Photographic film has to be manufactured in the dark. To many investors, it looked until recently as though Eastman Kodak was being managed in the same way. Overcoming its fear of the digital revolution, Kodak wrought changes to its product range and culture in the 1990s but customers and Wall Street were unimpressed.

By late 1999, the bastion of photographic technology was besieged by online competitors, offering to develop, print or post your photos on the Web free of charge. At Kodak's headquarters in New York, executives were arguing internally about whether to overturn a century of tradition and do the same.

"We got real close," says Mr Daniel Carp, who took over as the company's chief executive in January 2000. "We had some knock-down, drag-'em-out discussions about that." Then Kodak won an unexpected breathing space. The collapse of the Nasdaq last spring cut the legs from Kodak's online competitors.

The cash-strapped survivors are now pinning their hopes on Kodak's marketing millions to coax consumers into digital photography. However, the dotcoms are only part of the digital competition. Kodak, which used to count Fuji Photo of Japan and a handful of others as its only competitors, is in a head-on confrontation with technology and consumer electronics companies such as Hewlett-Packard and Sony. Meanwhile, the slump in consumer demand has taken its toll on the traditional roll-film market, prompting Kodak to issue a profits warning.

However, the share price, which fell from nearly $80 (#93) in early 1999 to less than $40 last October, has begun to edge back up. The company must find a way to manage the transition from high-margin roll-film sales to low-margin, high-volume sales of digital products. It must also reconcile the need to maintain a vision of its digital future with a new realism about the pace at which it can realise its goals.

Vision was lacking in Rochester when Mr George Fisher of Motorola became chief executive of Kodak in 1993. He made a brave effort to shake Kodak out of its lethargy but his initial digital strategy stumbled in the late 1990s, just as Fuji was stepping up a US price war. Mr Fisher remained bullish about Kodak's prospects. As late as 1999, he was forecasting that the company would sustain 10 per cent growth in earnings per share by 2004, helped by the digital photography sector. The result was disappointment. Although commercial customers such as medical systems manufacturers moved rapidly to digital photography, the consumer was slower.

Mr Fisher handed over the chief executive role to Mr Carp at the beginning of 2000 and the chairmanship a year later. Mr Carp and his managers have attempted to set Kodak at the centre of a new sector: "info-imaging".

This brings together three areas on which Kodak's future depends: devices (from cameras to scanners), infrastructure (from photo-processing equipment to broadband Internet technology), and services and media (film and paper to online photo-sharing technology).

The info-imaging strategy has allowed Mr Carp to remind investors that Kodak does not depend on fickle consumers: more than half of Kodak's earnings are generated by commercial customers. Kodak managers are also working hard to bridge gaps between divisions.

"The end-user doesn't care how we're organised internally; they want to know how their products work together," points out Mr Willy Shih, president of the digital and applied imaging division.

To give weight to its convergence strategy, in April Kodak appointed a telecommunications and technology veteran, Ms Patricia Russo, a former executive of Lucent and IBM, as chief operating officer.

Mr Carp has also abandoned his predecessor's financial targets and settled for 5 to 7 per cent earnings and revenue growth.

This realism has revived the share price this year but competitors, partners and some investors remain sceptical. Some critics accuse the company of adopting a scattershot approach in the consumer area. Unlike its chief competitor, Fuji, which has concentrated on its strengths in processing equipment and camera and film technology, Kodak keeps aggressively adding to its online portfolio - from Ofoto.com, the Internet photo service bought this year, to its online joint venture with CVS, the US pharmacy chain.

Kodak's hedging of its bets is consistent with the crucial decision by Mr Fisher and Mr Carp not to try to force the business into digital technology prematurely.

"They could have pulled all the money out of traditional product development and poured it into digital, forcing migration," says Mr Carl Gustin, Kodak's chief marketing officer. "But what they decided to do was to keep the traditional products robust - keep the technology going."

Analysts insist there are still plenty of obstacles standing in the way of the transition to digital technology. Mr Ben Reitzes of UBS Warburg in New York cites the slow installation of broadband network links - without which it is difficult to persuade consumers to buy more online photo services.

Mr Jonathan Rosenzweig of Salomon Smith Barney points out that Kodak's strengths are still in basic analogue photography: wholesale processing and developing clubs, single-use cameras and emerging markets such as China. Although sales of traditional roll-film generate strong cash flow for the business, Mr Rosenzweig believes that they will decline.

Digital photography will have to expand much faster than it has so far to compensate for any loss of traditional business, which generates far higher margins. Mr Carp and his managers agree they are counting on far higher volume of digital picture-taking to offset the technology's lower margins. But they say digital photography is not going to displace traditional image-making.

It is true that in some commercial areas, such as healthcare, customers are already well on their way to switching completely to digital. In the consumer field, by contrast, Mr Carp expects digital photography to increase the number of pictures taken. Kodak, he says, will grab a share of all those images, whether by the sale of online services, photographic paper, scanners, single-use cameras, traditional film or other Kodak products.

Kodak's chief financial officer, Mr Bob Brust, who joined in January 2000, is the man who has to keep the balance. His main concern is to ensure that Kodak does not press ahead too quickly with investment in a digital future that may materialise slowly. "When the Internet resurfaces as an engine of growth for our economy - and it will resurface - it will be an enormous boon to picture-taking and we will be right in there and we'll have to run like hell to keep up," Mr Carp says. But, for the time being, that vision is tempered by realism.