Iomega cash pile looks tempting takeover target

Spend it, quick?

ComputerWire: IT Industry Intelligence

Iomega Corp now looks a sitting duck for a takeover as it sits on a $453.9m cash pile while its stock market value is a pitiful $483.4m. After hacking back costs, the San Diego, California-based company is milking increasing sums from its Zip drives but acknowledges that revenue will continue to slide in the coming year.

With $285m of its cash stashed in banks outside the US, Iomega would find the US government grabbing a 39% share if it was to be brought home, so an overseas buyer would find it a particularly attractive asset. Iomega has run out of ideas. It says that it has no plans to use its cash pile, and at a time when it desperately needs to expand its product line, cut its R&D budget last year by 26.8% to $36.2m.

In the fourth quarter to December 31, net income was $17.8m, up from income of $3.9m on revenue 18.4% lower at $153.8m. For the year, revenue was $34.7m, up from a loss of $93.3m on revenue that fell 26% to $614.4m.

Iomega, which had revenue of $1.5bn in 1999, has been on the slide for some time, and CEO Werner Heid said it must expect continued revenue decline in the Zip product line, which last year provided 77.9% of total revenue.

Iomega's failure extends further. Revenue from CD-RW dropped 23.2% to $79.5m, Jaz sales crashed 78.3% to $14m while PocketZip managed revenue of just $996,000, compared with $6.9m the previous year.

The one growth area has been in traditional storage products where revenue rose 82.9% to $41.3m. It has high hopes for its SAN products for the SME sector though it may be some time before these turn a profit.

Where Iomega has been remarkably successful is cutting back its cost base to generate more profit on shrinking revenue. However, this is inevitably a short-term strategy and unless Iomega uses its resources to buy a company that can offer revenue growth, its lack of ambition will see it bought by a management with greater ambitions.

© ComputerWire

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