Agfa's recent announcement that it is selling its Consumer Imaging division -conventional photographic film and cameras - is one of the clearest signs that digital processes are rapidly replacing analogue processes. This was for many years Agfa's cash cow that funded development for both the Graphic Systems and HealthCare markets. Agfa is selling Consumer Imaging to a group comprising both existing management and external venture capital organisations for a sum of 104m (155). This new company will be known as AgfaPhoto, but will have rights to use the Agfa brand for an unlimited time period. Agfa's financial results for the first half of 2004 show that the Consumer Imaging business has been diminishing rapidly. Its turnover for this six-month period dropped 17.9% to 244m. While the overall business improved slightly in the second quarter of the year, the company results are not that impressive. Graphic Systems' operating results before tax were down by 33.3% on sales down by 2.8%. This does not take into account sales made at Drupa. Graphic Systems operates in a very competitive market where price-cutting has become the norm, and has heavily impacted its margins. The other division, HealthCare, also showed a drop in revenue and a comparable drop in profitability. Its profitability is more than twice that of Graphic Systems, albeit on lower revenues. Health care doesn't face the same level of competition as Graphic Systems.
Look at the ongoing business approaches of the "big three" of consumer imaging Agfa, Fujifilm and Kodak and how each is handling the change from analogue to digital processes. Kodak is redirecting its business focus away from analogue film products, and is targeting digital printing. Fujifilm, as with most Japanese companies, has made minimal comment about how it is handling the change. The three companies have been investing massively for many years in the change of technology. Fujifilm and Kodak perhaps more successfully than Agfa in the core technologies that will take them into the future. Agfa has so far made some unsuccessful attempts to find its way in this time of change.
The key may be in R&D and the development of its own intellectual property. Fujifilm and Kodak have invested very heavily in such developments. This can be seen in areas like development of high-resolution CCD technology for use in digital cameras. Both companies have been in the digital camera market from very early days. Both are still major players in the professional and consumer markets. Agfa also tried to be a player in digital cameras, but did not own its technology. It acquired products to move through its distribution channel. In the end it found it could not compete against companies with their own intellectual property.
Another area where Agfa has so far failed to compete successfully is in digital printing. It developed its own products initially in the monochrome area. It then developed this technology as the basis for the Xeikon printers. Agfa was initially Xeikon's largest investor, and it sold the products as the Chromapress. Despite continued investment Agfa stopped selling the Chromapress, being unable to compete successfully. It also withdrew as an investor in Xeikon.
In digital printing Agfa has now decided to focus on ink-jet. It has had major success in the colour proofing area with its Sherpa range of printers. It does not however own the core technology of these printers, which is sourced from Mutoh. Agfa's most recent move in digital printing was to acquire Dotrix from Barco. This takes it into the industrial printing market with ink-jet technology. Again note that Agfa does not own the intellectual property used to make the Dotrix printer work. It uses ink-jet print heads supplied by Toshiba Tec, which use Xaar technology.
Recently Agfa has announced an agreement with Xaar for joint research, development and manufacturing for Xaar's next generation OmniDot print heads. In this it has invested 1.7m million in new equipment at the Xaar production facility in Sweden, but it is unknown what extra investment Agfa is putting into this 'co-development'. Under this agreement Agfa has the right to sell these print heads into its market, while Xaar sells into its market. What is Xaar's market since many of its customers are in graphic arts? Agfa Graphic Systems vice-president of imaging solutions Jan Van Daele stated: "this agreement shows Agfa's focus on innovations to support the Power of Print. It shows evidence of our belief that ink-jet is the technology of choice for real-life digital imaging applications. We are combining expertise from our own R&D as well as selected partners to further our total solutions approach to prepress and printing. The ink-jet market is one of the most promising in our industry, and we are determined to gain a leadership position."
Unlike Kodak with its huge commitment in both R&D to develop intellectual property, and acquisitions (Scitex Digital Printing and Encad) to build its ink-jet position, Agfa has made a very limited financial commitment to the market. Perhaps if it is really committed it should take equity in Xaar, or even acquire the company. If it is to compete against Kodak's forthcoming Stream ink-jet head technology Agfa needs to be more committed. If not any other company with a more flexible approach to development and go-to-market strategies could easily compete with it using Xaar, Spectra, Toshiba Tec, Epson, Sony, Brother, Canon, Samsung HP or other ink-jet head technologies. To show how things can change there are now 11 Chinese manufacturers of grand-format ink-jet devices built using standard ink-jet heads, and these companies now dominate this market in terms of sales. It shows how new companies can enter the ink-jet market and rapidly build market presence.
In graphic arts where it is very successful, Agfa's sales channel is one of its greatest assets. In its planned move to become a leader in ink-jet printing it may find it needs a very different channel to market to be successful. After all Heidelberg, another company with a strong graphic arts distribution channel, failed to succeed in digital printing with the NexPress because it could not compete in the total digital printing market
