I haven't given it much thought, but does Cramer stand to save or make "mucho" dollars based on his frothings? Is he objective, or likely to twist things a bit to help his investments? Sure they all do, but I had had the impression that he was an unbiased reporter.
Also found this story on EE Times.
Regards,
Mark
From the Systems pages of Electronic News: June 8, 1998 Issue
Memory
1.44MB Floppies Still Viable
Costs of removable storage options, missteps boost prospects
By Elaine C. Y. Chen
Special to Electronic News
New York--Everyone knows that when it comes to memory and storage, bigger is always better. High-end desktops commonly sport 64 megabytes of system memory, while hard drive capacities have gone to 8 gigabytes and beyond. So why are high-capacity storage vendors struggling against the minuscule 1.44MB floppy drive?
According to industry observers, various marketing missteps plus higher costs of advanced removable storage options will probably ensure the continued viability of floppies for years to come. However, over the next three to five years, the prices of high-capacity drives will continue to fall while data-intensive multimedia applications will gain in popularity, improving the market picture substantially.
Many Choices
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The high-capacity removable storage market offers many choices for both OEMs and end-users. The industry leader so far is the 100MB Zip disc produced by Roy, Utah-based Iomega, which claims an installed base of close to 13 million Zip drives. The reverse-compatible LS-120, or SuperDisk, products from an industry alliance including 3M spin-off Imation, Mitsubishi, and other vendors, is a distant second, with roughly 2 million drives shipped so far.
Other current options include the 250MB Shark cartridges produced by Milpitas, Calif.-based Avatar Peripherals for a niche market consisting primarily of mobile users, as well as gigabyte-plus solutions, like Sparq cartridges from Fremont, Calif.-based Syquest and Iomega's Jaz product, used primarily for backup as well as multimedia applications. Furthermore, even more choices are to come: Sony has announced plans to launch a barrier-breaking 200MB product known as HiFD discs later this year, and industry sources say that at least two other companies, including Irving, Texas-based Mitsumi Electronics, may have similar plans on the horizon.
These new entrants are rushing into the removable storage market despite a noticeable lack of glowing success from its current players. Iomega recently announced losses of $18.6 million, shortly following the resignation of president and CEO Kim Edwards. While SuperDisk products make up only a fraction of total sales for giant companies like Imation, the estimated 2 million SuperDisk drives purchased so far are something of a disappointment, given that many analysts had believed the reverse-compatible product could wipe Zip off the map. Meanwhile, floppy drives continue to sell with the vast majority of systems.
The Floppy Survives
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Industry observers are pretty clear about the reason for the floppy's stubborn survival: "Inertia," said Dave Hill, senior storage analyst for Boston-based research firm, The Aberdeen Group. Mike Lynch, director of OEM products for Iomega, believes that "OEMs put floppies into their systems because of the familiarity. They're great insurance policies."
Quite simply, in today's highly fragmented, extremely price-sensitive PC market, the hundreds of millions of floppy drives which have already been installed are a fairly compelling reason for them to keep being sold. As Imation SuperDisk marketing manager Jon Segel pointed out, "Back when the transition occurred from 5 1/4 to 3/12 (inch-discs), there were only two vendors--Apple and IBM. When they decided it was over, it was over." With today's installed base of hundreds of millions of PCs from a wide variety of vendors, "creating a standard is a very different animal."
Analysts also believe that high-capacity storage options are perhaps a bit before their time. According to Farah Yale, principal analyst at San Jose, Calif.-based Dataquest, the floppy "still serves the purpose for a large number of users." While software distribution does require high storage capacities, CD-ROMs have already answered that need. While floppies also might be inadequate for backups of today's multi-gigabyte drives, precious few consumers ever do back up their systems, noted Mr. Hill.
File transfer thus remains the primary function for removable, rewritable storage options like floppies and the high-capacity options. However, floppies remain perfectly adequate for text and smaller image files. Only with newer multimedia applications, like high-resolution digital photographs and PowerPoint presentations, are we "starting to feel the squeeze," said Mr. Hill.
Tough Challenges
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With so many advantages in the floppy's favor, high-capacity vendors face some tough challenges. To become a truly compelling alternative to floppies, Mr. Hill believes new storage media need to be simultaneously reverse-compatible, like the SuperDisk; high-performance, like the Zip; and large-capacity, like the Sparq and Jaz cartridges. Not to mention low cost, a particularly difficult hurdle given that floppy drives commonly sell in the $20 range.
