Good day ladies and gentlemen, welcome to the Imation fourth quarter earnings conference call. At this time all participants are in a listen- only mode. Later we will conduct a question-and-answer session. Instructions will follow at that time. (Operator instructions). As a reminder this conference call is being recorded.
I would now like to turn the conference over to Brad Allen of Imation. You may begin.
Thank you, operator. Good morning, everyone and welcome to our Q4 results teleconference. Before I introduce Paul Zeller and Frank Russomanno for comments and then your questions I want to remind listeners that certain information discussed on this call does not relate to historical information may be deemed to constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from any projected or discussed risk factors that could cause those results to differ are outlined both in the press release we issued this morning as well as on our filings with the SEC.
Now at this time I would like to introduce Imation's Chief Financial Officer, Paul Zeller.
Thanks Brad. And good morning, everyone. Obviously, our fourth quarter was a difficult one as it was for many companies. As we signal a couple of weeks ago, both our revenues and earnings have been significantly impacted as worsening economic environment impacted end user demand in both the commercial and consumer parts of our business. In addition, our channel partners were very focused on controlling their inventories in light of the economic slowdown further impacting our revenues. Finally some of the secular trends we've been seeing in our legacy media business has continued during the quarter.
I will kick things off this morning by walk you through some of the details on the quarter and hand it over to Frank who will give you some insight into the specific actions we're taking in light of the economic and industry issues we're seeing.
Our revenues were $549 million in the fourth quarter. That was down nearly 22% from last year. The severity of this decline rate was partially due to the difficulty of our comparison which was against a particularly strong Q4 last year. But setting that aside, we clearly saw step change in our legacy tape and optical media demand patterns in November which continued in December.
From a regional standpoint our revenues were broad based and the declines were broad based. U.S., Europe and Asia were all very soft. The only bright spot which we call it that was Japan where we held revenues relatively flat with last year. Optical products declined 27% to $244 million. They do represent 44% of total revenues.
Our declines were evenly spread between CD and DVD media. In addition, we saw declines in our global data media joint venture revenues as well. Magnetic product revenues decline 32% to $146 million and they represent 27% of our total revenues. And while we continue to see growth in new tape formats, legacy format declines far outweighed this.
As we discussed in recent quarters, financials and important sector for our tape business have obviously been under significant stress which is disrupted normal IT spending patterns.
We did see solid growth in our consumer electronics business which was up nearly 35% to $102 million representing 19% of total revenue in the quarter. Our accessories revenue were down 10% to $34.4 million represented 6% of revenues. This decline was driven by optical drives and optical accessories. We did see solid growth though in our external hard drives driven by our Apollo product line.
Flash product revenues total $23 million and declined nearly 43% from last year's fourth quarter. We had anticipated a significant decline in this category though given our actions last year to rationalize our portfolio and our channel participation. Flash products represented only about 4% of revenues in the quarter.
When we look at overall 22% decline in revenues it can be roughly split into about a 10 point impact from lower volumes and a 10 point impact from price erosion and then about a two point negative impact from currency translation.
In terms of our margin ratio gross margins were a disappointing 13.6% of sales that was down 1.9 points from last quarter's 15.5% ratio. We expected some level of decline given the seasonal mixed penalty we see in the fourth quarter with our consumer revenues representing a larger portion of total revenues.
In addition to this mixed impact which are more or less expected we had margin issues in two categories
Consumer electronics and magnetic tape. Like third quarter our CE product margins were impacted by economic factors in the U.S. This led to higher than expected levels of price erosion in the industry as supply exceeded demand. We saw weaker margins across the board in CE but especially so in video products including Flat Panel TVs and really anything with an LCD screen. We also incurred some one time costs associated with our licensing business in this category.
In addition with the slowing demand our magnetic tape margins especially in the mid-range were also soft in the quarter. Margins in the rest of our business were solid in the fourth quarter. Our optical and flash margins were actually up nicely compared to both last year and last quarter.
In the case of optical we believe our brand consolidation strategy is helping us especially in these difficult economic times. We are seeing retailers’ contract shelf space in this category and consolidate their business around fewer brands. With the strength of our portfolio brands in this environment, we have been gaining share and have seen some of our competitors’ brands being consolidated out.
