HP, Kodak team on photo processing

Picture this: The venture will make inkjet digital photo-processing machines for low-cost prints, generating up to $1 billion in annual revenue.

Eastman Kodak Co., the photography company, and Hewlett-Packard Co., known for its computer printers, confirmed Thursday a venture to develop and manufacture inkjet digital photo-processing machines.

The deal is expected to generate between $500 million to $1 billion in annual revenue within five years, officials said. The companies declined to disclose the scope of their investment.

Under the venture, tentatively dubbed "Luxor," the companies have agreed to develop inkjet printers that would be sold to photo retailers. These machines are expected to cost less than traditional mini photo labs, which range from about $70,000 to $100,000 a unit. At a lower cost, the inkjet machines are expected to prompt more retailers to offer on-site processing, officials said.

Until now, Kodak (NYSE: EK), Rochester, N.Y., and Hewlett-Packard (NYSE: HWP), Palo Alto, Calif., have been competitors in the digital-photography arena. Kodak offers a PhotoNet service that posts images taken from traditional cameras on the Web so that consumers can preview them from their home computers and easily share them with others, and Hewlett-Packard has a similar service it calls Cartogra.

Under the deal, according to a person familiar with the matter, Cartogra users will be able to get photo-quality reprints made by Kodak labs.

With the new inkjet machines, consumers will be able to drop off not only 35mm film and advanced photo system film but also memory cards from their digital cameras. Currently, digital-camera users download their images onto their personal computers and usually print their pictures on their own printers.

Most consumer printers produce low resolution pictures. But Kodak and Hewlett-Packard say the inkjet machines developed from their venture will produce pictures comparable to the high-resolution images from retailers' standard, chemical-based mini photo labs.

Digital push
Kodak, which also has an online photography venture with America Online Inc. (NYSE: AOL) ., has been pushing hard in the digital-photography arena for several years.

However, it faces increasing competition in the online photo-sharing market. Thursday Canon USA, a unit of Japan's Canon Inc., and PhotoLoft.com Inc. (www.photoloft.com), Campbell, Calif., plan to announce a service, called the HyperPhoto Network, that will compete with PhotoNet and Cartogra, said PhotoLoft Chief Executive Jack Marshall.

H-P has recently renewed its push into digital imagery, having introduced new lines of digital cameras and ink-jet printers capable of printing high-quality digital photographs. One person familiar with the new joint venture with Kodak suggested that the venture will use and promote H-P's ink-jet printing technology -- a big deal for H-P, which reaps fat profits from the sale of consumable ink-jet cartridges.

-- Laura Johannes and David P. Hamilton, Staff Reporters of The Wall Street Journal, contributed to this report.