By comparison, IDC estimates average pricing for high-capacity OEM drives at $88 last year, with an expected decline to $61 this year. Meanwhile, many of the high-capacity discs are selling at approximately $10 each in bundles like Imation's $99 10-pack. While the price differential may not seem that high in the face of the admittedly substantially higher performance offered by products like SuperDisk and Zip, it certainly remains a problem in an era of sub-$1,000 PCs, which Bob Amatruda, analyst for Framingham, Mass.-based research firm IDC, said have "clearly had an impact."
While each of the current competitors have met some of these challenges, each has also made missteps. Analysts are particularly critical of SuperDisk vendors who failed to fully capitalize on being the first to launch a reverse-compatible option. According to Mr. Amatruda, until recently SuperDisk vendors "haven't been strong in branding the technology."
By relying on an OEM-centered strategy of replacing floppy drives in new PCs, SuperDisk vendors were left without a distinctive product to promote. Discs also look virtually identical to floppies, creating some customer confusion. However, Mr. Amatruda noted that Imation has recently begun "kicking off a stronger (marketing) campaign."
"We've been around this game a while and I'm pretty confident," says Imation's Mr. Segel.
Notebooks also present a strong opportunity for SuperDisk. Its drives can fit into the thinner modular bays seen in new slimline notebooks and, unlike the built-in Zip drives which have recently hit the market, permit users to leave their floppies at home, providing the company with what Mr. Segel said is a "huge advantage." When capacities do begin to ramp up, Mr. Segel says Imation's experience in selling millions of floppy discs should be another benefit, noting that his company already "sells more brands of diskettes than anyone else in the world" and has proven it can make a profit even at such exceptionally low prices.
Putting Zip Back Into Zip
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Meanwhile, Iomega is hardly standing still. The company is now hoping to move beyond its initial success selling Zip drives as a stand-alone, aftermarket product to building the drives into new systems. "The goal above all else is to have Zip in every computer," said Iomega's Mr. Lynch.
According to Mr. Lynch, Zip's lack of reverse compatibility is actually an advantage. "It's very complicated to have reverse compatibility, high performance and lower cost at the same time," he said, arguing that in order to create the best technology, vendors "have to make a clean break from the past." He attributes the recent losses to planned expenditures on its attention-grabbing marketing campaign.
Analysts agreed that Iomega's seemingly ubiquitous advertising has been well-executed so far. However, rumors of technical difficulties and unsatisfactory customer support have been more troubling, and could be delaying OEM contract wins. "(OEMs) don't want to see a system come back to them for what is essentially a $60 component," said IDC's Mr. Amatruda.
Mr. Lynch said that interim president and CEO James Sierk "has a tenacious background in customer satisfaction and quality" and should be addressing these concerns. He also said that Iomega plans to work on cost-reducing Zip even further, for obvious reasons. "How do you get (Zip) to the next step of volume? Basically, it's price," said Mr. Lynch, adding, "I wouldn't count Zip out on the sub-$1000 PC...keep your eyes peeled."
A Crowded Future
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As high-capacity vendors continue to improve their products and user data demands increase, analysts expect the picture will be improved for everyone. Dataquest's Ms. Yale predicts that high-capacity options could begin to overtake floppies by as soon as 2001. Mr. Amatruda, likewise, estimates that as high-capacity drive costs continue to drop, they could become highly competitive with floppy drives in "a five-year time horizon."
However, analysts also believe the market will remain highly competitive for years to come, with no one vendor becoming an industry standard. Instead, new entrants like Sony will grab their own piece of the expanding market, with Mr. Amatruda estimating that sales of the as-yet unreleased drives could total 273,000 this year. "I don't believe that we will see a single standard in the high-capacity floppy market," agreed Dataquest's Ms. Yale.
Finally, as bandwidth increases, Aberdeen's Mr. Hill believes online backup and file transfer options could also become a major player. Many workers are already transferring the vast majority of interoffice files directly over the company LAN, which can also make automatic backups. It all adds up to tremendous opportunities--as well as tremendous risks--for today's storage players. |
