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Wednesday, October 02, 1996 Iomega was down $3/4 Tuesday, closing at $23 1/2 (-3.09%). TODAY'S RECAP: I suppose you could liken it to the sign in front of McDonald's: Iomega announced Tuesday that it has now shipped its 3 millionth Zip drive since introducing the product in March of last year. Iomega also announced that it had shipped its 5 millionth "personal storage solution," a category which includes Ditto and Jaz drives along with the Zips. Is this good news or bad? Gloom or glory? The answer depends on who gets asked, and the question dominated the Iomega board's conversation Tuesday. In other news, Epson announced that it would be extending its $50 rebate for Zip drives through the end of this year. The complete news releases are available to America Online subscribers at Keyword: Market News. INDEX: (Use the Search or Find feature of your word processor to locate the article number [Find: 1++, 3++, etc.]--or use AOL's Edit>>Find in Top Window Feature. If Find in Top Window is dimmed, just click on some text, anything, in the IOMG Today window and try again.)
1++HYPEMENOT sees bad implications for Iomega in the 3-millionth Zip drive
announcement. And now, the Best of the Board... Started 3 a.m. 10/1/96.
1+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:3 Million Zips Shipped Date: 96-10-01 14:53:14 EDT From: HYPEMENOT
Despite Cynicalguy attempt to divert attention away from the 3mm Zip number, by focusing his post on the sales of 2 million Jaz & Ditto units, combined - this is NOT good news.
The reason I believe its not, is that it makes it clear that Zip sales are running well below what would be necessary to validate the consensus view often expressed on this Board that Iomega will ship/sell 5-6 million Zip drives in 1996.
Of course, as usual, Iomega makes it difficult for analysts to draw hard and fast conclusions by stating the facts in a somewhat ambiguous way (i.e. <<more than 3 million>> and <<since the product began shipping in March 1995>>). This allows optimists to contend that Zip sales might be far above 3 million (but short of 4mm), and of course it prevents anyone from knowing precisely how many of the 3mm+ units were shipped THIS YEAR.
As to the first question, I think it is fair to conclude that there is no logical reason to presume Iomega would wait for some extended period of time before announcing that Zip shipments had crossed another million unit milestone. Reason says the figure might, by now, actually be 3.1mm, or maybe even 3.2mm, but not larger than that. Remember also, that IOs statement refers to the number of drives SHIPPED, so that the 3mm+ number includes inventory in the hands, or on the shelves of resellers, retailers, etc.. Im not trying to nit-pick here, merely pointing out that a 3mm unit number probably is a fair approximation of the number of Zip drives actually purchased by END USERS (with whatever excess over 3mm one might reasonably presume being offset by unsold Zips in dealer inventories).
As for the matter of what portion of the 3mm Zips were sold in 1996, I have seen no real guidance about this on this Board, but in the article entitled STORAGE: The Next Generation , that appeared in the August issue of PC TODAY magazine (and was referenced in a number of posts here) Dataquest estimated Zip drive sales in 1995 at 750,000. Assuming the Dataquest estimate is reasonable (if others here have a more reliable source your input would be appreciated) then that produces an estimate of Zip sales of approximately 2.25mm units for the 1996 year-to-date. That would of course, mean that Iomega would have to sell 2.75mm Zip drives in the final quarter of 1996, just to reach the LOW END of this years projected range.
And for those who think Dataquests 1995 estimate is too high, using only 500,000 Zip units for last year, still means that sales for the first nine months of 1996 were not greater than 2.5mm units, meaning that IO would still have to sell another 2.5mm Zip drives in the final quarter to hit the bottom end of the estimated range. I know that there are people here that are quite optimistic about the Zip, but I doubt that there are any (with the possible exception of CG) optimistic enough to look at these numbers and still believe Iomega will meet even the low end of the estimate range. FWIW, my own guess ( and I emphasize it is merely a guess) is that full year 1996 Zip drive sales will fall short of 4mm units.
HYPEMENOT 2+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:3 Million Zips Shipped Date: 96-10-01 15:25:19 EDT From: MF ETurkey
<<<FWIW, my own guess ( and I emphasize it is merely a guess) is that full year 1996 Zip drive sales will fall short of 4mm units.>>>
Which of course, is still 4mm more than the LS-120.
