Interesting Investors Business Daily Article on SyQuest:
Can SyQuest Get Fit Enough To Do Battle With Iomega?
Date: 10/8/96
Author: Nick Turner
After an avalanche of financial problems, SyQuest Technology Inc. is ready to dig out.
In recent quarters, the company has suffered huge losses, flirted with bankruptcy and was nearly delisted by the Nasdaq Stock Exchange.
Its market - hard-disk drives with removable media - is up for grabs. Competitors are moving fast. Iomega Corp., with its popular Zip and Jaz drives, already has a solid foothold.
"SyQuest has lost its lead over the last couple years," said Jon van Bronkhorst, an analyst at Robertson, Stephens & Co. in San Francisco. ''They've let Iomega come in and eat their lunch.''
Fighting Iomega took its toll on SyQuest's balance sheet. To stay competitive, Fremont, Calif.-based SyQuest sold products at a big loss.
That's the bad news. The good news is SyQuest has a brand-new
management team. Old products are being phased out, production costs have been cut, and finances - for the moment - seem to be under control.
"I'm impressed with what management has done," said Phil Devin, chief analyst of computer storage at Dataquest Inc., a San Jose, Calif., market research firm. ''The company is positioned well, and sales have increased substantially over the summer.''
SyQuest now is banking on two new products: the EZFlyer, a drive that runs 230-megabyte cartridges; and the SyJet, a higher capacity product. The EZFlyer began shipping in June. The SyJet should be available this month.
Founded in '82, SyQuest established itself as a supplier of removable computer storage to desktop publishers. These users often need to store large text and graphicsfiles, which don't fit on floppy disks.
SyQuest's products use the same technology as hard-disk drives, but the media can be removed. This gives them the portability of floppy disks - with much more capacity. A
floppy holds just 1.44 megabytes of data, but a SyQuest cartridge stores as much as 1.3 gigabytes.
In recent years, the allure of high-capacity removable storage has grown. Today's multimedia software - programs with complex graphics, video and sound - requires plenty of space. Portable devices let users transport or back up these beefy files.
The Internet also is driving the market's growth. Web surfers frequently download files and need somewhere to put them.
So far, Iomega has best capitalized on these trends. Its Zip drive is a big hit with consumers. The device, which uses 100-megabyte disks, sells for about $200. Iomega also has a higher-end product called the Jaz drive. Jaz cartridges hold a full gigabyte of data.
SyQuest, meanwhile, has failed to reach as broad a base of customers. In an attempt to compete with the red-hot Zip, it released last year the EZ135 - a drive that used 135-megabyte disks and was aimed at the low end of the market. The EZ135 was a disaster. SyQuest sold it at a loss and even then couldn't keep up with Iomega.
"The EZ135 was really a departure from SyQuest's main area of strength," said Ed Harper, the company's president and chief xecutive. Until producing it, SyQuest had always targeted performance-oriented users. In its most recent quarter, SyQuest posted a net loss of $41.3 million, or $3.61 a share. Its sales were just $29.5 million. That compares with net income of $1.7 million, or 15 cents a share, on sales of $68.8 million in the corresponding period of '95.
SyQuest has reported a negative net worth in the past two quarters. That's put the company's shares in danger of being delisted by Nasdaq. The stock exchange requires members to maintain at least $1 million in net tangible assets.
But Harper, who took over as CEO in June, is optimistic. Nasdaq is waiving its requirements until Oct. 31, and Harper thinks SyQuest will be in good enough shape by then. The company recently completed two large financing deals, raising a total of $50 million.
Also, SyQuest's management has made progress in accounts payable. The firm has persuaded many of its vendors and suppliers to convert Syquest's bills into notes,buying time.
"This has removed the threat of being forced into some sort of
(bankruptcy) chapter proceedings," said Ed Marinaro, SyQuest's
chairman.
Yet even with its house in order, a single glitch in quality could torpedo SyQuest's comeback, van Bronkhorst says. "The market has gotten to a point where the patience level is at a minimum."
SyQuest has positioned its $300 EZFlyer between the two Iomega products - it stores more than the Zip, but less than the Jaz. The strategy is drawing mixed reviews from analysts.
Some say it's smart to stay out of Iomega's way. Others note that for $100 more,consumers could buy the beefier Jaz. SyQuest's SyJet may be the better value. It costs $500, and its cartridges hold 1.3 gigabytes each.
Iomega won't be SyQuest's only competition. CD-recordable and magneto- optical drives are both growing in popularity. But demand and wareness of removable storage is also growing. And that should help SyQuest.
"They're at the leading edge of an industry phenomenon," said Bob Abraham, an analyst at Freeman Associates Inc., a Santa Barbara, Calif. research firm. "There's a need for a lot more storage at the personal level." |
