(FORTUNE Magazine) – HAS EASTMAN KODAK finally stopped looking at the world through rose-colored lenses? In the past few weeks the company has lowered growth estimates, announced new job reductions, and hired a turnaround specialist as chief financial officer. Longtime Kodak watchers cheered the new realism. Prudential Securities analyst B. Alex Henderson declared: ''Kodak gets religion -- hallelujah!'' The stock, which traded at around $40 a share most of last year, recently squeezed past the $50 mark. In effect, Wall Street is rewarding Kodak for lowering its aspirations. That's a tough call for any company to make -- especially one with such a storied past as Kodak's -- but it can pay off for shareholders. Kodak executives say that instead of 6% annual revenue growth from the core film and photographic paper business, they are now planning on 3%. Kodak will spend less on research and administration to support the picture business and stop chasing elusive opportunities for higher growth. Remember Kodak's Disc camera and its 8mm camcorder, both of which it withdrew? (The Disc made fuzzy pictures; the camcorder lost out to the VHS format.) ''We've got too much cost and not enough business in imaging,'' says Kay Whitmore, 60, Kodak's chairman, president, and CEO since 1990, of the photo business. ''We have to manage our assets with more rigor than in the past, but it takes quite awhile to get there.'' Incorporated 104 years ago, Kodak still relies on photography for more than a third of its $20 billion in sales and an outsize share of profits. Kodak's line of copiers and printers is a money loser, partly because of poor reliability; drugs and chemicals are profitable, but returns are disappointing. So Kodak has squeezed its number of management levels from seven to five. It is eliminating 2,000 jobs in administration and R&D, where it expects to trim $100 million from a companywide R&D budget of $1.6 billion. CFO Christopher J. Steffen, 51, who joined Kodak in January, will help keep the pressure on. He is a veteran of tough times at Honeywell and Chrysler. ! For more than a decade, Kodak has been trying -- unsuccessfully -- to get a foothold in the electronic picture business. Its latest effort, the Photo CD, lets camera owners transfer their snapshots to a digital disk for $20 a roll, then display the pictures on a TV screen using a $400 player. Kodak says the system is selling ''modestly well'' and expects it to turn a profit by 1994. But it doesn't look like a breakthrough. Another challenge comes from inexpensive store-brand film. A 36-exposure roll of Kodak Gold 100 Plus sells for $6.23, while 3M, which markets some of its ScotchColor 100 under store brand names through Kmart, Target, and 60 other retailers, prices a roll at $4.40. According to Strategic Marketing Analysts, a New York City market research firm, store brands now account for 15% of U.S. film sales. That's bad for Kodak, which analysts say makes a 70% gross profit on film. Candid as ever, Whitmore concedes that Kodak has yet to find a solution. Says he: ''How to impact that part of the market continues to be a very hotly debated subject. There is a segment of the population that is buying on price and not on quality. We're losing that customer.'' The task of devising a counterstrategy falls to Leo J. ''Jack'' Thomas, 56, the likeable Ph.D. chemical engineer who runs Kodak's imaging business. Thomas says Kodak plans to spend less on brand advertising and more on such promotional activity as sales and coupons, to lure value-conscious consumers and provide more incentives to retailers. But although Kodak is the low-cost film manufacturer, he resists developing a Kodak store brand and adds, ''We'd like to play the price card last.'' CEO Whitmore frequently observes that ''the problem in our company is that we're burdened with historical success.'' Success hasn't been a problem lately. Kodak needs both to win the store-brand battle and to find a way to get deeper into electronic photography. If it doesn't, then renewed investor optimism about its future may have been misplaced.

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