The Digital Camera Market and Kodak

Eastman Kodak (NYSE:EK) has been executing its transition to digital cameras quite well, and many are debating whether this company can pull it off. Here, one huge worry is that they are entering an overly competitive business that may actually be shrinking. What comes to mind is the proliferation of increasingly more advanced cameras in cell phones. As the average consumer, If I have 5 megapixels in my phone, why buy a separate camera? Thus the the latest on digital camera's from IDC bode ill omens:

Digital camera shipments will continue to be strong through 2006, reaching 94 mln units. However, growth will slow in 2007. By 2009, shipments will decline to 82 mln units, according to IDC. Average selling prices for cameras will fall from 2004 level of $340 to $295 by the end of 2005 and $200 by 2009.

So according to IDC, the stand-alone camera may be a dying breed for the average consumer. Of course there will always be the photographers and other deviants. But will mobile phones chalk up another mass-market kill after they've taken down stand-alone mp3 players? The actual camera unit, afterall, is getting cheaper and cheaper to install into a phone. Omnivision Technologies (NASD:OVTI) will give you five megapixels on a single chip soon. Already they're doing 1.3 megapixels on average. The price? An example from their Nov 2004 conference call transcript:

We shipped 20.4 million image sensors in the October quarter, down about 7 percent from the 22 million image sensors we shipped in the July quarter. Our average selling price declined to $4.15 from $4.49 in the preceding quarter. Sales to the camera phone market accounted (technical difficulty) 70 percent of our revenue in the quarter, which is down from 80 percent in the first quarter, but up from more than 60 percent in the April quarter.

VGA still accounted for the great majority of shipments, but 1.3 Megapixel products grew to account for more than one-third of the sales into the camera phone market. In the July quarter, you will recall that 1.3 Megapixel sensors accounted for about 25 percent camera phone sales.

So the 1.3 megapixel hitting mainstream in 2005, and IDC says stand-alone cameras will start to feel the heat in 2007. This could because 5 megapixel chips are being mass-produced in phones. And after five megapixels I really don't need any higher resolution. So 1.3 megapixel in 2005, 2.o-3.0 in 2006, then 5.0 in 2007? IDC's forecast for a decline in 2006 does indeed sound reasonable.

Comments

[Michael at Half Sigma]

There's a lot more to quality than the number of pixels. There's no way a camera phone will ever be as good as dedicated camera.

On the other hand, many consumers demonstrate that they really don't care much about the quality of their photos. Those disposable film cameras take god awful photos, but people use them anyway.

Kodak is certainly must vulnerable to camera phone competition because Kodak's digital cameras are targetted to the low end of the market.

[The Stalwart]

Thanks for your comment. While I agree that it should always be possible to place a more advanced camera in a stand-alone unit, at some point camera phones will be at the level whereby the marginal benefit offered by stand-alone cameras will be negligible.

Imagine if the camera phones of 2007 can give us the quality of today's higher end digital cameras. For all but the professional or avid hobbyist, 5 megapixels is more than enough. With camera chips, it will soon be cheap and easy to place a 5 megapixel camera in phones.

Most people, just looking for 4"x6" shots of their friends, won't see the need to pony up an additional $300 and carry around another item in their pocket. Their phone will give them photos which are good enough so that any further improvement won't really matter.

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