Allen ,
Here is an article that makes no sense to me . In the first place all of these so called experts on the disk drive business use p-e ratios etc. to value an issue such as Iomega instead of the increase of unit sales like they should . The article below says that Iomega shipped 818,000 drives worldwide last year . We all know that that is not true . I wonder what the writer , Jan Stafford , has been smoking .
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November 09, 1998, Issue: 1423
Section: News Trends & Analysis
Mobile Ledger -- Meltdown! SyQuest Folds, Iomega Holds, Is This the End For Removable Storage? -- Two giants of removable storage seem to be running aground. Could so many be so wrong?
Jan Stafford
Fremont, Calif.-Like the wings of Icarus, which melted when he flew too close to the sun, the high hopes of makers of removable storage devices for PCs seem to be dissolving. One-time portable storage device market leader SyQuest Technologies Inc., closed up shop last week and may file for Chapter 11 bankruptcy.
SyQuest's primary rival, Iomega Inc., posted third quarter losses of $7.6 million. Both bet that the PC removable storage device market would skyrocket. Both were wrong.
"The market for these products is not as big as these companies thought it was," says Jim Porter, president of Disk/Trend, a market researcher in Mountain View, Calif.
In fact, Porter says the market won't live up to Disk/Trends projection of 2.7 million units shipped in worldwide sales this year. "They'll be lucky to hit 2 million," he says.
That SyQuest was in trouble was evident before last week's announcement. Fiscal third quarter results showed a net loss of $42.5 million. Lenders recently cut the company's credit line from $30 million to $10 million. Investors didn't rally to secure a $13 million loan, according to Securities and Exchange Commission filings. Stock prices slumped from $19 in 1995 to $5 in 1997 to 34 cents on Nov. 2, when trading was halted. (Trading will remain halted until SyQuest provides additional information to Nasdaq.)
SyQuest was also losing the battle against its only real competitor, Iomega. Last year, Iomega shipped 818,000 drives worldwide, compared with SyQuest's 237,000 drives , according to Disk/Trend.
"SyQuest has been losing ground to Iomega's Zip drive for a while," says Ray Freeman, analyst for Freeman Associates, a research firm in Santa Barbara, Calif. SyQuest introduced its SparQ drive last year, but the product didn't catch on.
"Why didn't they just file Chapter 11 instead of saying they were considering it?" questions Porter. He wonders if there's a potential buyer in the wings. It's all speculation, because "nobody answers the telephone and SyQuest's Web site is down," he says. "There's a high probability that this is the end of the road."
That leaves SyQuest drive users and VARs with one source for consumer and professional removable drives: Iomega. Of course, that's good news for Iomega, but a celebration may be a bit premature. The same niche market that didn't pan out for SyQuest is looking pretty puny for Iomega, too.
Like SyQuest, Iomega has tried to expand its user base by offering low-cost drives. Yet, drive sales aren't taking off, and making small margins on the drives themselves hurts the bottom line. The company's 1998 third quarter revenue was down 9 percent from the same period last year.
"Iomega's Jaz shipments are not growing significantly this year," says Porter. "Only a small percentage of folks using a PC feel a need for these devices."
Users of removable storage devices are in project-oriented fields-such as publishing, graphics, software development, and video editing-that require revisions or projects to be stored on separate cartridges for backup or sharing. "Removable storage for PCs isn't expanding beyond being a specialized market," he says.
Analysts are taking a wait-and-see stance about Iomega's prospects. The new removable storage technologies-DVD-RAM, CD-R, and the High Capacity Floppy disk drives-will provide ample competition. Corralling an already limited market are new PC hard drives that offer greater capacity for lower prices and make additional storage superfluous for users.
Copyright ® 1998 CMP Media Inc.
techweb.com
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Herb
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