In the case of Flash, we have been seeing significantly improved margins all year long as we continue to benefit from the change in strategy we began in late 2007. R&D costs were $5.4 million for the quarter in line with recent quarters and in line with our expectations as well.
Selling, general and administrative expenses total $75.6 million, that's up from our run rate earlier in 2008. There were several drivers to this. First, our legal spending on litigation especially the Philips matter was at a higher rate in the fourth quarter as there was intense activity to comply with year-end discovery deadlines.
Second, we experienced a higher than typical level of bad debt expense driven by the impact of a global economic slowdown. This included exposure to Circuit City who as you know has announced plans to move into liquidation. Between legal and bad debt we saw approximately $10 million in charges during the quarter.
Finally, as compared to our prior quarter spend rate, it's important to point out that Q3 in 2008 benefited from the reversal of variable compensation accruals from earlier quarters in '08.
As I will discuss more in just a minute, November -- in November, we announced our plans to realign our cost structure in support of our strategy with the goal of improving our business model and we're looking to take out in excess of 10% of operating spend expenses or an excess of $40 million. Little of any of the benefits from these actions were in place for the fourth quarter.
Our world line employee count ended the quarter at approximately 1,570. That's down over 10% or 190 employees in the quarter and down about 30% or 680 employees this year. The declines early in the year were driven primarily by the actions associated with our manufacturing restructuring as well as acquisition integration efforts.
In the fourth quarter, there was also modest impact from our OpEx reduction program I just discussed but most of this occurred late in the quarter with little impact on Q4 spending.
Restructuring and related charges totaled $9.9 million in the quarter and the majority of those charges related to costs associated with the structure realignment we announced in November.
Let me remind you a little bit about that program. Given our recent performances as well as the market and industry conditions we've been seeing it had become clear to us and still is that our structure needs to be realigned. We set a goal of aggressively reducing total OpEx by year-end 2009 to align our business model with our strategic direction. In doing so we had benchmarked ourselves against companies with brand portfolios and those with significant distribution businesses across both commercial and consumer markets.
Our reductions are focused on selling, general and admin expense where we're targeting our resources on key accounts and key products and simplifying our corporate structure globally. At the same time we will continue to invest to re-skill the company, strengthen our brands and maintain tape technology leadership. We believe these factors are critical to our future.
Program details as I said we're targeting annualized cost eliminations of greater than $40 million once fully implemented and these actions will be implemented over time with the vast majority completed by the end of 2009.
We anticipate absorbing up to $40 million in restructuring and other charges with the majority yet to be recorded in 2009. Charges will be mainly cash for severance and related costs and the program will result in the elimination of in excess of 200 positions around the world.
We continue to finalize our previously announced manufacturing restructuring actions and by the end of 2008 had exited both our Wahpeton, North Dakota and Camarillo California plants. We've required to take a sizable non-cash charge for goodwill impairment in the fourth quarter as we previously communicated. This totaled $34.7 million and the applicable accounting rules and the accounting standards require us to reconcile our current market capitalization to book value when we do our annual goodwill impairment assessment.
At the stock price levels near the end of 2008, our total book value was above our market capitalization driving the need for this charge. The charge followed a similar $94.1 million charge in last year's fourth quarter. 23.5million of goodwill remains on the books after these charges. Including the charges for goodwill and restructuring our operating loss for the quarter was $50.8 million on a Generally Accepted Accounting Principles basis or a loss of 6.2 million excluding those charges.
Non-operating costs totaled $2.5 million in the quarter which compared with $3 million in Q4 of last year. We recorded a $7.7 million income tax benefit in the quarter associated with a $53 million pre-tax loss. Again that including a goodwill impairment and the restructuring and related charges.
This represents only a 14% tax benefit rate because much of our goodwill charges did not attract a tax benefit for accounting purposes and in addition due to our decline in profitability and several jurisdictions around the world certain deferred tax assets were required to be written down and those were non-cash writedowns.
Our loss per share on a GAAP basis in the fourth quarter then was a $1.22 and if we exclude goodwill impairment and restructuring our loss per share was $0.36 per share. Cash and equivalents ended the quarter at $96.6 million and the company has no debt outstanding. Cash used in operations totaled $1.8 million. This quarter and that included covering $8.1 million of cash payments associated with restructuring.
