Iomega has pulled the plug on development of its digital capture ...

2003 as Iomega sought to offset flagging sales of its Zip drives. But an initial lead customer -- a camcorder manufacturer -- scrapped plans last fall. At CES in Jan., Iomega executives expressed hope of having DCT designed into 6 products by mid-summer including digital audio players, USB drives and handheld PCs. But DCT’s future hinged on Iomega’s landing a “significant” OEM customer among CE manufacturers, an effort that proved unsuccessful, Heid said. Iomega didn’t have “sufficient funds” to pursue development of both DCT and removable rigid disk (RRD) technologies, the latter being positioned as a replacement for tape drives in corporate applications, Heid said. RRD, which is marketed under the REV brand, has a 35 GB capacity that can be increased to 90 GB by using Iomega’s backup pro compression software. REV shipped in May and generated net sales of $7.4 million during the 2nd quarter, interim CFO Thomas Kampfer told analysts in an earnings conference call. In dropping its own plans for DCT, Iomega is “very focused” on licensing or selling the technology to a 3rd party, Heid said. It has had “positive and productive” discussions with 3rd parties in the 2nd quarter, Kampfer said. Iomega reached a licensing agreement for IP surrounding DCT’s ASIC with a unidentified N. America semiconductor manufacturer, Heid said. The DCT products were to be manufactured by Citizen Watch Co. and use discs supplied by Fuji Photo Film, the latter also being a licensee for Zip drives. Iomega spent $4.4 million of DCT in the 2nd quarter -- $3.4 million and $1 million on operating expenses and capital costs, respectively, Kampfer said. In other product news, Iomega also is setting up a network of regional hubs for distribution of hard disc, CD-RW and DVD drives that will allow it to reduce inventory levels to 1-2 weeks from the current 6-8 weeks, Heid said. “This will allow us to deliver products in real time, on demand,” he said. During the 2nd quarter, Iomega swung to a $19.8 million loss from a $4.4 million profit a year earlier as sales plunged 23% to $78 million. Zip product sales fell 51.4% to $32.3 million. Revenues from flash, floppy, hard disk and optical drives rose to $32.7 million from $29.2 million.