Hey, I couldn't resist. :)
I would take issue, by the way with this part of the last post which I think is (inadvertently) slightly misleading:
<<<Remember also, that IOs statement refers to the number of drives SHIPPED, so that the 3mm+ number includes inventory in the hands, or on the shelves of resellers, retailers, etc..>>>
I assume that iomega will have substantial inventory themselves to report in a couple of weeks, to reflect the build up of drives needed for the 4th Q. Which means that far more will have been produced than sold, contrary to the past year when production = sales.
Were folks too optimistic in the past about the number of drives that would be sold? Yup. Certainly seems so. But we knew that at the time of the last earnings report.
The better barometer of the future of course, is not what happened during the summer, but the extent to which, over the next 6 months, the various OEMs will add SKUs to the already existing iomega drive options. This will tell us about consumer demand, which will guide us toward determining how much market penetration iomega will ultimately have.
Eric 3+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Iomega 1996 Unit Sales Date: 96-10-01 16:27:55 EDT From: Hal Rubel
Just wondering.
With the successful rebate program limiting return on sales and with end of this program in sight, could Iomega have limited shipments a bit during this past quarter? The effect could be the appearance of product out selling availability, a good thing from a marketing point of view. Production would have been conserved in the form of increased inventory on hand in anticipation of big demand at higher margins in the coming quarter. This would also be a good thing from a marketing point of view.
I think I will pay special note to unsold inventory the next time figures are released. If Iomega has been martialing production, the company may be in a position to deliver more product at better margins in the coming quarter than one might expect. (Though, unexpectedly high inventory may look bad short term). 4+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Numbers of Drives Shipped Date: 96-10-01 16:59:04 EDT From: NOVWOO
*More than* 3 million Zips alone among the total of 5 million Iomega drives shipped as of today:
I can't resist asking this question. How many Zips had been shipped at the end of Q2? Same questions for all Iomega drives.
But please don't start those Q3 EPS predictions again based on the answers to the above questions. Most investors and the market are already looking at Iomega beyond Q3. They understand the Q3 earnings and even revenues are meaningless for Iomega.
We all understand that at this stage of the game, the most important thing for Iomega is to increase the numbers of Zip and Jaz drives shipped. Recent news releases provide information about Iomega doing just that. And these numbers just announced at the end of a supposedly very weak Q3 are more than good enough for me and most investors.
Just ignore whoever uses some so called previously predicted high numbers in a different (and unfinished) time frame just to beat down on the good current numbers. We don't need to take the bait of challenging ourselves more than necessary. Taking the bait and setting up a higher bar for ourselves will make the well deserved satisfactions difficult and undue disappointments easy to come by. 5+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Zip Across America-Schedule Date: 96-10-01 17:05:29 EDT From: MF Jeanie
ZIP-ACROSS-AMERICA BUS TOUR ITINERARY
SEPTEMBER 26 Washington, D.C. 30 Rochester, NY
OCTOBER 2 Cleveland, OH 8 Indianapolis, IN 11 Atlanta, GA 16 Tampa/St. Petersburg, FL 22 New Orleans, LA 25 Houston, TX 30 Kansas City, MO
NOVEMBER 8 Minneapolis/St. Paul, MN 11 Denver, CO 14 Salt Lake City/Roy, UT 18 Las Vegas, NV (Fall Comdex)
DECEMBER 3 San Diego, CA 9 San Francisco, CA 13 Portland, OR 17 Seattle, WA
JANUARY, 1997 TBD Washington, D.C.
Hope you Fools in these cities will report local media coverage on this event.
Jeanie 6+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: 3mm Zip Announcement Date: 96-10-01 17:36:56 EDT From: HYPEMENOT
STEVEW1449
<< Why would IOMG proudly announce 3mm units shipped if it means they fell short of expectations>>
For at least two reasons.
First, IOMG has never announced any numeric expectations or goals for Zip drive sales. The 5-6mm projection/expectation I referred to represents an often stated consensus view on this Board. In fact, MF Chiros used to talk about 5-6mm Zip drives as a CONSERVATIVE target for 1996 (and 10-12mm for 1997).
Second, in March of this year IOMG inaugurated this practice of making a public announcement when Zip drive sales reached (or surpassed) each million unit milestone. Thus, in June they announced that Zip shipments had reached or surpassed 2mm units. This kind of leaves them with little choice in announcing, as they did today, that the 3mm mark was reached (and dont take this to mean that I am inferring that they didnt want to make the announcement).
