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Imation Corp. -
Computer Storage - Category Main Page
(651)
704-4000
1
Imation Place
Oakdale, MN 55128
www.imation.com
Sales
$1.2
billion
Business Description
Imation Corp. (Imation or the Company), a Delaware corporation formed in
1996, develops, manufactures, sources and markets recordable magnetic and
optical removable data storage media products. Imation is a global
technology company that derives revenue and profits primarily from the sale
of removable data storage media products to both consumers and business.
These products range from floppy diskettes and recordable CDs and DVDs to
tape cartridges used in small-medium businesses to high capacity tape
cartridges used in large automated tape silos in a data center environment.
These products are sold in over 100 countries outside the U.S., and
approximately 54 percent of the Company’s total 2003 revenues came from
outside the U.S. The Company also has a specialty papers business,
representing less than five percent of revenue, which manufactures and
distributes carbonless paper for use in the creation of multi-part business
forms.
The Company was formed in a spin-off of the businesses which comprised
substantially all of the data storage and imaging systems groups of 3M
Company. Since the spin-off, the Company has divested most of the non-data
storage businesses, consolidated warehouses and physical infrastructure it
inherited with the spin-off, invested in information systems, and focused
the basic operational infrastructure to support the Company more
efficiently.
Application Areas and Products
There are many removable storage formats, in both magnetic and optical
technologies, ranging from tape cartridges and diskettes to CDs and DVDs.
Removable data storage products such as those offered by the Company allow
the customer to easily expand capacity, and provide data transportability,
data management, and data security at a significantly lower relative cost
than fixed disk storage. The Company develops, manufactures, sources, and
markets removable data storage media products in nearly every capacity range
a user may require — from 2 megabyte to hundreds of gigabytes or from data
that could occupy one book up to data occupying thousands of libraries. The
Company’s data storage media products are used across all major application
areas — enterprise data centers, the network server environment at both the
mid-range and entry-level, and personal storage applications for both
consumer electronics devices and desktop or laptop computers.
The digital economy, as discussed above, is at a different level of
development and penetration in different geographies. As a result, growth
rates will typically vary in different application areas and product
categories in different parts of the world.
Data Center — Imation is the leading supplier of magnetic tape cartridges to
large data centers worldwide. Large data centers are found in a wide variety
of industries, including financial services, geophysical exploration,
transportation, government, and telecommunications. In the data center,
Imation’s products are used in both mainframe and open systems environments,
in large data libraries for back-up, business and operational continuance
planning, near-line data storage and retrieval, cost-effective mass storage,
and archival storage. Imation’s tape cartridges are often used in an
automated tape library that can either be direct-attached storage or part of
networked storage infrastructure such as a Storage Area Network (SAN).
Enterprise level tape storage cartridges are used to store large amounts of
data — up to 400 gigabytes (GB) of data on some cartridges and data transfer
rates as high as 40 megabytes (MB) per second. Imation is the exclusive
manufacturer of certain cartridges used in enterprise-class applications
including BlackWatch™ 9840 and 9940 cartridges developed for use with
StorageTek drives, and BlackWatch 3480, 3490, 3590, and 3590E cartridges,
developed for use with IBM drives.
Network Server — Imation manufactures and distributes data tape cartridges
for the wide variety of tape drives that are used in the network server
environment, providing back-up, archive, and near-line storage in open
systems environments. For mid-range to high-end network servers, Imation’s
BlackWatch DLTtape IV and BlackWatch SuperDLTtape cartridges are used in DLT
and SDLT tape drives sold by several drive manufacturers. BlackWatch Ultrium™
cartridges are used in Linear Tape Open drives manufactured by IBM Corp.
(IBM), Certance LLC, and Hewlett-Packard Company (HP).
Small-Medium Business — Imation also manufactures and distributes data tape
cartridges for small to mid-sized businesses, primarily for back-up and
archival applications. Imation cartridges work with tape drive systems that
support the major operating environments including Unix, Linux, and
Microsoft Windows® NT. Imation cartridges include Travan™ tape cartridges
for use with Certance Travan drives, and SLR tape cartridges for use with
drives sold by Tandberg Data ASA (Tandberg). Imation also distributes VXA
and other cartridges for use with Exabyte tape drives.
Personal Storage Applications — In the personal storage media sector,
businesses and consumers use Imation’s broad range of digital storage media
to store business information, spreadsheets, presentations, digital photos,
data, music, and more. Imation products provide storage media capacities
ranging from 1.44MB diskettes to 650 MB CD-R (recordable) and CD-RW
(re-recordable) optical disks to 9.4GB DVD optical disks.
