If only a picture were worth more than a thousand words, then maybe Eastman Kodak
The past few months have been a gut-wrenching time for shareholders:
Initially, investors saw a ray of hope with MDP Capital's bold $3 billion patent valuation estimate. But the enthusiasm was clearly misplaced, as MDP was riding the high of the patent-mania following Google's purchase of Motorola Mobility
MDP Capital is not the only one that overestimated the value of these patents, though. Kodak originally tried to leverage them against tech giants Apple and Research In Motion, taking them both to court in January 2010 over claims that their smartphone cameras infringed on Kodak's intellectual property. Ultimately, the International Trade Commission retired the case, serving as another blow to the company, which expected a favorable ruling could have brought in as much as $1 billion.
These sales do bring in much-needed capital, but the shedding of patents leaves behind a company with less focus and a diminished position. In Kodak's case, it's still relying on two declining industries -- personal printers and digital cameras. Although printer sales have ticked up recently, both of these markets are projected to shrink going forward.
Dusting off the Kodachrome
Kodak's erosion is nothing new, though. Fellow Fools have been writing about its impending doom for quite a while, and with good reason. Shares have lost half of their value over the past three months, but they're down more than 95% over the past five years. Kodak did away with its dividend back in 2009, eliminating any sure income that shareholders may have been banking on.
The real problems started with the mismanagement of Kodak's transition out of film and its failure to continue innovating. The company realized some initial success with digital cameras -- it was ranked No. 1 in domestic sales for 2005 and captured a 25% market share. But as the digital-camera business turned into a highly commoditized, low-margin race to the lowest price, Kodak found it difficult to keep pace, and its product innovation fizzled. The company controlled just 7.4% of the digital-camera market in 2010, down from 8.8% the year before.
Failed history lesson
CEO Tony Perez, a former Hewlett-Packard
Kodak isn't the only company trying to undermine HP with this model. Xerox
With more content moving digital, people will continue to print less, taking the bite out of expensive cartridge replacements. And I'm willing to bet that consumers will still buy the cheapest printer without considering the long-term continued cost of ink -- a decision that will continue to favor the veteran HP while hurting Kodak and Xerox.
How to play it
Kodak built its name and fortune on innovation. The company became admired by defining industries and technologies, not showing up late to the party with warm beer. By losing its innovative touch, Kodak went from being ahead of the ball to being rolled over by it.
If you're investing in a company that rests on the laurels of innovation, take a look at where it's moving today. Consider the creative juggernauts like Apple, 3M
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Austin Smith owns no shares of the companies mentioned here. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of IMAX, Apple, 3M, InterDigital, and Google, creating a diagonal call position in 3M, and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.