A better question, with respect to Zip unit sales (and unit volumes for all other key products) is why doesnt IOMEGA provide this sort of data regularly, and on a straightforward basis so that everyone who cares to make the effort, can have a clear understanding of what is actually happening with the Companys product sales? I have always found it curious, that this question of why IOMG doesnt pursue fuller disclosure is never discussed in this forum.
On a different facet of the question about Zip drive unit sales, another poster said he wanted to know what TOTAL Zip sales are - INCLUDING the sale of Epson Zips. The answer is that Epson Zip drive sales are ALREADY INCLUDED in the 3mm figure Iomega released today. If you look at IOs June offering circular, you will find the following statement:
<< In connection with their manufacturing relationship, the Company has granted to Seiko Epson the right to PURCHASE (my emphasis) from the Company and RESELL (again, my emphasis) significant quantities of Zip drives.>>
I think from this there can be no question that, technically, IOMG sells to Seiko Epson the Zip drives that they, in turn, market under their own label. Therefore, these drives would have to be included in the 3mm unit figure IOMG publicized today.
HYPEMENOT 7+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: 3mm Zip Announcement Date: 96-10-01 17:56:33 EDT From: MF ETurkey
<<>
The only reason to hold back that kind of info is for competitive advantages. Keep the competition guessing and don't let anyone know how large the market is. It appears to have worked, as almost all the major drive manufacturers were asleep at the wheel in coming to grips with a potentially very lucrative business. They had the resources to blow iomega away, and iomega therefore kept a practice of keeping the mouth shut.
It seems to have worked.
My theory, anyway.
Eric 8+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: 3MM Zips Is Very Good News Date: 96-10-01 21:36:15 EDT From: NOVWOO
More than 3 million Zips shipped is not good news, that is, not good news to HYPEMENOT. For the rest of us, this is extremely good news.
This may imply close to one million Zips shipped in Q3 alone. This is amazing considering Q3 is usually a bad quarter and this Q3 was supposed to be an exceptionally bad quarter. For those who like to project Q4 Zip units shipped, hopefully for themselves only off this board, please remember Q3 is the weakest quarter while Q4 is the strongest. This Q3 number is not an average. It was supposed to be an exceptionally bad number. Please remember the seasonal adjustments and the rebound from the unusually poor conditions in Q3 in addition to figuring in the strong growth rate when looking at Q4.
Looking back at Q3, if the Q3 number of Zips shipped was indeed close to one million, then this supposedly bad number looks very good to us. If this were "bad", I don't know what "good" would bring us. The only conclusion one could draw is the strong growth rate may have overpowered the seasonal weakness and the sluggish economic condition in Europe. 9+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: IO's Disclosure Policy Date: 96-10-01 22:02:30 EDT From: HYPEMENOT
MF Eturkey
I want to try to say this diplomatically, because weve had discussions before and, while we may not often agree, I know you to be a fair and intelligent advocate of IO. Having said this, I must tell you that I find it hard to imagine that you really believe Iomegas disclosure policy ( which almost any serious analyst would view as very restrictive) is maintained, as you put it to:
<<< Keep the competition guessing and dont let anyone know how large the market is. >>>
Generously, the rationale you are pointing to was probably appropriate a year ago, and may have made some sense as recently as six months ago (being really generous about it), but I dont see how you can seriously argue this policy has since had any validity. Starting at least as far back as the end of the March 1996 quarter, how can anyone contend that it wasnt abundantly apparent to any competitor (actual or potential) that both Zip and Jaz were highly successful products, selling in large and clearly increasing quantities. I hope your not going to contend that IOs success was, somehow, a secret known only to participants and lurkers on this Board! It is unthinkable that anyone remotely involved in the computer storage segment (either removable or permanent) had somehow failed to become aware of IOs dramatic turnaround at least six months ago.
IMO your statement suggesting that this is an ongoing strategy designed to mislead would-be competitors, means that either you are incredibly naive or, (far more likely) you simply dont want to engage in a substantive discussion of a facet of management policy, that appears to have no legitimate defense.
As I said in the earlier post to which you responded, it has always struck me as surprising that, on this Board where so much attention is devoted to analyzing IOs results and prospects, there is never any discussion about the Companys unwillingness to provide much of the basic information necessary for intelligent analysis. Indeed, in keeping with this posture yours was the only post that even attempted to provide an explanation in defense of IOs stunted disclosure policy.
