News

posted on 13 February 2008 10:19

Zacks Small Cap Research reports that Iomega's REV removable hard drive sales have stalled.

Zacks is quite enthusiastic about Iomega, reporting: "Iomega, well known for its Zip storage product, is in the transition from a product based company to a service orientated organization. Six consecutive quarters of profitability. The company has revised its guidance for 2008. Revenue is well ahead of our estimate but earnings are slightly below our estimate. We have increased our estimates for 2009 based on higher revenue but lower gross margins. We rate the stock a buy with a $7 price target."

Iomega's business now embraces removanble REV drives, hard drive products and Network-Attached Storage (NAS) products for smaller businesses, and a service line.

Zacks asserts that "The company's goal is to be one of the leaders in the sub $25,000 product category for small and medium sized businesses (SMBs) and the SOHO market." It's holding its own in the NAS market through a strong brand image, ease-of-use, and competitive pricing.

Concerning REV, Zacks state: "This product line generated $31 million in its first nine months after introduction (in 2004) and $46 million in its first full year. However, revenue growth has stalled and the product line is not profitable. A new higher capacity product is shipping and a major potential buyer (Thomson Grass Valley) should be launching a new product line that incorporates the REV drive in late 2007. The REV product line includes a multi-cartridge system for capacity expansion and can be used for automatic back-up and recovery. Next generation products are currently shipping. The REV 70 GB ATAPI model sells for about $470 and the media is about $60. The potential market for small form factor tape replacement systems is about $500 million (but it is declining)."

Obviously its report was written using figures no later than mid-2007, although the report itself is dated February 11, 2008. To that extent it is out of date. However its general remarks about the removable drive market are pertinent and have a bearing on ProStor and imation, both of whom offer removable hard drives.

The report also discusses Iomega's service strategy. It says Iomega bought CSCI in July 2006. CSCI provides OfficeScreen to the SMB market. It comprises "a suite of managed virtual private networks that provide security and protection via firewall/VPN, SSL and IP security for wide area networks that link offices and remote workers. Charges for the product are about $120/month plus $20 a seat, a very modest fee for such a level of security. There are currently about 700 sites supported."

Iomega also announced a partnership with CI Host in 2006. That company provides web hosting, ISP, DNR and application service provision. It "hosts about 300,000 domains in 190 countries world-wide. CI Host operates three data centers in the United States and is the fifth largest Web hosting company in the world."

Zacks says Iomega will add storage infrastructure management to its services. Interesting stuff.

More on Zacks at http://www.zacks.com/

More on Iomaga at http://www.iomega.com