Iomega finds floppy hard to beat
Floppy diskettes store only 1.44MB of data, but the 15-year old technology is behind the travails of removable disk drive maker Iomega Corp. (NYSE:IOM) according to Van Baker, a Dataquest analyst.
"The removable drive of choice is still the floppy," Baker said. "You talk to the guy on the street and even though floppies are not very useful, that's what they're using." Iomega has tried to displace the floppy for more than three years, plugging its 100MB, and now 250MB, Zip drive technology. But it hasn't worked.
"In general, the whole market for the Jaz class of product has gone flat," said Baker. "It's not just Iomega, but other companies as well."
In addition, Iomega's past problems with defective Zip drives (the notorious 'Click of Death') and delays in releasing its Clik! removable mobile drive have hurt the company's image.
More bad sectors
On Friday, the company released evidence that it was losing more ground. Iomega warned of a second quarter loss, due to slack sales of its Zip and Jaz disks and drives. It will cut nearly 10 percent of its workers and take a $45 million charge in a bid to shore up profits.
Iomega has bled red ink for four of the past five quarters. With today's announcement, it will be five of six quarters.
Even without the $45 million second quarter charge, the Roy, Utah-based computer-products company forecast a loss in the range of 5 cents to 10 cents per share on lower revenues, versus a 13-cents-per-share loss in the same period a year ago on revenues of $394 million.
Wall Street expected Iomega to break even in the quarter ending June 27, according to research firm First Call Corp.
Iomega's stock slid about 56 cents, or more than 12 percent, to $3.81 a share in the early afternoon trade, making it one of the top percentage losers on the New York Stock Exchange. That is well below its 12-month high of $10.19, and makes its 1996 heyday as a top stock pick of the Motley Fool online investor site little more than a distant memory.
Restructuring not enough
Wade Olson, Iomega's director of investor relations, said the restructuring "will bring us to profitability in the third and fourth quarters."
But analysts said Iomega's restructuring efforts were vague and probably too little, too late.
"I have had a sell on the stock for three years. The story is over as far I am concerned," said Rick Berry, an analyst at J.P. Turner & Co. "They are a one-product company."
Joseph Besecker, an analyst at Emerald Research, said although Iomega makes quality products, the company may have to perform more extensive surgery to bolster results.
"They are letting the air out of the balloon a little at a time," he said. "They need to make some bold steps in the restructuring. I don't think this will be enough."
Tunes, not Taps?
Time to play Taps? Perhaps not, said Dataquest's Baker.
"The good news for them is that the one area where there may be some opportunity is the Internet audio space," he said. "That could drive sales for their new Clik technology."
Today, a 32MB memory card -- capable of holding 30 minutes of high-quality music -- retails for upwards of $100. A 40MB Clik! disk costs between $10 and $20.
With MP3 grabbing headlines and spawning Internet businesses, finding a low-cost solution for storing digital music is a must. Iomega is obviously thinking along those lines as well. Late last year, Iomega joined the music industry's consortium to create a secure form of digital music, the Secure Digital Music Initiative.
Any turnaround "is highly dependent on the ... Clik drive," said Iomega's Olson. Iomega thinks Clik has great potential, and Iomega's brand name will help it.
Analysts aren't so sure that even the burgeoning Internet music market will be enough to save the company.
"We are not very optimistic on Clik!," said Baker. "There was a window of opportunity on Clik!. If they had come out with it at the time they announced, it may have been a success."
Instead, it looks like the company has missed it.
Reuters contributed to this report.