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Kodak expects digital sales to grow 36 percent

By Ben Dobbin
The Associated Press

ROCHESTER, N.Y. — A year after Eastman Kodak Co. unveiled an ambitious new strategy to accelerate its foray into digital imaging, the photography company said Wednesday it expects filmless products and services to comprise more than half of its sales by 2005.

At a meeting with investors in New York, Kodak said it remained on course to boost revenues from $13.3 billion last year to $16 billion in 2006.

But it now anticipates digital sales to jump at a compound rate of 36 percent between 2003 and 2007, compared with a year-ago projection of 26 percent growth between 2002 and 2006.

“We continue to generate faster growth in digital markets by executing on the strategy that we presented a year ago,” said chief executive Daniel Carp. “Our digital sales are increasing so steadily that we expect, by next year, that more than half of our total sales will be digital, and that the company’s profits will be higher than in 2004.”

Kodak has 1,700 employees at a plant in Windsor, Colo., that manufactures medical X-ray film, motion picture film and color paper. In June, the company broke ground on a $40 million thermal media and inkjet plant.

Kodak grew into an icon on the strength of its chemical-based film, paper and photo-finishing businesses but is now betting its future in digital terrain — from cameras, inkjet paper and online photo-finishing to photo kiosks and minilabs, X-ray systems and commercial printers.

Digital businesses generated only $4 billion, or about 30 percent, of Kodak’s sales in 2003.

As its makes the tough transition from analog to digital photography, Kodak is slashing its payroll. By 2007, its work force is expected to drop by 12,000 to 15,000 to World War II-era levels of around 50,000.

Analysts surveyed by Thomson First Call expect Kodak to record sales of about $14.1 billion this year.

In the last two quarters of 2004, Kodak reiterated a projected profit range of $1.71 to $2.01 a share, and operating profits of $1.25 to $1.55. Analysts currently predict operating earnings of $1.39 a share — 72 cents in the third quarter and 67 cents in the fourth quarter.

By 2006, Kodak said it still expects operating earnings will rise to $3 a share.

“Our digital portfolio is gaining wider acceptance in commercial and consumer markets,” Carp said, citing Kodak’s higher market share in computed radiography and consumer digital cameras.

The success of its digital strategy, Carp said, rests on Kodak’s ability to cut costs as its traditional business falls into an irreversible decline.

Kodak said it lowered selling, general and administrative expenses in its traditional business by 18 percent in the first half of 2004 on an operational basis, and one big component was its shutdown of wholesale photo-finishing labs.

On Sept. 25, 2003, Kodak said it was slashing its annual dividend by 72 percent to fund a major shift into the fast-growing but more competitive digital arena. The move came just as digital cameras were outselling film cameras for the first time in the United States.