Is Eastman Kodak (NYSE:EK) getting close to being picture-perfect? It hasn't been hard for anyone to get the fact that Kodak needs to do some pretty fancy footwork to survive in a world where film and developing have become passé with the amateur photographer.

Today, Eastman Kodak announced it will team up with IBM (NYSE:IBM) to produce image sensors for digital cameras and camera phones, two hot ticket items among the electronics-shopping public. The deal will meld Kodak's image sensor portfolio and IBM's CMOS (complementary metal oxide semiconductor) processing expertise. CMOS imaging chips convert light into digital data and are often found in high-end digital cameras.

This shows that Kodak is stepping more fully into photography's future, as opposed to being mired in its past. Another announcement, released in the wee hours of the night, announced that Kodak will close its Australian plant, where it once cranked out color photographic paper. In August, Kodak purchased National Semiconductor's (NYSE:NSM) imaging business to add to its Image Sensors Solutions unit, a move giving further credence to Kodak's planned entry into the consumer market.

It's not hard to imagine why Kodak wouldn't covet a piece of the camera-phone action. This year, some analysts expect 100 million camera phones to fly off the shelves, versus 20 million digital cameras. The Semiconductor Industry Association says the market for digital cameras is forecast to grow by 27% in 2004. The SIA also sees optoelectronics device sales projected to grow by 37.3 percent to $13.1 billion in 2004 and to $16.9 billion in 2007. Optoelectronics include image sensors used in camera phones.

In addition, there's room for growth in camera phones, considering that many still feature murky picture quality. The next generation of camera phones will bring the photo quality closer to that of digital cameras. If Kodak can get into the action there, that could be quite a boon.

However, before investors get too excited about Kodak's fortunes related to this deal, there's heavy competition to think about. Omnivision (NASDAQ:OVTI), Canon, and Sony (NYSE:SNE) are just a few of the bigger names in the space. Meanwhile, Cypress Semiconductor (NYSE:CY) and Micron Technology (NYSE:MU) recently made acquisitions to help tackle the digital camera market.

Although Kodak trades at what sounds like a low forward P/E of 12, there's still a lack of resolution when it comes to its transition into the digital photography universe. And while Kodak's making moves that aim toward continued viability, it's got plenty of competition that's already looking for the perfect shot.

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Alyce Lomax does not own shares of any of the companies mentioned.