News

posted on 24 April 2008 16:06

Imation reported a 25.8 percent increase of revenue to $530.9 million for its Q1 fy08 but net income declined 29.9 percent as tape revenues fell.

The company reported net income of $11 million ($0.29/share) compared to the year-ago figure of $15.7 million ($0.44/share).

Frank Russomanno, Imation's President and CEO said: "We are pleased with our Q1 earnings in the face of challenging economic conditions. We benefited from the TDK Recording Media acquisition, our restructuring actions and improved margins in optical and flash products. These factors helped offset declines in our legacy magnetic tape formats."

"Revenue growth in the quarter was driven by our TDK Recording Media and Memcorp acquisitions as well as currency benefits. We saw softening demand from our enterprise tape customers in the financial services sector both in the U.S. and Europe. Europe was softer than planned in optical products as well, despite positive currency benefits. As expected, our flash business declined and profit margins improved as we continued our previously announced rationalization of our U.S. consumer flash business."

The sub-prime crisis and allied economic problems are having an effect. But it was the fall in enterprise tape sales that stand out, that and optical sales revenue declining in Europe. Come on Blu-ray.

It is ironic that its flash business declined; the enterprise flash business is looking to have great prospects. The flash USB thumb drive business though is commoditising very fast and Imation's channel and brand strength isn't translating into strong sales.

It's the same in optical products. Perhaps the company's strong brand reputation in tape, where it makes and develops media technology, just isn't working in the more consumer market-focused optical and flash areas. Here Imation doesn't manufacture the storage media but buys product in and rebrands it.

It's hard to see what Imation can do to counter brand weakness in these areas without it having to get involved in developing the base technology or the addition of value to it such as additional software or security measures. Over the long-term it faces a declining tape market although green considerations may begin to offset that.

Imation reports that research and development (R&D) spending was $6.6 million or 1.2 percent of revenue, compared with $12.4 million or 2.9 percent of revenue reported in Q1 2007. The decrease in R&D expense is due to the result of savings from restructuring actions initiated in the second quarter of 2007 as the Company focuses its activities primarily on development of new magnetic tape formats.

That must mean LTO5 and new generation formats for Sun (StorageTek) and/or IBM.

The company's outlook for 2008 is revenue of approximately $2.4 billion, representing growth of approximately 16 percent over 2007.

^{[Paul Roberts, news editor.]}