Iomega is closing one of its main arms with the loss of a quarter of its workforce, quoting the need to cut costs in a market where it once held sway.
Everything looked rosy even a year ago. Iomega had two good looking technology bets and was managing the decline of Zip drive revenues well. The rigid removable REV drive promised 35GB on a small platter and the digital capture DCT device looked a good fit for video recorder and digital camera needs. It was not to be.
The DCT technology programme is being closed, a quarter of the workforce, totalling 145 people, fired and restructuring costs of $5 million to $7 million. It wants to save $30-35 million annually to return to profit. Where did it all go so horribly wrong?
When the 100MB Zip drive was introduced its competition was the 1.44MB floppy disk. No contest. You transferred files on tape, meaning an expensive drive and backup software or you used a zillion floppies. The Zip drive was received ecstatically and sales boomed. So did the technology with the higher capacity Jazz drive and the 250MB Zip.
Then the movable storage media climate changed. CD burners came along and you could put 650MB on a CD. Cheap tapes became cheaper. DVDs came along. Flash memory thumb drives took the low capacity end of the market by storm. The Zip drive had nowhere, long-term, to go but out of business and its revenues started slowly but noticeably tailing off.
What could Iomega do? Playing a straight higher capacity game was pointless. DVD capacity is enormous. Flash and CDs have almost killed the floppy disk and Zip drive. With 2GB flash drives in the wings, and cheap external hard drives (40GB Amacoms for under £150 for example), the writing was clearly on the wall.
Iomega decided the hot markets where development had potential was in NAS, small form factor 30-40GB removable drives and digital capture devices for digital cameras and video recorders. It developed the 35GB rigid removable disk drive, the REV, and also its DCT technology.
NAS was not a great success. As Iomega entered the market the low-end went commodity and the high-end added features such as NAS-SAN convergence. Iomega exited the high-end and is still selling NAS products but that is not the future growth engine of the company.
REV looks good. It is several times faster at backup than tape, quicker at restore, obviously, and removable, like tape. There is a much rumoured REV autoloader with a promise of 4TB capacity. A SCSI version exists for server backup. A channel is being built and future capacity increases look achievable.
But DCT was a disaster in that, although the technology looked good, Zip-based revenues fell faster than REV revenues grew. NAS and other minor business lines inside Iomega couldn't take up the slack and CEO Werner Heid had to hit the DCT eject button. He is betting the company on REV.
The bottom line summary of Iomega's problem is that cheap tape, cheap external disk, cheap DVDs and cheap USB flash memory are sqeezing the company and its products. Heid wants to return it to profitability. A deeper question is, can it survive at all?