Iomega Pins Profitability On ZipCD

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Iomega is hoping its new ZipCD CD-RW drive will carve out a place in the crowded rewritable drive market and re-energize the company, which just announced it will suffer a loss for the second quarter and undergo a major reorganization.

Iomega reported it would lay off 450 of its 4,800 employees and close facilities in California. The write-off will cost $45 million, but Jodie Glore, who took over the CEO spot seven months ago, said the moves place the company back on track.

Poor sales in the Zip and Jaz product lines and delays associated with getting the 40MB Clik! drive to market took some of the blame for the company’s position.

Iomega last week tried to put the best spin possible on its situation by introducing the company’s first CD-RW drive. The ZipCD is scheduled to ship in August and will sell through Iomega’s retailers, on the company’s web site, and through OEM arrangements with PC vendors. The ZipCD features 4x write, 4x rewrite and 24x read speeds. Pricing was not released, but will be "competitive," according to company officials.

Steve Baker, senior hardware analyst with PC Data, Reston, Va., said that with a host of well-established brand names already in the market, Iomega will have its work cut out as it attempts to grab market share. "CD-RW is a great category, but it will be difficult to establish themselves," he said. "However, one way it can do this is if Iomega can leverage the relationships it has with companies like Compaq to place Iomega-branded CD-RW drives in Compaq computers like it does now with the Zip drive."

Iomega officials know the company is getting a late start in the category, but plan to break the ZipCD out of the pack with better software and an upcoming revamp of its packaging.

Angelina Beitia, Iomega’s director of global marketing, said the key differentiator is the bundled software package that will include QuickSync, an application that executes simultaneous backups of active files.

Later this year Iomega will unveil a new packaging and merchandising plan that has the various storage products divided by their method of connectivity — USB, SCSI or parallel port — instead of by product category, Beitia said. The current scheme confuses customers, she said, because it is difficult for them to tell which model goes with which computer type.

The company is also hoping the ZipCD helps flesh out Iomega’s storage product line that is comprised of the Zip, Jaz and Clik! devices, said David Gantt, VP/general manager of optical product management. "This is a hot category that we have to be in."

Baker agreed and said that while there is still a lot of life left in the Zip drive, Iomega’s most successful product, sales have slowed.

Iomega announced the shipment of its 25 millionth Zip drive and 150 millionth Zip disc. But aftermarket Zip sales have leveled off as more consumers obtain a Zip drive when they purchase a PC, Beitia said.

Breaking the ZipCD into the OEM market will be a challenge, Gantt said, because Iomega will compete against CD-RW drives by such companies as Sony and Toshiba. "These companies make the drives themselves and can come in at a lower price than we can," he said.

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