Kodak Here to Stay: Includes Interview with Antonio Perez, President and COO

By Cary Sherburne, Senior WTT Editor

May 20, 2004 -- In a well-attended early-morning press conference held on May 7th as part of its drupa activities, Kodak executives Daniel Carp, CEO; Antonio Perez, President and COO; and James Langley, President of the newly renamed Graphic Communications Group (formerly the Commercial Printing Group) laid out the company's strategy for the future and was on the offensive relative to its ability to become a dominant industry player.

Carp kicked off the session by pointing out that the company has served the graphics industry for 90 years, since George Eastman commissioned research and development to make a better impression—to help printers reproduce photographic images better than the methods of the day had previously allowed. Over those 90 years, Carp pointed out, Kodak has brought many graphic products and innovations to market. He said, “Since last September, we have moved quickly and boldly to expand our presence in the leading edge inkjet, digital printing and wide format markets, an extension of our history in the industry. This participation is an integral part of a broader business strategy that encompasses the commercial, consumer and healthcare segments. Kodak will be the brand and market share leader for these segments.”

Perez echoed Carp's sentiments when he said, “We believe we can be one of the key leaders of this industry as it goes through its transformation to digital. We have a number of assets and an intellectual property knowledge base in this market; and we already have an important presence. Up until September, it was passive participation through joint ventures; but since September, we have decided to be more active.”

Perez spoke about Kodak's many years of experience in imaging and color science, saying that the company knows what it takes to make a good image, and perhaps more importantly, knows why it is a good image and how to reproduce it over and over again. He pointed out that Kodak has more than 1,300 patents worldwide, many are of which are breakthrough patents the company plans to take to market, including leveraging its over 70 years of research in nanotechnology.

Building a Better Impression

The theme “Building a Better Impression” was evident throughout the Kodak presentation, and one could expect to see this tagline in use by the Graphic Communications Group, and perhaps by the company as a whole. Jim Langley, who joined the company from HP eight months ago, built on the theme with a presentation that started out on the offensive by answering the ten questions he is most commonly asked by press and analysts. This strategy left the audience with a “better impression” of the depth of Kodak's commitment to success in the graphic communications market and the questions—and his answers—are presented in abbreviated form here. As with any bold strategy, the proof is in the pudding, to quote an old saw, and the market will now hold Kodak's feet to the fire in terms of a flawless execution of this bold strategy.

Langley 's Top Ten Reasons Why…

1. Are you really committed to the market? Yes. Actions speak louder than words. We have moved with speed to put the pieces in place, and our level of commitment is clear.
2. What does the Graphic Communications Group consist of? The four groups (Encad, Versamark, NexPress Solutions and 50% ownership of KPG) plus a large technology force.
3. What are your specific business objectives? We have chosen to target digital opportunities in the commercial print transformation and are looking for long-term double digit growth starting from our existing $2 billion base.
4. How do you plan to be successful in a highly competitive market with established layers? Our brand is an umbrella over these businesses and represents excellence in imaging, investments in core technologies and excellence of execution. We also have a horizontal play in putting together integrated solutions to help customers grow.
5. How does KPG fit? KPG is an important player, a leader in thermal plates, premedia solutions, hard and soft proofing, color management, and turnkey solutions targeted to specific customer segments. KPG compliments our equipment acquisitions well.
6. What are your distribution plans? We are not planning to buy channels to compete with each other. Versamark and Nexpress came with direct sales forces. We hired a full complement of sales and service from Heidelberg. They call on different segments in the industry but are tasked with looking for cross-sell opportunities. Each business also has global distribution partners. IKON, Danka and Canon are great distribution partners and all of them are talking about expanding products through their channels. KPG also has a direct sales force and distribution partners that we will leverage.
7. Are you planning any additional acquisitions? We are pleased with those that we have made and we want to make sure we execute well by fully integrating and supporting the ones we have. That will be our primary focus moving forward. I am happy to report that in the first quarter of 2004, all four businesses exceeded their plan. That being said, we will be available as other opportunities present themselves.
8. What are your integration plans? There are three touch points in our integration plan:
   • Integration to the customer—the customer needs to see a large Kodak presence with a wide array of products.
   • Integration in our go-to-market strategy.
   • Kodak technology—putting together linkages to make sure our labs are working on the right problems to power these businesses going forward.
9. What is the leadership technology that will differentiate Kodak? Some of the new things we are talking about at drupa include the agreement between Kodak and Canon around workflow and device independent color management solutions and the NexPress Intelligloss solution to add high gloss to digitally printed pieces. We have a deep technical working relationship with Canon that will augment our own developments. The Encad Novajet 1000i is the first Encad product to incorporate Kodak technology and uses Kodak pigments, dye sets and media. We are showing improvements to the Digimaster and Versamark and both have faster controllers. I believe that inkjet in the long term will be a disruptive technology and an enabler in moving more offset into the digital arena. The early traction for the technology has been achieved in electronic publishing, and that won't abate. But there is another horse lurking out there—continuous inkjet—that will play a key role.
10. Do you think you can become a market leader? It starts with customers; what are they looking for? A digital value chain, helping their customers make better impressions. As customers work up the value chain, they are looking for vendors to help them move up as well, with total solutions. Our target markets are in-plants, corporate data centers, service bureaus, digital communications service providers and commercial printers. We have a long-term commitment, and we are here to play and here to stay. This is a journey, not just a destination. We will learn and adapt as we move forward, but we are clearly here for the long term.

