IOMEGA CORPORATION: DATA STORA Essay Example

to these portable data storage devices.

Before the release of the disks, Iomega saw a surge in orders, causing production issues. In April 1996, just one year after it was first introduced, Sony Pictures Entertainment made an exclusive agreement with Iomega to use its Jaz disks. Shortly after, in June of the same year, Iomega entered into marketing agreements with IBM, NEC Technologies, Gateway, and Unisys. By the end of summer 1996, Iomega had partnerships with all major computer manufacturers in the United States. The media frenzy surrounding the drive's release was fueled by accolades from computing magazines PC Computing and Gadget Guru. The Jaz drive was named 1996's Innovation of the Year and Most Valuable Product by PC. Gadget Guru also awarded it as the Best Computer Accessory of 1996.

The popularity of Iomega products grew due to various accomplishments, which led to increased production and sales. To capitalize on this success, Iomega decided to expand its international production and marketing efforts in early 1997. The Netherlands and Switzerland were chosen as European headquarters, while the Malaysian production site underwent expansion and modifications. While the company's base remained in Roy, Utah, Iomega strengthened its presence in Europe and Asia by creating more job opportunities in production for Asians and Europeans. With enhanced foreign marketing and advertising efforts, Iomega established itself as the third largest producer of data storage devices globally.

The revenue of the company at the end of the 1996 fiscal year showed a significant increase of 272% compared to the previous year. This success can be attributed to the introduction of the Jaz and Zip drives in 1995. In 1997, the company formed partnerships with

Motorola, Apple, Kinkos, and Hewlett Packard. By June of that year, Iomega had shipped six million Zip drives, which had become a standard feature in Sony personal computers, Micron notebook computers, and all Kinkos store computers across the country. The introduction of the Buz multimedia producer in late 1997 further added to their success. This innovation allowed consumers to capture movies, music, and photographs on their personal computers. Although the Buz drive's success was not as great as that of the Zip and Jaz drives, it ensured that the company remained at the forefront of computer technology.

The Jaz drive and the Buz drive were marketed together, encouraging consumers to purchase both products. This strategy proved successful, resulting in a 77% increase in earnings for the 1997 fiscal year. In May 1998, the Clik! drive was introduced, further advancing computer technology. The Clik! drive revolutionized the way consumers stored digital information from various devices such as handheld video cameras, computers, and cameras. It was accompanied by special Clik! disks. With the introduction of the Clik! drive, Iomega's portable storage offerings became comprehensive, encompassing a wide range of computer products available in the market.

Products and Marketing

Iomega advertises in various locations, including its website www.iomega.com. The website offers a user-friendly platform where customers can learn about the company and its products. It features multiple sections specifically designed to address customer inquiries about Iomega and its offerings. Furthermore, the site provides access to press releases and news articles pertaining to the company, empowering potential customers to gather information. Moreover, visitors have the opportunity to participate in contests and win complimentary products.

Iomega offers the convenience of online shopping

through its website, where customers can order its products from a virtual shopping mall. This means that customers can have Iomega products delivered right to their doorstep. In addition, Iomega promotes its products through partnerships with other companies. By having Iomega Zip drives pre-installed in computers from well-known PC manufacturers like Apple, Dell, and Gateway, customers have the option of purchasing a computer that already includes a Zip drive. It is worth noting that approximately 40% of Dell computers come with Iomega Zip drives already installed. The positive feedback from these partnerships has encouraged Iomega to establish a new partnership with Fujifilm.

Recently, Fuji Photo Film Company Ltd. introduced Clik! disks as part of their brand marketing. Alongside Fujifilm branded Zip drives, the company has also partnered with the forty megabyte Clik! disks, according to Steven A.

Solomon, senior vice president of Fuji Photo Film USA, Inc., stated that they have had great success branding Iomega's popular Zip disks and believe they will achieve similar success with Clik! disks. Iomega provides customers with the option of storing large amounts of information on disks instead of their computer's hard drive. Currently, the company offers 100MB Zip USB drives and recently introduced the new 250MB Zip drives. This option is advantageous for both businesses and personal computer owners. Businesses benefit from owning a Zip drive as it allows for the convenience of saving large presentations or proposals on a disk and easily transporting them to different locations. Personal computer owners also benefit from the Zip drive, as it enables each individual in the household to have their own disk, keeping children's games separate from parents' finances.

