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case six

Eastman Kodak: Meeting the Digital Challenge
Robert M. Grant

January 2004 marked the beginning of Dan Carp’s fifth year as Eastman Kodak Inc.’s chief executive officer. By late February, it was looking as though 2004 would also be his most challenging. The year had begun with Kodak’s dissident shareholders becoming louder and bolder. The critical issue was Kodak’s digital imaging strategy that Carp had presented to investors in September 2003. The strategy called for a rapid acceleration in Kodak’s technological and market development of its digital imaging business and the commitment of some $3 billion in investment—financed in part by slashing Kodak’s dividend. Of particular concern to Carp was Carl Icahn who had obtained clearance to acquire 7% of Kodak stock. Icahn was not known for his patience or long-term horizons. He was famous for his role as a greenmailer and an initiator of boardroom putschs and leveraged buyouts. Opposition to Carp’s strategy was based upon the skepticism over whether the massive investments in digital imaging would ever generate returns to shareholders. Shareholder activist, Bert Denton, had an entirely different vision for Kodak. He viewed Kodak’s traditional photography business as a potential cash cow. If Kodak could radically cut costs, a sizable profit stream was available to be returned to shareholders. If shareholders wanted to invest in digital imaging they could then invest their money on more promising bets in the digital imaging field—Olympus, Canon, or Hewlett-Packard. The release of Kodak’s full-year results on January 22, 2004 added fuel to the flames. Topline growth was anemic while, on the bottom line, net income was down by almost two-thirds. In presenting the annual results to investors and analysts, Carp’s focus was on the future rather than the past. In updating Kodak’s 2002-2006 strategy he emphasized the distinct strategies for Kodak’s "traditional businesses” and its “digital businesses.” The...

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