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Iomega reorg to save $50 million

The chief executive of Iomega says his company will save $50 million in the second half of 1998 as a result of a reorganization at the firm.

The chief executive of Iomega says his company will save $50 million in the second half of 1998 as a result of a reorganization at the firm.

"In addition to the savings that will arise from headcount reductions and related reorganization actions, the $50 million includes expense savings Iomega intends to pursue in other areas such as advertising and other sales and marketing expenses, legal and information system costs, and other discretionary spending," said Jim Sierk, president and CEO of the Iomega.

His comments came after the company said it took a $9.4 million charge in the second quarter for restructuring costs.

Yesterday, the maker of the Zip drive--a high-capacity computer storage device that has been one of its best-selling high-tech retail products--posted a net loss of $39.9 million, or 15 cents per diluted share. The net loss included the pretax charge related to cost reduction efforts. In the year-earlier period, Iomega earned $26.2 million, or 9 cents per diluted share. First Call had expected a loss of 7 cents.

Iomega recently shifted from selling its products in retail stores to shipping them as built-in components of personal computers. That change has also contributed to the dampened earnings results because it transforms Iomega to a lower-margin business.

"Our internal goal with respect to reducing operating expenses is more aggressive than $50 million for the second half of the year. For the third quarter, our goal is to reduce operating expenses by at least 25 percent from our second quarter 1998 operating expense levels,'' Sierk said during his brief response to questions from the investment community after Iomega's second quarter analyst conference call yesterday afternoon.

In June, the company told investors that it will record special charges of between $5 million and $10 million as part of a cost-cutting plan that includes eliminating 600 to 700 jobs, or more than 12 percent of the company's workforce.

Later that same month the company had good news when it settled a patent infringement case with France's Nomai and said it would also purchase a majority stake in the company for $21 million. Iomega, the maker of the "Zip" computer data storage drives and diskettes, has charged for more than a year that Nomai violated its copyrights, disk design patents, and trademarks.

Reuters contributed to this report.