Layoffs and other restructuring efforts will cost Zip disk maker Iomega Corp US$55 million to US$65 million in the third quarter, the company announced Thursday.
Iomega is cutting about 1,250 of its 3,300 employees, shutting facilities and redesigning its sales force in an attempt to control costs and boost flagging revenues.
Severance packages and the termination of contracts and leases will cost the company about US$43 million in cash, chief executive Werner Heid said in a conference call Thursday. The restructuring is expected to save about US$65 million a year, starting in fiscal year 2002.
``We understand that to deliver profitable growth, [Iomega needs] ... a lean operation,'' Heid said.
If the company can do that, it can be profitable through fiscal year 2002, Heid said. That's despite the likelihood that the tech market will remain stagnant.
``We cannot use this economic decline as an excuse,'' he said.
Iomega's future also depends on boosting sales of its mainstay Zip products, which made up 79 percent of revenues in the second quarter, and its new Peerless line, which stores up to 20 gigabytes of data on each cartridge.
That may mean slashing prices on the Zip drive to as low as US$50 (a basic Zip now sells for US$85 on the company Web site), Heid said.
Meanwhile, the Utah-based company is at least temporarily turning away from some of its flashier products, such as HipZip, PocketZip and PhotoShow.
But Heid assured analysts the company will continue to put 5 percent of its revenue toward research and development, even as the company pares down.
Iomega had announced in July that it would cut 1,100 jobs worldwide. It also plans to close a North Carolina distribution center.
The cuts are expected to bring charges of US$16 million in the third quarter, Heid said. About US$10 million will go toward ending leases around the world, and US$14 million will go to terminating vendors.
The company is also spending as much as US$3 million to move its headquarters from Utah to the West Coast.
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