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Phasing out the camera business in the first half of the year would lead to a one-off charge of $30-million but will reduce costs by about $100-million a year, Kodak says.

Brendan McDermid/Reuters/Brendan McDermid/Reuters

Eastman Kodak Co., the bankrupt U.S. photography company, is to turn its back on a business that it once hoped would lead it into the digital age, with the closure of its operations for making digital cameras and photo frames.

The move, announced Thursday, is the first result of an urgent effort Kodak has embarked on to refocus on a smaller portfolio of profitable products that it hopes will enable it to emerge from bankruptcy next year.

The Rochester-based company, which once supported one of the biggest research and development efforts in corporate America, invented the digital camera in the 1970s. However, it hesitated when it came to launching its own cameras, losing its early technology lead to others.

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Because the profit margins from traditional film were far higher than it could hope to make in consumer products such as cameras, it made sense for Kodak to delay the digital switch as long as possible and milk the profits from its original business, said Larry Matteson, a senior Kodak executive until 1992 and now a professor at the Simon Graduate School of Business at the University of Rochester.

The company later tried to push harder into digital devices, bringing in George Fisher, an executive who had made his name with phones at Motorola, as chief executive officer. However, its digital revenues were never enough to replace the lost sales from film, despite successful rounds of heavy cost-cutting.

Despite the closure, which will affect still cameras, pocket video cameras and photo frames that display digital pictures, Kodak is still counting on profits from its digital imaging inventions to help it through bankruptcy. It said it would seek to license its name to other camera makers, and is looking to the planned sale of its digital-imaging patents to provide a much-needed injection of cash.

The company's immediate cash needs are set to be the focus of a bankruptcy court hearing next week, which will consider a $950-million (U.S.) loan offer from Citibank to tide Kodak over while it restructures its business.

Phasing out the camera business in the first half of the year would lead to a one-off charge of $30-million but will reduce costs by about $100-million a year, Kodak said. Its remaining consumer operations are in ink-jet printers and a photo printing service online and in retail stores.

The Financial Times

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