Additional cash outflows during the quarter included capital spending of $3.9 million and dividends of $3 million. We did not purchase any shares during the quarter and our share authorization remains at about 2.3 million shares.
Couple of summary comments before I hand things over to Frank. First, we're obviously not pleased as I'm sure you're not with our results in the last couple of quarters. The primary factors affecting our performance include the macroeconomic issues affecting many companies as well as some of the specific issues impacting the financial sector which clearly hurt our enterprise state members. In addition retail demand impacted our margins in consumer electronics as I discussed earlier.
Having said this we continue to believe that the strategy we've established is sound and the steps we're taking in transforming the company are the right ones. We believe the adjustments we're making in our OpEx are critical in improving our business model and we remain ready to take whatever actions are necessary to increase the long-term value of this company and to put our business back in a profitable track.
Now I would like to hand the call over to Frank Russomanno, Imation's CEO who'll get into the number of the actions we're taking. Thank you.
Thank you, Paul, and good morning. The significant economic slowdown has affected our results globally for both Q4 and full year. In addition, the industry softness and storage media we saw earlier in the year continue to affect our results in the fourth quarter. As we indicated previously, our actions also include significant charges for goodwill impairment and restructuring actions.
In my remarks today, I'm going to discuss the factors affecting our commercial and consumer businesses. I also will outline the principles we are following as we manage through the current economic environment and focus on improving our results.
I will start with commercial business. Our commercial business represents approximately 30% of our revenue and more than half of our gross profit dollars. We have seen reduced IT spending across many industries and all geographies. This has been particularly true in financial services.
Customers are managing their constrained budgets through increased utilization of existing taped inventories, deferred capital spending and a shift to open tape formats. With increased capacity per cartridge we are also seeing the absolute volume of tape decline. We recognize this reality some time ago and have been proactive in addressing these challenges by focusing R&D and manufacturing resources on tape coating.
For example, our manufacturing optimization program announced in 2007 has resulted in outsourcing of tape converting operations. The exit of two manufacturing plants and a 75% reduction in our manufacturing work force. All of these actions while painful have resulted in a much leaner manufacturing footprint focused on the highest value tape coating operations. We also have expanded the portfolio of commercial products with the launch of SSD drives, removable and external hard drives and an RFID tagging system.
The commercial market remains an important market for the company. While the overall commercial data storage tape market has declined, we believe that our strong brand portfolio broad distribution footprint, diverse product portfolio and solid IT position will be an advantage for us when the market returns to a more stable level of demand.
Our go forward goal for this business is to introduce award winning and innovative new products like the Apollo external hard drive and a wireless projection system while continuing to optimize our core tape business.
Now I will switch to our consumer business which has been the focus of much of our growth strategy. We clearly are feeling the impact of a slower spending environment. Demand for recordable optical media was soft in Q4. In addition to slower consumer spending we are seeing competing formats for audio and video consumer content such as iPods, MP3 players and hard disk set tops.
The high capacity blue ray optical media format has not caught on as fast as originally expected and likely will not be as large as once thought though we still see this format as having overall growth in the coming years. The pressure on retailers has also affected us as they reduce their orders and inventory levels. And we've seen some retailers being pushed into bankruptcy most notably Circuit City as Paul discussed.
Soft demand during the Christmas season for big ticket items such as flat panel displays also impacted our revenues and more importantly margins in the quarter. Despite the difficult quarter, we had a successful presence at the consumer electronics show earlier this month where we introduced several new products including the industry's fastest blue ray media. The Memorex TouchMP which is a touch screen portable media player and the world's thinnest full-motion wall mount for flat panel TVs.
We are also successfully relaunched the extreme Mac product line after closing on the acquisition last summer. Brand new investment is a critical element of our consumer strategy. As an example, the Memorex brand especially in our CE product category has gone through a major refresh designed to appeal to the largest demographic for the brand. “The modern mom.”
