Iomega Expands Manufacturing With Chinese Acquisition

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Iomega is expanding its hardware manufacturing capability with the planned acquisition of a Chinese hard drive manufacturer more than twice its size.

Iomega, the San Diego-based manufacturer of removable and portable storage products under the Rev and Zip brands, said Wednesday that it plans to acquire Cayman Islands-based ExcelStor Great Wall Technology and China-based Shenzhen ExcelStor Technology.

The deal was structured as a stock transaction under which Iomega plans to issue 84 million shares of common stock in exchange for all outstanding ExcelStor common shares. After the transaction, ExcelStor shareholders will own 60 percent of the combined company, while Iomega shareholders will own 40 percent.

ExcelStor revenue topped $700 million in 2006, and is expected to exceed $800 million in 2007, said Thomas Kampher, president and COO of Iomega. Iomega expects revenues of some $300 million in 2007, Kampher said.

The two companies have had a long relationship, which started in 2004 when ExcelStor became the manufacturer of Iomega's Rev line of removable hard disk drives. Iomega currently accounts for less than 5 percent of ExcelStor's total revenue, Kampher said.

Other ExcelStor customers include Japan-based Hitachi and Norway-based Tandberg Data, as well as numerous China-based PC manufacturers, Kampher said.

The acquisition is a great opportunity for both Iomega and ExcelStor to capitalize on the Iomega brand name, Kampher said. He noted that in the five quarters between the second quarter of 2006 and the third quarter of 2007 Iomega's quarterly revenue has doubled to about $80 million.

"Looking back over the last year-and-a-half, we've had nice growth and have been consistently profitable," he said. "We see we have a major asset in the Iomega brand and worldwide channel. And we want to leverage that channel and brand."

So does ExcelStor, Kampher said. "Since we have been working together so many years, our relationship naturally evolved," he said. "We asked each other how we can work more closely. They indicated they wanted a brand name in the channel."

Once the deal closes, Iomega CEO Jonathan Huberman will continue in that role in the combined company. Kampher will continue as president and COO, while Iomega CFO Preston Romm will continue in that role. Eddie Lui, ExcelStor CEO, will become executive chairman of Iomega. The combined company will have nine board members, including five from ExcelStor and four from Iomega. Worldwide headquarters will remain in San Diego.

ExcelStor is a subsidiary of Great Wall Technology Company, a Beijing, China-based IT powerhouse with 2006 revenue of $2.6 billion. Great Wall, in turn, is an indirect subsidiary of China Electronics Corp., a Chinese government-owned IT conglomerate with 2006 revenue of about $16 billion.

Chinese companies have a major impact on the IT market because of their status as primary sources of most types of computer hardware. China has been making other inroads as well, most notably Lenovo's acquisition of IBM's PC business in December 2004.

Iomega's last acquisition, that of managed services provider CSCI, was considerably smaller, with a value of $11.5 million.

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