Can Kodak rescue itself by selling patents?

Associated Press

ROCHESTER, N.Y.

Picture this: Kodak — the company that invented the first digital camera in 1975 and developed the photo technology inside most cellphones and digital devices — is in the midst of the worst crisis in its 131-year history.

Now, caught between ruin and revival, Eastman Kodak Co. is reaching ever more deeply into its intellectual treasure chest, betting that a big cash infusion from the sale of 1,100 digital-imaging inventions will see it through a transition that has raised the specter of bankruptcy.

Kodak popularized photography more than a century ago. It marketed the world’s first flexible roll film in 1888 and transformed picture-taking into a mass commodity with the $1 Brownie camera in 1900. But for too long, the world’s biggest film manufacturer stayed firmly focused on its 20th-century cash cow and failed to capitalize quickly on its new-wave know-how in digital photography.

As a result, Kodak has been playing catch-up. Pummeled by Wall Street over its dwindling cash reserves — and its stumbling attempts to reinvent itself as a profitable player in digital imaging and printing — Kodak has been hawking the digital patents since July. Many financial analysts foresee the portfolio fetching $2 billion to $3 billion.

But others think Kodak can haul in far more than that — and carry it off within a few months. That’s because patents have become highly valuable to digital-device makers who want to protect themselves from intellectual-property lawsuits. In July, an alliance made up of Apple and Microsoft purchased a raft of patents from Nortel Networks for $4.5 billion. A month later, Google bought Motorola Mobility for $12.5 billion, in part to gain hold of the company’s 17,000 patents.

“The size of the [Kodak] deal could blow your socks off,” predicts Los Angeles money manager Ken Luskin, whose Intrinsic Value Asset Management owns 3.8 million Kodak shares.

“It’s pocket change for Google and Apple to go pay $3-or-$4-or-$5 billion for these patents,” concurs Christopher Marlett, chief executive of MDB Capital, an investment bank based in Santa Monica, Calif., that specializes in intellectual property. “There is an all-out nuclear war right now for global dominance in smartphones, tablets and mobile devices, and Kodak has one of the largest cache of weapons sitting there.” Marlett says he owns Kodak stock, but wouldn’t disclose how much.

Even a hefty return, skeptics counter, won’t solve Kodak’s struggle to close out a nearly decade-long transformation and return to profitability in 2012 after running up losses in six of the past seven years.

“All the extra cash does is give you a lifeline for a short period. And then, poof, you’re back in the same position without the assets to sell,” says analyst Shannon Cross of Cross Research in Livingston, N.J. “If you’re burning cash and not finding a way to generate recurring earnings, it doesn’t matter.”

Kodak’s grim financial picture should become clearer when it reports third-quarter results Thursday.

Agitated investors likely will focus on the company’s latest borrowing activities and cash woes — it had $957 million in cash in June, down from $1.6 billion in January.

They also will want to know what kind of progress Kodak made in the July-September period in building up a high-margin ink business to replace shriveling film sales.