Iomega Feels Pressure To Modernize

New technological advances in the removable-storage market could soon spell trouble for market leader Iomega. Smaller compact flash-format drives from IBM and the shift to higher-capacity magneto-resistive (MR) head technology drives are threatening Iomega's hegemony. Iomega has sold more than 20 million Zip drives, and sells more external storage devices than any other company, according to PC Data, in Reston, Va. But Iomega's Zip and Jaz drives are based on older, inductive head technology, while competitors are rushing to market with MR products.

Castlewood recently announced the ORB, a 2.2-gigabyte removable storage drive that uses MR technology that costs just over 1 cent per megabyte, compared with about 7 cents per MB for Iomega's 2-GB Jaz drive. "Iomega definitely has some modernization to do," said Jim Porter, president of Disk/Trend, a market researcher. Inductive-head technology can't keep up with plummeting disk storage prices, expected to reach about half a penny per MB by 2001, Porter said. Iomega's recent acquisition of intellectual property and inventory from its biggest rival, SyQuest, could temporarily reduce the technology gap with competitors, but not for long.

Iomega could leverage SyQuest's cheaper SparQ technology, which has almost twice the density per platter (1 GB vs 540 MB) as Jaz drives, Porter said. MR technology offers lower component costs and higher densities. According to Disk/Trend, the cost of disk storage has fallen from $11.54 per MB in 1988 to 5 cents per MB in 1998. Iomega plans to develop MR products, according to company executives. "We need to move to larger, faster drives," said Prasad Shroff, product marketing manager. But new MR drives from Iomega would be incompatible with Jaz drives. That could force the company to abandon a format it is still trying to establish in the market.

Iomega may also see stiff competition from IBM, which expects to ship compact flash-format Microdrives by the middle of the year. These compact flash devices, used as RAM in digital cameras and PDAs, are 1 inch in diameter. The 170-MB and 340-MB Microdrives use giant MR (GMR) head technology, and would be the first high-capacity removable storage products in the tiny form factor. Iomega has reported losses in consecutive quarters despite the success of the Zip drive and is scheduled to release quarterly financial results on Jan. 21.

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