Imation Exits Tape Business
It was historically worldwide leader in computer media.
This is a Press Release edited by StorageNewsletter.com on October 5, 2015 at 2:34 pmImation Corp. announced a series of actions designed to accelerate its strategic transformation.
The board of directors has authorized plans to wind down the non-European operations of the company’s legacy tape media business and Consumer Storage and Accessories (CSA) segment, and to end the long-term license agreement with TDK Corporation.
Imation will leverage cash from the wind down to reinvest in its Tiered Storage and Security Solutions (TSS) segment.
Barry L. Kasoff, interim president and member of the board of directors, commented: “After careful consideration, we concluded these wind downs are critical in our ongoing effort to create a leaner, more focused Imation. Our TSS segment is the foundation for the company’s profitable growth over the long term. The board, together with management, remains intensely focused on building that business and driving efficiencies throughout the organization to enhance performance.”
“The steps we are taking today are important milestones in our efforts to reestablish Imation as a more competitive company that is well-positioned for growth and success,” said Joseph A. De Perio, non-executive COB. “Exiting certain legacy businesses will improve our near-term financial performance and position the company for profitable growth. The board and the management team are all focused on creating sustainable long-term value for stockholders.”
The streamlined Imation will focus on the market opportunity for secure data storage solutions, helping organizations worldwide safeguard high-value data while addressing scale, availability and performance requirements. The company is also capitalizing on the demand for comprehensive solutions for securing the mobile workforce.
As part of its efforts to become a pure-play data storage and security company, Imation reached a definitive agreement with TDK under which TDK will relinquish substantially all of its investor rights (including its board nomination rights), Imation’s license rights to the TDK Life on Record trademark will terminate, and TDK will transfer to Imation approximately 6.7 million shares of Imation common stock that TDK currently owns.
The transaction is expected to close in the fourth quarter of 2015.
To facilitate these transitions, the company plans to execute Transition Service Agreements with customers to provide for an orderly transition and inventory replenishment through the end of 2015.
Imation also announced that current board member Robert B. Fernander has been appointed interim group president, TSS solutions, and will oversee the operations of the TSS business segment.
He is a seasoned technology professional with a track record of enhancing technology-based companies. He currently serves as a strategic advisor for I/O Switch Technologies, Inc., a developer of data center technologies, Storage Strategies NOW, an industry analyst firm that offers written publications and analysis for IT users, business and technology leaders and venture capitalists, and FLM.TV, a company focused on delivering, distributing, and marketing independent films. He served as the CEO and a member of the board of directors of Gnodal Limited, a storage and computer networking company, from 2012 until 2013 when it was acquired by Cray Inc.
The company anticipates pre-tax restructuring and other charges ranging from $140 million to $160 million, including a non-cash charge of $110 million to $120 million, primarily related to the goodwill and intangible write-off.
The majority of these restructuring charges will be incurred in fiscal year 2015 and are primarily for severance as well as the write-down of certain intangible assets, goodwill and fixed assets.
The wind downs are expected to be completed by first quarter of fiscal 2016. The company expects that once the wind downs are complete, the streamlined business will operate at break-even on a run-rate basis in 2016.
Imation’s board and management team continue to work closely with its advisors to explore all potential strategic alternatives designed to maximize shareholder value.
Comments
Imation exiting tape business - but in Europe - is once more bad news for the tape industry already in gloomy shape, especially for LTO, the last popular tape format, not including smaller amounts of proprietary cartridges for IBM and Oracle StorageTek high-end libraries.
Imation was historically a giant in computer media. it started in 1996, when 3M spun off its storage business. They introduce the first reel-to-reel computer magnetic tape in 1947 - a revolution in computing by creating a way to decouple data from the computer and migrating them to magnetic media -, then the first quarter-inch tape cartridge (QIC) in 1971 and the 3.5-inch floppy disk in 1984. They were also deeply involved in Travan, 8mm Exabyte, DLT, and LTO.
