Imation to Lay Off 20%, Restructure; Analyst Weighs In
Imation Corporation said Wednesday that it plans to cut its global work force by 20 percent and restructure its business—news that comes on the heels of a third-quarter sales decline of nearly 20 percent.
Net revenue for the quarter that ended in September totaled $248.2 million, and the Oakdale-based company reported an operating loss of $6.3 million, or 17 cents per share.
As of December 31, Oakdale-based Imation employed approximately 1,130—roughly 470 in the United States and 660 in other countries across the globe—meaning that its reduction will affect about 226 people. The cuts are expected to occur in 2013.
The company didn’t reveal how many Minnesota or U.S. employees would be affected by the cuts, or which types of positions would be affected. Spokeswoman Mary Rawlings-Taylor told Twin Cities Business on Wednesday: “It’s too early for us to know that,” adding, “We’re going to look at all functions and all regions.”
President and CEO Mark Lucas said in a prepared statement that third-quarter sales came in “below our expectations in most product lines and in all regions.”
“While weak macro-economic conditions were a factor, we are certainly not satisfied with this performance,” he added. “Given our soft results, it is now not likely that we will return to total company revenue growth in the near term.”
Imation, which spun off from 3M in 1996, said that it would realign into two global business units: tiered storage and security solutions, which will focus on small and medium-sized business, enterprise, and government customers, and consumer storage and accessories, which will focus on retail channels.
“Our more focused business units will allow us to operate more efficiently, right-size our operating expense levels, and forge a path to profitability,” Lucas said.
In conjunction with the realignment, Imation aims to reduce operating expenses by roughly 25 percent; the job cuts are part of that reduction.
Imation expects to incur cash charges of up to $40 million in connection with the changes it’s undergoing, with total charges totaling between $50 million and $60 million.
In recent years, Imation—which was founded as a maker of data storage media—had billed itself as a “brand and product management” company and sold consumer electronics under various brands. But in January 2011, about eight months after Lucas moved ranks within the C-suite and became CEO, the company announced plans to shift its focus back to data storage, protection, and connectivity.
The company said Wednesday that as it increases its focus on data storage and security, it will explore “strategic alternatives” for its consumer electronics businesses and brands, which include Memorex and TDK Life on Record. In its announcement, Imation didn’t provide further details about what those alternatives might be, but Rawlings-Taylor acknowledged that they could include “rationalizing the portfolio,” selling some businesses or portions of them, or continuing to operate as-is, among others.
Mark Miller—a senior research analyst at Boca Raton, Florida-based Noble Financial Capital Markets, who closely follows Imation—told Twin Cities Business on Wednesday that closing or selling unprofitable businesses in order to obtain and preserve cash needs to be the company’s first and top priority. But given that the consumer electronics brands and businesses are likely “bleeding some cash,” he said he’s “not sure what kind of price they could get” through a sale and doesn’t see them as highly attractive options to prospective buyers.
Although several private equity firms called Miller about a year ago, presumably to feel out whether Imation could be a solid investment for them, he doesn’t see a private buyout as likely at this point because it would be hard for such firms to discern what Imation’s “profitable core” might be.
However, “through divestitures or closing down [businesses], I think [Imation] can find a profitable nucleus,” Miller said, adding, “I do think they have the resources to be successful.” That said, the current economic situation, coupled with the company’s current financial position, make that task doubly challenging.
Imation said that Ian Williams, who now serves as its vice president of global marketing and product management, will lead its new tiered storage and security solutions division—and Greg Bosler, who’s currently senior vice president of global business management, will lead the consumer storage and accessories business.
Imation is among Minnesota’s 30-largest public companies based on revenue, which totaled $1.3 billion in 2011.
In January, Twin Cities Business explored what’s behind Imation’s recent struggles, how it’s progressing with its turnaround plan, and its prospects for the future—including whether it’s time for the company to be sold, either in pieces or in its entirety. To read that story, click here.