The Cable TV advertising campaign scheduled for later this year will be timed and targeted to build the brand in the U.S. with an eye toward future expansion and CE products in other regions. At the same time, the investment must be measured, thoughtful and deliberate with spending based on results as we gauge the impact in the marketplace.
As we managed through the current challenging economic climate, we have three guiding principles. First, we are focused on improving our results and to that end we are aggressively reducing costs and conserving cash particularly in the first half of the year by simplifying every aspect of our business. Our cost structure must align with our strategic direction. We will not wait to grow our way into and an acceptable business model. Instead, we are aggressively implementing a much leaner and flatter organization than we had under our legacy business.
The concept of less is more is critical to this effort. It recognizes that Imation can get more sales and margin from its operational activities if we remain focused on fewer objectives and strive for simplicity, size and speed. The second principle is to remain focused on the future.
As we implement our strategy we have an eye on the future industry structure. Consolidation in both commercial and retail channels, expanding product portfolios, increasing relevance of brands, increase the adoption of industry standards storage formats and continuing innovation and evolution in technology to meet user needs. Recognizing this dynamic competitive landscape, Imation will continue to consider intelligent risks to position the company for the future.
As we managed through this difficult economy, the third principle we are following is to remain committed to our strategy of transforming Imation into a brand and product management company. And we see evidence that the strategy is working. For example, we have improving margins and leading share position in the U.S. and Japan for recordable optical media.
We achieved significant revenue growth in audio/video consumer electronics products under the Memorex brand. In addition, our brand positioning and brand research has illustrated by the recent refresh of the Memorex brand has been positively received by the retail channel.
In summary, while 2008 has delivered surprises to virtually every company, we are not hiding behind a difficult economy. Nor are we scaling back our own belief that we think this company can achieve long-term growth. Our financial position remains strong. We will continue to look for opportunities to strengthen our position in the industry as we look for the future competitive landscape.
We remain committed to our strategy and intently focused on implementing the actions necessary to improve our business model as we continue to align our cost structure to our strategic direction. We are approaching 2009 cautiously. Given uncertainty about the breadth and depth of the economic turndown.
In the current environment we anticipate a challenging first half of the year and we have decided not to provide annual guidance for 2009. As we have in the past, one faced with challenges, this management team will make the necessary changes to improve results and regain our momentum. Clearly, this management team has its sights set on a strategy that is attainable and beneficial to shareholders. Paul and I will now take your questions.
Thank you. (Operator instructions). Our first question is from Glenn Hanus [ph]. Your line is open.
Good morning, guys.
Good morning, Glenn.
Okay, so I appreciate you're not giving guidance. Maybe we can at least talk about some of the operating costs and how to think about them. So for SG&A and R&D, you had sort of a 10 million item in December for SG&A. So would we sort to take 10 million out of the SG&A and think that sort of a run rate and then you're reducing from there? Can you give us help on the operating side?
Sure, Glenn. The thing to remember is that some portion of that you could say is contained to the quarter but certainly a significant portion continues to some degree as we continue to deal with the litigation costs ongoing. You know we like to believe that bad debt expense is behind us but we continue to monitor all our accounts carefully and I think that that's something clearly a subject to economic realities in our channels. And so I think to some degree, yeah, there was an uptick in cost and that 75 point, whatever it was, $75 some million is higher than we should have seen in the fourth quarter but I don't think you can subtract $10 million from that and start saying that's a run rate. We do have the benefits from our cost structure changes coming into play in 2009. Quarter by quarter by quarter we will be taking costs out as we implement those actions.
The $40 million, is that all on the operating area? Or is some of that hit the gross margins, the cost of goods as well?
The vast majority of it is in SG&A. There is a small amount in R&D and a small amount in cost to goods sold. For the most part that's SG&A. And that is a run rate benefit that we should see for the most part as we exit '09. But we will be getting pieces of it across the year.
Okay. So from a gross margin perspective, you're kind of weak this quarter. You know, so directionally over the next few quarters how should we think about gross margins?
