Shareholders rage over Imation's incredible 88% plunge
How the leading disc and flash maker came a cropper
Imation's long-term CEO, and vice-chairman, Frank Russomanno, retired in May 2010. He'd presided over the two years of ghastly share price falls – 2007 and 2008 – and then failed to get the share value lifted throughout 2009. Linda Hart, non-executive chairman of Imation’s board of directors, commented at the time: "The board is very grateful to Frank for his excellent leadership."
Very good. What would she have said if he had actually grown the company? What was the board doing to secure and save and even increase shareholder value from 2007 to 2009? Even then, at the end of 2009, when it was obvious Imation needed new leadership, the board waited for over a year for Russomanno to go and congratulated him on his way out.
Enter Mark Lucas
The Imation share price briefly rose as Russomanno handed over the reins to the then president and COO Mark Lucas, but has trended down since then, particularly since March this year. Lucas and his exec team devised escape routes, based on acquisitions, from the bind Imation had got itself into. The company bought:
- ENCRYPTX for its technology to secure optical disks, USB flash drives and removable hard drives
- MXI Security for its secure USB flash drive products
- ProStor for its Infinivault removable disk autoloader technology
- IronKey for its secure data storage hardware
Lucas has not found any golden goose inside Imation nor managed to buy one outside either.
Shareholder: 'We have seen nothing to prove that this strategy is going to work.'
Basically, with a few exceptions, Imation, appearing to think manufacturing its own media technology is boring, sells me-too non-premium products to too few customers to make any significant difference to its revenues. Over a period when storage companies like SanDisk, which manufactures consumer flash memory products, have more than maintained their share value – $42.4 was its peak 2003 price with the current price being $48.07 – Imation's management did not invest in new product manufacturing.
It preferred, instead, to sell commodity product through its branded channels. Since the start of 2003 Imation has lost 41.45 per cent of its value and SanDisk has gained 438.56 per cent in value. This is especially ironic as Imation says it was the flash market leader in 2006. Who says manufacturing is boring now?
At present optical media sales represent 40 per cent of Imation's business, with tape representing 25 per cent. Revenues in both product categories are declining and are expected to continue declining.
Not like Tandberg
Tape drive and cartridge supplier Tandberg nearly went bankrupt around 2005. Like Imation, it signed a manufacturing deal with ProStor for its RDX removable drives, did well with them via OEM deals and its own branded sales, and bought ProStor's RDX assets in May 2011.
Basically RDX was the growth recovery medicine for Tandberg and it worked. Imation had its own Odyssey removable disk drive products but did not do well against Tandberg's competing and overlapping product, until it worked out this overlap was undesirable. It then bought the InfiniVault RDX autoloader business from ProStor, no doubt thinking it would sell a lot of RDX cartridges on the back of that; the older shaver and razor blade business model rearing its head again.
Tandberg had the spur of near bankruptcy to spark its rebirth. Imation has not met that watershed yet.