THE DAY AHEAD: Iomega: Syquest redux?

Larry Dignan
3 min read

Is the ghost of Syquest haunting Iomega Corp. (NYSE: IOM)? You may not believe in ghosts, but it's eerie how Iomega bought a few Syquest assets in a going-out-of-business sale and now is looking more like the now-dead Syquest with each profit warning.

Iomega: Will it turn out like Syquest?

Who's Syquest?

Oh that's right it's been awhile. Syquest, like Iomega, made high-storage computer disks and drives. Syquest went out of business by practically giving its goods away in an attempt to supplant Iomega's Jaz and Zip products. Syquest got so bad that its stock would swing 30 percent or so and still be less than a $1. The whole battle was a big grab for market share and the price competition was fierce.

Iomega at the time looked like a leader. Syquest, with its chirpy "Gigabyte Me" slogans, couldn't dent the Zip drive. Iomega got its start and market cap by becoming a message board phenomenon. The stock was talked up so much on America Online it became one of the tech high-flyers.

When Syquest died, Iomega was supposed to be home free and finally replace the floppy disk.

Yippee, supporters screamed. Iomega shares actually got a boost when Syquest said it was suspending operations.

This was the quarter that Iomega was going to break-even. Happy days were here again. Well, not quite. Iomega sees a hefty loss ahead because demand for its Jaz and Zip products is slipping. Iomega is also cutting 10 percent of its workforce just like Syquest used to.

But it's not Syquest that's officially causing Iomega's woes. It's technology such as DVD, a cheaper way to store chunks of data, and other storage devices. The company is also bloated and lacks direction just as demand is slipping.

Just like Iomega killed Syquest, Iomega is getting killed. The stock is already falling into Syquest-land, closing at 3 13/16, down 12 percent. Iomega still has a market cap of $1 billion, but might want to consider a reverse stock split just for appearances.

Institutions have given up on Iomega, but the retail investors still believe. These believers keep thinking Iomega is a buy and jump in on dips. These folks would never believe that Iomega is falling apart so we'll provide an alternate theory. Maybe the believers will wake up.

Here's the theory -- the spirit, not to mention problems of Syquest, are haunting Iomega.

Back in January, Iomega bought certain assets of Syquest. And there's the jinx.

Iomega is now possessed by Syquest. It's a haunting similarity.

Ramping up

We've got a busy week on deck. Micron Electronics (Nasdaq: MUEI), the direct-PC unit of Micron Technology, is scheduled to report third quarter earnings after the bell. Wall Street is expecting the company to report a profit of 6 cents a share.

Cabletron Inc. (NYSE: CS) and Manugistics (Nasdaq: MANU) are also scheduled to report. Both have struggled so don't expect much.

There's also earnings coming from 3Com Corp. (Nasdaq: COMS) on Tuesday and Micron Technology (NYSE: MU) on Wednesday. Factor in a few solid initial public offerings and it should be an interesting week.