Friends: WSJ article on IOMEGA for tomorrow's issue. PLEASE READ!
-- start --
Dow Jones Business News -- June 17, 1996
(WSJ):U.S. Iomega Hopes Zip Drive Will
Replace Floppy Drive
By LEE GOMES
AP-Dow Jones News Service
NEW YORK -- Iomega Corp.'s chief executive, Kim B. Edwards, remembers
getting a troubling sense of how tough his job was going to be shortly after
joining the company three years ago. He had asked his sales team to name some
potential new markets for the company's computer-storage devices.
'I realized the company had no clue that there was a mass market out there,
waiting for a fun product,' Edwards says.
The fun products for Iomega soon began, when its engineers came up with the
Zip drive, a book-sized, portable storage device that uses a new kind of floppy
disk with a capacity of 100 megabytes, equivalent to storage of about 70 current
floppies.
Edwards, a former president of a rechargeable-battery seller, added snazzy
marketing. Devoted, many say deluded, on-line habitues began to follow the
company, and Iomega's stock soared from $5 a share in December 1995 to
$56 in April, and that was after a stock split.
But the company's amazing run has had a big impact on the computer industry: It
has lit a fire under competitors in the previously unglamorous, low-profit business
of the humble floppy disk, and is helping to spotlight an already brewing fight
over a new, high-capacity floppy disk replacement, The Wall Street Journal
reports Monday.
Iomega is trying to expand the market for its Zip, and hopes to transform it from
a specialty product, one that's bought as an accessory by owners of existing
personal computers, into something that is built-in by computer makers as a
replacement for the tried-and-true floppy drive.
But it has at least one major rival in that effort: the LS-120, an even
larger-capacity drive holding 120 megabytes, or as much data as 83 floppies,
that was designed by an engineering partnership of Minnesota Mining &
Manufacturing Co. and Japan's Matsushita-Kotobuki Electronics Industries Ltd.
The LS-120 has already won a major endorsement from Compaq Computer
Corp., one of the leading PC makers in the world, which in April began shipping
the product as a standard component on a small number of business computers.
And tomorrow, 3M is expected to announce that two major Japanese
electronics manufacturers will be making the LS-120, likely giving it a further
boost.
Located on the front panel of every PC, the floppy drive has been dismissed for
years as a high-technology version of the No. 2 pencil. Though an estimated 80
million drives and four billion disks are sold annually, it's a low-profit business in
which a dozen Japanese companies churn out necessary but ho-hum products.
More significantly, while other PC components appear to be in a state of
perpetual change, today's floppy disk holds the same 1.44-megabytes it did 10
years ago.
Compaq said it expects to convert its entire product line to the LS-120 within
two years, though some analysts doubt they can do it.
PC makers Packard Bell Electronics Inc., International Business Machines
Corp., NEC Corp. and Acer Inc. all recently struck deals with Iomega to
include its drives on certain machines, but only as an optional back-up device.
Iomega doesn't yet have anyone using its Zip to replace the main 1.44
megabyte floppy, which Compaq is beginning to do with the LS-120. Ironically,
the underlying technology for the LS-120 was once owned by Iomega, which
said it stopped working with it after deciding it was too expensive.
Indeed, the battle between the two products may turn on cost - and Iomega
appears to have more room to maneuver in that department.
The Zip drive sells in stores for $200, essentially the same extra amount that
Compaq charges for the LS-120 in a PC. Special high-capacity disks for the
machines, which carry high profit margins and are where the removable storage
makers can really make their money, run about $20 each.
But as in all things connected with PCs, those costs are likely to drop. The Zip,
say analysts like Robert Abraham of Freeman & Associates Inc. in Santa
Barbara, California, may have an edge in cost reduction potential.
The LS-120's main selling point is that it reads not only its own high-capacity
floppies, but also today's standard ones.
Doing so requires two separate systems for reading and writing data, which
makes the LS-120 inherently more expensive to produce than the Zip. The Zip
is cheaper to produce because it has a single internal system for reading and
writing, but can't read today's floppies.
Compaq's Gottsegen says this omission is the Zip's biggest flaw. But Iomega's
marketing chief Timothy L. Hill counters that traditional floppies are becoming
less useful and will disappear anyway within a few years.
Before that happens, Iomega, with two million Zips already sold as back-up
devices, is frantically trying to crown itself the de facto industry standard. One
tool: Iomega's flashy ad campaign, built around the slogan 'It's your stuff.'
But there are plenty of threats lurking for Iomega. For one thing, even analysts
who like the company and its technology think that its stratospheric stock price
has to crash sometime, meaning a possible market backlash.
The stock price even now 'is totally out of line, even with potential future profits,'
said Dave Bunzel of the Santa Clara Consulting Group. One more reason that's
true: both the Zip and the LS-120 will probably face competition in a few years
from entirely new kinds of removable storage technologies, such as erasable
optical drives.
But the Roy, Utah-based concern is optimistic. Founded in 1980, Iomega has
been a public company since 1983. Until Zip mania, it had been known within
the industry as the stolid supplier of 'niche' products such as the Bernoulli Box.
Though most of Iomega's attention is the result of the Zip, the company also sells
two other storage lines: a tape back-up system called 'Ditto' and a removable
hard-drive named 'Jaz.' The latter holds a gigabyte of data, 10 times as much as
Zip.
As for that gravity-defying stock price, marketing chief Hill says Iomega policy
prevents him from commenting. But if the company doesn't talk up the stock,
that policy also means Iomega doesn't do anything to dissuade overeager
investors.
--- end ---
Any comments?
Looks like we can expect some LS 120 announcements tomorrow. Will IOMEGA take another hit and see $35? Will IOMEGA come back with other announcements? Let's see!
Regards,
Erik. |