The installed base of tape drives globally has been estimated by various
market researchers to range between 16 million and 25 million units. This
substantial installed base of tape drives presents a recurring revenue
opportunity for much of the Company’s tape products. The application areas
described above are overlapping with no definitive boundaries. The Company’s
products are frequently used in more than one environment, depending on the
specific customer need for functionality or capacity. In addition, the way
these application areas are defined frequently changes as storage capacities
and functionality needs increase.
Business Strategy
Following its divestitures, the Company is now almost singularly focused on
the removable data storage media industry (see Figure #1). The Company has a
long history in this industry dating from 1947, when this business was
started by 3M Company, resulting in the first commercialized data storage
tape introduced in 1953. The Company’s vision is to be the worldwide leader
in removable data storage, to be the most trusted source for digital data
storage by consumers and businesses alike, and to be recognized as an
independent expert in digital information back-up, archive, and protection.
Key elements of the Company’s strategy are as follows:
• Strengthen and grow the core removable data storage media business;
• Offer a broad and comprehensive portfolio of products across different
customer applications of the market where it competes;
• Leverage existing infrastructure to support growth initiatives;
• Expand into business areas that are closely adjacent to the core removable
data storage media business;
• Develop and enhance manufacturing, supply chain and sourcing capabilities
to provide optimum total delivered cost and product quality;
• Leverage broad and successful relationships with leading OEMs, customers,
and distribution channels;
• Increase market penetration for U.S. government sales;
• Increase market penetration for U.S. and international commercial and
consumer sales; and
• Maintain and extend technology capabilities in key areas, including
precision tape coating, cartridge design and manufacturing, servo-writing,
and advanced optical storage technologies.
Data Storage Industry and Information Management (DS&IM) Industry Background
The Company competes within the global information technology (IT) industry.
Specifically, the Company develops, manufactures, sources, and markets
removable data storage media for organizations and individuals that must
store, retain and protect vital digital information. The Company’s primary
products include magnetic tape cartridges, magnetic diskettes and recordable
optical disks. The need to capture, manipulate, store and protect
ever-larger amounts of this digital information is driving demand for a
variety of data storage media formats that are differentiated by total
storage capacity, reliability, data transfer rates, cost, portability,
permanency, and physical media size. According to various industry analysts
and Company estimates, the total global data storage market, including
hardware and services, is estimated to be in excess of $70 billion.
Removable media provide certain advantages due to their portability, low
overall cost of ownership, and scalability, which make the removable media
market an attractive market. The removable storage media market is estimated
to exceed $7 billion, which includes the removable flash memory market where
the Company has not competed through 2003. The Company’s market share in the
removable media storage sectors where it directly competes is estimated to
be 18 percent.
There are many diverse ways to store digital information, depending on the
application and the amount of information to be retained. In a commercial
environment, decisions about the kind of data storage platform to use depend
on a multitude of factors including storage capacity, access speed,
performance, scalability, portability, compatibility with other components,
and total cost. For example, “live” data that is directly accessed and
manipulated typically will be treated differently than data which is copied
for purposes of back-up or archiving. As a result, storage implementations
in a commercial environment typically include more than one platform and
media format.
The demand for removable data storage media is driven by the rapid growth of
digital information, a trend that has accelerated with the emergence of the
digital economy where increasing quantity and diversity of information is
created and managed digitally. As data storage hardware, software, and
transmission networks continue to deliver improved cost/performance, new and
expanded applications have emerged that require the creation of larger, more
complex sets of data and larger databases to more efficiently support
critical business processes. With business data reaching across multiple
locations, data security, archiving and reliable backup have become critical
business processes. In addition, there has been heightened awareness of the
risks of catastrophic data loss and new requirements for record retention,
causing an increase in data backup and retention practices at many
organizations. As pervasive use of the Internet becomes the norm for both
business and individuals, information important to users is created and
stored in digital formats with greater frequency and in ever-larger amounts.
As the size and price of consumer electronics devices continue to shrink,
the need to store music, video and photography on a variety of digital media
continues to grow rapidly.
