SyQuest's EZ230 Intro
Welcome & Introduction

(FW) SyQuest's CFO Speaks

06/03 (FT) SyQuest's EZFlyer

05/21 (FT) SyQuest's Silliness

SyQuest announced today that it has started to ship the EZ230, the drive that is the successor device to the EZ135. For $299 a drive, consumers can now back-up 230 megabytes worth of data on a $30 disk. Can this product save the company, nearly driven to insolvency last quarter after it lost money on the EZ135 as well as its core products?

Welcome & Introduction

This Special Section focuses on SyQuest's introduction of its EZ230 removable storage device, aimed to compete directly with Iomega's (NASDAQ: IOMG) Zip drive. As SyQuest shares are up substantially on the news, this move is generating a lot of excitement. This special section explores the specs for the product and attempts to question whether or not it will be successful.

We bring together the best of the Motley Fool and AOL's Personal Finance area to deliver this collection to you.

Glossary

FW = FoolWire (a Fool News product)
FT = FoolTake (a Fool's opinion)
BK = Background article

Enjoy,

Randy Befumo (MF Templar), a Fool

(FOOL GLOBAL WIRE)
By Randy Befumo (MF Templar)

ALEXANDRIA, Va., June 3, 1996/FOOLWIRE/ --- SyQuest (NASDAQ: SYQT) shares are on the move again, despite correcting more than 40% from their highs two weeks ago after alleged negative comments from the chief financial officer regarding the possibility of a takeover were broadcast by the media.

WHAT HAPPENED?

Two weeks ago SyQuest surged from less than $5 a share to hit an intra-day high of $17 7/8 after reports that the company might be the "poor man's Iomega" began to be circulated online and nonline. This massive move culminated late Thursday, May 23rd when new SyQuest chief financial officer (CFO) John Luhtala was quoted by the media as saying that the stock's current price made a takeover bid more unlikely.

Luhtala denied ever saying this in a subsequent telephone interview with Reuter's and stressed that he believe the market set the price for the company's shares. "I wasn't going to speculate about [SyQuest's fair value]," Luhtala concluded the interview with. Luthala did stress that the company's current liquidity probelms are "significant" and that it will have to renegotiate with its lenders and potentially enter into a strategic relationship in order to continue.

WHAT DOES IT MEAN?

SyQuest is in the process of laying off a mind-numbing 60% of its work force and consolidating its manufacturing operations in Asia, the company revealed in its quarterly report a month ago. A lot of optimism has been generated today its new management team's new EZFlyer product and its consumer-oriented marketing approach. How these moves affect SyQuest's ability to return to profitability has yet to be determined, however.

WHAT HAPPENED TO THE STOCK?

SyQuest was up $2 3/4 to $13 3/4 as this news article hit the press. The spread (the difference between the bid and the ask price) was only $1/8 in heavy volume of five million shares, with roughly half of the shares outstanding changing hands.

Transmitted: 6/3/96

FOOL TAKE---ONE FOOL'S OPINION*

[This originally appeared in the LunchTime News on June 3, 1996.]

(FOOL EQUITY RESEARCH)
by Randy Befumo (MF Templar)

ALEXANDRIA, Va., June 3, 1996/FOOLWIRE/ --- SyQuest (NASDAQ: SYQT) surged $3 to $14 in heavy trading this morning after the company announced that it had begun shipping a 230-megabyte removable-cartridge hard drive in an attempt to fight back Iomega's (NASDAQ: IOMG) zippy advance. The EZFlyer will retail for $299 a pop, about 50% higher than the Zip's $199, with the removable cartridges selling for $30, 66% to 100% more than the Zip's $15 to $18 price.

Many have speculated for a while that SyQuest would be forced to up the storage space available on its EZ135. To make the EZ135 disks, SyQuest had been using 270 megabyte hard drive platters that were too marred on one side to be used in hard drives. The relentless move forward in the computer industry's demand for storage space, however, had made these marred 270 megabyte platters much rarer over the past few weeks as users started to buy higher capacity hard drives. Faced with the option of buying perfectly good 270 megabyte hard drive platters to sell as 135 megabyte EZ135 disks or migrating up with the industry, SyQuest has chosen to view this as an opportunity and create a new product around it.

SyQuest has also redesigned the look and feel of the drive to make it more consumer-friendly, taking Iomega's success as an indication of where the real market for removable hard drives resides -- with the consumer. Some question whether the financially troubled company can find the cash to market their product though, and whether their damaged brand can inspire consumer confidence.

