After falling almost 80% so far in 2011, you'd think all the worst-case scenarios had already been priced into Eastman Kodak shares. Whatever the third-quarter
report might say, shares couldn't possibly fall any further.

But you'd be wrong. Kodak trades down by another 7% on the heels of its most recent report.

The damage wasn't all done by the reported numbers. Sure, sales fell 5% year-over-year to $1.5 billion, excluding the $210 million one-time digital camera licensing deal from last year. Yes, the year-ago quarter's $0.02 adjusted loss per share ballooned into $0.83 of red ink per share. And of course both of these numbers were far worse than what the average analyst had imagined.

Management also lowered every imaginable expectation for the fourth quarter, from the size of sales and losses to cash balances and growth in the digital imaging business.

None of that was much of a shocker, though. After all, rumors of Kodak going bankrupt have been making the rounds already. Shares more than doubled one fine day last month, when the company denied those rumors.

The real kicker came from some changes to the cautionary language in the earnings release. Kodak has been fretting about the ability to fund operations for a while. Now, that warning stands at the top of the list, vaulting ahead of macroeconomic concerns. And for the first time, Kodak wonders whether it can "raise sufficient proceeds" by selling extraneous business divisions and the portfolio of digital imaging patents.

Mere weeks ago, patent sales were all the rage and Kodak's treasure trove looked like a potential saving grace. Google was buying patents from IBM  and launched a wholesale bid for Motorola Mobility, primarily to defend Android against legal attacks. Patent wranglers including InterDigital and Wi-LAN became instant takeover targets based on their suddenly golden patent holdings, and Kodak announced its intention to sell patents right into that frenzy.

But the deals never came. InterDigital is still an independent company. Wi-LAN is more of a buyer than a seller in that market. And Kodak is likely wondering if it missed the opportunity to cash in. All of the patent-boosted stocks have crashed hard since their August peaks, but Kodak fell harder than most.

Investors are left wondering whether a patent sale will be able to rescue this venerable company, and if so, what's left of the business once you've sold the core of its digital future? Smartphones and other digital cameras have pretty much killed Kodak already.

Smartphones outsell PCs nowadays, and their projected growth rate in the coming years looks staggering. Kodak missed that boat, but it's not too late for your portfolio to make a profit in that market.

(Source: www.fool.com)