The
core data storage market presents attractive growth opportunities as well as
challenges. The market is highly competitive, characterized by continuing
changes in technology, pricing pressure on media products, diverse
distribution channels, and a large variety of formats for both tape and
optical products. The Company is challenged to deliver a broad portfolio of
products across diverse distribution channels and geographies and maintain
low overall costs. Success in this market is dependent on being early to
market with new formats, having efficient manufacturing and supply chain
operations, working closely with leading OEM’s (Original Equipment
Manufacturers) to develop enhancements to existing and new formats, carrying
a broad assortment of products across multiple competing tape drive
platforms, and having a broad geographic and market coverage across a
variety of distribution channels.
While the overall removable data storage media industry is a growth
industry, the highest revenue growth opportunities over the next three to
five years lie outside the Company’s historical core magnetic tape and
diskette media businesses. These higher growth markets include newer tape
formats in semi-proprietary or open systems environments, recordable optical
discs, which currently are more consumer oriented products, and removable
flash memory, which the Company has not, to date, marketed. These higher
revenue growth opportunities described above provide revenue streams that
are, as a rule, at lower gross profit margins than the Company’s historical
gross margins on the core magnetic media business. As a result, the
Company’s strategy has been to consciously position itself to profitably
take advantage of these growth opportunities by establishing strategic
sourcing, brand distribution and licensing arrangements which require
relatively low capital investments and by implementing a relatively flat and
efficient operating structure, which can support higher revenue without the
need to add substantial infrastructure or overhead costs, thus delivering
increased gross margin dollars and operating profit growth on increased
revenues. For example, while the Company has intellectual property, patents
and know-how in optical media, it sources these products from third party
manufacturers. The resulting business model can be thought of as a hybrid
between a manufacturer and a brand distributor.
Customers
As described above, the Company’s products are used by business customers in
a variety of industries and by individual consumers. The Company’s removable
data storage products and accessories are produced in multiple formats,
including both magnetic and optical, across a wide spectrum of data storage
drives, many with multiple manufacturers. The products are also often used
in more than one storage environment, depending on the needed capacity. No
one customer constituted 10 percent or more of the Company’s revenues in
2003.
The Company works with Original Equipment Manufacturers (OEMs) which develop
tape drives for differing customer applications in various market sectors.
Significant OEMs include StorageTek Technology Company (StorageTek), IBM,
HP, Exabyte Corp. (Exabyte) and Tandberg. StorageTek and IBM are both
customers of and OEM partners with the Company. As described above, the
Company is the sole source of supply for tape cartridges for use with
StorageTek and IBM drives used in the high end data center. The development
of future formats with key OEMs, such as StorageTek and IBM, is critical to
the Company’s future success and the loss of such a relationship could have
a material effect on the Company’s business. During the past year, the
Company announced it had entered into a joint development agreement with
StorageTek for their next generation of automated tape drives. The Company
believes it is well positioned to maintain its relationship as a key media
development partner with important OEMs.
Competition
The global markets for the Company’s products are intensely competitive and
subject to continuous pricing pressure, frequent product performance
improvement, and rapid technological change. Removable magnetic and optical
media competes to some extent against other forms of data storage, including
hard disk and solid state (semi-conductor based) flash memory. Hard disk
storage typically has been used for on-line applications whereas removable
storage has been used for near-line and off-line applications such as
back-up and archive, and in various consumer applications.
Competition is based on a multitude of factors, including cost, breadth of
product line, capacity, access speed and performance, durability,
reliability, distribution capability, geographic availability, scalability,
and compatibility. At the personal storage level, multiple formats of
removable storage compete based on many different factors, with particular
emphasis on pricing, emerging applications, convenience, compatibility and
technology. Broad competition has resulted in continuous price pressure in
the past and the Company expects this trend to continue.
The
Company’s primary competitors in the removable data storage market include
Fuji Photo Film Co., Ltd., Hitachi Maxell, Ltd., Memorex, Inc., Verbatim
Corporation, TDK Corp., and Sony Corp. In addition, the Company has various
agreements with other companies such that it is possible to be, at various
times, a competitor of, supplier to, or customer of those companies. While
these companies compete in the removable media market, they do not generally
report financial results for these businesses on a stand alone basis.
Therefore it is difficult for the Company to estimate its relative market
share. However, the Company uses a variety of industry sources to estimate
market size and share and estimates that in 2002, the latest period for
which data is available, it held more than 18 percent of the total market
sectors in which it competes for removable media, one to two percentage
points greater than its nearest competitor. The Company’s market share in
2001 was estimated to be 15 to 17 percent.
Ticker
IMN
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