For those who care to think about this question objectively, I can tell you as a professional analyst, this is the antithesis of enlightened corporate policy, and it is not without consequence to IOMG stock. As I have stated in previous messages my area of expertise is far removed (thank God) from the high tech sector. Nevertheless I, and Im sure many of you, can appreciate that professional analysts specializing in technology stocks normally have a very difficult time in accurately assessing company prospects and arriving at sensible valuation judgments, even under the best of circumstances. Add to that mix a company policy (such as appears to be employed by Iomega) that chooses to withhold many vital facts that would enable analysts to get a clearer understanding of future development and results, and you will almost certainly discourage broad-based institutional coverage.
I think this is the best explanation for why IOMG, despite the rapid growth and dramatic success of its two key products, is followed by only four brokerage/research firms, of which the two that are considered prominent institutional houses (H&Q and JPM) just happen to have the added financial incentive of being the Companys underwriters. This is incredibly narrow coverage for a company with a $3 billion market capitalization. As for the cost, if you really believe that this narrow research coverage and attendant lack of bullish institutional conviction has nothing to do with the ease with which this stock fell from 55 to less than 13, then you still have a great deal to learn about how the equity market works. Without a doubt broad sponsorship/coverage by establishment firms results in enhanced valuation and reduced volatility.
HYPEMENOT 10++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: IO's Disclosure Policy Date: 96-10-01 23:00:21 EDT From: MF Jeanie
HYPEMENOT...
Much of what you said makes sense; I've also wondered why Iomega remains so close-mouthed with analysts.
Many posters here have lamented the fact that the "street just doesn't understand this technology"....
As you pointed out, you do not work in the tech sector, but I'm sure even the professional analysts who do... are not all technology users, and therefore, could use a bit more education from this company.
That said, I also recognize that Mr. Edwards has had a very busy two quarters.... lining up OEM agreements, European partnerships, buying a factory, licensing his technology, etc... and perhaps during those incredible negotiations, silence was the best option.
Now that Iomega has cemented a place in the tech world (my opinion) I agree it's time for them to sit down with a few of the Wise and share a few beers.
It no longer makes sense to me that a company this size is so thinly followed by brokerage/research firms. And, I do think it had a lot to do with the drastic fall in Jul-Aug. Many Wise heard that Iomega was an internet hyped stock. I'm sure some thought the company had something to do with the internet. A M-Lynch friend of mine still thinks that they make software.
Jeanie 11++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: IO's Disclosure Policy Date: 96-10-02 01:09:15 EDT From: MarkM10073
HYPEMENOT -
I agree with ETurkey here.
<<< Keep the competition guessing and dont let anyone know how large the market is. >>>
<<Generously, the rationale you are pointing to was probably appropriate a year ago, and may have made some sense as recently as six months ago (being really generous about it), but I dont see how you can seriously argue this policy has since had any validity.>>
You say elsewhere that you're not all that familiar with tech companies, I wonder how familiar you are with distribution and marketing companies? Most guard competitive information quite jealously, although some have learned to be a bit more diplomatic about it than Iomega. I've even heard of people being fired for letting sales numbers slip out. The issue is not keeping Iomega's success a secret, it is keeping potential competitors in the dark as to the risk/reward of attempting to compete, and as to how steep the barriers to entry really are. If Wall Street is able to run the numbers, potential competitors can and will do the same. Even if you're paranoid, that doesn't mean they're not out to get you ;-).
<<it has always struck me as surprising that, on this Board where so much attention is devoted to analyzing IOs results and prospects, there is never any discussion about the Companys unwillingness to provide much of the basic information necessary for intelligent analysis. Indeed, in keeping with this posture yours was the only post that even attempted to provide an explanation in defense of IOs stunted disclosure policy. >>
Believe me, it's been discussed. Vehemently. I guess that many of us who have been following the company for a while just take it for granted at this point, but I still see occasional postings complaining about this. Personally, I don't get too upset about it, although I understand your point. I consider it management's prerogative to communicate results as they see fit, as long as they are honest and timely in their reporting. And, quite frankly, the results when companies *are* open with information are often not encouraging. AOL has been quite straightforward in their communications to the investment community, yet witness the nonsense that went on today.
Iomega's tight control of information has definitely cost them some coverage on the street, as you suggest. This could come back to haunt them if they need to do another equity deal soon, but they shouldn't need to do that for a while. In the meantime, as long as they continue to deliver strong results, I don't think they need to care what the street thinks of them. That will take care of itself.
FWIW,
Mark
End Report. Posts covered through 3 a.m. 10/2/96 _______________________________
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