In 2007, the US storage company acquired the TDK Recording Media business for $300 million in stock and cash and entered into a supply agreement allowing to purchase a limited number of LTO media for resale under the TDK Life on Record brand. In exchange TDK got also approximately 18% of outstanding Imation common stock to become its largest shareholder.
Four years later, Imation signed a strategic agreement with its Japanese partner to jointly develop and manufacture magnetic tape technologies and, at the same time, stopped to coat tapes - the core technology - and was just a reseller of these media as it discontinued tape coating operations at its Weatherford, OK facility.
But then the problem for Imation was that partner TDK withdraws from LTO tape business in September 2013. Consequently the divorce between the two firms was predictable.
For LTO-6 cartridges, there were five licensee companies: Fujifilm, Hitachi Maxell, Imation, Sony, and TDK that pass interchange testing. Now they are only three excluding Imation and TDK. LTO-7 has been announced last month by the LTO consortium but today no media manufacturer, neither Fujifilm, Maxell nor Sony have announced that they will make LTO-7 cartridges. Fujifilm, with good relationship with IBM, will probably be one of them. Wait for Maxell and Sony to confirm their decision.
Remember also that Imation exited the RDX removable disk business last August as well as optical media and TDK flash memories.
Last financial quarter ended June 30, 2015, all Imation's activities went down Y/Y, consumer storage and accessories by 19.8%, commercial storage media by 16.1% and even storage and security solutions but by only 1.7%, representing 19.3% of company's global revenue or $29 million.
Following the announced restructuration, the company will finally have only two activities under the name of TSS (Tiered Storage and Security Solutions): Nexsan storage subsystems and smaller IronKey security products.
Here you could suggest that Imation could change its name into Nexsan acquired for $120 million at the end of 2012. These two businesses will be headed by interim group president Bob Fernander, getting compensation of $35,000 per week for his services. At the same time TSS VP group president has been fired after receiving $769,441.
Also left Gregory Bosler, SVP, group president, Consumer Storage and Accessories.
On September 27, 2015, the board of directors extended the term of Barry L. Kasoff as interim president until the earlier of December 31, 2015 or his replacement by a new chief executive, resignation death or removal.
Unable to redress the company, Mark Lewis is no more listed as CEO on Imation's web site. He got this position in 2009, succeeding Frank Russomanno.
Furthermore, the Imation's Compensation Committee is reviewing all of the compensation practices of the company and the board of directors has reduced its annual base compensation from $175,000 to $125,000 (of which $50,000 is in cash.)
Planned actions to recover are based on four official decisions:
- Product line rationalization
- Expense reduction
- Headcount reductions
- Transitioning Nexsan to a more streamlined fulfillment model
The multinational firm, now headquartered in Oakdale, MN, continues to have a lot of offices around the world but prepares to sell its US headquarters and its Santiago, Chile, London, UK, and Canada properties.
As of June 30, 2015 operating losses were $61.4 million. The current 2016 business plan assumes operating losses of $9 to $14 million, trending to breakeven by 4Q16. It will not be easy and has to be confirmed.
Problem also here is its small cash and cash equivalents balance at $90 million, as the company estimated to spend $30 million to $40 million on restructuring.
Then to sell the company could be the final decision of activity investor Clinton Group in charge of struggling Imation?
Will Nexsan save Imation? Sales of storage subsystems seem relatively flat and, if the products are consistent, with primary hybrid storage and archiving configurations, we don't see real revolutionary technologies and no all-flash array has been released.
At the end, Imation will be a company with annual sales in the range of $300 million compared to more than $2 billion in 2007.
Imation's annual revenue from 2006 to 2014
(in $ million)
| Fiscal Year ended in December |
Revenue | Y/Y growth |
| 2006 | 1,585 | NA |
| 2007 | 2,062 | 30% |
| 2008 | 1,981 | -4% |
| 2009 | 1,650 | -17% |
| 2010 | 1,461 | -11% |
| 2011 | 1,290 | -12% |
| 2012 | 1,007 | -22% |
| 2013 | 861 | -15% |
| 2014 | 730 | -15% |
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