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Leading analyst examines the technology sector in this special Imaging Technology Stocks report from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info402.htm

TWST: Why the drop in images?

Mr. Rosenzweig: Roughly 57% of images that are taken digitally tend to get saved, and just 20% or 30% of the images that are saved actually get printed. The question is why aren’t people printing the images. First, when people receive a photo via e-mail, there seems to be a natural inclination not to print it — there’s just not the desire. A study from Dataquest suggests that 50% of people who have received photos via e-mail have never printed one. On the other hand, if you take the image yourself on a digital camera, what’s the desire? There seems to be a greater demand to print personal memories. That being said, the technology has been lacking in terms of ease of use. The high cost of digital media also has precluded as rapid an adoption of digital output as we’d like to see. Printing images at a kiosk or on a home inkjet printer tends to be time-consuming as well. Traditional processing tends to be much simpler. People find that it’s easier to drop off a roll of film than it is to download their pictures at home and print them out.

TWST: Who’s the big loser in this whole transition?

Mr. Rosenzweig: It varies by subcategory. I think Kodak (NYSE:EK) clearly has substantial risk, as the chasm that we talked about evolves. One worthwhile name we haven’t discussed is Pitney Bowes (NYSE:PBI). This is a solid company that could be thought of as a safe haven in a tough macro environment, especially as the outlook for economies abroad deteriorates. With the reacceleration of their top line, and a meaningful cushion on the cost side, this is a great story for the near term.

TWST: What’s boosting the top line for Pitney Bowes?

Mr. Rosenzweig: A variety of factors caused a major deceleration in the top line for Pitney Bowes last year. The company had tough comparisons, a stalled digital meter migration mandate from the U.S. Postal Service, and a slowdown in their management services business. Pitney is now refocusing its business on what it deems to be the core growth areas: the international mail; management services, which is an outsourcing business; and what they call document-messaging technologies, which involves production mail systems, incoming mail systems and some e-billing technologies. The company has done some acquisitions to increase the percentage of its portfolio in those areas. The organic growth rate in those businesses lies in the upper single and low double digits. So as more and more of the portfolio shifts in that direction, organic growth should reaccelerate. The company posted about 2% organic growth in the second quarter. We expect them to be at 5% or 6% by the end of the year.

TWST: And is there opportunity beyond that recovery?

Mr. Rosenzweig: Long term, Pitney Bowes is probably a mid- to upper-single-digit top-line grower. On the cost side of the equation there is tremendous opportunity for this company to enhance its margins and improve leverage. And there will likely be substantial cushion in the short term, as Pitney cuts expenses, increasing the likelihood that they can hit EPS targets despite a sluggish economy. As the macro environment turns the corner, revenue growth should return to the upper end of that scale, creating some substantial operating leverage for them.

This special issue includes:

1) Imaging Technology Stocks - In an in-depth (3,900 words) Analyst Interview, Jonathan Rosenzweig, Managing Director and Equity Analyst with Salomon Smith Barney in the Equity Research Department, examines the outlook for the sector and shares specific stock recommendations.