A major Japanese electronics company's announcement Tuesday that will introduce a product that competes with Iomega's Zip drive sent the Utah company's stock into a tailspin.
Mitsubishi Electric Corp. said it will manufacture disk drives for personal computers based on LS-120 technology. The LS-120 is a high-density disk storage device that uses diskettes that store up to 120 megabytes of data or 20 percent more than Iomega's 100-megabyte Zip diskettes.The LS-120 also is backward compatible, which means it can run the 3.5 floppy diskettes that are standard now.
The news from Mitsubishi caused Iomega stock to drop 101/4 points at the close of the day, down to 263/4.
Funny thing is, Iomega developed the LS-120 technology and sold it to Compaq Computer Corp. in 1994, which produces LS-120 drives in an alliance with 3M and Matsushita-Kotobuki Electronics.
Iomega stock had been under pressure in recent weeks as investors sold shares and pocketed profits. The stock also has been hammered by analysts who've called it grossly overvalued.
Tuesday's white-knuckle dive came as Iomega made a series of announcements at PC Expo in New York that on any other day might have sent shares soaring.
Iomega announced two new partnerships aimed at making its Zip drive an industry standard. Unisys Corp. plans to use the Zip drive as a standard feature in two models of its Aquanta line of personal computers beginning in July. Unisys also will offer the Zip drive as an option on other models.
Iomega also announced that Bandai Digital Entertainment Corp. will offer the Zip drive as an option on its multimedia Cyber/CD appliance called Bandai Pippin World. Bandai, which gave birth to the Mighty Morphin Power Rangers, jointly developed the Pippin with Apple Computers.
The Pippin device lets televisions be used for Internet access as well as a game and educational software terminal.
Some analysts have said the challenge for Iomega is to make its storage drives the standard in the computer industry. In recent weeks Iomega has made a series of partnership announcements that seemingly move it closer to that goal.
Computer companies that plan to incorporate Iomega drives in some machines include Gateway 2000, IBM, Power Computing, Micron Electronics, Hewlett-Packard Co., Acer Corporation, Packard Bell Electronics, and NEC.
IBM said last week it will include Zip drives in one model of Aptiva computers aimed at small business and home office users.
"With its announcement today of broad industry support, Iomega has made significant strides in gaining the leadership position in removable storage," said Phil Devin, chief analyst of storage technologies for Dataquest. "Zip is now a strong candidate to be the potential replacement for the floppy."
The company also announced two peripheral devices that will make the Zip drive more portable for mobile users and a new internal version of the Zip for laptop computers.
But Iomega, which has been a marketing marvel over the past year, has had difficulty getting its partnership deals to make an impression on Wall Street.
"I think you have, in general, a lack of (Wall) Street support," said Howard Rosencrans of H D Brous. "I think that you haven't seen Wall Street as a whole adapt this thing. That's been a major factor."
Messages flew Tuesday evening in the Motley Fool Forum on America Online, whose members have been stalwart supporters of Iomega. Tom Gardner, who co-founded the Motley Fools with his brother, tried to soothe the ranks with a long post about his investment philosophy, while other fools discounted the impact of the LS-120 on the marketplace.