The notebook

Zip allows individuals with digital computers to conveniently store and transport a vast amount of information in a sleek, energy-efficient design. Iomega has recently decreased the prices for their external Zip 100MB SCSI and 100MB Zip USB drives, now priced at $99.95 and $129.95, respectively. The decision to lower the prices was influenced by the widespread popularity of Zip drives, used by over twenty-two million users, according to David J. Henry, vice-president and general manager of Zip/Jaz management at Iomega Corporation.

By reducing the price of their products, Iomega aims to make them more affordable for customers in order to attract more potential buyers.

Management

In January 1999, Iomega Corporation announced a restructure plan with the goal of increasing gross profit for the upcoming fiscal year. Despite controlling over 86% of the removable storage market, Iomega's gross profits have declined, causing concern among public investors. Previously, the company had three decentralized product units: Professional Products, Personal Storage, and Mobile Storage divisions. The new structure will focus on eight business functions, including sales and marketing, product development, manufacturing and operations, corporate marketing, finance, legal, human resources, and corporate development and strategy. Additionally, a new functional group called customer service and development was created by top management, merging the existing customer service organization with a new group of applications engineers. These changes are expected to improve gross profits, instill consumer confidence, and generate increased interest on Wall Street, addressing the company's fluctuating performance since its entry into the removable storage market in 1980.

In 1983, Iomega achieved great success in the financial world. The ground-breaking asset generated $21.7 million through public offerings, sparked by the fascination of IBM PC users with

Iomega's patented Bernoulli Box technology. This technology utilized a subsystem consisting of separate disk drives positioned beneath the monitor, offering unlimited data storage capacity through removable cartridges. However, their prosperity came to a sudden halt in 1986 and 1987 as computer manufacturers began incorporating large storage hard drives as a standard feature in home PCs. Consequently, demand for the Bernoulli Box technology declined, leading Iomega to endure difficult times, including an $8.5 million bank debt and substantial inventory levels.

Michael Kucha became the CEO of the struggling company and immediately made a significant impact. He reduced the workforce from 1,350 to 750, utilized tax write-offs, and successfully cut costs. Within a year, under Kucha's leadership, Iomega achieved an $18 million cash balance, eliminated bank debt, and reduced inventory by 50%. One of the key focuses during Kucha's tenure was on research and development. The company adapted its Bernoulli Box product for Apple Macintosh computers and capitalized on the rising demand for Macintosh during the late 1980s and early 1990s. Despite a few years of above-average success, 1993 proved to be disastrous for Iomega. CEO Fred Wenniger, who replaced Kucha in 1989, left due to shrinking margins and increased competition.

The removable storage market had recently been flooded with Iomega clones resulting in a decline in prices and increased competition. This raised concerns about the company's survival. During 1993 and 1994, the company underwent restructuring and Leon Staciokas was appointed as acting CEO. In January 1994, Staciokas proposed cutting staff to reduce expenses and increase available funds. As part of the overall corporate restructuring, eight percent of salaried positions were eliminated. Later that year, Kim Edwards replaced Staciokas

as permanent CEO of Iomega. Edwards' primary focus was on generating more money to invest in technology updates and improvements.

In July, Iomega implemented a bold management decision by cutting 100 salaried jobs, resulting in an annual overhead reduction of $4 million. Edwards, the new manager, pursued a different approach for Iomega, which ultimately transformed the struggling company into the leading manufacturer of removable storage worldwide. This new strategy focused on creating a product that would be purchased and used by the public, rather than simply admired. In the early months of 1995, Edwards met with top management and technical advisors to lay the foundation for launching Iomega's innovative Zip drive. This groundbreaking product revolutionized the industry and reestablished Iomega as a significant player in removable storage software.

The release of the Zip drive in late 1995, along with wise financial management, helped Iomega increase its operating budget from $141 million in 1995 to over $1.2 billion in 1997. However, Iomega faced further difficulties in late 1997 and early 1998. To address customer demands for new technology, a new plant was opened in Milipitas, California, which led to increased productivity and quicker response time. Despite these positive changes, in July 1998, Iomega acquired Nomai, a competitor in the removable storage market, with the aim of reducing competition. This decision had a negative impact on Iomega's finances as it coincided with the expenses of maintaining a new factory.