You know one of the issues with trying to get very specific about gross margin and SG&A of course is the economic realities will impact that. That's one of the reasons we are not providing an outlook right now. I think there is a lot of uncertainty around that. But in addition to that, as you've seen in our results given quarter it can bounce around depending on how much growth there is and where we get that growth and the mix impact can impact that. We're not pleased with 13.6% gross margin and you can assume we think we need to be north of that to be an effective operating company in the industries we're in. And there were some impacts for sure in our CE business that were specific and unique to inventory issues and things we've had to take care of in fourth quarter. But having said that, exactly and precisely what that's going to be quarter by quarter, we can't get into those kinds of details at least not with the uncertainty we're seeing at this stage.
But directionally the next few quarters unless the world comes to an end here, we should see some directionally some improvement?
From the fourth quarter level I would say that's a fair comment.
And from a cash standpoint, can you give us any help here on should we see cash at least maintained at current levels and improve going forward? Or might we see some use of cash and less cash over the next couple of quarters given severance charges and things?
So again with the caveat about lot of uncertainty about what the EBITDA is going to be in specifics, let's talk about some of the moving parts. We tend to see our working capital a bit higher in fourth quarter. And the fourth quarter was soft. I would still assume it's a stronger quarter than the typical coming quarters will be. And so because of that, our normal seasonal pattern would have us being able to get some working capital benefits in the first parts of the year.
As you look over the entire year, the ultimate cash generation will depend a lot on whether the economy turns around and if so how significantly in the second half of the year, and for example, how we ended the year and what that fourth quarter revenue looks like. So there is a lot of variability on that working capital number, Glenn, based on the growth that we do or don't see as we look to next year's fourth quarter. You hit on an important point to remember. There is a significant restructuring program or undertaking. And there will definitely be significant amounts of cash we pay out over the next coming year associated with that.
Right. Can you -- so can you give us what's been paid out from a cash standpoint in the fourth quarter for severance and other related charges to restructuring and what roughly is the cash that the one-time items that's going to be hit for the next few quarters?
Okay. So in fourth quarter we had about $8 million of cash spent on restructuring. But the vast majority of that related to prior programs primarily the restructuring program. Alright. So the majority of the charges associated with the new program are yet to come from a cash standpoint. We signal those could be up to $40 million. Whether it gets all the way to 40 that's not clear. But it could be up to $40 million. Not all of that would be cash out in 2008. But a good portion of it would or 2009. But I think a good portion of it would be.
And the stock comp this quarter was that around 2.5 million?
Yes, it was 2.5 million. About 2/10th -- or $200,000 in cost to goods sold. About $100,000 in R&D and the remainder in SG&A.
Thank you, Glen.
Next question, operator.
Our next question is from Chuck Murphy [ph]. Your line is open.
Good morning, guys.
Good morning, Chuck.
Most of my questions were already answered. But if you could go over again the restructuring so you will be having roughly $40 million in cash restructuring charges but you'd get $40 million in savings hopefully?
Yes. And I think the company is always looking to get further cost savings and we will keep looking for more. So I would say it's a minimum of $40 million of savings and a maximum of $40 million on charges. And not all those charges will be cash. The majority will be. And not all of those will be cash in 2009 if you follow all that.
Just kind of seems like that's costing a lot for the savings. The kind of thing where you are doing the severance and paying a year salary as part of that? Or how you are setting that up?
That's a good question, Chuck. I would say couple of things. First of all a larger part of our restructuring here is more of it is international, a lot of it is in Europe and Europe is expensive to restructure, that's first point. Second point is there are some costs associated with certain facilities and things that will be exiting and so we have some lease breakage and other things which costs you some money to exit if you will. And sometimes you are covering several years worth of lease cost to break and yet you are still getting a benefit over the long-term you are having to pay some upfront.
In addition, some of the charges we are going to be taking involve restructuring some of our benefit plans and pension plans in certain places around the world and that's going to cost some cash to do that. And it gives us an ongoing benefit but it's not the typical sort of relationship you might see in severance. Bit more upfront cash if you will. So those are some of the reasons why you are kind of seeing that relationship which is different than our normal relationship, I will admit it between the cash where the cost side of it and the benefit.
And how would you be restructuring those benefit plans?
Well, just certain places where we may structure how we do benefit and choose different ways. And because of that, we might not carry forward the form of the benefit plan we have today and that can some times cost in terms of covering past service costs and those kinds of things.
