Imation Drops HD DVD Blank Media, Goes Blu-ray All the Way

Imation limited HD DVD to pilot production at the Oakdale facility, pressing discs in 15 GB and 30 GB single- and dual-layer capacities largely for sale via its Web site. Imation acquired TDK’s media brand last year for $370 million (CED April 20 p4), a purchase that included a portfolio of Blu-ray-related patents. TDK also agreed to make Blu-ray discs for Imation to supplement production at Oakdale. Imation stopped in-house Blu-ray disc production in shifting that role to TDK, Allen said.

The company will source HD DVD blank media from third- party contractors if demand emerges, Allen said. “We're going to focus” only on Blu-ray going forward and “not make any investments” in HD DVD production, Allen said. In doing so, Imation joins a growing number of companies that shifted from backing both formats to going exclusively Blu-ray. Imation 15 GB HD DVD discs were $18 to $23 online, while single-layer 25 GB Blu-ray models have been in the $15 to $19 range.

The shift came three years after Imation put $10 million-plus into R&D and modular production capabilities, positioning itself as a supplier of both formats. It also came as Sonic Solutions ended development of new HD DVD authoring systems and Warner Brothers also went all-Blu-ray. TDK, which has been prepping single-sided Blu-ray discs with 100-GB capacity on four layers, in 2006 unveiled a single- sided prototype with 200 GB spread through six layers of 33.3 GB each. Imation’s move also stanched a fall restructuring (CED Oct 19 p1) that sought to centralize management of some businesses at its Oakdale headquarters. Previously some businesses, like flash memory, were run regionally.

Imation stopped distributing Memorex-brand USB flash memory devices through U.S. “big box retailers,” many of which bought the goods on consignment, said Allen. He declined to name the retailers involved. Memorex flash memory products have been sold through most of the national chains including Target, Best Buy and Wal-Mart. Imation will continue sales of flash memory devices under its own brand through U.S. office superstore chains like Staples and in the corporate market, Allen said. It will market them internationally and sell them to U.S. national chains for promotions on non-consignment terms, Allen said. Imation expects to sell existing inventory in national U.S. chains by the end of Q1, Allen said. Thursday, Target was carrying a Memorex 1 GB money clip USB flash drive at $17.99, while Best Buy had the Memorex M-Flyer 1 GB USB 2.0 flash drive ($35.99).

Imation had 26 models of flash drive under its own and Memorex brands, from 128 MB to 8 GB. Imation Swivel Pro drives ranged from 1 GB to 8 GB, while Pocket Flash ran 256 MB to 4 GB. The 1 GB to 8 GB flash drives sold under the Memorex brand, which Imation bought in 2006 (CED Jan 23/06 p1).

“The requirements within the large retail consumer channels is consignment inventory, which means we literally had weeks of inventory to satisfy” the retail orders, CEO Frank Russomanno told analysts in an earnings conference call. “There was a requirement to have temporary price reductions at a moments notice and then there were promotional dollars” that were needed to participate in the market. But consignment inventory “is definitely a major problem,” Russomanno said.

The NAND flash memory market’s volatility was underscored last fall by Imation’s Q3 earnings. Imation expected Q3 flash memory procurement costs to drop 10 percent, but they rose 8 to 10 percent, company officials said. Meanwhile, U.S. retail prices fell. Imation Q4 flash memory revenue fell 27 percent from a year ago to $39.4 million. Flash memory brought 5.6 percent of Imation’s Q4 revenue of $701.8 million. But a year earlier flash was 11.7 percent of $459 million in total sales. Imation’s quarterly flash memory revenue peaked at around $92 million in Q3 2006, up from $39.9 million a year earlier (CED Oct 25/06 p2).

Imation swung to a $74.4 million Q4 loss from a $24.4 million profit a year earlier due largely to a $94.1 million goodwill impairment charge from buying TDK and Memcorp, which had the rights to the Memorex brand for CE products. Revenue rose to $701.8 million from $459 million, driven by the recent acquisitions. Imation optical products revenue, driven by TDK, rose 61 percent to $334.6 million. TDK had $177 million in revenue for the quarter, while Memcorp added $76 million, company officials said.

Imation also took $12.6 million in restructuring charges. They included trimming 190 jobs, cutting the workforce to 2,250 at quarter’s end, company officials said. The charge wasn’t tied to integration of Memcorp or TDK, but rather to closing some facilities, including a floppy disc plant in North Dakota and the merging of three warehouses into one near Memphis, Tenn. - Mark Seavy