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Building A Stable Of Consumer Brands, Imation Reinvents Itself

New York — With a string of acquisitions that began in January 2006, Imation has invested almost $800 million in an effort to gain brand dominance in the global market for storage media products and, in the process, remake itself from a reliable business-to-business supplier to a consumer giant.

Boasting a newly expanded stable of brands that includes such familiar names as Memorex, acquired last January, and TDK, which Imation bought earlier this month, as well as HP and IBM, Imation now maintains about a 30 percent share of the global market.

In an interview with TWICE on the eve of a presentation to Wall Street analysts, Imation president/CEO Frank Russomanno outlined the strategy behind the company’s recent aggressiveness and shared his vision of what’s still to come for Imation and its brands.

According to Russomanno, the roots of Imation’s new vision reside in four product categories, or what the company calls “the four pillars” of the storage market: the mostly commercial magnetic tape segment; optical discs such as CD, DVD and blue-laser media; flash memory; and removable hard drives. While Imation was built on the strength of the magnetic business, Russomanno identified the other three segments as having the most growth potential. “At the end of the day we’re selling storage in multiple forms. The fastest-growing segment in that is on the consumer side. In a 10-year window from 2002 through 2011, we see that consumer storage space growing by 36 percent. At the same time business-to business will be up about 28 percent. We like both businesses very much, but we like the 36 percent a little bit more because it gives us more opportunity to sell more product across those four pillars. Obviously, what we’re trying to do is to gain as much shelf presence as possible, deliver to the retailers those products that customers want to buy, and most importantly, the brands they want to buy. So that’s good for the retailers and it will be good for us.”

The overall strategy of the company stresses the strengths of its brands and the effective management of those brands. Russomanno noted that the strength of the Memorex brand in the United States, where it has a No. 1 share overall, is complemented by the stronger presence of the TDK and Imation brands in Europe, where the three combined brands give Imation “a solid No. 2 share” and a “No. 2 or 3 share in Japan. And if you look at Asia as a whole, our combined brands have a very good chance at being No. 1.”

Russomanno did not rule out any more acquisitions going forward. “All of these acquisitions have been part of our overall plan and the process continues,” he said. “So we’re going to continue to evaluate the market and see what we need to be a significant player. What’s come out of this strategic planning has been the importance of brands. That’s why you saw us go out and acquire the TDK brand in addition to the Memorex brand. What that allows us to do is balance the business globally. Memorex is stronger in some markets and TDK in others. Imation has been known as a very reliable brand on the B to B side. So now we have balance across the business, B to B and consumer, as well as geographic.”

Another recent acquisition, that of Memorex parent Memcorp, has extended Imation’s presence beyond storage to include some consumer electronics products including digital cameras and flat-panel TVs carrying the Memorex brand. Russomanno sees these segments as offering more chance for growth. “We believe strong brands not only endure, but strong brands are extendable. And what Memcorp has proven is that you can take the Memorex brand, which is a strong brand, and put it on consumer electronics, and we think we can also extend the brand name into the accessories segment.” Indeed, the recent rollout of a Memorex branded soft storage bags underscored this point, and Russomanno cited cases for iPods and digital cameras as areas in which he thinks Imation can gain some ground.

The acquisition of TDK also strengthened Imation’s position in advanced optical media, namely Blu-ray. Russomanno stressed that Imation “is agnostic” when it comes to which format, Blu-ray or HD DVD, will ultimately win. We will have both and we will adjust according to market’s needs.”

Asked whether he thought that the storage market will continue to consolidate, Russomanno nodded. “I believe that the industry needs more consolidation,” he said, “so that’s probably the way it will be going forward. However, if you look at who the competitors are in this industry, there are not many that exit businesses, so I’m not sure how exactly that is going to play out. Anything we do going forward is part of the strategic process. Strategy is not something you do once and then you put it away. It’s an evolving process that will continue for us. Our intention is to maintain all of our brands, to employ them geographically and by channel where they are best suited.”

But maintaining multiple brands is not the norm in the consumer electronics business and Russomanno acknowledged that Imation needed to change its philosophy to make its plan work. “We felt we needed to become much more consumer oriented and use more of a consumer packaged goods mentality.” To that end, Russomanno went out and hired Steve Moss as chief marketing officer. Moss is a veteran of the consumer packaged goods industry, being a former marketing executive at Pillsbury.

Imation also benefited from an infusion of talent brought about by its acquisitions, said Russomanno. “What we have in the company are good technology people. We have a lot of good channel experience. With the Memorex acquisition we obtained a very strong sales function, and with the TDK acquisition, in Europe and Asia, we’re going to bring in some really good talent there too.”

He continued, “We’ve learned a great deal from the people we brought in from Memorex. That was a very solid team, and the teams are bonding and gelling now and it’s going to be a very positive environment. We’ve learned a lot from Memorex in the areas of graphics, of how they go to market. At the same time, Imation does some things very well in terms of discipline and the processes we bring. So we have another chance to do that with the TDK team. They’re a different culture — they’re similar to us in that they have a big business mentality, whereas Memorex was smaller, fast moving, I’d say more entrepreneurial in some ways. We’ve tried to keep the best of both and integrate as seamlessly as possible.

“Right now this is probably the most exciting time for Imation in my 11 years here,” Russomanno continued. “The Memcorp deal is taking us into some new arenas where we think we can succeed.

“Philosophically we believe that brands need nurturing, brands need to be refreshed, and we are prepared to invest in the brands that we own and are licensing. I think when it’s done, we’ll have a much better chance of being successful.”