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SyQuest plots a comeback course

SyQuest is devising a path to return to the dominant position it held in the removable hard disk drive and cartridge market before Iomega's Zip drives hit the scene.

SyQuest (SYQT), which made the rounds this week on Wall Street, today saw its stock soar 33 percent as it marked its second consecutive session of double-digit gains.

Shares of SyQuest closed the day at 5-11/16, up 1-13/32. And the removable hard disk drive and cartridge maker was the most actively traded stock on Nasdaq, with 26.1 million shares trading hands--more than a 15-fold increase over average three-month trading volume.

That gain added to the 17 percent jump SyQuest received at yesterday?s close, when it ended the day at 4-9/32, up 5/8. The recent movement is bringing the company?s stock closer to its 52-week high of 6-13/16, after hitting a low of 1-11/16.

That?s quite a run for SyQuest, but does this mark a return to the stature the company once held?

Back in 1995, SyQuest sat on top of the world, holding virtually 100 percent of the removable hard disk drive and cartridge market. But a lot can happen in a couple of years.

And it did.

Competitor Iomega (IOM) stepped onto the scene Syquest at a glance with its spiffy-looking Zip drive, stole market share to jump into the lead position, and became a Wall Street darling with its soaring stock price.

Meanwhile, SyQuest saw what had been steady revenue growth plummet by a third, to $200.4 million in fiscal 1996, and posted a whopping net loss of $136.7 million. The company had a negative net worth of $45 million, and faced a possible delisting from Nasdaq. And it saw its market share drop to 40 percent, to boot.

But these days, SyQuest is devising a path to take it back to its prior position. The details that mark this effort are evident--from its new management team installed last year down to the company's business cards, which sport a brand-new logo

The changes that are designed to yield the greatest results, however, are a new corporate strategy and a horde of new funding to help execute it.

Just this week, SyQuest announced

Ed Harper on Syquest's future
the completion of a $10 million private placement, bringing the company?s total financing to more than $159 million during the past 16 months.

Armed with these funds, SyQuest in July launched its largest marketing campaign to date--to the tune of $16 million--aimed at promoting its EZFlyer and its SyJet removable-cartridge hard drives as a way to upgrade hard-drive capacity.

"We see there is a great opportunity with the upgrade market," said Edward Marinaro, SyQuest chairman. "Previously, [the industry?s removable drives] were used for their portability, and then viewed as a way to back up data."

But last winter, SyQuest conducted a study of customers and potential customers, and found that removable hard disk cartridges appealed to those who no longer had any space left on their hard drives.

Since launching the campaign to promote use of SyJet 1.5 gigabyte cartridges, and EZFlyer, with its 230-megabyte cartridges as an upgrade product, SyQuest's sales into its distribution channels have increased five- to six-fold during a two-month stretch, said Ed Harper, the company's president and chief executive.

The company also sees its growth coming from developing countries that lack an adequate networking structure, although to a lesser degree.

Its removable drives can be used as a way to share data between parties, Marinaro said, and China is just one country that has taken advantage of SyQuest's offerings in this space.

SyQuest announced in June that

Ed Marinaro on rebuilding SyQuest business
China?s State Education Commission had signed a letter of understanding to install SyQuest removable-cartridge hard drives at 1,600 higher-education institutions.

The director of the commission?s education technology development department estimated that, by the end of the 1998, there would be more than 30 million SyQuest cartridges and 2.7 million removable drives at the institutions. Plans also are in the works to begin using SyQuest products in 900,000 Chinese secondary schools.

The deal was born out of an agreement reached last year with China?s largest PC distributor, the Legend Group, to make SyQuest the exclusive supplier of removable hard disk cartridges and drives.

The companies also have an agreement to jointly build a Chinese manufacturing plant for the drives. Manufacturing is set to begin during the first half of 1998.

SyQuest?s revenues have begun to show some year-over-year growth. In the third quarter ending June 30, the company reported revenues of $31.7 million, up from $29.5 million a year ago. The company?s net loss shrunk, to $10.7 million for the quarter, from $41.3 million a year earlier.