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July 19, 1998

IOMEGA POSTS EXPECTED POOR Q2, LOOKS AHEAD TO PROFIT

By CBR Staff Writer

Struggling Iomega Corp reported second-quarter bottom-line results that were in line with the company’s warning issued last month (CI No 3,435). Net loss for the quarter was $39.9m on revenue that slipped 2% to $394m, against a profit of $26.2m, or $0.09 per share, in the year-ago quarter. Revenue was lighter than even the warning indicated, as Iomega had expected a figure more or less flat with first-quarter revenue of $408m. The company has been blaming its poor showing the past couple of quarters on flagging after-market sales as they shift more toward OEM sales. The quarter was also impacted by tough going in the retail market that particularly affected the Jaz drive business, which saw revenue fall 27% to $83m. Zip sales were up 10% at $284m. Gross margins fell from 29% to 24%. The company has had to adjust its cost structure to bring it in line with the higher- volume, lower-margin OEM business. Thus, various restructuring actions were announced, including staff cuts which will affect between 600 and 700 people – about 12% – 14% of the total staff. The moves led to a pre-tax charge of $9.4m in the quarter. Net of the charge, the loss would have amounted to $0.13 per share, a penny worse than the $0.12 loss First Call was looking for. Before the warning, analysts were expecting a loss of just $0.02. The restructuring is expected to save the company $50m in the second half of the year. No further restructuring charges are planned in the third quarter, but there will be a yet unspecified charge connected to the acquisition of Nomai SA. The company should see a loss in that quarter but said it expects a small profit in the year-ending period. The First Call consensus is for a loss of $0.07 per share in the third quarter and a profit of $0.06 for the fourth. Six-month net loss was $58.5m on revenue up 5% at $801m, against net income of $49.2m, or $0.18 per share, a year ago.

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