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The Picture for Kodak Is Not Pretty

Eastman Kodak says it has no intention of filing for bankruptcy. Shares of the money losing company are recovering Monday after plummeting 54% on Friday on news that it hired law firm Jones Day - known as bankruptcy and restructuring experts.

Whether or not they go under, Kodak is a long suffering American icon. The company has not made a profit since 2007 and revenues has dwindled for the last decade. In 2004, the company was removed from the Dow Jones Industrial Average after 74 years on the blue chip index. In 2010, it was removed from the S&P 500.

Kodak, the maker of photography film for well over a century, once enjoyed 80% market share for film. The firm first started its decline in the 1980's when Japanese competitors like Fuji film took business with lower prices. In fact, as Peter Cohan writes in a recent Forbes column, stiff competition caused Kodak to lay off 19,900 workers in 1999. Another, 4,500 workers were let go in January 2009.

More than cheap film, the emergence of digital photography is what really killed Kodak's business. Ironically, Kodak invented digital photography back in 1975. Unfortunately, for them, they have not been able to leverage the technology in a profitable way. Memory cards simply don't offer the same kind of margins as film. Today, when people snap away on their smart-phones and post the pics to the Internet, there's no money to be made for Kodak.

As Aaron Task and Henry Blodget discuss in the accompanying clip, these are rough times for Kodak and its hometown of Rochester, NY. However, this should not be seen as a sign of America's demise.  In fact, this is a sign of a healthy and dynamic economy. Kodak's innovations have been met with newer technologies that benefits a newer generation of innovators such as Microsoft, Google and Apple. One day, these companies too will succumb to newer competitors and technology.

Was there mismanagement and complacency at Kodak? Probably. Was the acquisition of Sterling Drug for $5.1 billion a poor use of capital? Yes. But in the end, the company was mainly a victim of what economists call 'creative destruction': technology simply changed too much for Kodak to handle.