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TMF Interview With Iomega Acting President and CEO Jim Sierk
With Yi-Hsin Chang (TMF Puck)

October 21, 1998

Data storage devices maker Iomega Corp. (NYSE: IOM) is best known for its Zip drive and disks, which help PC users "manage their stuff" by allowing them to store and transport up to 100 megabytes of information on a small disk that fits in the palm of your hand. The company will soon release its new Clik! drive and disks, designed for digital cameras, hand-held computers, personal digital assistants, and smart cellular phones. We talked to acting CEO Jim Sierk a day before the company announced the appointment of Jodie Glore as its new president and CEO. Mr. Sierk will remain on Iomega's board of directors.

TMF: What is the situation with Iomega's search for a new CEO and CFO? Is the company actively looking for a new CEO? Are you still "acting" CEO, or are you now CEO for the long term?

Sierk: I'm acting CEO. My agreement with Iomega was I'd fill in on an interim basis until we hire a new CEO. That kind of process usually takes about six months -- it will be six months in a few weeks, so we're beyond it a little bit. But we've got a very good process, and I'm still very optimistic about bringing in a CEO that's got the kind of characteristics that we wanted in the beginning.

The interesting thing about that is we've talked to some wonderful people, and there's a nice self-selection that occurs here: People that like growth, the kind of managers that like growth, that recognize the kind of opportunity that exists with Iomega, are exactly the kinds of people who are applying for the job, who are talking to us. We've got good people that we're talking to that are interested, so the process is moving along. And am I interested in the job? No, not at all.

TMF: Why is that?

Sierk: To be CEO of Iomega, or any major company for that matter, really requires a commitment of, say, four years, something like that. Jack Welch is going on his 20th year. It's at least four years, and for a whole batch of personal reasons, that's just not a commitment that I wanted to make. I love the job here. Iomega is a great company, and I'm thoroughly enjoying it. For a whole batch of reasons, I just didn't want to make the commitment that I think is necessary to lead the company for that period of time. That happens by the way when you turn 60 years old. (Laughter.) That was last weekend.

"The kind of managers that like growth, that recognize the kind of opportunity that exists with Iomega, are exactly the kinds of people who are applying for the [CEO] job."
TMF: Oh, wow. Happy birthday. You don't sound 60 at all. What do you think went wrong with Iomega, and what's being done to turn the company around?

Sierk: I think the key thing is to take a look at the history of Iomega and, obviously, folks on The Motley Fool [Iomega message] board have looked a lot at the company during a rapid period of growth, the four years where Iomega went from $347 million up to close to a $2 billion company -- a really heady period. The reason they did that is obviously a product of what customers really wanted, and that continues to be the strength of the company. We've got wonderful products that are really very useful for our customers.

But I think the thing that occurred through that rapid growth was that we didn't really build the infrastructure of the company to continue to move at the same rate. We had to develop a quality mentality in the company. Operationally, we had to mature our logistics system, our manufacturing capability. We had a whole batch of operational things that needed to get better. And obviously that's been our goal in the last six months or so.

I think if you take a look at the accomplishments that we talked about in the third quarter, we've made dramatic improvements on the cost structure of the company. We've taken a lot out of the inventory of the company. We've made dramatic improvements to the quality that our customers see. If you look at the improvements we've made, they're exactly the kinds of things that are needed to position the company for growth in the future.

TMF: Do you think the Zip drive can still replace the floppy as the standard means of storage in PCs, and would this involve lowering the price for the Zip drive?

Sierk: I think Zip is really the leading storage device in the entire industry. I don't think there's any question about that. We've got 18 million of those drives out there that customers are using, so it's clearly leading in that category, and we continue to see us leading as we go along. You alluded to moving into the OEM [original equipment manufacturer] market, and that obviously is a big deal for us because about half of our disk drives do go to the OEM customers. That has helped us quite a bit, by the way, because the OEMs have gotten very demanding with requirements and costs of delivery and quality, and we've become a better company as we met the challenges provided by those customers.

And those customers are satisfied, too. We talk to the OEM customers, and they say things like, "We've never seen a company make as much a dramatic improvement as you guys have done. You are now our best storage supplier. Six months ago, you were near the bottom." These are the kinds of improvements that the OEMs are telling us about. Of course, they measure us very carefully. They've got a lot of data about our performance, and we can see it, and they can see it too.

"If you look at the improvements we've made, they're exactly the kinds of things that are needed to position the company for growth in the future."
TMF: Switching gears to the Clik! portable disk drive. When exactly do you plan to release that, and when will it start making significant contributions to earnings?

Sierk: We said that we're going to be doing that in the fourth quarter, and so it's really going to be ready for the holiday season, which, of course, is a big deal for us in that regard. I don't expect any significant contributions this quarter, however, from Clik! That's really going to come through next year.

TMF: How big is the potential market for Clik!, and how much do you expect to make from it?

Sierk: Well, it's a really big market. It goes well beyond the PC-laptop kind of markets that we're into. You start talking about digital cameras, PDAs [personal digital assistants], all kinds of things from GPS systems, golf carts -- you just name the application that could exist with a disk drive, and there are a lot of them. In fact, really our customers, I bet, are going to end up giving us wonderful applications for a device that's got that kind of storage capability that's very, very small. Have you seen one of them?

