Imation Unveils Strategic Direction and Acquisition Strategy
To try to return to growth next year
This is a Press Release edited by StorageNewsletter.com on February 2, 2011 at 3:02 pmImation Corp. reinforced its vision as a global technology company dedicated to helping people and organizations store, protect, and connect their digital world, and unveiled strategies and an investment direction designed to return the Company to long-term growth and improve operating margins. .
"Imation’s vision, as a technology company focusing on targeted applications, will leverage our deep data storage core while addressing opportunities for growth in emerging storage, electronics, and accessories," said Imation President and Chief Executive Officer Lucas. "In 2010, Imation made significant operational improvements, while stabilizing product gross margins. Now, with $305 million in cash and a clear vision, we are ready to begin strategic actions geared to building long-term value for shareholders, employees and customers."
Financial Goals
In the near-term, the Company does not expect revenues to rise in 2011 due to declines in Traditional Storage categories and rationalization of low-margin products. Imation also expects that earnings, excluding charges, will decline in 2011 due to organic investments needed to drive long-term growth. However, the Company will continue its focus on cash and continued margin improvement in 2011. Looking forward, the Company stated that mid-term financial goals include double-digit earnings growth in 2012 and a return to top-line growth by the end of 2012. Longer term, the Company has an ROIC (return on invested capital) target of 10 percent or more, operating income profitability target of 4-5 percent, and target of product gross margins moving toward 20 percent.
Corporate Strategies
The Company’s strategy is to use a disciplined, end-to-end product life cycle management process designed to deliver products with higher gross margins while phasing out low-margin businesses. In 2011, this process is expected to drive new product launches with at least 20 percent gross margin as an entry target. The Company also plans to invest in four core product technology areas: Secure Storage, Scalable Storage, Wireless/Connectivity, and Magnetic Tape. These investments will include organic research activities already underway, with an increase of more than 30 percent in RD&E (research, development, and engineering) resources expected in 2011. The Company also anticipates investments through acquisitions.
Product Strategies
In the Company’s Traditional Storage category, which includes magnetic tape and optical products, Imation’s strategy is to optimize profitability, asset returns and cash in a declining market. The recent strategic alliance with TDK to develop and manufacture next-generation tape is an example of an optimization action expected to maximize ROIC in the magnetic category. In Emerging Storage, including flash and removable hard disk drives, the Company plans to invest in higher growth and margin opportunities, such as its Defender line of secure removable storage products and scalable storage offerings for small-medium businesses (SMBs), including removable hard disk systems. And in Electronics and Accessories, the strategy is to launch differentiated, higher margin products such as the new XtremeMac and TDK Life on Record premium audio lines, while rationalizing low-margin businesses.
Investment Strategies
Imation has identified a need for both organic and inorganic investments. In 2011, the Company expects incremental organic investment of $15 million focused on technology; expanded sales and marketing coverage for the VAR (value added reseller) and OEM channels; improved decision-support tools in IT, and international expansion, focused on China. The Company also intends to grow through acquisitions focused on data protection, storage hardware, removable hard drive systems, and related software, with the potential for several acquisitions each ranging from a few million dollars to $50 million.
Uses of Cash in 2011
The Company anticipates 2011 uses of cash to include: 1) organic incremental investment of $15 million; 2) acquisitions, expected to be small to mid size and focused on data protection and scalable data storage areas; 3) cash paid for restructuring of approximately $40 million, including $30 million to support the go-forward strategy; and 4) stock buyback, restarting share repurchases under the Company’s existing board authorization of 2.3 million shares.
In summarizing the Company’s strategic direction, Lucas commented: "We are well positioned and plan to invest to capitalize on opportunities in large and growing markets. We will strive to create lasting value with our goals of returning to top-line growth by the end of 2012, improving our product gross margins toward 20 percent through product differentiation, and driving increasing operating margins to the 4-5 percent level. We are excited by the opportunities, and are pleased to restart our stock buyback program while undertaking the actions required to drive our strategy forward."
Lucas concluded: "Imation intends to retain its strong leadership in traditional storage categories including magnetic and optical products. Looking forward, we see opportunity to grow in emerging storage through focused investment in data security and protection, scalable storage for SMBs, and connectivity solutions for home and businesses. And with our disciplined approach to differentiated electronics and accessories, we expect to leverage our broad global footprint and portfolio of brands, including Imation, Memorex, TDK Life on Record, and XtremeMac, to drive profitable growth. While we still have much work ahead, we have made good progress on our operational foundation, and now have a clear vision for our future, along with specific and actionable strategies."
Comments
It's not the first time we write that Imation has to find a new business model to compensate the end of floppies and the decrease of the magnetic tape and optical disc market. The best years of 3M are far away. Imation is regularly shrinking since several years. Yearly revenues were $2,278 million in 1997, $1,461 million in 2010, and it's going worse this year. Look at that, about all figures are decreasing, and in majority by double digit percentages:
Imation's brand name is not sufficient to sell products that the firm does not manufacture anymore. When you thing that it was honored last month with the Storage
Visions Visionary Company Award! For sure, we were not in the committee's award.
We do not see new ideas or products coming from its own R&D these last years .The firm just decided to increase R&D resources by 30% after reducing them in the past.
Imation could find new way to succeed by acquiring other firms to get innovative technologies. Since its 3M's spin-off, Imation has acquired three companies or their assets, Emtec, Memorex and Memcorp, to get brand names rather than technology. It has to stop to diversify in such products as wireless projectors, audio lines, SSDs, flash keys or compatible toner cartridges, etc., far from its core business.
$305 million in cash is not enough to buy big companies. With acquisition "each ranging from a few million dollars to $50 million", it can be only start-ups and it's not easy to detect the good ones. We note that Imation is interested in data protection, storage hardware, removable hard drive systems, and related software. Systems manufacturing nor software are specialties of the company. External HDDs is a very competitive sector where Imation is far to be a leader.
If we had one of several recommendations, it will be software that generates more profit, in growing markets like email, compliance and archiving.
Imation invested in high-end tapes with Tandberg and in holography with InPhase. For nothing. In term of R&D, we suggest to work on a new proprietary real long-life archiving media that are missing today.
Maybe a good idea will be to look at a start-up like Millennatia with interesting optical drive and discs supposed to last 1,000 years but we cannot really judge products that we never saw. The new venture announced last November five VARs, so maybe it's coming. And here, Imation is strong enough to make it a standard with other big companies like IBM, an old friend, and others, and could capitalize on its huge worldwide sales force and partners that know deeply the market of computer media.
We are not a fan of RDX but it's growing, not far to be the standard in removable HDDs to replace tapes. Why not trying to get the owner of RDX, ProStor Systems, also in archiving subsystems, that could be acquired at an acceptable price considering Imation's cash, rather than to pay royalties.
Millennatia and ProStor are one of the few choices among more than 300 storage start-ups in the world.
Imation has to react rapidly to avoid the diminishing of its market cap - now at $431 million - and to finish totally in the hands of its main shareholder, TDK.
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