Kodak’s new image: Century-old firm develops nano strategy

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NEW YORK, June 9, 2004 – You don’t have to be a professional futurist to see that the days of conventional film are numbered. Sales of digital cameras now outpace those of film. Digital cameras are increasingly cheaper, easier to use and often take better pictures. They are even being built into cell phones.

Nice for consumers, but nothing short of scary for a company that generates enormous revenues from film sales.

Eastman Kodak Co. (NYSE: EK) has been feeling the pinch. In the last year, it reduced its work force, cut its dividend from $1.80 to 50 cents and announced a new business model that executives characterized as a “fundamental change” in the company.

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By 2006, the company expects revenues from digital initiatives to outpace those derived from traditional film products. Various forms of small tech are among the lynchpins Kodak will use to shift itself over to the digital age.

Truth be told, said Vicki Barbur, technology director for Kodak’s Growth Initiatives division, “we have really been practicing nanotechnology for more than a hundred years.” While that’s true — nanoparticles are used in conventional films — it’s the new applications of nanotechnology and even MEMS that Kodak is counting on to facilitate its transition to new markets.

The products are already there.

Kodak’s Ultima line of inkjet printer paper is comprised of nine layers, including coatings, resins and the paper itself. The top layer includes a proprietary ceramic nanoparticle designed to improve density and gloss.

The company has also developed pigment nanoparticles as small as 10 nanometers that it says are less likely to clog inkjet nozzle heads. And it is using polymeric nanoparticles to immobilize ink on inkjet and instant photo papers.

It sounds simple, but getting all of those layers of different chemicals and materials to quickly attach to film or paper while keeping them separate is both a science and an art.

“If you’re producing multilayers, you’re trying to put them all down together,” said Barbur. “They would all mix. You’ve got to have the experience to differentiate the layers.”

Nor are nanomaterials the only form of small tech in which Kodak is engaged. Part of its recently announced strategy includes a foray into MEMS inkjet printer nozzles. And Kodak has taken a lead role in commercializing active matrix color organic light emitting diodes, or OLEDs, for displays. It claims its EasyShare LS633 camera was the first consumer electronics product on the market to feature such a display.

Kodak appears to be shifting gears effectively. It posted first quarter earnings of $28 million, or 10 cents a share in April, beating analyst estimates and dramatically outstripping its year-earlier earnings of $12 million. But outsiders and Kodak executives alike agree there is still a lot of transition work to do as film continues its downward spiral.

“In the past they’ve dabbled in things and announced how it’s going to save the company,” said Nathen Fox, president of Atomic-Scale Design,  a California nanomaterials company.

Fox previously worked for Imagica Corp., a Japanese maker of digital film scanners. “But even at best, all of the research and all of the marketing and product development that went into their digital film post-production and color-management processes can’t make up for the volume that film brings.”

It’s a reality of which Kodak was aware long before it announced its new strategy last year, said Jim Stoffel, the company’s chief technology officer. He joined the company six years ago as one of the “change guys.”

According to Stoffel, the strategy is to take advantage of Kodak’s core competencies in materials science, image science and coatings, while simultaneously supporting its brand. Prescription: complete solutions, not just for consumers, but also in the other major markets the company serves, such as commercial printing and medical imaging where customers are accustomed to Kodak providing a wide variety of products.

And then there is that elusive opportunity that nobody sees yet. Kodak Ventures makes investments designed to give the company access to new materials or process technologies. Last year, it took a strategic stake in Nanosys, a leading California nanotech startup commercializing inorganic semiconductor nanocrystals that recently filed to go public.

Kodak also provides its manufacturing capabilities to others through a manufacturing services business unit.

In the end, Stoffel admits, the transition is going to take a long time. “Very often we confuse a clear vision with a short distance,” he said. “This vision is clear but the pathway requires us to take many baby steps along the way.”

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