With a portion of its accounts payable set to be converted into equity according to its May 8th earnings release and the company still shopping around for a strategic partner, SyQuest could still be headed lower given the pending dilution. Iomega management has consistently painted the picture of a price-sensitive consumer who wants a product at the $200 price-point or below -- SyQuest's move toward more space at higher cost flies in the face of this conviction. Is SyQuest's brand new management up to the task of launching a new product during a cash-crunch that competes head-on with the most popular computer peripheral in the past year? Many investors buying shares today as emphatically saying "Yes!".

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* A Fool Take represents the opinion of one Fool and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Fool's thoughts.

Transmitted: 6/3/96

FOOL TAKE---ONE FOOL'S OPINION*

(FOOL EQUITY RESEARCH)
by Randy Befumo (MF Templar)

ALEXANDRIA, Va., May 21, 1996/FOOLWIRE/ --- SYQUEST TECHNOLOGY (NASDAQ: SYQT) IS A Fremont, California-based maker of removable storage devices whose EZ-135 drive has been pushed as a legitimate competitor to Iomega's (NASDAQ: IOMG) Zip drive. Many who view themselves as latecomers to the "Iomega Party" are clambering onto the shares as a way to play on the success of removable storage in a way that they believe might have been overlooked by the Street. In an ironic, reverse parody of what has come to be known as the "Iomega Story", SyQuest surged $2 1/8 to $11 5/8 after a similar rise yesterday merely on unschooled talk in print, on the phone and online that somehow the EZ-135 is a good product.

THE CORE OF THE IOMEGA STORY was consumer research. People who bought the Zip drive and found it to be an excellent product started to look over Fooldom's most famous stock early in 1995 and began to debate the relative merits. The most common comment about SyQuest? Shoddy products that many were forced to buy because they had no real alternative. Specific comments about the EZ-135? In the words of one Washington-based radio commentator, "it sucks". Tune into the message board and you will see a litany of complaints about the product that is causing investors to jump in today.

CAUGHT WITH ITS PANTS DOWN LATE LAST YEAR by the rapid consumer adoption of the Zip, SyQuest managed to squeeze out the EZ-135 after a few hasty weeks of development. The company's research and development department essentially slapped a hard-drive into a plastic case and called it removable storage. SyQuest EZ-135 disks are very fragile as a result, much like your hard-drive. The slightest bump or speck of dust could render the entire back-up worthless, negating the very reason why many users buy removable storage devices in the first place.

SYQUEST IS A COMPANY IN SERIOUS FINANCIAL TROUBLE. In the last reported quarter, the company had a net loss of $51.1 million on revenues of $47.4 million. Revenues decreased from the same period a year ago by a whopping 38%. Ponder all that for a moment. SyQuest essentially lost more money than they had in revenues because they were selling the EZ-135 at a loss in order to be able to compete with Iomega. And even that did not enable them to compete very well.

CASH-FLOW CRUNCH IS A' COMING. The company clearly stated that they did not expect a return to profitability in the next quarter, even after they slashed 1500 people from the payroll. Despite the train-wreck on the profit and loss statement, SyQuest's sales, general and administrative expenses *increased* 32.6% in the quarter to a whopping 30.2% of net revenues. The company has been forced to retain Needham and Company to assist it in evaluating a debt or equity offering to fund itself. Major suppliers are willing to make payment arrangements that convert debt to equity, but this will dilute the current shareholders' stake. Cash decreased to $7 million in the quarter from $27 million in the prior period, while inventories exploded by 20%. Accounts payable blossomed by almost 100%, leaving the company with negative working capital.

LET'S BE CLEAR ABOUT THE DIRE FINANCIAL SITUATION. Last quarter's problems wiped out all accumulated shareholder's equity. The company has no book value, showing a deficit of $1.5 million after the disaster that was Q2. And Q3 apparently is not going to be much better. Negative working capital, dwindling cash reserves, product piling up in the company's inventories, massive accounts payable that could be converted into equity, diluting the value of current shareholders -- this is a major disaster in the making here.

WHY ARE INVESTORS JUMPING IN? In the mindless search for the "next" whatever, it appears a substantial group of investors have latched on to SyQuest as the Great White Speculation for their portfolio. From a Foolish fundamental perspective, it looks like an enormous mistake. UnFoolish investors scanning the markets with a mind toward opportunities lost and not the new opportunities to be had tend to jump on "also-rans" -- the companies that seem to be in the business of a winning stock. These companies tend to be disasters, as Peter Lynch has aptly noted in his first two books on investing. Fools would be well advised to take that advice to heart when examining the shares.

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* A Fool Take represents the opinion of one Fool and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Fool's thoughts.

RE-Transmitted: 6/3/96

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