Okay. I got you. And you said that although you wouldn't just add back the $10 million or subtract $10 million from SG&A, that $10 million was about what the Philips discovery stuff in the bad debt expenses was about?
Yes. And kind of leaning more towards legal costs and little less towards bad debt.
Okay. And then just a general question about tape. I realize that it's kind of going to be in permanent decline. But do you see the situation where things have gotten wiped out so much and some of these customers have just reduced their inventory so much that at least at some point for a quarter or two maybe in the back half of '09 you see a sequential improvement temporarily?
Chuck, this is Frank. We asked that question of ourselves all the time. And just a little anecdotal piece of information. Just at the beginning of this year we had one of our executives go out and visit a couple data centers on the east coast and he got just absolutely contradictory input from the two major users. One saw a come back in especially toward the back half of the year and the other one didn't see a change in practices. So it's so diverse and it's probably so individual facility by facility for us to say what exactly is going to happen there is extremely difficult at this point. Paul mentioned in the fourth quarter that magnetic was down significantly, down at a faster rate than we had ever seen before. Is that going to come back and which quarter is it going to come back? It's probably the most difficult thing for us to answer.
I think, Chuck, if you think about it, three mega factors going on in tape. And really for that matter an optical I think which is there is clearly an economic factor. I believe there is also kind of an inventory contraction factor that's going to be more short lived and then there is a secular issues we've been seeing about what's going on with tape and some of the other formats and the real question when you look at that 27% -- I guess that's optical, 32% decline rate and magnetic, clearly, that's not our expected ongoing decline rate for magnetic tape in the long-term.
And the real question in our mind as we move into '09 is how do we see demand changing as we, one, get pass some of the near-term issues as people are dealing with their inventories and as the economy progresses forward what are those realities. And then the underlying secular issues. So we are watching it very closely. It's not altogether clear how that's going to change and how quickly. We do certainly believe magnetic revenue decline rate is certainly better than what we saw in fourth quarter.
And part of my responsibility as a CEO is to try to look at every aspect of our business in more detail. And in the case of tape, which is critical to us, there are some positive things that are worth mentioning. There will be an LTO-5 format. There will be a T-10,000B format coming out and C. There already is a 3592GEN2 out there. So tape has a long future and it has a long run way but quite honestly for us to talk about specifics of which quarter is it going to come back and to which degree is extremely difficult to do.
Okay. And my last question regarding the electronics product business. The sales here over year are up significantly. I think it's something like 20% or so. But the operating profit was much lower -- operating loss. Now I'm sure some of that was kind of getting stuck with inventory and having to slash prices and stuff like that. Is that business going to be profitable in 2009?
I'm going to start on that one. We very much anticipated this question and the way we look at this question is why would you continue in this product. And you put your finger on it right at the very beginning, Chuck, is that this is a consumer electronics and the addressable piece of the market we are looking at is a very large segment. And it offers us a growth opportunity, if done correctly and if done well. That growth opportunity goes across a full ray of products which are both in the audio and video. And we for one know that the audio products are more stable in price and probably offer better marginal returns.
We also believe the higher growth is anything but a flat panel display type product and that's where the risk -- therein lies the risk. We clearly had a lot to learn about this business and 2008 was the year for us to learn different aspects of it. And Paul's going to talk a little bit about some of the learnings there. But we are not going to abandon those growth opportunities which are difficult for us to find. And this is one where we have to learn to participate in it just like we learned how to participate in flash and we have a measured approach in flash so that a product that costs us millions of dollars two years ago we had a good gross margin on this past year. We believe we can do the same thing in the consumer electronics business.
Maybe couple of follow-up comments, Chuck, and that is that actually the gross was 35% in the quarter and it was coming after a 28% growth rate in third quarter. But we are not about growth for growth sake. We are about growing profits. And so we have taken a very hard look at why we struggled in the last two quarters. And clearly there is two pieces. The economic impact and there is our execution. And both have been troublesome for this business in the last couple of quarters. Neither of those issues concern us about the long-term opportunity. We think that we can address growth in this segment even in a down economy. That's one of the advantages. And we just need to improve some of our practices and some of our execution.
