November 23, 2004

Polaroid Dropping Out

Job cuts at Polaroid follow failed kiosk play

By Sheri Qualters
Boston Business Journal
Updated: 7:00 p.m. ET Nov. 21, 2004

WALTHAM -- As it struggles to change its image from an instant-film company to a digital-imaging company, the restructured Polaroid Holding Co. slashed payroll this month after scrapping development of an instant digital-printing kiosk earlier this year.

Despite its abandonment of the kiosk market, Polaroid is focusing most of its research on digital-image printing technology. Polaroid's chief product in this area so far is its PP46d thermal photo printer released in August, according to company spokesman Skip Colcord. But Polaroid's most recent filing with the U.S. Securities and Exchange Commission states that the company's "significant investment" in instant digital printing "continues to have an adverse effect on profit from operations."

Polaroid's filing also noted that "there can be no assurance that any of these (other) digital-printing applications will be commercialized."

Polaroid also collects a minor percentage of its revenue from contract manufacturing, licensing and niche products such as digital cameras, sunglasses and secure identification systems for commercial applications.

A couple of years after emerging from bankruptcy and during its first year as a newly formed public company, Waltham-based Polaroid (OTCB: POHC) is in the midst of extensive restructuring to cope with a fading instant-film market. Company officials declined to reveal how many workers were laid off earlier this month, but former employees estimate that between a couple dozen and 50 workers were dismissed from Polaroid's Waltham site, with many more worldwide.

A former employee who was laid off earlier this year said the recent cut was "a major hit for the company. ... The place seems to be coming unglued. The film sales are collapsing."

Colcord said the cuts were necessary because Polaroid is facing the "same challenges as the rest of the film industry."

"The restructuring that's going on is part of an ongoing program that we have to reduce expenses as instant film sales decline," Colcord said.

To pay for the cutbacks, Polaroid took $8.9 million in restructuring charges for the first nine months of this year, compared with $5 million in 2003, which covered severance for about 135 workers. Although local workers report significant Bay State layoffs, the company's filings state that most of the charges are to downsize non-U.S. manufacturing, sales and marketing.

Polaroid also reported that sales of instant camera and film products slid about 19 percent during the first nine months of this year, compared with the same period in 2003. During the first nine months of 2004, Polaroid reported sales of $496 million, and net earnings of $53.7 million, or basic earnings per share of $1.61. The company's sales totaled $564 million during the first nine months of 2003, which translates to net earnings of $63.9 million before a onetime gain of $2.6 million, or per-share earnings of $1.89.

In August 2002, One Equity Partners LLC of New York became the majority owner of Polaroid. One Equity was the venture capital arm of Bank One Corp., which was acquired by New York-based J.P. Morgan Chase & Co. in July. Less than one-third of the company's shares are actively traded, Colcord said.

Although the new Polaroid is a shadow of the corporate giant that dominated Cambridge's Memorial Drive, the company still maintains a sizable presence in Greater Boston. Polaroid employed about 3,400 workers at the end of last year, according to its 2003 annual report, with about two-thirds involved in manufacturing, Colcord said.

About half of Polaroid's total work force is based in the United States, mostly in Massachusetts, according to Colcord. Besides Waltham, Polaroid also operates in New Bedford, Norton and Norwood.

Echoing the sentiment of various industry analysts, one former employee said Polaroid "didn't move quickly enough into the digital space."

Polaroid's delay in entering the digital kiosk market left open the way for Rochester, N.Y.-based Eastman Kodak (NYSE: EK), which now dominates both the kiosk and the home printing market for snapshots, according to analyst Ulysses Yannas of Shrewsbury, N.J.-based Buckman, Buckman & Reid Inc.

"Anyway you look at it, (Polaroid is) late in the game," Yannas said.

The missed opportunity closes the door on a growing market, according to research from Weymouth-based market research firm InfoTrends/CAP Ventures. An October InfoTrends report projected that sales of kiosks will grow from "a little under $300 million" in 2003 to just shy of $400 million in 2008, said analyst Ed Lee.

"As time goes on, there are more and more retailers," Lee said. "Now Wal-Mart Stores Inc. is in the market full bore."

Polaroid could still compete in the growing photo-printing market, Lee said.

"It's not at a stage where companies are fighting for market share," Lee said. "There's still room for another player."

The home printing market is eventually expected to be larger than the retail space, and Polaroid is well-positioned to sell supplies for that market, such as film paper, said David Haueter, a principal analyst with Stamford, Conn.-based market research firm Gartner Inc.

"They have a brand awareness with instant-film prints," Haueter said. "They could be successful selling the supplies."

2004 Boston Business Journal

Posted by Craig at November 23, 2004 02:20 PM