Two days ahead of the release of its second quarter results, the company announced a "restructuring plan" to be able to return to profitability.
The restructuring plan includes the realignment of product lines and go-to-market strategies and an approximate 30% workforce reduction (120 employees).
The Company intends to focus its ongoing resources on hard drive-based product solutions (including HDD, NSS and REV drives) for consumer and small business markets. Although it is not clarified in the company's press release, the future product strategy does not include CD/DVD burners and the famous Zip drive.
Iomega anticipates these actions, when fully implemented, will result in annual cost savings of approximately $38 million to $42 million as compared to first half 2005 run rates. Approximately 85% of the cost reductions are expected to be in operating expenses. The cost reductions include the workforce reduction, consolidation of facilities, consolidation of internal business systems, bringing in-house work that is currently outsourced and a more focused approach to marketing spending.
"As mentioned in our first quarter 2005 conference call, Iomega has been undergoing an evaluation of its business model," said Werner Heid, president and CEO, Iomega Corporation. "The restructuring actions announced today are expected to result in a crisper market and product focus, a more concentrated R&D effort on HDD solutions system integration and HDD-based removable storage solutions, and a more competitive cost structure and streamlined organization to enable faster decision-making and improved new product time-to-market. It is our goal, based on lower operating expenses and with our current gross margin structure, to achieve operating profitability in the fourth quarter. Longer term, the streamlined organization and faster time-to-market should provide the capability to achieve sales growth and higher margins."
The Company will further discuss the restructuring plan during its second quarter conference call beginning at 4:30 p.m. Eastern Time on July 28, 2005.