Kim Edwards' poor management decision resulted in his termination, and Jodie Glore is now the president and CEO of Iomega. Previously, James Sierk briefly served as interim CEO before Glore assumed his current position. Glore aims to implement reorganization and restructuring

at Iomega, prioritizing areas where the company has faced criticism in the past, such as customer service and underwhelming product performance.

Glore is taking steps to address these issues by implementing internal restructuring to overhaul the previous system. The new system consists of eight business functions, creating a more elaborate but organized hierarchy. Glore's goal is to improve response time for customers and prioritize their needs.

Finances

In 1997, Iomega Corporation experienced a 101% increase in net income compared to 1996, reaching a total of $115 million. The company's working capital amounted to $338.2 million and had a current ratio of 1.76 to 1.23. These performance metrics positioned Iomega as one of the leading companies in the computer storage devices industry.

The computer industry had a relatively good year in 1998, and due to high demand for their products, the next few years show promise. Nonetheless, Iomegas sales in 1998 were roughly similar to those in 1997, but they suffered a net loss of $(54) million and a negative cash flow of $146 million. This significant decline in income is primarily attributed to Iomegas acquisition of Nomai in July 1998 and the notable increase in operating expenses compared to 1997. Despite this loss, Glore stated that their strong balance sheet at the end of 1998, resulting from profitability in the fourth quarter, will play a crucial role in their future plans.

Iomegas success in the industry is expected to be boosted by upcoming additional new product announcements. The company's main focus has been on maximizing sales of its Zip and Jaz drives, as those generate the highest profits. The sales pattern for Iomegas products follows a seasonal trend,

with higher sales in the fourth quarter and slower sales in the first quarter and summer months. This seasonality is reflected in the fluctuation of Iomegas common stock. In 1997, the stock hit its lowest point of $7.06 in the first quarter and reached its highest point of $16.41 in the fourth quarter. Iomegas stock is traded on the New York Stock Exchange under the symbol IOM.

It has not paid cash dividends to common stockholders in the past and has no intention of doing so in the future. At closing on April 16, 1999, Iomega's stock price was 5 1/8. The gross margin of $139 million or 28% of sales in the fourth quarter of 1998 was an improvement over the $88 million or 22% of sales in the third quarter. This improvement can be attributed to cost reductions in the Zip and Jaz product lines and initial sales of the new Zip USB and Zip 250 drives. The fourth quarter also included record revenue of $313 million in the Americas, $154 million in Europe, and $34 million in Asia Pacific. In addition, the quarter generated over $100 million in positive cash flow and reduced inventory by 16% compared to the third quarter.

In 1998, operating expenses were high, but the fourth quarter operating expense total of $106 million was 17% lower than the $128 million in the fourth quarter of 1997. Iomega is implementing its Six Sigma quality initiatives to reduce costs and expects significant cost reductions in 1999. The decrease in selling, general, and administrative expenses later in 1998 was due to the company-wide effort to lower costs by reducing staff, decreasing marketing and

advertising expenses, and reducing other discretionary spending. Due to seasonal factors and component constraints, Iomega anticipated its first quarter 1999 results to be around breakeven.

However, the company experienced a first-quarter profit of $569 thousand. Moreover, on March 31, 1999, the company announced the retirement of $40 million in senior subordinated notes which were utilized to finance Iomega's acquisition of Nomai S.A. in 1998. These notes bore an interest rate of 12.7% starting from January 1, 1999.

Iomega's executives acknowledge the need to further enhance profitability but are enthusiastic about the future and intend to concentrate on growth and asset management. Additionally, on April 15, 1999, the company was honored with Dell Computer Company's Most Improved Supplier Award as a recognition of their efforts.

Conclusion

Iomega has not introduced a new product in two years, but it is leading the computer industry into the new millennium with product upgrades and acquisitions. The acquisition of Nomai, despite its high cost, demonstrates Iomega's commitment to staying ahead in the technology field. Although the initial excitement for their drive products has faded, there is still a steady demand for Iomega's products, and their aggressive marketing efforts contribute to sales and production exceeding expectations. With constant product enhancements and advancements, Iomega provides consumers with cutting-edge data storage for the new millennium.