MPR: Imation at a crossroad

Imation at a crossroad
By Bill Catlin, MPR News
July 9, 2001

Oakdale-based Imation is marking five years of survival as an independent company. The businesses spun off from 3M in July 1996 have struggled to post a profit and the workforce is down by more than half. But the company's CEO says the company's outlook is positive.

IMATION CAME INTO BEING after 3M announced it would lay off thousands and spin off its data storage and imaging businesses. Company insiders grimly joked that 3M was becoming 2M. But the company was shedding some of its most-challenged enterprises. At the helm of the new company, Bill Monahan, a long-time 3Mer, whose optimism seems unflagging.

Even Monahan, however, acknowledges Imation's troubled history. "It's been a very challenging, very difficult journey," he says.

Imation's remaining operations have made a profit in only one of the last five years, when unusual items are excluded. Imation sold off its medical-imaging business in 1998. The workforce is now 4,400, less than half the original head count of nearly 10,000.

Last October Imation said it was exploring strategic options, including possible sale of the company. CEO Bill Monahan will say little about that process, but suggests Imation may go it alone. "We haven't had any major changes in our structure during that period. We obviously look at all types of opportunities that might present themselves, and will continue to do that. But I think our focus now, particularly after this process, throughout the strategic process, we've learned a lot and our focus is building the value of each of our businesses."

Monahan says he's restricted in what he can discuss, and declines to say whether the company received any offers. He does say it's not true the company found little interest.

Monahan contends Imation's future looks positive with a large cash hoard, no debt, and a potentially hot product. Monahan says he has high hopes for a new optical disk - roughly the size of a quarter - that holds huge amounts of data. The company will produce the disk for DataPlay, a product designed to store anything digital, whether music, photos, software or games.

"As the personal user requires more and more data, they want it more conveniently and they want to use it in smaller and smaller devices. DataPlay fits into that extremely well. It has enough capacity at 500 megabytes to handle most applications of the personal user, but it's small enough to be used in handheld devices, which is where the trend is definitely going in terms of personal users," Monahan says.

Analysts agree DataPlay is a good fit with considerable potential. Robert Amatruda, with the technology market-research firm IDC, says DataPlay fits what he thinks may be an increasing focus on the company's core data-storage business. Data-storage products represent 70 percent of Imation's sales. And Amatruda says he's skeptical that Imation's goal was to find a buyer when it engaged investment banker Goldman, Sachs to explore strategic options.

"I really viewed it much more as a look at what Imation's core competencies are today and what they think their competencies will be tomorrow, and where they should really invest in the next wave of future products," Amatruda says.

Imation joined Kodak, Intel, and other firms that recently invested a total of $55 million in the company launching DataPlay.

Jim Porter, an industry consultant with Disk/Trend, says DataPlay won't protect Imation from one of its fundamental challenges: the company's fortunes are tied to the success or failure of products made by other companies; that is, the data-storage hardware that uses Imation's tapes or disks. Porter compares it to selling razor blades. "There has to be a population of razors out there to buy those blades for. So that's the market mechanism to watch on that one. If DataPlay turns out to be a big success, and it might be, then Imation will have an awfully good market for those disks," according to Porter.

But if DataPlay flops, Imation's hopes may be dashed. The technology is expected to hit the market by the end of this year.

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