Kodak the company that invented the first digital camera in 1975, and developed the photo technology inside most mobile phones and digital devices is in the midst of the worst crisis in its 131-year history.
Now, caught between ruin and revival, Eastman Kodak Co is reaching ever more deeply into its intellectual treasure chest, betting that a big cash infusion from the sale of 1,100 digital-imaging inventions will see it through a transition that has raised the spectre of bankruptcy.
Kodak popularised photography over a century ago. It marketed the world's first flexible roll film in 1888 and transformed picture-taking into a mass commodity with the $1 (Dh3.67) Brownie camera in 1900. But for too long the world's biggest film manufacturer stayed firmly focused on its 20th-century cash cow, and failed to capitalise quickly on its new-wave know-how in digital photography.
As a result, Kodak has been playing catch-up. Pummelled by Wall Street over its dwindling cash reserves — and its stumbling attempts to reinvent itself as a profitable player in digital imaging and printing — Kodak has been hawking the digital patents since July. Many financial analysts foresee the portfolio fetching $2 billion to $3 billion.
But others think Kodak can haul in far more than that — and carry it off within a few months. That's because patents have become highly valuable to digital device makers who want to protect themselves from intellectual property lawsuits. In July, an alliance made up of Apple and Microsoft purchased a raft of patents from Nortel Networks for $4.5 billion. A month later, Google bought Motorola Mobility for $12.5 billion, in part, to gain hold of the company's 17,000 patents.
"The size of the [Kodak] deal could blow your socks off," said Los Angeles money manager Ken Luskin, whose Intrinsic Value Asset Management owns 3.8 million Kodak shares.
"It's pocket change for Google and Apple to go pay $3-or-$4-or-$5 billion for these patents," said Christopher Marlett, chief executive of MDB Capital, an investment bank based in California, that specialises in intellectual property. "There is an all-out nuclear war right now for global dominance in smartphones, tablets and mobile devices, and Kodak has one of the largest cache of weapons sitting there." Marlett said he owns Kodak stock, but wouldn't disclose how much.
Even a hefty return, sceptics counter, won't solve Kodak's struggle to close out a nearly decade-long transformation and return to profitability in 2012 after running up losses in six of the last seven years.
"All the extra cash does is give you a lifeline for a short period. And then, poof, you're back in the same position without the assets to sell," said analyst Shannon Cross of Cross Research in New Jersey. "If you're burning cash and not finding a way to generate recurring earnings, it doesn't matter."
Kodak's grim financial picture should become clearer when it reports third-quarter results on Thursday.
Agitated investors are likely to focus on the company's latest borrowing activities and cash woes — it had $957 million in cash in June, down from $1.6 billion in January. They will also want to know what kind of progress Kodak made in the July-September period in building up a high-margin ink business to replace shrivelling film sales.
Kodak has poured hundreds of millions of dollars into new lines of inkjet printers that are finally on the verge of turning a profit. Home photo printers, high-speed commercial inkjet presses, workflow software and packaging are viewed as the company's new core. Kodak projects that sales from those four businesses will double to nearly $2 billion in revenue in 2013, accounting for 25 per cent of all sales.
In the meantime, Kodak needs to tap other sources of revenue before those areas have time to pay off — and mining its inventions has become indispensable.
Kodak's chief executive, Antonio Perez, has signed confidentiality agreements with potential buyers but hasn't given a time frame for a deal. The patents for capturing, storing, organising, editing and sharing digital images do not apply to the four core businesses, Kodak spokesman Gerard Meuchner said.
"One thing I would stress is: It is our intention to retain a licence to any of the intellectual property we sell," Meuchner said. "It's like you sell the property but still get to live in the house."