For example, in the video products area we really got too big, too fast in flat panels. And you know, we frankly didn't learn from the same issues we had in flash back in 2007. And that is you just can't -- you have to do direct import business and you can't be involved to own a lot of inventory because it is volatile. In good periods you can do fine. But in really tough economic periods you can have some issues we clearly get. We have some inventory write-offs and write downs. We had some issues in some of our licensing program there and having to take some charges for minimum quantities that we didn't reach. Those are the things we need to do differently.
We had some issues with some of our products going into Latin America. We had a nice win in Mexico. And yet with the peso devaluation we had currency issue that hurt us in this quarter. And then on top of all of that we had bad debts and we had exposure to Circuit City and some other accounts. So it wasn't just one thing that went wrong in the quarter. It was a number of things that went wrong. All of which we think, one, can be addressed and two, we are busy going about addressing them.
And so we think this is really a good opportunity and we are encouraged by the way the brands are perceived. The way the channel is buying into our multi-brand strategy and our brand refresh on Memorex. And as importantly the new product designs and features that we are coming out with there is a number of products that were showcased at CES and MacWorld. And I think that as you look into 2009 you're going to start seeing more and more proof points around this transformational strategy around the growth in consumer electronics. But we have some issues to deal with and we are going about doing that.
One last point about this because this is a really critical point because clearly CE represents growth opportunity for us not just in the U.S. but outside the U.S. and as Paul mentioned we had some success in Mexico and Canada this past year. Our objective is to move beyond the Americas into other regions and take advantage of our global footprint. But the point I wanted to make about the CE business is the need to do it flawlessly. It is an extremely punishing business if it's not done well. And I think this past year cost us to learn how to do some of the things we've done. And I believe the problems we have are all correctable and manageable and we are about doing that and we will spend the time making sure that we get that done.
Last point, remember, our objective here in CE is not to go after Sony, Samsung, LG and other tier one type companies. We believe there is an opportunity in the tier 2 space, especially what's found in mass merchant category where you have a Westinghouse brand, a Magnavox brand, a Polaroid brand. We believe we can compete extremely well against those type brands and create a brand preference around the Memorex brand in that tier 2. That's part of the strategy. That's part of transforming the company to a brand management company. So it's critical to fight that battle in a space where we believe we can win against those other brands.
And I just noticed I think it was in Sunday's ad there was a 32-inch TV for $399. The name of the brand that was -- Sears was selling it. It was called Element. Now what is the Element brand and what is it all about? So that's why we think brands have value if you can establish the right value to the right customer in the marketplace. Next question. Thanks, Chuck.
Thank you. Our next question is from Hamid Orson [ph]. Your line is open.
Good morning, guys. Could you tell me what the DSO was for the quarter?
Yes, DSO -- I will just look it up. Just a second. DSO was 63 in the quarter. It was up a little bit from the prior quarter. Tends to go up a little bit in fourth quarter because our terms are a bit longer on the CE business. CE grows more in fourth quarter so you get a bigger mix of the little bit longer term business.
Okay. Given what your inventory was in Q4, is there a target level that you are looking at and maintaining inventory compared to your revenue run rate?
Yes, what I would say is less than we have. We are not pleased with where our inventories are at a year end. They are not up from the last quarter but they should have come down. Clearly the softness in fourth quarter impacted our inventory levels. We also made a conscious decision to buy ahead some optical inventory to get better pricing. And we think it's going to be an economically very, very good decision but it costs us something in cash flow as well as where our inventories were at the end of the year. We ended our days of supply at 82 days. That's well above where we need to operate this company. I think we need to be moving that down toward 70 days. And when we get it to 70 then we need to set objectives below that.
I think the key part of a successful business model on our new part of our growing business and consumer electronics is about faster asset turns. And Pete Koehn, our V.P. of Operations has aggressive goals to keep driving this. And we are very conscious that there are multiple levers to pull to drive your ROIC in this model and it's not just the operating income. We have to turn our assets better and better. It also obviously lowers your risk associated with anything from bad debts to inventory write-offs. And so we are all about both sides of that business model.
Okay. And then just sounded like transitioning company to focus mainly on the Memorex brand. Is that the case? Or is it just going to be multiple brands going forward?
