Kodak 2007 Annual Report Download - page 12

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Delays in our plans to improve manufacturing productivity and control cost of operations could negatively impact our gross margins.
Kodak’s failure to successfully manage operational performance factors could delay or curtail planned improvements in manufacturing productivity. Delays
in Kodak’s plans to improve manufacturing productivity and control costs of operations, could negatively impact the gross margins of the Company. Fur-
thermore, if Kodak is unable to successfully negotiate competitive raw material costs with its suppliers, or incurs adverse pricing on certain of its commod-
ity-based raw materials, gross margins could be adversely impacted.
We depend on third party suppliers and, therefore, our revenue and gross margins could suffer if we fail to manage supplier relationships
properly.
Kodak’s operations depend on its ability to anticipate the needs for components, products and services and Kodak’s suppliers’ ability to deliver sufficient
quantities of quality components, products and services at reasonable prices in time for Kodak to meet its customers’ demand. Given the wide variety
of products, services and systems that Kodak offers, the large number of suppliers and contract manufacturers the Company depends upon that are
dispersed across the globe, and the long lead times that are required to manufacture, assemble and deliver certain components and products, problems
could arise in planning production and managing inventory levels that could seriously harm Kodak. Other supplier problems that Kodak could face include
component shortages, excess supply, risks related to terms of its contracts with suppliers, and risks related to dependency on single source suppliers.
We have outsourced a significant portion of our overall worldwide manufacturing and back-office operations and face the risks associated with
relying on third party manufacturers and external suppliers.
We have outsourced a significant portion of our overall worldwide manufacturing, customer support and administrative operations (such as human
resource , credit and collection, and general ledger accounting functions) to third parties and various service providers. To the extent that we rely on third
party manufacturing relationships, we face the risk that those manufacturers may not be able to develop manufacturing methods appropriate for our prod-
ucts, they may not be able to maintain an adequate control environment, they may not be able to quickly respond to changes in customer demand for our
products, they may not be able to obtain supplies and materials necessary for the manufacturing process, they may experience labor shortages and/or dis-
ruptions, manufacturing costs could be higher than planned and the reliability of our products could decline. If any of these risks were to be realized, and
assuming alternative third-party manufacturing relationships could not be established, we could experience interruptions in supply or increases in costs
that might result in our being unable to meet customer demand for our products, damage to our relationships with our customers, and reduced market
share, all of which could adversely affect our results of operations and financial condition.
If our ongoing efforts to improve our supply chain efficiency are not achieved, this could adversely affect our revenue and earnings.
Kodak’s improvement in supply chain efficiency, if not achieved, could adversely affect its business by preventing shipments of certain products to be
made in their desired quantities and in a timely and cost-effective manner. The ongoing efficiencies could be compromised if Kodak expands into new mar-
kets with new applications that are not fully understood or if the portfolio broadens beyond that anticipated when the plans were initiated. Any unforeseen
changes in manufacturing capacity could also compromise our supply chain efficiencies.
The competitive pressures we face could harm our revenue, gross margins and market share.
The markets in which we do business are highly competitive, and we encounter aggressive price competition for all our products and services from
numerous companies globally. Over the past several years, price competition in the market for digital products (including consumer inkjet printers), film
and services has been particularly intense as competitors have aggressively cut prices and lowered their profit margins for these products. In the Graphic
Communications Group segment, aggressive pricing tactics by our competitors have intensified the contract negotiation process. Our results of operations
and financial condition may be adversely affected by these and other industry-wide pricing pressures. If the Company is unable to obtain pricing or pro-
grams sufficiently competitive with current and future competitors, Kodak could also lose market share, adversely affecting its revenue and gross margins.
If we fail to manage distribution of our products and services properly, our revenue, gross margins and earnings could be adversely impacted.
The Company uses a variety of different distribution methods to sell our products and services, including third-party resellers and distributors and both
direct and indirect sales to both enterprise accounts and customers. Successfully managing the interaction of direct and indirect channels to various
potential customer segments for our products and services is a complex process. Moreover, since each distribution method has distinct risks and costs,
our failure to implement the most advantageous balance in the delivery model for our products and services could adversely affect our revenue, gross
margins and earnings. Due to changes in the Company’s go-to-market models, the Company is more reliant on fewer distributors. This has concentrated
the Company’s credit risk, which, if not appropriately managed, could result in an adverse impact on the Company’s financial performance.
We may provide financing and financial guarantees to our customers, some of which may be for significant amounts.
The competitive environment in which we operate may require us to provide financing to our customers in order to win a contract. Customer financing
arrangements may include all or a portion of the purchase price for our products and services. We may also assist customers in obtaining financing from
banks and other sources and may provide financial guarantees on behalf of our customers. Our success may be dependent, in part, upon our ability to
provide customer financing on competitive terms and on our customers’ creditworthiness. If we are unable to provide competitive financing arrangements
to our customers or if we extend credit to customers that are not creditworthy, this could adversely impact our revenues, profitability and financial position.