Iomega To Exit Small-Form-Factor Storage

On Thursday, Iomega reported a net loss of $19.8 million for its second quarter on revenue of $77.6 million. Revenue dipped by 23 percent from a year ago, largely from declining sales of its Zip and optical-drive business.

With the Zip drive being slowly overtaken by optical storage, Iomega bet its future on the REV drive, which reviewers found wanting in comparison to hard drives but superior to tape, as Iomega intended. More problematic, however, was the DCT drive, seen as the successor to its failed "clik!" product.

"As planned and disclosed at the end of first quarter 2004, during the second quarter we conducted and finalized market research and analysis on our other new technology, DCT," said Werner Heid, president and chief executive of Iomega, in a statement. "As we have consistently disclosed, our DCT business plan was dependent upon significant consumer electronics OEM adoption. Unfortunately, we were not successful in securing such OEM commitments. Therefore, we investigated the possibility of bringing DCT to market as a stand-alone computer peripheral storage device.

"Based on our analysis and our objective evaluation of the market environment in which DCT would compete, we concluded that we do not have sufficient resources to simultaneously pursue the opportunities of DCT and our REV products within our cost structure," Heid added. "We have therefore elected to focus our resources on REV products. Consequently, we have decided not to launch an Iomega branded PC peripheral DCT device and intend to wind down DCT development activities during third quarter 2004."

Instead, Iomega plans to license the device to other interested parties, Heid said.

Rev revenues totaled $7.5 million with a "product loss" of $6.7 million, which the company attributed to startup costs. Second-quarter 2004 Zip product sales of $32.3 million decreased $34.1 million, or 51.4 percent, from the second quarter of 2003.