Kodak files bankruptcy - what next?

It is official: Kodak has filed for bankruptcy. According to the company's statement, Kodak will continue to operate while it restructures. That restructuring will include "monetizing non-core IP assets." One presumes that this refers to the digital imaging patents that Kodak has already tried to sell and are at the center of Kodak's infringement cases against Apple and others (which also extend to other infringement cases filed this month against Fujifilm and Samsung). No new information on whether "monitization"means more licensing or an auction of the patent portfolio in whole or in part. As I noted earlier, it is reported that Kodak is seeking a stalking-horse bidder for the patent portfolio.

In my mind, the announcement raises the question of what Kodak sees as its core business: digital imaging or something else. As the Kodak CEO Antonio M. Perez states in the announcement:

"Chapter 11 gives us the best opportunities to maximize the value in two critical parts of our technology portfolio: our digital capture patents, which are essential for a wide range of mobile and other consumer electronic devices that capture digital images and have generated over $3 billion of licensing revenues since 2003; and our breakthrough printing and deposition technologies, which give Kodak a competitive advantage in our growing digital businesses."

This is a little confusing to me. I'm not sure how you pursue a licensing strategy after you sell off the patents. So, maybe "non-core IP assets" refer to something else. Or maybe it means that you don't sell them off, but continue to pursue a license only strategy. Or maybe it means that the printing technology is the core business and the "digital capture" patents are additional revenues -- so that the strategy is half-operating company (printing) and half patent holding company (digital imaging).

Perez's statement is sure to raise some eyebrows. Some believe that a major source of Kodak's current problem stems from their inability to pivot away from imaging into new businesses. A recent story in The Economist compares Kodak's problems with Fujifilm's success:

But whereas Kodak has so far failed to adapt adequately, Fujifilm has transformed itself into a solidly profitable business, with a market capitalisation, even after a rough year, of some $12.6 billion to Kodak's $220m.

The difference: Kodak was unable to diversify into other businesses and stuck with digital imaging.

Fujifilm diversified more successfully. Film is a bit like skin: both contain collagen. Just as photos fade because of oxidation, cosmetics firms would like you to think that skin is preserved with anti-oxidants. In Fujifilm's library of 200,000 chemical compounds, some 4,000 are related to anti-oxidants. So the company launched a line of cosmetics, called Astalift, which is sold in Asia and is being launched in Europe this year.

Fujifilm also sought new outlets for its expertise in film: for example, making optical films for LCD flat-panel screens. It has invested $4 billion in the business since 2000. And this has paid off. In one sort of film, to expand the LCD viewing angle, Fujifilm enjoys a 100% market share.

In part, Kodak may have been a victim of their own past success. The Economist asked Fujifilm's CEO Shigetaka Komori about the difference:

Mr Komori says he feels "regret and emotion" about the plight of his "respected competitor". Yet he hints that Kodak was complacent, even when its troubles were obvious. The firm was so confident about its marketing and brand that it tried to take the easy way out, says Mr Komori.

In the 2000s it tried to buy ready-made businesses, instead of taking the time and expense to develop technologies in-house. And it failed to diversify enough, says Mr Komori: "Kodak aimed to be a digital company, but that is a small business and not enough to support a big company."

So, Kodak goes into Chapter 11 with a potentially valuable digital imaging portfolio it will seek to monetize outside the company while pursuing a strategy of building a core business around printing and digital imaging technology. Should be an interesting case study to watch.


UPDATE: In fairness to Kodak, I should point out that the company has tried to diversity over the years. But as The Economist Schumpeter columist notes:

When film sales collapsed in the 2000s, Kodak tried to diversity into new business areas, from drugs to chemicals--with mixed success. In some cases pricey acquisitions were abandoned.

UPDATE 2: In its bankruptcy filing, Kodak is blaming part of its financial troubles on "litigation tactics employed by a small number of infringing technology companies with strong balance sheets and an awareness of Kodak's liquidity challenges", according to a story in the Wall Street Journal.