Farewell to a former 'it' stock
Iomega was one of the icons of the tech boom, with dazzling devices and fanatic fans. Now it's being bought by EMC.
(Fortune Magazine) -- During its big run a decade ago, Iomega was a gravity-defying technology stock. At its peak in 1996, its nearly $6 billion valuation meant that many fanatically devoted investors were betting that Iomega would be the future of digital storage. It seemed to be in the right place at the right time; broadband connections and music downloads were not yet common, and few companies recognized that storage would be a growth market.
Meanwhile, Iomega's (IOM) proprietary Zip disks and drives had the capacity of a computer hard drive and the portability of a floppy disk, making it a snap to move chunky files like digital images or huge spreadsheets from one PC to another.
The euphoria wouldn't last. Even before the dot-com bubble burst, consumers found reasons to ditch the San Diego company. New e-mail services were making it easier to move text files to another computer, and CD-burning drives were making it cheaper to swap images and music. By early 2000, when other tech stocks were just starting their slide, Iomega had already fallen to a quarter of its peak value. Its attempts to sell more standard fare like hard drives and MP3 players didn't help much; the stock's fall continued into this year, as SD cards, iPods, and flash drives redefined the storage game. In January the stock, which once traded well over $100, dipped to near $2 a share.
That's when EMC (EMC, Fortune 500) smelled opportunity. The Massachusetts storage and security firm has a healthy business selling services to larger companies but is clueless about how to attack the growing consumer market, which is generating 70% of new data. That's why it bid $213 million (or $3.85 a share) for Iomega -the company believes that the Iomega brand, paired with EMC's global reach, will be able to capture consumer-storage market share in places like Asia, where Iomega is weak, and in the U.S., where it has been out dueled at retail by companies like Seagate (STX) and SanDisk (SNDK).
With its $32 billion market capitalization, EMC certainly has the financial firepower to promote the Iomega brand. Salomon Kamalodine, analyst with B. Riley & Co., likes Iomega's chances under EMC: "Most of the need for storage is at the consumer level, and now EMC can capture some of that demand," he says. But the retail market is tough, and EMC will need breakthrough products to gain momentum. You know, something with some zip.