Imation plans to restructure in effort to boost profitability

Impact of move on medical imaging is uncertain

Imation is planning a corporate restructuring that will cut 1000 to 1500 jobs at the Oakdale, MN, company in an effort to get the company's profit growth back on track. It's unknown what impact the restructuring will have on Imation's medical imaging business, which includes x-ray film as well as PACS components developed by its Imation/Cemax-Icon subsidiary.

The cuts will come from a total work force of 9900 employees spread across 60 countries. Imation will take a $200 million charge, most of which will fall in the fourth quarter, to implement the plan.

Imation executives announced the plan as the company released financial results for the third quarter (end-September) that showed falling revenue and profits. For the period, Imation had sales of $529.5 million, down 5% compared with $559.3 million in the third quarter of 1996. Imation posted a net loss of $38.7 million, compared with net income of $11.8 million in the same period a year ago. The most recent quarterly figures include a one-time charge of $41.7 million related to the Cemax-Icon acquisition; without the charge, Imation would have had net income of $3 million.

The lower revenue figures were attributed to sluggish sales in Imation's low-end tape-storage business, which includes the desktop version of the Travan tape-backup cartridge, while the strength of the U.S. dollar hurt the company's export business, which accounts for 50% of the company's sales. Travan sales have suffered due to the rapid rise of network computing, in which PC users are backing up data over networks rather than at the desktop level, according to Jason Thunstrom, manager of external communications at Imation. The company is developing a networked version of Travan to target this trend.

Imation has been grappling with profitability issues since the company was spun off from 3M in 1996; in fact, industry analysts believe that 3M chose to spin off the businesses that now make up Imation because they were underperformers at the company. While Imation has acknowledged that it is behind its business plan for boosting profitability, the problems the company is facing are similar to those encountered by any start-up, according to Thunstrom.

"It's important to remember that we are just over a year old," he said. "We're a $2.3 billion start-up, and we are going through some of the change that you would see in any other spin-off or start-up."

It's unclear what changes the restructuring will have on Imation's medical imaging operations. Imation does not break out financial numbers for its individual business units, and the company has not commented specifically on the performance of the medical division other than to say that its DryView line of laser printers has been successful.

Imation is examining all of its operations to develop a restructuring plan, which should be complete by March 1998. The company will maintain its strong commitment to the medical field, however, according to Steve Burns, director of global market development for the medical business.

"Our medical imaging business and that whole portfolio of technology and products is still a key component of Imation's overall strategy and portfolio," Burns said.