Iomega results not so jazzy
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March 16, 1998: 2:24 p.m. ET
Data storage company expects flat first-quarter revenues, cites weak sales
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NEW YORK (CNNfn) - Shares of Iomega Corp. fell sharply Monday after the computer data storage maker said it expects to report a fiscal first quarter loss on relatively flat revenue.
Iomega, which makes the Zip and Jaz drive, said it expects to lose as much as $25 million in the first quarter and is anticipating a negative cash flow. The company cited slower-than-expected shipments and higher marketing expenses.
News of the shortfall sent shares of the Roy, Utah-based company sliding nearly 17 percent to 7-1/8, just above the company's 52-week low.
Iomega plans to announce its first quarter financial results on April 16, after the close of the market.
"Our shipments this quarter in all regions are generally lower than we anticipated, particularly in our international aftermarket business," Kim Edwards, Iomega's president and chief executive officer,said in a statement.
"The shortfall in sales combined with over $20 million in incremental marketing expenses appear to be the main factors contributing to our expected loss. In addition, we expect Iomega's inventory levels to be up over fourth quarter, which will increase our cash utilization this quarter."
Iomega said the first quarter loss is expected to range from $10 million to $25 million. However, Iomega cautioned the estimated loss could be higher or lower since revenue and operating results will be significantly affected by sales through the distribution and retail channels in the remaining few weeks of the quarter.
Analysts said they had been expecting more bad news from Iomega. Though the company reported higher year-over-year fourth-quarter earnings, those earnings fell short of Wall Street expectations.
"This is not a surprise, based on their last earnings disappointment," said Rick Berry, a technology analyst at Argent Securities. "I think they're a one-product company and somewhat of a status company. We expect more of the same in quarters to come."
Berry noted that he is continuing a "sell" recommendation of Iomega shares.
Howard Rosencrans, a tech analyst at HD Brous & Co., said Iomega is suffering from market saturation and products from such competitors as SyQuest Technology Inc. and Avatar Peripherals that offer more storage than the Zip drive at similar prices.
"We believed a shortfall was entirely possible, but the magnitude of the shortfall was surprising."
Rosencrans said he has rated Iomega as a "weak accumulator" since its Q4 earnings report.
"Only those who are staunchly convinced that the Zip drive will be the standard should buy," Rosencrans said.
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