US Report: Iomega hits rock bottom

Iomega on Thursday said it will take $5m (£3m) to $10m (£6m) in special charges in its second quarter and likely report a loss for the fiscal year. The disk drive maker will also layoff up to 700 employees.

Company officials said it expects second quarter sales to be roughly in line with first quarter 1998 revenue of $408m (£248.8m) but expects a second quarter loss, excluding special charges, in the range of $25m (£15.3m) to $35m (£21m), or 10 cents to 13 cents a share.

Financial analyst First Call expects Iomega to lose only 3 cents a share in the second quarter and return a profit of 3 cents a share in fiscal 1998. "We are disappointed with our financial performance during the quarter," said chief executive James Sierk in a prepared release "but, we are pleased with the continued acceptance of Zip Built-In as part of an increasing number of OEM PCs". Iomega recently announced a deal with Compaq where its Zip drives come ‘built-in' to the Presario range.

But the company might have bigger worries than how well its Zip drives do this quarter.

The second quarter loss it now anticipates could result in non-compliance with certain covenants under its existing $200m (£122m) senior credit facility. Currently, Iomega has $60m (£36.5m) in advances outstanding on this facility, meaning it will have to renegotiate its borrowing terms with lenders.

Iomega cautioned that its actual second quarter results could be higher or lower since revenue and operating results will be significantly impacted by sales through distribution and retail channels in the remaining two weeks of the quarter.

Five of the eight institutional investment firms following the stock maintain a "hold" recommendation.

Iomega shares closed off 1/16 to 6 5/16 Thursday.