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SyQuest loses to Iomega

Despite posting a narrower first-quarter loss, SyQuest continues to see its sales erode thanks to competitor Iomega.

Despite posting a narrower first-quarter loss today, SyQuest (SYQT) continued to see its sales erode thanks to competitor Iomega (IOM).

The manufacturer of removable-cartridge hard drives reported a net loss of $6.8 million, or 86 cents a share, for the quarter ending December 31, compared with a loss of $33.8 million, $2.98 per share, for the same quarter a year earlier.

The company reported revenues of $48.3 million for the quarter, a drop from $78.7 million for the same period last year.

Analysts said the lost revenues were due to decreased sales of the company's Ezflyer portable storage drive and competition from Iomega. But, the company said that it is back on track.

"At this point we believe the marketplace has a tremendous growth opportunity," said SyQuest's president and CEO, Ed Harper. "SyQuest really created this marketplace. It may have lost its way for a time, but the growing marketplace has tremendous opportunity."

Harper said that what the company needs is a change in attitude.

"In the past SyQuest dominated the marketplace that they created and thus, were not very good at marketing and merchandising their products. We have revamped the entire department with a renewed and invigorated approach to marketing and advertising," he said.

Analysts, however, doubt that SyQuest's new products will become a driving force in the industry.

"I don't think that [SyQuest] will reach profitability," said HD Brous & Co analyst Howard Rosencrans. "They may have one good product, but they have too much overhead. Some time in 1997, they will cease to exist."

That dismal forecast stands in contrast with positive expectations for the disk drive industry as a whole.

"It's been a pretty good year for the storage industry," said David Takata, an analyst with Gruntal & Company in an earlier interview. "There has been decent demand, but more importantly, there's been decent pricing stability."

And Iomega, a head-to-head competitor of SyQuest, has seen a part of that good fortune.

Iomega (IOM) last week announced fourth-quarter profits had more than doubled and said it plans to slash its domestic work force by up to 700 jobs as it increased production in Malaysia.

But what is causing the sink-and-swim scenario between competitors? "Iomega has proved that the vast market is in the low end," said Rosencrans. "SyQuest's technology is much too expensive. They can't compete with Zip [drives], and they are no longer trying."

Despite improved profits, SyQuest's stock hit its 52-week low. The shares traded as low as 2-5/8, before closing the day at 2-3/4, up 1/32 of a point. SyQuest's previous 52-week low was 2-23/32.

Company CFO Henry Montgomery said he expects the company to become profitable sometime this year. SyQuest is now shipping its SyJet 1.5GB drive in significant volume, and it will be the company's focus this quarter.