Friday, July 31, 2020
Weird Business News
If you follow business news in chaotic times, you expect surprises. But seldom do you see one like this.
Kodak, the ancient photography company in Rochester, was huge and highly-profitable when people had to buy film to take pictures. Kodak made film that every family needed to record social gatherings. It was a mammoth business that nobody ever thought would end.
But along came digital photography -- and, stupidly, Kodak failed to see the writing on the wall. Its management, in a classic case taught in business school, didn't adapt or even recognize the existential threat digital technology posed to its core business. As a result Kodak was decimated. In 2012 things were so bad they had to declare bankruptcy. Since then Kodak has limped along on nothing but fumes. With only meagre IT to sell, Kodak's stock price sat flat at $3 a share for years.
Then, suddenly, resurrection. From an unexpected place with weirdness all over it. This week the federal government announced it is giving Kodak, the film company, $765 Million to manufacture ingredients for generic drugs. 3/4 of a Billion dollars? Drugs? What?!
The ostensible justification for this largesse is to bring drug-manufacturing back to the U.S. from China where almost all drugs are produced. Obviously, however, Kodak (and all American companies) can't compete with Chinese manufacturers on price so it's clear Kodak drugs will cost 30-50% more than their foreign competition. That's where government support matters: the U.S. government is committing to spend your taxpayer money propping up a less-efficient, more costly company simply to have drugs made here instead of elsewhere.
Kodak stock shot up from $3 a share to $60 a share. It's sliding down since then to $45 and now $30.