn’t be whacking development team head count while in the middle of beta, but that’s my own strange opinion which many people think is wrong.

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