Bluepoint daily market view – January 19, 2012

The death of an American Icon. Eastman Kodak Co., a vanguard name in photography, finally filed for Chapter 11 bankruptcy Thursday following falling sales and rising speculation about its ability to stay afloat. The long-anticipated announcement came after weeks of early eulogies about the faded glory of the former trailblazer, once an American mainstay with products such Kodachrome photographic film and Instamatic cameras. Kodak was even once a member of the DOW.

But printed photos seem well on their way to becoming a hipster curiosity as digital technologies — which originated at Kodak decades ago — now dominate on smartphones and, to a shrinking degree, cameras. The company, which was also exposed to heavy foreign competition and dwindling customers, has watched its liquidity situation worsen for years.

The iconic 132-year-old brand, still considered by many to be among the most recognizable in the world, lumped itself and its U.S. subsidiaries into the filing in federal bankruptcy court in New York. Kodak plans to continue operating through the restructuring with the help of an 18-month, $950-million credit facility from Citigroup. Since 2003, the company has laid off 47,000 workers and shuttered 13 manufacturing plants and 130 processing labs. The company’s stock, which a decade ago was trading at more than $20, was down 35% Thursday to 36 cents.

The Kodak experience is a poster child of American business. It started with George Eastman, the inventor and founder of the Kodak company. George Eastman was a true innovator until the day he died. Then the technocrats came to Kodak.  The executives fed off the legacy of  George Eastman for remarkably a fairly long time after his death in March 14, 1932. Lucky for these long line of executives of Kodak, the patents of George Eastman held up until the digital age came (though they even were first with the digital camera – but managed to even fumble this). Then of course the company began to tank. The lesson here is that big legacy companies rarely innovate, they often feed off of past legacies. Most fail once the intellectual capital of their founders go. So why do we cater our business and tax policy to support these executive leeches? We should tax these big business and let the real innovating companies get the tax breaks. I am sure George Eastman is rolling over in his grave tonight.

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