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Sick Kodak sells sensor business

Eastman Kodak has sold its Image Sensor Solutions (ISS) business to private equity firm Platinum Equity for an undisclosed sum.

The business, which employs 200 people, makes solid-state image sensors for cameras and other devices at its factory and R&D facility in Rochester, NY. This facility goes to Platinum as part of the deal.

Kodak makes high-end, high resolution sensors, used in the Leica M9 and S2 cameras, the Pentax 645, and a number of medium format camera backs.

In April, Kodak sold 850 image-sensor patents and patent applications for $65 million to image-sensor maker OmniVision Technologies.

The Kodak press release announcing the deal stated, ‘Kodak will have continuing access to the image sensor technology involved in this transaction for use in its own products.’ – Whether this means that Kodak will have some kind of working relationship with the new owner. or simply will be able to purchase sensors it once made itself, is not clear.

Kodak was a pioneer in developing image sensors and thus digital cameras. Here’s how Kodak itself describes what it considers to be no longer strategically important: ‘Over the past 30 years, Kodak’s image sensors have delivered unrivalled image quality and innovative features for use in a broad range of demanding imaging applications. From precision manufacturing inspection to digital radiography, from earth imaging satellites to traffic monitoring, from the world’s highest performing studio photography cameras to DNA sequencing systems, customers around the world rely on high-performance products from ISS in the most mission-critical applications.’

Kodak has also sold off another valuable digital imaging business in which it was a technology pioneer, OLED screen technology, to LG.

Selling the image sensor business has been seen by US business writers as a last ditch attempt to stay afloat. According to The Wall Street Journal, Kodak is trying to get its printing business up and running before it runs out of funds to do so. Kodak has formally alerted the SEC that it will have trouble staying in business next year unless it is able to sell key patents or raise money by selling debt:
‘The Company’s ability to continue its operations … is dependent upon the ability to monetise its digital imaging patent portfolio through a sale or licensing of the relevant patents and/or the successful execution of the alternative actions, which could include the issuance of additional debt, listed above.’

How bad is it?

Kodak posted characteristically dismal 3rd quarter results and projected deeper losses this year as its new printers and digital cameras failed to gain traction. The loss from continuing operations in the quarter widened to US$222 million, or 83 cents per share. (And shares are currently trading at around US$1 – 1.20, having lost about 80 percent of their value so far this year.)

It has failed to turn an annual profit since 2007.

Projected losses from continuing operations are in the range of $400 million to $600 million, compared with a previous forecast for a loss of $200 million to $400 million.

Kodak said in the SEC filing it was exploring the possibility of raising an additional $500 million in first lien financing, which means lenders would be first in line to get paid if there is a default.

Kodak listed several commitments it would not be able to meet without the patent sale or debt financing, including its ability to fund working capital, capital investments, make scheduled interest and debt payments and contribute to employee benefit plans.

One Kodak supplier, Collins Ink Co, is so concerned about its customer’s financial health that is has attempted to end a long-standing agreement to supply ink for Versamark high-speed inkjet printers.

Instead, Collins said it would sell the ink directly to Versamark customers.

Collins has indicated both in letters to Kodak and in public comments that concerns over Kodak’s financial stability played a role in the decision to attempt to end the contract and move to become a direct supplier to Kodak customers.

COMMENT: From a distance, it seems either desperate or crazy or a combination of both to sell off genuinely valuable, proprietary technological know-how in the form of advanced image sensors, while banking on cheap inkjet cartridges as a path to prosperity. If Kodak really started to make inroads with consumer inkjet (it has failed abysmally in this market) all Canon, HP and Epson have to do is drop their margin on ink for a while or drop the price on their printers even further. Six months ought to see a cash-strapped Kodak off . On the other hand, only a handful of companies around the world can make sophisticated, full-frame high-resolution CCD sensors.

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