Iomega, Komag post losses
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April 16, 1998: 7:00 p.m. ET
Disk drive firms warn of more red ink as industry battles plunging prices
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NEW YORK (CNNfn) - Two leading disk drive companies reported first quarter losses Thursday and warned of more red ink in the months to come as the industry continues to grapple with inventory problems and economic turmoil in Asia.
The quarterly reports from Iomega Corp., which makes high capacity storage drives, and Komag Inc., underscore the problems facing the industry as prices for disk drives continue to tumble.
For the three months ended in March, Roy, Utah-based Iomega lost $18.5 million, or 7 cents a share, on revenue of $407.5 million. Analysts had expected the company to lose 6 cents a share. In the year ago quarter, Iomega reported a profit of $23 million, or 8 cents a diluted share.
James Sierk, Iomega's president and chief executive officer, blamed the disappointing earnings on a combination of weak international sales and $20 million in incremental marketing expenses. He warned the company may not return to profitability until the end of the year.
"As we reassess our plans for 1998, however, we expect results in the range of a small loss to breakeven for the next two quarters before returning to profitability in the fourth quarter of 1998."
Iomega said business in the Americas grew 32 percent to $299 million while European sales dropped 17 percent to $89 million and Asia/Pacific sales slumped 26 percent to $20 million.
Gross margins -- the difference between sales and the costs of production -- slipped to 25 percent in the first quarter from 30 percent a year ago, reflecting the higher percentage of Zip drives shipped to PC makers during the period. Retail sales typically carry a higher profit margin than shipments to PC makers.
Separately, Iomega announced former President and Chief Executive Officer Kim Edwards, who resigned in late March, was also leaving the company's board of directors.
The company gave no reason for his resignation.
Iomega (IOM) shares closed down 1/4 to 7-1/8. No activity was reported in after-hours trading.
Meanwhile, Komag Inc. posted a first quarter loss of $58.2 million, or $1.10 a share, on revenues of $76 million compared to a profit of $17.8 million, or $0.33 a share, on revenues of $167.2 million in the comparable year-ago quarter.
Meanwhile, Komag Inc. said it expects to report a loss for its second quarter as prices of disk drive products continue to fall.
"As a result of ... continuing price pressures, we expect that the company will report a net loss in the second quarter," Komag President and Chief Executive Stephen Johnson said in a statement.
Johnson said based on the order outlook Komag expects second quarter sales will increase to between $100 million and $125 million from first quarter levels of $76 million.
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Iomega
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