Kodak Enters Bankruptcy Protection: Is It On Its Way Out?

As expected, Kodak has finally offically declared bankruptcy.  The company has filed for Chapter 11 bankruptcy in the United States, protecting it from its creditors while it attempts to restructure.  The company still has time to find a buyer, but the future isn't looking bright ...

The idea of a Kodak bankruptcy was first floated at the start of the month, but now it's been confirmed.  Eastman Kodak, the American group first formed back in 1880 and once a giant in the field of photography, has had to declare itself bankrupt: its assets only cover $5.1 billion, but it has racked up debts of $6.8 billion.

US bank Citigroup has agreed a loan of $950 million to give the historic firm the time to reorganise or find a buyer.

The first step looks likely to involve the sale of a significant number of assets, although it's unclear what exactly will go.  The general consensus seems to be that money can be made by selling some of the company's patents on imaging technology, especially in the field of digital photography and associated sectors.  Recent suits filed against Apple, HTC and Samsung also point to an attempt to underline the value of Kodak's large patent portfolio.  

But the bankruptcy also points to a fundamental failure of Kodak's recent strategy, which has involved focusing on printers, where it ran straight into difficulties with competition from well-established firms like HP, Canon and Epson.  Its other main approach has been 'low-cost', entry-level digital cameras.  But the company still knew how to make a good camera: the Kodak Easyshare Max Z990, which was at the heart of its 2011 collection, was a genuine surprise in technical terms, even if cost-cutting on things like the screen and the controls were less welcome.

What remains to be seen is whether Kodak will be able to restructure into more profitable sectors, or whether a good Samaritan will ride to the rescue.  There's not much reason to think that's likely though: the firm's manufacturing arm has been losing money pretty much ever since digital cameras hit the market.  Now that traditional film is also going out of fashion in the cinema, things are unlikely to get much better any soon.  Even the sale of large swathes of patents is unlikely to stabilise Kodak's finances over the long term.

Another huge problem for the company is the cost of running a pension scheme for tens of thousands of former employees, an obligation it will be hard to wriggle out of.  Pension pay-outs weren't a problem when the company had 65 000 employees paying in around the world, but now that there are only 20 000 of them and the market is fast disappearing, the maths are suddenly a lot harder.

We don't like to kick a man when he's down, but the future for Kodak certainly doesn't look bright.  The company could well become the next example of 'Darwinian capitalism': a dinosaur that hasn't been able to adapt to a sudden change in the environment.  Smaller, nimbler camera makers like Panasonic, Sony and Canon all managed to take advantage of the switch to digital and have come out on top ... at least until the next big change, maybe.

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