Smaller Imation's goal is secure data

Fifteen years after Imation Corp. was spun off from 3M with 11,000 employees, CEO Mark Lucas is remolding the former manufacturer into a company that helps customers "store, protect and connect" computer data. It's part of an ongoing $35 million restructuring at the much-reduced 1,050-employee firm that's designed to turn around its declining business within two years by ending manufacturing, altering supply and distribution arrangements and eliminating some products. Over the previous four years, Imation took more than $100 million in restructuring charges; at the same time, its stock declined by two-thirds. Imation, which reports first-quarter earnings April 26, said in February that it expected earnings to fall this year, and that revenue growth wouldn't return until the end of 2012.

Q Why is Imation leaving manufacturing to become a company that designs products that are made by others?

A When we were spun off from 3M in 1996, we had a lot of manufacturing. But in the last five years we've gone from four manufacturing sites to none.

In magnetic recording tape, we kept making our products obsolete and selling fewer units until it got to the point where it wasn't economical. There's a lot of overcapacity in the magnetic tape coating industry, so we recently closed our plant that did that.

When we got into the area of consumer electronics and new types of data storage such as hard drives and flash memory, we didn't have any manufacturing expertise in those areas. In optical disks [CDs and DVDs] -- our biggest business -- we have always outsourced manufacturing because it's a fairly commoditized process.

We currently have no manufacturing, factories or plants, and we intend to stay that way.

Q Imation is currently undergoing a $35 million restructuring. What happened?

The company viewed the acquisitions as a growth strategy, but in retrospect it did not pan out. Instead of growing, the optical disk category was supplanted by hard drives, flash memories and other forms of storage. The optical disk market is now dropping every year by a percentage in the mid-teens.

Q Where do you want to take the company?

A Today we have a new strategy: We're a technology company focusing in the area of digital data storage, and within that realm we're focused on helping people store, protect and connect their data. For example, we have flash drives with encryption and biometric [fingerprint] authentication that are sold in the business world now, and they'll trickle down to the retail market.

Today about two-thirds of our revenue is from retail products. We expect our customer base will remain split between retail and business, but over time it may be more of a 50-50 split.

Q Do consumers really want a flash drive they have to unlock with a built-in fingerprint scanner?

But the recent Epsilon security breach [cyber-thieves stole e-mail addresses belonging to customers of national banks and retailers] raised the visibility of the need for more security. It makes people take a step back and think about how to do things in a safe and secure manner.

And that's wonderful for us, because those are exactly the kinds of things we're working on. We're developing things such as a "digital identity," a physical device you would use online to authenticate yourself to a bank. These things will be used in the financial and government worlds first, then trickle down to consumers.

Q What will Imation's employment look like in two years, if that's the time period for Imation's economic recovery?

A We're probably going to grow incrementally from 1,050 worldwide now, which includes 370 in our Oakdale headquarters.

We've downsized over the last several years to a level at which we could be competitive. As we moved out of manufacturing, we laid some people off. But now we're replacing them with new skill sets. In the first quarter, we hired more than 30 people at Oakdale in engineering, research, sales, marketing and financial -- really across the board.