With SyQuest suspending operations, Iomega
becomes the undisputed king of
the computer storage market. Unfortunately, the kingdom's fraught with problems.
Although SyQuest's termination of
operations has clearly been a boost for the Utah-based drive-maker--
Iomega's stock has risen over 25 percent to 8 since SyQuest's announcement--analysts caution that Iomega still needs to address
lingering issues about its own business model as well as upcoming threats
from recordable CD-ROM and DVD-RAM formats.
"It's a combination of good news and bad news for Iomega," said Jim Porter,
editor of industry newsletter DiskTrend. "The good news is they lost
their only competitor in the hard drive market. The bad news is the market
isn't as big as they thought it was."
Iomega and SyQuest were the primary manufacturers of removable drives for
PCs for backup of important information. Now that SyQuest has dropped out,
Iomega is the only major manufacturer of both consumer and professional
removable drives, with its existing Zip and high-capacity Jaz drive.
Iomega also has an upcoming Clik drive for mobile devices.
"They are the only ones in the removable hard drive market," said Bob
Amatruda of IDC. "Iomega understands the
market pretty well."
SyQuest's removal from the market will not add much in terms of market
share, because Iomega already accounted for the lion's share of drive
sales, according to Howard Rosencrans, an analyst at HD Brous. "I don't
think it's that big a deal, and I think the market is overreacting. SyQuest
is a $40-50 million company. Iomega is 10 times its size."
But SyQuest's customer base, small though it may be, has little choice but
to go with Iomega from this point on, Porter noted. "Iomega has a good shot
now of picking up some of the folks who stayed loyal to SyQuest, even if
there were only a couple hundred thousand of them out there. They'll
probably pick up some of those folks."
Iomega declined to comment.
Still, despite an incremental opportunity in market share, Iomega has to
come to grips with larger strategic issues. Iomega could be hurt by its
strategy of making up for low-cost drives with
high-profit margin disks, Rosencrans said. "Their whole business model is
not working. They essentially give the drives away for no profit, and sell
the disk for big profit--like the razor and blade model."
"They need a big installed base of razors to sell the blades," Rosencrans
explained. "Their business model may prove to be fundamentally flawed--
they can't raise prices on the drives." Zip drives currently go for about
$120, and Jaz drives are priced at $299.
That same strategy hurt SyQuest, according to Amatruda. "SyQuest went after
a larger base with its low cost [drive], but it became increasingly
difficult to sustain it, as we all know."
Iomega also faces a threat from CD-R drives, which are currently gaining in
popularity, and DVD-RAM, which has not yet been rolled out in large numbers
at consumer price points. On yet another front, Sony will begin shipping its 200MB High
Capacity Floppy Disk Drive later this month for $199.
"Competition comes from all over--you could make the case that all kinds
of removable storage compete with each other," Porter said.
However, Iomega's Zip and Jaz drives may hold significant advantages over
these newer media, especially when it comes to speed.
"Even when DVD comes along, there's always going to be a need for
high-capacity removable storage," Amatruda said. "DVD is going to write a
lot slower than [Zip or Jaz drives]. Things like write-time could
become an issue."
Iomega is looking to broaden its existing markets with its upcoming Clik
drive for mobile devices, but Rosencrans cautions against assuming the
non-PC world will be a panacea for the drive market.
"So far, they've only made an announcement [about drives for non-PC
devices]. The success or failure of the company depends on the PC,"