How many of us have toted around our cameras over the years and then were disappointed when it came time to develop the pictures? (I see a bunch of hands popping up.) My photo life changed when I bought my first digital camera, a Kodak EasyShare package, which included both a camera and a docking cradle to transfer pictures. Being able to see your pictures and print photos merely seconds after snapping them has literally revolutionized the photography industry and ensured that all of us will get the pictures that we want.

The trend toward digital technology has taken the photo industry by storm like a megapixel tidal wave. Innovators such as Eastman Kodak (NYSE:EK) have been slow to adapt to the rapid changes, but it's better to be late than never show up to the party. One look at Kodak's earnings today reveals the company's recognition of the industrywide digital phenomenon. With digital revenues growing 48% in the quarter and traditional film revenue declining 8%, the company has decided to speed up its cutback of the old in order to fully leverage the new (a move that pushed the stock up 8% today).

With Kodak's new digital-oriented strategy firmly in place, expect the company to sharpen its focus to be more responsive to trends going forward. Of course, it still has some catching up to do on the camera side versus competitors such as Sony (NYSE:SNE) and Canon (NYSE:CAJ), and it must combat the advances of FujiPhoto (NASDAQ:FUJIY). In the beginning of my digital photo odyssey, I bought a couple of Kodak cameras but have since graduated to Sony's Cyber-shot technology (and I haven't been disappointed). Kodak knows it's time to step up, and I await the company's response.

Despite Kodak's share price appreciation today, I would be more comfortable sitting on the sidelines for a while until the company gets further along in its film-to-digital transformation. After all, the shares are trading at about 11 times this year's upwardly adjusted earnings estimate of about $2.54 per share (from the previous forecast of about $2.30), which still represents a significant premium to its single-digit growth rate. With negative cash flow and $2.8 billion of debt (Kodak expects to reduce debt by $800 million in 2004), I see the company turning toward the paved road, but the transformation might be a bit bumpy on the way.

Fool contributor Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.