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Iomega recovery marred by falling sales

Change of product focus may help

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Iomega continues to recover from last year's financial troubles, but the company still faces an ongoing slide in sales.

So while its second fiscal quarter saw profits hit $40.4 million, clearly well up on the $47.1 million loss it posted this time last year, the company's revenue fell from $348.8 million to $303.6 million.

It's also worth noting that a good proportion of Q2's profits arose from the company's restructuring programme costing less than anticipated and from a reduction in its deferred tax asset valuation. Both factors together account for six cents a share out of Iomega's Q2 earnings of 15 cents a share.

Iomega's revenue shortfall was to be expected, primarily because the company's removable storage products, primarily its Jaz! and Clik! simply aren't as popular as they were, and Zip! OEM sales are shrinking as more and more PC vendors turn to CD-RW as the bulk removable storage format of choice.

Iomega CEO Bruce Albertson's strategy is to focus more closely on retail sales, and to expand the company's product range beyond its traditional storage lines. At PC Expo, earlier this month, the company said it plans to produce an MP3-based digital music player, for example.

"We are no longer just a round magnetic company," Albertson said at an analysts conference call. "We are no longer just in the computing room."

Iomega's branding skills should certainly help it expand its retail sales, but it needs the OEM sales to beef up its revenues and to cover falling sales of its current products.

Its OEM focus right now is the 40MB Clik! drive, which isn't a bad product for MP3 players and the like, particularly given the price of comparably capacious Flash memory chips. However, the solid state memory companies are pushing very hard to promote their technologies - most notably Compact Flash, MultiMedia Card and Sony's Memory Stick - and these are likely to prove the winners in the medium term. ®

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