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Iomega shares reel on news of cuts

SHARE Iomega shares reel on news of cuts

Shares in Roy-based Iomega Corp. were hammered on the New York Stock Exchange Friday morning, a day after the company announced that it will lay off 600 to 700 of its 5,000 employees worldwide.

The computer peripherals company said the job cuts are part of an attempt to reduce costs and improve financial performance.Wall Street's reaction to the announcement, made after markets closed Thursday, was to send Iomega shares down more than 20 percent at one point Friday, to below $5 per share. The stock recovered some ground in heavy trading later Friday morning but was still down 87 cents at about $5.44 at 11 a.m.

Iomega's stock traded as high as $22.21 two years ago and has been as high as $16.75 within the last year.

According to the company, about 400 of the layoffs are expected to be made at the Roy headquarters, where it laid off 575 people in March 1997 to move much of its production to Malaysia.

Additional people were hired in Roy later in 1997, and the current layoffs will leave about 1,200 still employed at Iomega's Utah facilities.

Ted Briscoe, president of Iomega's personal storage division, said Friday that the cuts will cross all functions of the company, and the majority of local cuts will be to temporary or contract employees. The company will notify the employees that will lose their jobs during the week of July 6-10.

"We regret the impact these cost-reduction measures will have on a number of our employees," said James E. Sierk, who took over as president and CEO last March. "Unfortunately, the reality is that we need to adjust our business model in order to become profitable . . ."

The company said the layoffs and cost-cutting will result in special charges against earnings of $5 million to $10 million in its second fiscal quarter, which ends June 27.Iomega, which builds the Jaz and Zip portable computer drives, also expects to report a second-quarter loss of $25 million to $35 million, or 10 cents to 13 cents per share, on revenue of $408 million. And it said it probably will post a loss for the full year of 1998.

Wall Street analysts had expected Iomega to post a loss of 2 cents per share for the second quarter and profit of 3 cents for the full year, according to First Call.

Joseph Besecker, an analyst with Emerald Research in Pennsylvania, said the company needed to cut costs as part of its change in focus from selling individual drives in the retail market to selling drives to computer makers to be included as original equipment in their machines.

"It's not a pleasant thing," he said. "But when you restructure and you go a different direction, you have to make some changes and some cuts. They built up an infrastructure to retail market to beat the band, and they're not going to do that now."

Briscoe said the company has not changed its philosophy, but it has seen a faster-than-expected shift in its business model to one that relies more heavily on original equipment manufacturer, or OEM, sales.

"Our strategy has always been to really build the OEM business as the future of the company," Bris-coe said. "We expect about 50 percent of our Zip units to go to OEMs this year, vs. about 25 percent last year."

Besecker said the "million-dollar question" now is whether Iomega has cut deep enough so that it does not have to go through this again.

Briscoe said, "We believe we have made the right decisions to right this business."

The announcement was another in a string of bad news for the company, which has been beset by management changes, legal battles and declines in its profitability and stock price.

The company said the second quarter loss could mean it may fall out of compliance with the terms of its current $200 million line of credit, and it is holding talks with its creditors on the issue.

"We are disappointed with our financial performance during the quarter," said Sierk. "But we are pleased with the continued acceptance of Zip Built-In as part of an increasing number of OEM PCs.

"We are determined to return to profitability as soon as possible and believe the actions that we outlined today will improve our financial performance and increase the return to our stockholders."

Iomega was established in 1980 and taken public in 1983. It introduced the Zip and Jaz drives in 1995.