Eastman Kodak Company, the world's largest photography firm, will shift the manufacture of its consumer digital cameras, including from its
Shanghai unit, to Flextronics International Ltd as part of a cost-cutting strategy.
The agreement was sealed on Tuesday following Kodak's seventh straight quarterly loss and a cut to its full-year revenue forecast, as the company finds the move into digital cameras to be more challenging than expected.
Flextronics is an electronics manufacturing services provider based in Singapore.
Under the agreement, Flextronics will take over Kodak Electronics Products
Shanghai Co Ltd and the Kodak Product Centre Japan Ltd in Chino and Yokohama, Japan. Flextronics will also manage the operations and logistics service for Kodak's consumer digital cameras.
"This is another move in Kodak's overall strategy to further drive improvement for profitability and efficiency in the operating model of our consumer digital business," said John Blake Jr, general manager of Kodak's Consumer Digital Imaging Group.
Tian Geng, spokesman for Kodak (China) Co Ltd, told China Daily yesterday that the shift does not mean Kodak will quit the consumer digital camera business. He said it would bring greater flexibility and cost efficiency to strengthen Kodak's leadership in the market.
"We still maintain the design and development functions," said Tian. "We will strengthen our efforts on the advanced design and technical solutions in the field.
"We will launch new models much quicker in the future, at a lower price."
The manufacturing shift will see 550 jobs moved to Flextronics, including around 200 employees from its
Shanghai plant.
Tian said Kodak has no plan to cut jobs in China during the shift to Flextronics, but a job cull is beginning to take shape as a result of its losses.
According to Tian, Kodak Electronics Products
Shanghai Co Ltd is Kodak's largest manufacturing unit of still digital cameras, producing around 95 per cent of Kodak's cameras worldwide.
Kodak's counterparts, including Canon and Sony, have adopted more flexible strategies in the China market, enabling them to launch new models more quickly than Kodak.
A recent survey conducted by ZDC, a consumer market information centre, showed that 11 per cent of Chinese consumers preferred Kodak's digital cameras, while more than double preferred Canon and Sony. And Samsung and Nikkon are catching up.
Market analysts said the transaction is similar to the one made by Lenovo and IBM. They expected Kodak to shift more of its manufacturing capabilities to business partners.
"In the IT industry, the good money does not come from manufacturing, but from design and the technical solutions service business," said Michael Soon, an analyst with Shanghai-based Witech Consulting Co Ltd.
"Kodak is following in IBM's footsteps to find the key to success in the IT industry," said Soon.
Once the firm shifts its consumer digital camera manufacturing, it may turn to its health products unit.
"Kodak is considering selling or shifting its health business in China," said Tian.
In 2004, Kodak launched a health imaging technology and innovation centre in Shanghai, its second in the world. The 2,500-square-metre centre developed a series of digital-based health imaging products, such as a wireless technology that will enable patients to access their health records from anywhere.
"For a long time, Kodak has spent lots of money in the digital business to make up for a decline in demand for its traditional film products. But its sluggish market performance shows the transformation is more difficult than expected," said Qin Liang, an analyst with Haitian Consulting in Shanghai.
Last year, Kodak reduced its manufacturing capacity for consumer film products at its plant in Xiamen, East China's Fujian Province.
