Go Short Mormons! Go long Malaysians!
That seemed to be
's (IOM:NYSE) message when it announced last night that it was canning 500 to 700 employees from its Roy, Utah, headquarters, and taking a $10 million fourth-quarter charge in the process. At the end of September, Iomega had about 1700 employees.
With a new plant in Penang, Malaysia, purchased at fire-sale prices from troubled disc-drive maker
(QNTM:Nasdaq), the company decided to get rid of all U.S. Iomega disc-drive production--and U.S. Iomega producers. These are the same presumably-faithful employees famed in Internet bulletin-board postings for their hard work on weekends. Merry Christmas!
But aside from Iomega's display of civic virtue, why did the stock price rally 1 3/8 to $17 3/8 on Tuesday? After all this is an extremely volatile stock that has become synonymous with "speculative." The company has watched its share price leap as high as $55 1/8 before falling off the cliff this fall. How can a $10 million dollar charge and a massive layoff be good news?
One explanation might be online dreamers ever-pining for an Iomega deal with
(DELL:Nasdaq). Yesterday and today, postings on the Motley Fool and Silicon Investor speculated that Iomega was moving to Penang to be closer to Dell, fanning a long-standing rumor that Dell was going to incorporate Iomega disc drives (discussed in a December 3, 1996 TheStreet.com
But Dell says that even if they were ready to use Iomega drives in all their machines, they couldn't do it from Penang. "Our Malaysian plant is exclusively for customers in Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, Philippines and Singapore," says Bill Robbins, Dell public relations manager. "Dell computers for U.S. customers are made in the U.S., right here in Austin, Texas."
But at least one analyst still likes the stock, and thinks their move to an Asian manufacturing model will help the company keep a price edge to go along with its' technological edge. "You know the old saying: If you want to make movies, you've got to be in Hollywood?," says Joe Besecker of
. "Well if you want to make disc drives, you've got to be in Southeast Asia." Besecker says that more than 75 of Iomega's components come from the Pacific Rim. "We still like the stock as a short term and long term buy," he says. Emerald has not been involved underwriting Iomega stock.
In the quarter ended Sept. 30, Iomega reported revenue of $310.1 million, up from $84.7 million from one year earlier. Net income rose to $12.8 million, or 9 cents per share, from $2 million or 2 cents a share, one year earlier.
Calls to Iomega's Roy, Utah, headquarters were not returned for comment. Perhaps no one's there.
by Cory Johnson