As revenue plummets, Imation will restructure

Double-digit revenue declines at Imation Corp. have prompted another restructuring at the data-storage firm, this one resulting in the loss of about 200 jobs worldwide, the Oakdale-based company said Wednesday.

Third-quarter revenue was down nearly 20 percent compared with last year, to $248.2 million, with an operating loss of $6.5 million. That included a $3.6 million charge for restructuring, for a loss of 17 cents per share.

Restructuring the company is not new to Imation, which makes data-storage components -- a volatile, fast-moving and fiercely competitive industry.

After being spun off from 3M in 1996 with 11,000 employees, the company has seen its stock plummet and its employment shrivel. In the past five years it has taken more than $135 million in restructuring charges. At the end of September it employed 1,080, less than one-tenth of its original workforce.

On Wednesday, Mark Lucas, Imation's president and chief executive, said third-quarter revenue came in below expectations in most product lines and in all regions.

"While weak macroeconomic conditions were a factor, we are certainly not satisfied with this performance," he said. "Given our soft results, it is now not likely that we will return to total company revenue growth in the near term."

Imation's third-quarter revenue was down 17 percent in the Americas, 22 percent in Europe and 17.7 percent in North Asia. The biggest losses came in South Asia, where revenue was off nearly 30 percent.

"At the same time, Imation management is trying to transform the company into a scalable data-storage company with interesting products using encryption or fingerprint identification, but that effort is just getting off the ground," Miller said.

The risk for investors is that Imation is rapidly burning through its cash reserves, Miller said.

"Their stock price has been supported by their cash balance, now about $186 million," Miller said. "But they could burn through up to $65 million in cash in the next couple of quarters, and could lower the floor for the stock price by 25 to 30 percent."

Imation's stock closed at $4.66 Wednesday, down 58 cents, or 11 percent.

The company announced it would reduce operating expenses by about 25 percent, including a 20 percent reduction in its global workforce. As of December, the company employed about 1,130 workers worldwide, including about 470 in the U.S., according to securities filings.

Lucas announced that the company will split its global business group into two units, aggressively cut costs and focus on the data storage and security part of the business while exploring strategic options for its consumer electronic brands and businesses.

That realignment will create a division called Tiered Storage and Security Solutions (TSS) that will focus on small and medium business and enterprise and government customers. Meanwhile, a Consumer Storage and Accessories (CSA) division will focus on retail channels.

The goal of the realignment is to provide "a more focused customer-centric structure that leads to faster decisionmaking, clearer accountability, a more nimble organization and increased efficiency worldwide," Lucas said.

The company said that Ian Williams, Imation vice president, global marketing and product management, will lead TSS and that Greg Bosler, Imation senior vice president, global business management, will lead the CSA business.

It's too early to tell whether Imation's turnaround effort will succeed, Miller said. "It would take time in a good marketplace, and they are in a very challenging marketplace right now."