As my next Tribute's Tuesday column is not until mid January I am putting this subject on the blog as I feel there are points to be made now. The majority of suppliers today are having a hard time and few are meeting the market projections they made around the drupa timescale. We have seen Heidelberg having promised orders failing to materialize after drupa have instigated major cost saving measures and have also seen their stock price drop through the floor. Heidelberg is not alone in seeing major falls in stock prices and almost all offset press suppliers have seen major falls in this area. In the prepress area Agfa has seen its stock price fall drastically as investors appear to lose faith in the company. It appears the financial community is writing off the printing industry and its suppliers and is losing faith in the industry for the future. In the digital printing area things are somewhat better and we have not seen the major drops in turnover, profits or stock prices that have been seen in the offset area. Some companies such as HP appear to be prospering, and Xerox is not doing badly but has battened down the hatches with cost reductions to prepare for a bad 2009.

The major subject I want to cover is one of the major players in the market. This is Kodak (or Eastman Kodak to be correct). Kodak has been through a massive restructuring over the past four years under the guidance of its CEO, Antonio Perez. This has seen a major move out of film operations with a substantial close down programme of film factories worldwide. It has cut almost 28,000 jobs in its worldwide workforce. Perez's strategy is a major switch to digital products with a push towards new inkjet technologies. During the time of this four year restructuring plan and the push to digital luckily for Kodak revenues from Kodak's Graphic Communications Group have held up mainly due to the success of its printing plate business and associated digital workflow and CtP operations. Digital printing by xerography with the Nexpress and Digimaster products and by inkjet with the Versamark products has at this stage not made a real contribution to profits.

In early December Kodak cut its 2008 sales and profit projections for the second time in six weeks, citing a deepening global recession and changes in the value of the US dollar. The stock slid as much as 9% in New York trading. The company stated it plans to intensify its focus on cash generation and reduce costs. Executives won't receive a salary increase next year, where permissible by law, and Kodak will temporarily suspend its 2009 match for 401(k) retirement savings plans in the US.

At this time the financial analysts that specialize on certain companies make their comments. I have had much experience of dealing with many of these analysts and I find that while they may well understand company finance, few really understand the realities of the printing industry and how its suppliers are working. One of the well-known analysts is Shannon Cross of Cross Research. Commenting on the Kodak statement she said "I fully believe further restructuring will be needed. Their biggest challenge is cash flow. They've pulled their cash guidance, are looking for $US500 million this quarter and have rising debt. They're going to need to trim spending somewhere." I understand she then continued stating that one of the areas Kodak should look at reducing expenditure is in the development of future inkjet technologies. Cross recommends investors should sell Kodak stock and to expect further cost reduction announcements in early 2009.

Now I don't know just what expertise Cross brings to the party to make these suggestions to Kodak. I feel however it is a typical example of the short-term thinking that dominates the financial markets in North America and Europe, whereas we see much more structured long-term thinking in the Far East. The suggestion that Kodak should cut investment in future inkjet technologies shows a total lack of understanding of Kodak's markets. Where the hell does Cross expect Kodak to find its future business. The cash cow of printing plate sales will not continue as a high margin area for long as demand for plates fall as the offset market goes into recession, and new low cost plate suppliers from China enter the world's markets. The Nexpres and Digimaster xerographic printers while really excellent products, have never been a financial success and are are seeing increasing competition from companies like Ricoh and Konica Minolta, as well as failing to catch HP Indigo and Xerox.

To succeed in the future graphics markets companies will need a really strong market technology, good management and excellent distribution channels. Kodak has the second and third of these and I believe that Kodak with its STREAM continuous inkjet technology has a technology that can achieve market leadership in the changing markets. It is not difficult to predict that HP with its massive investment into inkjet printing technology will be the market leader in inkjet digital printing from the desktop to the enterprise and into graphic arts. Kodak's STREAM technology appears to me to be the only technology that will really compete with HP in the high volume and high-quality printing areas. STREAM also appears to be the best prospect in inkjet technologies to challenge offset printing in the long-term. Other inkjet technologies from companies like Fujifilm Dimatix and Xaar are likely to impact more in developments in industrial printing such as printed electronics that will use specialized types of fluids for printing.

I believe that Kodak must continue its investments in STREAM technologies as its highest priority of investment. Without STREAM being fully implemented together with the associated Kodak based ink annuity business, Kodak does not really have a long-term future. It may be best in the short term for investors for Kodak to do major cost cutting in areas of development, but to do so will simply pass the future leadership of the printing market to HP and possibly Fujifilm. I hope that investors ignore Ms Cross's advise and stick with Antonio Perez and his plan for Kodak's future.