Kodak sues, should Apple buy the firm for iPhone?

By Jonny Evans

Kodak has turned to the courts, slapping fresh patent abuse lawsuits against Apple [AAPL], RIM and HTC. In my opinion, Kodak is ripe for acquisition, and Apple should purchase the firm -- or someone else will.


Should Apple snap it up?

As I look at it, Kodak's dwindling balance sheet and profit decline reflects the difficulty it faces transforming itself for the new tech era, despite its invaluable technological assets.

The company has warned performance this year will: "Depend on it selling its digital imaging patents to raise cash for future investments, and there have been reports that the company is preparing to seek bankruptcy protection."

The fate of the 120-year old firm signals a wider change. This is that the old PC-era-based models are mutating, creating new challenges and forcing a new relationships.

What's likely to happen?

The answers, as most answers are, lie in nature itself. When an organism -- any organism -- stops growing, it begins to consolidate itself. Whether you're discussing birds, bees or rubber-clad dancers, the rule remains the same -- once you reach the adult form you're only going one way.

The no-growth story

For Kodak, growth has stopped. It's difficult, but the company knows it must evolve or die: "As we complete Kodak's transformation to a digital company, our future markets will be very different from our past, and we need to organize ourselves in keeping with that evolution," Kodak CEO Antonio Perez said.

Kodak is attempting to reposition itself as a digital firm, focusing on its new range of inkjet printers as part of this.

How good is the inkjet printer business to be in? How much do you pay for your printer? How much does the ink cost? Kodak also offers cameras and other imaging hardware, but, once again, these devices have become commodities. Where's the excitement?

For most users, Kodak's core business, print has become an optional extra. This means Kodak's attempt to position itself as the trusted place to take all your imaging needs (online, print and so on) is great as a service, but not much of a foundation for a major company.

Digital natives rule the future

As it stands, there's more fun in Flickr than in print, young people share images online or by text. Like CDs or DVDs, print is for special occasions. For the next generation of digital natives print is an anachronism.

With little growth to look forward to, the now adult Kodak is attempting to secure its future by protecting its patents. That's why Kodak is suing Apple, HTC and RIM on strength of claims the three firms have infringed four patents related to digital camera images. A complaint against Apple has also been filed with the US International Trade Commission.

I'd argue that rather than fight the legal battle, Apple might consider acquiring Kodak, or at the very least purchasing some of the firm's patent portfolio.

Kodak is (or should be) cheap. It's market cap is just $161.97 million, and while its stock's seeing slight rise this morning, at $0.60 per share it's still a long, long way from its 52-week high of $5.69.

Picture this: The post-PC mobile battle

Kodak has over 1,000 digital imaging patents, and with its price currently set so low and little in the way of future growth prospects the company must surely be willing to sell.

Apple meanwhile could use those 1,000 imaging patents to continue its prosecution of those Android copycats, while also deriving a nice licensing income. That licensing income may not be enough to save a firm like Kodak, but would be a pleasing addition to the AAPL balance sheet.

The reality is that if Apple fails to secure these digital imaging patents, then someone else may get to them. If that happens Cupertino's legal department will get even busier, locking senior management down into further time-consuming litigation.

There's a good match, too -- can you imagine Kodak's digital imagine excellence being sold as a feature inside the iPhone or iPad? Or Kodak class quality in iPhoto prints.

The other danger is Samsung's response. That firm could easily purchase Kodak as a wholly-owned subsidiary, using its own manufacturing facilities to produce Kodak-branded hardware and gaining access to a whole heap of handy imaging technologies.

With the mobile industry at the beginning of a phase of rapid growth, control of the world's key imaging technologies could become a new battleground. This means that through licensing or ownership, Apple needs to protect its position. This means Apple management must from time to time consider acquisition of Kodak, but may feel they have sufficient imaging patents of their own.

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Copyright © 2012 IDG Communications, Inc.

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