The disasters came one after another, with no letup. Four disk-drive companies filed for protection under Chapter 11. Six others abandoned the business entirely. And most of the others probably with they had.
Talk about losing your shirt. In a stagnant market last year, foreign producers increased their U.S. sales of rigid and floppy disk drives by about 23%. Many domestic makers fought hard just to survive. Priam Corp., in San Jose, Calif., (#68) was a typical case, losing $20.9 million.
Then what explains the stellar performance of Iomega Corp. (#5)? In 1985, its profits climbed nearly sixfold, to $14.9 million, on sales of $116.5 million.
Iomega changed its marketing just in time -- a change that was forced upon it. Back in 1983, the industry's salad days, Iomega faced a crisis. Most firms sold their disk drives to original equipment manufacturers (OEMs) such as IBM Corp., which used the drives in their personal computers. But Iomega couldn't meet industry specifications: its technology has characteristics of both a floppy and a hard disk.
The OEM market, though, ran into trouble in 1985. Stagnant computer sales convinced the OEMs to pull disk-drive making in-house or to subcontract with low-cost manufacturers overseas. Companies like Priam, dependent on OEMs for 98% of sales, were devastated. "Being rejected by the OEMs proved to be a blessing in disguise," says Gabriel P. Fusco, president and chief executive officer of Iomega.
Iomega had scrambled into the aftermarket instead, where demand for add-on hard drives rose from 104,000 units in 1984 to 198,000 last year. The aftermarket strengthened as both companies and consumers looked for ways to upgrade existing computer systems rather than to buy new ones. With more than 80% of its business in the aftermarket and other retail sales, Iomega says it reaped an additional 5% to 7% gross margin, with only 1% to 2% in increased sales and advertising costs. Those numbers made for good reading on the bottom line.