That is not the case. It's going to be multiple brands that are dependent upon what products we're talking about. What regions of the world we're talking about and which customer we're speaking to. So for example you don't see as much of the activity that goes on around the TDK brand but the TDK brand is stronger in Europe. The TDK brand is the number one brand in Japan. The TDK brand is also the number one brand in Australia. So we're using the geographic strengths of the multiple brands we have around the world to grow sales and grow profits. So when you see a lot about Memorex, it's because of Memorex strength in the optical business. And I don't want to forget the Imation brand which is an extremely strong brand in our commercial side of our business.
So our strategy is a multiple brand strategy that is geographic dependent, customer dependent, product dependent and we are learning how to manage that. That's part of the transformation of being a brand and product management company and the brand piece means multiple brands. So we are not backing away from that. As you noticed we made another acquisition of another brand, XtremeMac. The XtremeMac will be in the marketplace as the premier brand for Apple accessories. And we intend to have that tier 1 type brand grow over this next year.
I like to add something to that as well which is we talked a lot about CE but we can't forget about the fact that we have a number of different growth platforms. CE is one of them. It happens to be the largest market opportunity. But we think we have a good opportunity to grow our presence in SSD. You may have seen a new product launch there a kit product. And that's around the Imation brand. We have a really nice emerging business in removable hard disk around the Imation brand that looks like a really interesting growth category. And as Frank mentioned our TDK business in parts of the world has a nice accessory opportunity, also around CE as well and maybe little closer to audio that we think is a real nice opportunity.
Okay. And then also just going and looking out into '09 what would the plan be for Imation? Will it be more of a product expansion plan? Or would it also entail purchasing other brands given that there are many companies in the financial turmoil right now?
In 2009, our primary focus is on organic growth. And taking the brands we have and as our strategy said, to extend those brands into other product categories like the Memorex brand into cables, as an example. But at the same time as I mentioned in my comments, we're going to be intelligent about looking what's in the marketplace. And if there is something that is really of strategic interest to us then it fits with our strategy we'll obviously look at something like that.
Okay. And then my last question. Could you just make some quick comments on the SSD market and what do you see with the pricing and demand when do you see the inflection point where becomes more of a commercially ready option?
First of all, we got to talk about our participation in SSD market. Our participation in the SSD market is at the end user in particular the enterprise level and it's not in the OEM side. Quite honestly I believe people on the OEM side of the business will be better off to tell you where the inflection point is than where we are. But we expect our sales to grow in this area this year. There is some discussion amongst ourselves as to how rapidly those sales can grow. But nonetheless we do see sales growth.
We also introduced a new product to try to accelerate that growth when an SSD kit, “do it yourself type kit” to install an SSD capabilities into your PC. And that will be somewhat of a judge for us to see if in fact if we make it easier for users to do it. Will they do it? And we will see. But I think for our participation we've got probably a slower growth rate than you would see on the OEM side for sure on a smaller base.
Okay. Thank you.
Next question, please.
Thank you. (Operator instructions). I'm not showing any further questions at this time.
Okay. Then I will just like to wrap this up. I want to thank everyone for participating in the call with us and leave you with some closing thoughts. As I prepared for this call last night I saw that in the case of optical sales across the billion dollars which is a significant, significant event and that has to do with the consolidation that we see happening in the industry. And this is not a growth industry in the same context that we would have talked about it a couple years ago. So from that standpoint I believe our brand strategy is working. I also and we talked about it earlier talked about the growth in the CE products. We believe CE offers us a growth opportunity that plays to our sweet spot if we execute well, namely the geographic distribution strength we have around the world to try to grow that business.
And with having said that I still want you to remember that at the core we are fundamentally still a storage company with 78% of our sales in both magnetic and optical. So that's a big piece of this company even though we have other growing segments and we are prepared to manage both of those, both the commercial and consumer environments. So clearly we have our work ahead of us this year just like everyone else does and we are up for the task. We have a strong financial position. We are aggressively aligning our business model to our strategy and remain focused on the future and committed to the strategy. So thank you all for your attendance and we will talk to you next quarter.
Ladies and gentlemen, this concludes today's conference. You may now disconnect. Everyone have a great day.
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