One of Iomega's biggest competitors in the removable computer storage market is shutting down.
SyQuest Technology Inc., based in Fremont, Calif., made the announcement Monday, saying it may file for Chapter 11 bankruptcy.The news was received in the industry without a great deal of surprise. SyQuest announced in August it would cut 950 jobs - half its work force. "We've expected it for a while. The handwriting has been on the wall," said analyst Howard Rosencrans with HD Brous & Co. in New York.
Iomega stock hit a 52-week low of 2-15/16 in October. Its stock opened Tuesday up 1/8 at 57/8 but had jumped to 6-13/16 by noon. The increase may be an indication of investor reaction to the SyQuest news.
Iomega said from its Roy headquarters Tuesday it was aware of but did not want to comment on the SyQuest announcement.
SyQuest's demise may benefit Iomega but is more telling of the unprofitable history both companies and a third competitor, Imation Corp., have had in the removable computer storage market.
All three companies manufacture computer drives that use proprietary mass storage disks their makers hoped would replace the standard 3.5-inch floppy. The business plan has been to flood the market with drives at little or no profit and then make money by selling disks.
Iomega's biggest seller is its 100 megabyte Zip disks and drives; Sy-Quest's flagship product has been its 100-megabyte Sparq disk and drive, while Imation has been a distant third with its 120-mega-byte Super Disk.
Iomega has persuaded many personal computer manufacturers, including market-leading Dell Computer, to include built-in Zip drives. But Dell owner Michael Dell said recently he has seen little interest in the drives and believes multi-gigabyte hard drives and other storage options have watered down consumer interest in super floppy drives.
Imation was "never a player," and "SyQuest has served to create a lot of consumer confusion in the market," Rosencrans said. "It may be a positive for Iomega, but again it does create a question mark as to whether the business model works. Both players in the industry subscribe to this model where they give away the razor to sell the blade and try to make enough money on the blade to recoup their loss."
High overhead and a huge advertising budget has Iomega "continuing to bleed cash" with Rosen-crans not at all hopeful the company will be able to keep its promise to be profitable by the end of this year.
SyQuest was born in 1982 and developed an Apple-compatible removable drive during the 1980s. The company went public in 1991 and introduced a 1.8-inch cartridge drive for notebook computers in 1995.
Iomega's first removable storage product was the Bernouli Box, which had been developed by IBM and then abandoned. Iomega went public in 1983 and survived but did not thrive until it introduced the Zip drive in 1995. Stock prices and company enthusiasm soared in the short-term as Zip drives proved to be an affordable add-on to PCs with limited hard-drive space. Larger and cheaper hard drives have made Zip drives and their pricey disks less attractive.