Troubled storage peripherals vendor Iomega has announced it is to lay off 12 % of its workforce in an attempt to regain profitability.
The company expects second quarter losses of between $25 million (#15 million) and #35 million (#21 million). Between 600 and 700 staff will go worldwide as a result of restructuring.
"Our goal is to generate cost savings totalling more than $50 million (#30 million) in the second half of this year and show a profit in the fourth quarter," said newly-appointed CEO James Sierk. "However, we do not anticipate being profitable for the full fiscal year 1998."
The company also admitted that the losses could cause the company to default on its debts. Iomega is now actively engaged in discussions with its lenders.
The company ran into trouble earlier this year when CEO Kim Edwards resigned unexpectedly, following a spell of adverse litigation and bad press (see PC Week, 31 March).
The company put the poor results down to a change in its business model from retail to OEM sales, which has reduced its profit margins, and also blamed poor sales of Zip disks for the lack of growth in revenue. Iomega expects OEM sales of its Zip drives to account for 50% of total Zip shipments for the second consecutive quarter.
Poor sales of Zip disks may be due to their price. "I think Iomega is trying to keep the cost of media artificially high," said Jack Gold, programme director at the Meta Group analyst firm, advising the firm to drop its prices for disks. On the drive side, price erosion, falling margins and fewer sales have all contributed to the company's poor outlook, he said.
Jamie Snowden, analyst at Input, said: "(The loss) surprises me because Iomega has good products and Zip drives are shipped with so many PCs.
It could be it has problems with profit margins due to competition with SyQuest. I have a gut feeling it'll survive, or get bought up, because it has good product."
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