Competition is coming for disk drive makers, and Nomai's entrance into the U.S. market is just the beginning.
Last week, the French disk maker scored a major victory in its battle against Iomega (IOM) when a U.S. district court lifted a temporary restraining order that had prevented Nomai from selling its Zip-compatible disks in the United States.
A court victory does not mean instant market share for Nomai. Nor has it caused an instant drop in sales for Iomega, or for other disk and drive makers, like Syquest (SYQT), analysts said. Rather, Nomai's coup is merely a next step in what is bound to be a protracted legal battle.
The most important consequence of the ruling is that it means more players are on their way into the storage space, including marketing powerhouse Sony.
Sony has announced plans to have its high-capacity, 200MB floppy disks on the market before the first half of this year is over and, according to industry observers, Sony has what Nomai is missing--distribution.
Jim Porter, president of market research firm Disk Trend, said the fact that the court order against Nomai was lifted will not translate into an immediate presence for the company in the United States.
"It is going to take Nomai a long time to get significant distribution," Porter said. "That takes time and effort."
Porter argued that major electronics retail outlets such as CompUSA and Fry's Electronics probably have not even heard of Nomai. He said that building distribution relationships with such companies would take a bit of nurturing on Nomai's part.
The French company has started the nurturing process, however, by building up its distribution through a legal settlement with SyQuest. Nomai had been charged with patent, copyright, and trademark infringement. The dispute was settled last October, clearing the way for the company to build up its brand in the United States.
Under the terms of the settlement, Nomai was granted a royalty-bearing license to produce 3-inch and 5-inch replacement cartridges for SyQuest removable disk drives. The companies also entered a cross-licensing arrangement, and Nomai will begin to sell SyQuest products on a private-label basis.
Before the settlement, however, Syquest was forced to restructure its pricing so that it could make some revenue on the drives in addition to the profits it was making on cartridges. New competition in the profit-bearing part of the company's revenues cut into earnings--a fate that soon may befall Iomega, whose pricing structure is very similar to Syquest's before the settlement.
The recent court decision will not prompt Iomega to let down its guard on Nomai, and Nomai is going to face some challenges of its own. Analysts have questioned the company's ability to mass produce disks, and also noted that, when new industry players step into a market, consumers question the quality and compatibility of the new product. Branding is crucial to the introduction of a new product, and Nomai simply does not have brand-recognition, Porter said.
Sony, on the other hand, does, which could create big waves for Iomega.
"Iomega is most concerned about a major market presence by Sony. It is a major marketer with all kind of marketing capabilities," said Porter. "Yes, Iomega will watch Nomai out of one corner of its eye, but won't be too concerned until it starts to displace sales. Iomega is much more concerned about impact of Sony."