Carp's Three Reasons Why…

… this is a new Kodak:

1. We have selected three target areas for focus. All of our investments are going into those three segments and investments are coming out of other areas. For example, we have divested a $700 million investment in remote sensing technology which is not core.
2. We have a new senior management team of seasoned executives with a deep level of knowledge in their respective businesses.
3. We have been investing in technology for a long time. It hasn't always been visible, but we have moved an $850 million+ R&D budget in this direction. With leadership and focus, this adds up to a recipe for success. We have spent about $1.3 billion of the $3 billion in funds earmarked for acquisitions, $500 million in health care and the rest in commercial print. We still have a couple billion over next few years earmarked for acquisitions of technologies or businesses. This is not a budget we are trying to spend, but it is available. We will continue to focus it primarily on health care and commercial printing.

Jacobson on NexPress

When asked whether KPG would be selling the NexPress 2100, Jeff Jacobson, CEO of KPG, responded: “We would be proud to do so and are in discussions. We are not prepared to make announcements, but we think we will be an excellent channel.”

Perez' Perspective

Following the press conference, WhatTheyThink had a brief one-on-one with Antonio Perez, who shared further insight into Kodak's strategy and vision of the future.

WTT: What is your position relative to the Canon relationship? What announcements can we expect to see there?

AP: The companies and technologies are complementary in many ways. Their ambition is to move up from the office space, and Kodak is very strong in the high end product area but not strong in the mid-range. This looks like a good place for the companies to talk, which is all we will say right now.

WTT: With Heidelberg owning a reported 30% share in Spectra, it raises the questions as to whether the Heidelberg non compete also covers the inkjet sector.

AP: No, it does not. We have top solutions in that segment so we are not worried about it. One example you can see here at drupa is the Versamark press integration where we are able to personalize sheets off a Muller Martini web offset press inline at full rated speed with Versamark heads.

WTT: Where do you think inkjet technologies will take us?

AP: How far can we go with inkjet? It is an incredible revolution that will change this market forever. You have to see what Versamark has done with this technology so far to begin to understand this. Within Kodak, we have the next level of technology in continuous inkjet that will deliver much higher quality at a much lower cost with a lot more flexibility in types of inks—in fact, with virtually no limit in types of inks. Combine that with the proven performance with Versamark and we think it will replace a lot of offset. The laws of physics are in our favor. In the healthcare and consumer segments, we will also apply inkjet drop on demand technologies. All I can say is that our projects are coming along, and since we are facing phenomenal competitors, we don't want to tell them where we are coming from. But we are definitely committed to the market.

WTT: What is your perception of why Kodak will be successful?

AP: I came to Kodak April 2 nd of last year. Of course, I knew Kodak before; there was a time that HP had a relationship with Kodak, and I was at HP for 25 years. As a newcomer to Kodak, I don't understand the question. There is no reason to question why we should succeed. I always envied the Kodak brand, but envied the intellectual property portfolio and imaging knowledge even more. The truth is, one can argue that Kodak didn't commercialize digital products early enough. But what cannot be argued is that this company has invested twenty years and a lot of money in digital technology and we have an arsenal of tools at our disposal now. We picked three target market segments because I am absolutely sure we are going to be the leader in those three areas. We have the brand; we have the distribution; we have the technology. The other thing is that we are pruning our portfolio, and maybe we haven't done that very well in the past. Now we are having portfolio management meetings every week and we are moving fast. We are also very happy to have Barb Pellow as part of our team. She will influence the whole company with the vision and the talent she brings to Kodak. Kodak must have something good to offer to be able to attract talent like that.

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This report was written by Cary Sherburne. She can be reached via email at cary@sherburneassociates.com, online at www.sherburneassociates.com and by telephone at 603-430-5463.