NEW YORK – Eastman Kodak Co. (EK) introduced a line of desktop printers on Tuesday that use low-cost replacement ink cartridges, entering a market dominated by Hewlett-Packard Co. (HPQ)
For the camera and photography company, the long-awaited launch of inkjet printing products kicks off a year in which it hopes to end the tough and expensive three-year transformation that has seen Kodak shed tens of thousands of workers.
Kodak will start sales in March of 3 EasyShare All-in-One printers, ranging from $150 to $300, which will print, scan and copy document and photos.
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Black replacement ink cartridges will sell for about $10, and color cartridges for about $15, about 50 percent less than its rivals, Kodak said, adding that it will profit on sales of both printers and ink.
Kodak said this strategy is meant to disrupt the market dominated by HP, Canon Inc. (CAJ) and Lexmark (LXK), where inexpensive printers are sold at a loss, and profits are earned over the long term in sales of replacement ink cartridges.
In that model, consumers purchasing ink unknowingly also buy expensive brand-specific technology that is built into each cartridge, Kodak says.
Each Kodak ink cartridge prints more pages than a comparably priced rival cartridge, the company says.
"You are throwing that (technology) away and buying a new one every time you buy one of their cartridges, which is pretty expensive stuff," said Cheryl Pohlman, a marketing director at Kodak. "With our system we have put that print head right into the printer... so all you have to buy is ink."
She notes that the products close a loop, of sorts, for Kodak, such that customers can now use Kodak services to print in any of the three most common ways: online, at one-stop kiosks at retail stores, or at home.
"What we want to do is give people who want to print at home a choice," Pohlman said in interview. "We believe that this is a profitable business model for Kodak and that for a consumer it is freeing the way they can print at home."
INVESTORS MEETING THIS WEEK
Citigroup analyst Matthew Troy said the news could in the near term benefit Kodak's shares, which have vacillated between $20 and $30 for the better part of two years.
Kodak rose about 10 cents in early trade on Tuesday to $26.36 on the New York Stock Exchange. Lexmark fell 1.7 percent and HP fell 0.8 percent.
"While official launch will not be financially material for Kodak until 2008 at the earliest, expect shares to be active on (the) perceptual positive," Troy said in a client note.
The product unveiling comes just two days before Kodak meets in New York with investors who are certain to ask tough questions about whether its shift away from traditional film — a declining market — to digital products and services will soon pay off.
There are positive signs: last week Kodak reported a fourth-quarter profit, versus a loss in the previous year. Still, much of that profit was driven by royalties from licensing patents and technology, and overshadowed a 25 percent decline in digital camera and related accessories.
Analysts, who had been told since late 2003 to look for an inkjet strategy from the Rochester, New York-based company, are skeptical about how Kodak will be able to compete with companies that have millions of printers sitting alongside personal computers owned by families and small businesses.
"We remain concerned that the upfront costs of establishing an installed base will be high, and that the mature and competitive nature of consumer inkjet requires considerable research and development and (operating cost) commitments," said analyst Shannon Cross of Cross Research, in a client note published in anticipation of the inkjet launch.
The printers are set to sell at Best Buy (BBY) stores exclusively at first, and should be more widely available by the winter holiday season, Kodak said.
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