History Offers Hope and Fear for Kodak

EASTMAN KODAK is an industrial giant of the 20th century that has been cut down to size in the 21st by its failure to keep up with developments in technology and the demands of the marketplace.

The business in which Kodak made its name, film processing and conventional photography, is in decline. The company has branched out into medical imaging, digital cameras and online photo sharing, with performance that has ranged from fairly good to woeful.

One result is a stock that trades for about the same price it did in 1965. A revamping effort, including a fresh round of job cuts last week, has provided little incentive to buy the stock, although some analysts give the company credit for at least recognizing how much trouble it is in.

“They lost their magic touch,” said Irina Logovinsky, a consumer electronics analyst at Morningstar. “There are way too many people producing similar technology better.”

Kodak fell into a trap that has snared many successful companies, including big names like Xerox and I.B.M. a generation ago and AOL more recently. They had the brilliance to change an industry, but their hubris led them to believe that the evolution would stop with them.

Kodak’s shareholders may take heart from the fact that most of the others managed to extricate themselves — I.B.M. very gracefully — but only after long, deep declines in their share prices. “When you become No. 1 and you have no competition, you earn very fat profits and you become complacent,” Ms. Logovinsky said. “You think it’s going to go on forever, then competitors invent digital cameras and no one’s using film anymore.”

Canon has surpassed Kodak in sales of digital cameras, and Internet-based photo-sharing services like Shutterfly and Snapfish have proved tough competition for the EasyShare Gallery of Kodak.

In medical imaging, the company was no match for General Electric and the Dutch conglomerate Philips. Kodak announced last month that it would sell that business to a Canadian company as part of the reorganization that Antonio M. Perez has overseen since taking over as Kodak’s chief executive in mid-2005.

SOME investment advisers wonder what Mr. Perez has to show for his efforts, apart from nearly 30,000 job cuts, continual charges against earnings and mounting debt. The burden on the balance sheet could limit Kodak’s extreme makeover by reducing the amount available for research and development.

Kodak’s newest venture, a range of inkjet printers introduced this month, was greeted with little enthusiasm. The company’s approach, to charge more for the machines than comparable models on the market and sell the ink cartridges for less, has been dismissed by some analysts as less than a game changer.

Keith Bachman, who covers the printer industry for Banc of America Securities, wrote in a report that companies were already reducing the cost of cartridges — by putting less ink in them. He expects Kodak to chip away at the sales of some printer manufacturers, like Lexmark, while posing little threat to Hewlett-Packard, another industry leader.

But some investors are not ready to write off Kodak. They contend that the Kodak brand still has cachet with consumers. Determining what to do with it and executing a plan effectively will not be easy.

“Kodak needs not only to restructure, but to change its business,” Gustav C. Zinn, manager of the Ivy Core fund, explained. “That’s a bigger project. They don’t have an overnight fix.”

But overnight is about as long as Wall Street principals are usually prepared to wait. They are not known for delaying gratification or for tolerating executives who do, as Kodak’s stock price confirms.

That makes the decision to sacrifice current earnings to focus on long-term success a gutsy one. Kevin Landis, a portfolio manager for the Firsthand family of technology funds, gave Kodak’s bosses kudos for the attempt and expressed some surprise at their fortitude.

“That company used to be my favorite example of an old-tech company behind the eight ball,” he said. But in the last few years, he added, “Kodak has crossed the Rubicon and gotten past denial.”

It may be struggling to figure out which road to take, but finally the company understands that the one it was on was getting it nowhere.

Mr. Perez and his colleagues “have taken a lot of pain, and you’ve got to applaud them for trying,” Mr. Landis said.

“You know what happens if you sit back and let history happen to you, so you’ve got to take a shot, and that’s what they’re doing.”