Kodak could axe 14,000 in `draconian' restructure

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The Independent Online
Kodak has one of the world's most powerful brands, but recently its focus has become fuzzy. Now Wall Street is hoping that next week George Fisher, the company's chief executive, will offer a solution by cutting thousands of jobs. David Usborne in New York reports.

With its stock struggling and its revenue under attack from competitors such as Fuji of Japan, Kodak is expected to announce dramatic steps next week to regain momentum - including plans to slash up to 14,000 jobs from a bloated payroll.

Anticipation is rising on Wall Street that an analysts meeting that has been called by Mr Fisher, for next Tuesday will mark the moment the company bites a series of painful bullets.

In addition to pruning workforce numbers, Kodak could announce several other initiatives including a broad price-cutting campaign for its core retail film business, and a streamlining of manufacturing operations.

In a brief statement yesterday, the photographic and imaging giant said only: "We will take strong action to reduce our cost structure and strong action to accelerate our growth strategy."

Some observers believe that Mr Fisher will be forced to lay off 14,000 employees to bring the payroll at Kodak down to 80,000. Others expect a slightly less draconian trimming of somewhere around 5,000 jobs.

What is clear, however, is that one of the world's best-known and oldest, and some would say most old-fashioned, companies is about to undergo considerable trauma. In a time when the rest of the US economy is flourishing, pink slips are about to flutter at Kodak like flakes in a snowstorm.

"It's going to have to be a rather large restructuring in order to have sufficient impact and give them the flexibility to compete with firms like Fuji," said Robert Curran, an analyst at Merrill Lynch yesterday.

There has been disappointment among investors, that Mr Fisher, who took over at Kodak after leaving Motorola, did not act earlier to modernise a still somewhat traditional, vertically integrated employee structure at the company. "It is still a very paternalistic organisation and it was supposed to change under Fisher," remarked Alex Henderson of Prudential Securities.

That something has to be done is self-evident. At about $63 per share, Kodak stock is down by roughly one-third this year. Revenue from film sales is being increasingly dented by cut-price competition from Fuji of Japan. In the meantime, the company has been investing about $500m in product development. Its digital business, which had been the great hope of Fisher, has so failed properly to take off and is so far losing the firm roughly $200m a year.

Investors above all expect Fisher to cut costs wherever he can. Costs are running at about 27 per cent of sales at Kodak. That compares hopelessly unfavourably with a 20 per cent figure at Fuji.

Mr Fisher is not expected to give final details on price-reduction tactics at next week's meeting, because of negotiations that will have to be entered into with retailers. If, however, Kodak attempts to lower prices by 10 per cent on its consumer film products, it could cut into operating profits by as much as $500m a year.

Action that Mr Fisher may announce, aside from job cuts, could be the relocation of disposable camera manufacturing from the current US plants to countries with lower costs like Mexico.

Some analysts also expect Kodak to stop making photographic paper. That would mean closing its pulp mill in New York state and contracting out paper-making to outside suppliers.