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Iomega ships its first rewritable CD drive

Iomega ships its first rewritable CD drive, the internal ZipCD, as the company struggles to push beyond the high-capacity floppy-disk market it helped pioneer.

Iomega has seen the future of data storage, and it is rewritable CDs.

Iomega today announced it has started shipping its first CD-RW drive, the internal ZipCD, as the company struggles to push beyond the high-capacity floppy disk market it helped pioneer.

Iomega and its competitors, such as Imation and Sony, face an unexpected challenge in CD-RW. CDs pack in up to 650MB of data, versus capacities of up to 250MB for the high-capacity floppies that Iomega and others offer. Standard floppy disks hold up to 1.44MB of data.

The market for CD-RW is booming because of its wide appeal and compatibility, said analysts. The media can be used for anything from archiving data to making music CDs.

Disk Trend estimates that 10.5 million CD-RW drives will be sold this year, and 17.3 million and 22.6 million will be sold, respectively, in 2000 and 2001. International Data Corporation put the number closer to 12 million for this year. On the other hand, high-capacity floppy disk drive sales, like those from Iomega, were 14.7 million in 1998, according to Disk Trend.

Iomega claims it has sold 25 million Zip drives and gave no indication it would abandon Zip in favor of CD-RW.

"We've been tracking this market for two years, and this was the right time to get into the market," said Jon Robison, director of Iomega's Worldwide Product Management for Optical Business. Iomega found that already, users of its high-end Jaz drives are using CD-RW.

One problem that Robison could't ignore is that CD-R and CD-RW media cost considerably less than proprietary disks from Iomega, Imation, and others. Write-once CDs typically cost as little as $1 each and CD-RW discs as low as $4 each, versus about $10 for a high-capacity floppy.

One result is that Iomega faces declining sales for its core product, the Zip drive, analysts said. While Iomega wooed computer manufacturers into putting Zip drives into some models, none offered the storage devices across all models. Cost is the reason. Standard floppy drives cost manufacturers $35 or less to put in systems, while high-capacity floppies, such as Iomega devices, cost $70 or more.

Though CD-RW faced a similar barrier, consumer demand and falling component prices made the drives more attractive to PC manufacturers. Compaq Computer, Hewlett-Packard and Micron offer CD-RW drives as standard equipment on higher-end models.

Marketing and brand awareness may be the only cards Iomega has to play as it transitions into new personal storage markets. And there, it has made some good decisions.

Imation and Iomega last autumn released versions of the SuperDisk and Zip drives for the iMac based on the Universal Serial Bus connection scheme. Imation chose a Mac-only version of its drive, while Zip supported Macs and PCs. Analysts said Imation ceded unnecessary sales to Iomega, which aggressively promoted its sleek, translucent blue USB Zip drive.

But without manufacturers committed to ship systems with ZipCD, Iomega must win at retail to secure a place for the CD-RW drive.

"What I'm waiting for is the external drive," said Wolfgang Schlichting, an analyst with IDC. "That's what could really make a difference."

But an external drive won't be available until last year or early 2000, said Robison, who pointed out 75 percent of retail CD-RW sales are for internal drives.

"Our goal is to focus on the after market, the same way we did in 1994 and 1995 with the Zip drive," said Robison.

ZipCD also comes in the wake of SyQuest's retreat from the personal storage market late last year. SyQuest, another high-capacity disk manufacturer, shuttered its doors in October after a bank called in its line of credit. Iomega later picked up the bulk of SyQuest's assets at fire-sale prices.

Iomega in June announced a restructuring plan in which it would close down factories and lay off 450 employees.

"The bottom line for Iomega is revenue," said IDC's Schlichting. "This allows Iomega to participate in a fast-moving market. More important, they can leverage their retail brand name and presence."

James Porter, president of Disk Trend, said Iomega's success with Zip is in large part because of successful marketing and convincing manufacturers to ship the drive in new systems.

CD-RW is already a crowded market, and Iomega is a latecomer. Iomega will not be able to count on manufacturing relationships and will have to leverage brand awareness to jump-start ZipCD sales, said analysts.

The internal ZipCD drive is available for a street price of $209, and three packs of formatted CD-RW discs are available for $19.99.