TMF: No, actually only on the website.

Sierk: Oh, it's really a neat product and obviously unique. There's nothing like it.

TMF: Do you have any plans to phase out any products, such as Buz or Ditto?

Sierk: I think, first off, our customers determine that. And technology changes, too. If you look back at our history -- Iomega's been around for 20 years or so -- we used to make a lot of Bernoulli drives. We don't do too much of that anymore. There's a natural technological cycle in the industry. You mentioned Ditto -- that continues to be a nice product for us. Obviously, a lot of our customers are shifting to other products to systems like Jaz, but this was a niche market, and we expected to have a lot of loyal customers turn out of that niche market, and it has. But, at this point in time, that's not a big mainstream product for us.

TMF: What new products do you have in the pipeline besides Clik!?

Sierk: We've talked about USB Zip, and that's been announced for the fourth quarter. And also there's been a lot of talk on your board about that, too. And there's also been a lot of speculation that I've seen on your board about potential new products. You've got to understand that we're looking at what do the customers really want, and if we think the customers want higher capacity Zip drives, for example -- we're getting some indication of that -- we'll bring that kind of product out. We've talked about that being in the lab for a period of time.

With the new Nomai acquisition, we did pick up a CD-RW capability. And that looks to us to be a nice market there to exploit, too. But those are sort of specifics. If you take a look at the product scenarios we have -- and we've got an awful lot of SKUs -- you can say we pay an awful lot of attention to the customers. What they want, we develop products for. So you're always going to see a lot of new products from this company.

TMF: Is the Nomai acquisition already adding to your earnings?

Sierk: Well, no, as a matter of fact. Just the opposite. We announced in the last quarter about a penny per share loss effectively in the Nomai acquisition operationally. That, however, is something that's going to go away. We understand that company, we understand what its capabilities are. We need capabilities in Europe. I think it will be, in the long run, contributing to our revenue and our profits. We were impressed when we looked at that company with some of the technology they had, and we specifically talked about some of the optical technology, so they're going to play a role as we go into the future.

TMF: Now buying Nomai, didn't that actually give credibility to its technology?

Sierk: Well, I've talked about their optical technology. You know, obviously, we've had some discussions with them about our intellectual property, and that was a major concern that we had discussions with them on. Nomai is no longer manufacturing disks that are compatible with Zip. They, during the discussions, as you'll probably remember, did admit that they infringed on our intellectual property, and that was the key thing that occurred there.

TMF: Are you worried about the emergence of other competitors?

Sierk: Competitors make you better, okay? And so if you take a look at the competitors we've got out there, we pay a lot of attention to them. We know what capabilities they've got, we study them carefully, and we are paying a lot of attention to the customer. So our main drive is to satisfy what the customer wants out of all this. Now, we've got some competitors that have bigger names in the market than Iomega. At the same point in time, we're clearly the leader in technology. We've got an installed base of 18 million Zip drives, 2 million Jaz drives. Our disk usage remains high. We just shipped our 100 millionth disk. I mean, think about that. And so even though we're going against companies that are much bigger than we are with much bigger names, we clearly are the leader in our area.

TMF: Have you made any changes to the marketing strategy for the company?

"Even though we're going against companies that are much bigger than we are with much bigger names, we clearly are the leader in our area."
Sierk: Yes, we have. I refer folks to take a look at some of the comments that were made during our third quarter conference call to get some details on that. But we're really directing our efforts towards solutions-based answers for our customers. The important thing for us is to make sure that our customers use our devices, and use them in a way that increases their productivity and work quality and their quality of life. I think that's where it's going.

You may have noticed some of the more recent ads we've been putting out, in The Wall Street Journal and The New York Times this month -- a new theme on our advertising, which talks about ways of increasing usage and driving solutions. The style is a little different. They're not quite as quirky as some of the advertising we've had before. But they're very much directed towards talking about applications that are going to be important to our customers, and we're going to be focusing not only on drive sales but also a lot more attention on media sales, which we haven't done as much in the past. So those are changes that you're going to see.

We've also been doing a lot of cooperative advertising with our OEM customers, driving things down into the channel more than we have in the past, so the advertising dollar, the marketing effectiveness, is going to be a lot more effective for us, I think.

TMF: One of our readers mentioned that using the Y2K issue is a way of marketing the Zip drive...

Sierk: Yeah, you know, I do read the board myself a lot. And I think there were a whole batch of solutions, potential solutions, that the contributors to the board suggested. I think there are some neat ideas there. And we've made note of them -- Y2K being one of them. Actually, we do have a batch of solutions surrounding Year 2000 kinds of issues. But there are a lot of other ones, too, that were suggested that we're going to pay some attention to.

TMF: Are you taking resumes there?

Sierk: (Laughter.) Sure. You can send it to me personally. That'd be fine.

TMF: Great. I think that's actually all the time we have. Thank you so much for helping out with this.

Sierk: Oh, sure. I'll be looking for the comments that the [readers] have to what we've talked about.

TMF: Thank you.

Sierk: Thank you.

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