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History (1999): SyQuest Acquires Iomega for $9.5 Million

Good deal for Iomega, not for removable storage industry

In the end, it was lomega that acquired SyQuest on January 13, for a sum of $9.5 million.

But not all of SyQuest – rather, all of its IP, its inventory and fixed assets in USA, following SyQuest’s filing for Chapter XI protection in November 1998.

True, in a certain light, it would seem to be a sweet deal, since, for a small amount of money, Iomega will scoop up its one-time rival’s juiciest leftovers, leaving behind its non-US business, including, for the moment, SyQuest’s factory in Malaysia.

Not insignificantly, the acquisition also puts an end to the costly lawsuit between the 2 companies. To paraphrase an American commentator: ‘if you can’t beat them, buy them’.

After acquiring Nomaï last year, Iomega now enjoys a veritable monopoly in removable HDDs, excepting Avatar, which never quite took off, and Castlewood, which has only barely started production.

This isn’t necessarily a good thing for the Roy, UT firm. For some time now, the company has been reproached for being behind technologically, with a Jaz drive that offers capacity of only 2GB, and that with 2 platters and the old inductive heads, while, as Castlewood has demonstrated, it is possible to do as well with only 1 disk and MR heads, in other words, to produce a much cheaper device.

And it’s certainly not the disappearance of its 2 main competitors, Nomaï and SyQuest, that will push lomega towards greater innovation and lower costs. For one thing, 1998 was hardly a great year for removable disk drives, with WW shipments down by 3.5%, and revenues down 16.3%, if Trendfocus’ latest report is any indication.

Meanwhile, industry analysts are even gloomier in their forecasts for the current year. While the HDD industry is flourishing, due to a highly competitive market that encourages companies to take whatever steps necessary to gain a few megabytes of capacity over the competition from one day to the next, the removable sector is stagnating, less and less able to defend itself vs. the CD-R, CD-RW and tomorrow, the erasable DVD.

In the case of Iomega, we can only hope that its new management team will not continue to rest on its laurels, which are starting to wilt, and, with the help of newly-acquired technology from SyQuest, find other ways to promote its products besides lawsuits and reacting only to the competition’s announcements.

The next few months don’t look any brighter, financially speaking, for Iomega, whose tendency has been to ignore a basic concept of corporate strategy: focus on your core business.

Recently, the company has been investing in marketing campaigns for products that could certainly boost sales indirectly, but whose profitability is dubious at best: Buzz multimedia, MP3 audio recording, Internet backup, and so on.

And many are wondering about the potential success of Clik!, which isn’t actually a PC product, not to mention the reputation of a company whose image has taken a beating as a result of poorly-made products that provoke the wrath of consumers.

Put yourself in the position of an old removable disk user, who first sprang for a SyQuest 44MB drive, then moved up to an 88MB unit, with backward compatibility, before eventually landing on the 200MB unit, still backward compatible, but fairly slow when reading lower capacity cartridges.

The same user, convinced by much lower prices, perhaps decided to switch to 3.5-inch drives, still manufactured by SyQuest, and gradually worked his way through a number of gens (270, then 135, then 1,300, 1,500 and 1,000MB).

Along the way, a triumphant Iomega shows up with its Jaz drive, first at 1 then 2GB. Today, that unfortunate user has closets full of drives and cartridges, each one as incompatible as the next. He wants nothing more to do with removable drives. More than anything, he wants nothing to do with a mono-source product, so he turns to CD-RWs. The drive is slower, steadier, but more importantly, more reliable.

The user has fewer headaches. If that weren’t enough, recall that removable HDD makers, unable to agree on a common standard, have never managed to convince PC OEMs to integrate their units into computers.

This article is an abstract of news published on issue 133 on February 1999 from the former paper version of Computer Data Storage Newsletter.

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