FOCUS - Kodak puts down new bet on digital future

By Jeffrey Benkoe

NEW YORK, Sept 28 (Reuters) - Embattled photo giant Eastman Kodak Co. (NYSE:EK - news) placed another bet on the future of digital technology on Monday, teaming up with No. 1 chip maker Intel Corp. (Nasdaq:INTC - news) on a new CD-ROM product it hopes will encourage consumers to take more pictures and do more with them.

Kodak Picture CD is being launched in the first quarter of next year as part of its previously announced alliance with Intel to make it easier to store photos on personal computers and print them at home.

Kodak is betting the new product will boost the bottom line. At a briefing for reporters and analysts, Kodak Chairman George Fisher said it could generate up to $100 million in revenue in the first year and as much as $1 billion in the next few years. Kodak had total revenues of $14.54 billion last year.

Santa Clara, Calif.-based Intel, the world's largest chip maker, hopes it will lead to greater demand for PCs.

Fisher cited the program as ``another major transformation'' for Rochester, N.Y.-based Kodak, along with the introduction of black-and-white photography a century ago and color photos about 50 years ago.

Analysts were generally positive.

``I don't think there's any question this has a chance to fly,'' said Peter Enderlin, an analyst at First Albany Cos. Inc. ``The question is how quickly and how big is it going to be.''

Wall Street, however, was not impressed. Kodak shares sank $1.75 to $79.125 in composite trading on the New York Stock Exchange. Intel dropped $1.31 to $87 on Nasdaq.

Picture CD will work like this: When a consumer brings in a roll of film, he or she will check a special box on the order form. A CD-ROM will be delivered along with the developed film at a price expected to be $8.95 to $10.95.

Users would load the CD, which will include both the photos and the software needed to view and alter them, onto their PCs. To use the Picture CD, PCs must have a Pentium processor running at a minimum 90 megahertz, at least a 2X CD-ROM drive, a minimum 16 megabytes of RAM and Windows 95, 98 or NT.

Users of Apple Computer Inc.'s (Nasdaq:AAPL - news) Macintosh computers will be able to see the photos but not manipulate them.

Kodak will offer different ways to manipulate a photo: Adding contrast and brightness, cropping out background, eliminating ``red eye'' and ``painting'' with different hair or color.

Users can then arrange pictures in a ``virtual scrapbook,'' and transmit the scrapbook to someone else's PC.

The Picture CD is the latest piece of Kodak's digital strategy. In May, it announced a joint venture with America Online Inc., the world's biggest online service, allowing consumers to send pictures via electronic mail.

Kodak also has 15,000 kiosks worldwide, where consumers can bring in pictures on CD-ROMs to obtain prints and enlargements, manipulate photos and add photos to gifts like T-shirts and mugs.

``The kiosk idea is very important,'' said First Albany's Enderlin. ``It will be a much bigger revenue generator than CDs.''

However, he cautioned that overall wariness of technology might keep consumers at bay. ``It typically takes consumers a while to become comfortable with things like this,'' said Enderlin.

``The bottom line is that we want images on PCs to become as easy to use and as ubiquitous as text is today,'' said Intel President Craig Barrett, who also attended the news conference.

Kodak and Intel are testing the product in Salt Lake City and Indianapolis.

The two companies, which announced their alliance in April, plan to spend up to $150 million over the next three years on marketing Picture CD and other products.

Kodak, which has been suffering through a financial slump, is in the middle of a massive restructuring. By the time it is finished next year, it will have slashed nearly 20,000 jobs and shed $1 billion in costs.

Kodak has begun to stem the losses in its digital imaging businesses. In the second quarter, losses narrowed to $64 million from $102 million a year ago.

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