By Barbara Pellow March 15, 2004 -- The long-expected acquisition of NexPress and Heidelberg Digital by Kodak came to fruition last week and was certainly the major news coming out of the On Demand Show in New York. Back in Rochester after the show I met with Jim Langley, President of Commercial Printing and Senior Vice President of Kodak, to gain an understanding of his vision for the Commercial Print Division and how the planned strategy was coming together. The History In late August of 2003, Kodak announced a strategy to realign operations to pursue growth opportunities in commercial and consumer markets. On March 8, 2004, at the On Demand Conference and Exposition in New York, Kodak announced its intention to purchase Heidelberg's 50% interest in NexPress (a Kodak/Heidelberg joint venture) and the equity of Heidelberg Digital. The objective of these acquisitions was in line with Kodak's strategy to become a major business presence in the digital printing market and to secure a place as a leading player in the digital industry. Langley said, "The first six months on the job have been exciting and challenging, and we're making significant progress." When Langley started, the business unit was comprised of the Encad subsidiary and joint ventures with NexPress and Kodak Polychrome Graphics. On January 5, 2004, Kodak completed the acquisition of Dayton, OH based Scitex Digital Printing. The acquisition took approximately three months from initial meetings to closing. The March 2004 announcements included the buyout of Heidelberg's interest in NexPress and Heidelberg Digital. The Strategy According to Langley, Kodak is executing on its strategy of expanding product lines in a selective and disciplined manner with the ultimate objective of gaining market leadership. He said, "We also are leveraging Kodak's R&D capabilities and unsurpassed knowledge of image and color science to enhance our position in the commercial printing market." I spent time with Langley reviewing the product mix and announcements that he saw as particularly important. Kodak Versamark Kodak Versamark (formerly Scitex Digital Printing) is an acknowledged leader in high-speed, variable data inkjet printing systems. According to Langley, "The new Versamark product offerings that will be demonstrated at drupa in May illustrate a commitment to improving color quality and workflow to make high-volume digital color printing a reality for a larger segment of the commercial printing and transactional document market." Kodak Versamark will be featuring what it characterizes as the next generation in color technology. The new V-Series has fully integrated color management tools as well as support for multiple data streams and a print resolution of 300 x 1200 drops-per-inch with a throughput of over 1,400 pages per minute. The V-Series systems offer a modular growth path from monochrome to full color. Langley noted, "The integration of Versamark is going extremely well and is on schedule. We are pleased with how quickly Versamark has been able to incorporate some of Kodak's image and color science into its products." Encad According to Langley, "Encad has a history of innovation in wide format printing technology. Encad offers a broad line of inkjet printers, a complete selection of wide format media, and is backed by the extensive image science and technical support of Kodak." The applications in this space--including indoor and outdoor signage, point-of-purchase graphics, photographic enlargement, graphic arts production, fine art, textile design, and computer aided design--are part of the $385 billion plus imaging business industry driving the new Kodak Commercial Printing Group. The recently announced Encad NovaJet 1000i is the first printer jointly developed by Kodak and Encad. Langley stated, "This product demonstrates our ability to leverage Kodak's extensive research and expertise in ink formulation and media, combined with Encad's strengths in wide format hardware and systems optimization." NexPress and Heidelberg Digital Langley stated, "Critical to business growth is participation in the $17 billion digital production printing market. NexPress and Heidelberg Digital are leading suppliers of high-end, on-demand and variable data production printing solutions for the color and monochrome markets respectively. When customers and industry analysts visit our booths at drupa, they will see that we are committed to creating more efficient workflows that expand customers' application opportunities that help drive their success. This is critical to our users, because our new product options will provide the capabilities they require to build profitable businesses." "Having one management team for both NexPress and HDi will make it a better, more nimble operation. Our customers will work with a company that is dedicated to developing, marketing and supporting digital printing solutions," Langley said. Strategic Planks for the Future In my discussion with Langley, he outlined key focus areas that he planned to address in establishing a market leadership position for Kodak. Leveraging Kodak innovation and technology will be critical to future success. Langley identified emerging technologies that can take the market to new levels of price and performance for commercial, in-plant and transactional service bureaus. Kodak has patents in place for what it calls STREAM technology, a continuous ink jet technology capable of running at high speeds with high resolution. Stream technology is not based on electrostatics, but introduces a new principle of inkjet printing based on thermal "pinch-off" of continuously jetted fluid streams. Kodak has also invested in nanotechnology and has developed nano-sized pigment particles in an effort to create inks that are less likely to clog nozzle heads in inkjet printers, with the added benefits of extended color gamut and improved quality of printed images. Utilization of this technology for consumables in the digital printing industry means reduced cost combined with improved image quality. Langley said, "Tapping into the Kodak image science, media, chemistry and color management capabilities will be key to the success of the Commercial Printing Group. The technology exists." The development of a unified workflow supporting a variety of both input and output devices is essential to Kodak's business model. Langley stated, "Our strategy is being built around compliance with industry standards for variable information and print-on-demand production workflows, and in taking these businesses to the next level of growth and profit potential. We will work together to develop solutions that enable creators, producers and all other participants in the print value chain to capture the market opportunities available through digital technologies. Kodak is uniquely positioned based on our comprehensive understanding of image capture (digital photography and scanning), color management, and now, print production." Delivering price performance across the product line will be essential. Langley said, "Given my experience in other manufacturing businesses, cost reductions of 15% annually are a baseline. We need to deploy this philosophy in our productivity initiatives. We will leverage new technologies and electronic components, and re-engineer products to deliver the benchmark price performance for our customers." Kodak has a state-of-the-art manufacturing facility for toners for the NexPress and Digimaster product lines, produces inks for Encad, and will be using Kodak technology to enhance Versamark consumables. Efficiency in consumable production processes can be passed on to customers in terms of cost savings. Langley also indicated that there are some obvious areas in which to take cost out of the business with the Heidelberg acquisitions. Building the right distribution and industry alliances is critical. In the production marketplace encompassing commercial printers, quick printers, corporations, and transaction printing service bureaus, companies are looking for an array of products, services and solutions. According to Langley, "We have distribution arrangements in place with Canon, IBM and Danka, and direct sales and distribution channels in place with Versamark and Encad. Kodak also has an ownership stake in KPG. Heidelberg sales resources will be integrated into our business model. We need to develop a non-disruptive go-to-market plan with partners and channels that ensures cross-selling of products to the customer base." Langley also acknowledged that a network of strong alliance partners for workflow, application solutions, finishing and fulfillment will be important. Several alliances are already in place and this is an area he projects will continue to evolve. So What is the Bottom Line for Kodak? When asked about his view of the future, Langley stated, "My objectives are clear. In 36 months, this business will be a multi-billion dollar business with double digit revenue growth. We want to be the most cost-effective digital alternative to offset printing." There are several key elements in place that position Kodak to become a key player in the production printing market. The pieces of the puzzle--from image capture to high-speed variable data printing--exist within Kodak. Alliances or partnerships will be essential to complete some areas in the product portfolio. Kodak's challenge is to rapidly integrate and execute over the next several months; its ability to do so is directly correlated to its ability to succeed long term.