Dick Youngblood: Tapping into a burning desire

OK, I know my beat is small business, and the $109 million Rimage Corp. grossed last year doesn't sound particularly diminutive.

But Forbes Magazine recently named Rimage to its list of the 200 best small companies in America, so who am I to argue?

Despite the gathering economic slowdown, the Edina company announced last week that it earned $15.8 million, or $1.52 a share, in 2007, a 20 percent profit gain on sales that grew 5.4 percent from a year earlier.

And good news just keeps piling up: Last month, Forbes.com listed Rimage as one of the top 15 technology companies to watch.

What's the attraction? Well, Rimage is a leading producer of equipment and software used by businesses for on-demand transfer of digital data to customized CDs and DVDs.

More intriguing, this digital publishing technology is credited with rescuing the 30-year-old company from the trash heap of obsolescence after it ran up nearly $7 million in losses and upwards of $10 million of debt in the mid-1990s. In contrast, Rimage finished 2007 with no debt and $90 million of cash in the bank. Among the three securities analysts who follow the company, two made "buy" recommendations earlier this month.

When I introduced you to Rimage and its CEO, Bernie Aldrich, eight years ago, the company had just emerged from a floundering diversification effort aimed at replacing the outmoded diskette-duplicating technology on which it was founded in 1978.

By 1999, Rimage had climbed back to $36 million in sales and $6.3 million, or $1.09 a share, in earnings. The sales were generated largely by use of Rimage's digital publishing system as a business-to-business tool, by banks to distribute statements, by telephone companies to send billing data and by software developers to deliver their products to corporate clients.

There has been considerable progress since then -- but not in the way Aldrich expected. The way he saw it, music retailers using Rimage equipment to fill consumer CD orders on demand presented a "home run" opportunity. Alas, thanks to the Internet, that market never even got to first base.

As it turned out, however, Rimage was swatting doubles and triples all over the place, most importantly in a retail niche that has become the company's largest market: photo shops.

With such retailing giants as Wal-Mart and Costco using Rimage equipment to produce on-demand discs to store customer photos, this market segment generated 20 percent of the company's sales last year.

And Chuck Murphy, securities analyst at Sidoti & Co. in New York, sees significant growth in sales in a related market niche: on-demand creation of videos. The appeal is that the Rimage equipment will allow video stores to offer "a wide selection with a lower inventory," Murphy said.

Rimage has found a variety of other market niches in recent years, including:

• Medical: GE Medical, the nation's largest supplier of medical imaging equipment, incorporates Rimage technology into its systems to copy MRIs, CAT scans and X-rays to a disc.

• Government: State and federal clients use Rimage equipment to record and distribute data. For example, all congressional committee hearings are recorded and transferred with Rimage technology.

• Audio books: This is becoming a major market.

• Religion and education: Sermons, lectures and concerts, along with college catalogs, recruiting materials and course materials, are being transferred by Rimage equipment.

Exxon Mobil, for example, uses it to distribute geological data to interested parties in and out of the company. And Boeing is putting its technical and repair manuals on CDs for easier access.

Why? "Because all the maintenance manuals for a 747 wouldn't fit inside a 747," Almeida said.

Dick Youngblood • 612-673-4439 • yblood@startribune.com