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Thursday, October 03, 1996 Iomega was down $1/4 Wednesday, closing at $23 1/4 (-1.06%). TODAY'S RECAP: Wednesday was a ho-hum day for Iomega watchers. Trading was more or less flat, and no new announcements were issued from the center of the univer--er, that is, Roy, Utah. However, a prominent article appearing in Thursday's Investor's Business Daily could spice up today's trading. The IBD story gives opposing views of Iomega's growth prospects, quoting both Joe Besecker of Emerald Research (who sees a rosy future for Iomega), and Meyer Berman of M.A. Berman & Co. (who doesn't). The story is summarized by ~MF Jeanie~ in a post below and is available in its entirety to America Online subscribers at Keyword: IBD. Also, members of Iomega's senior management are scheduled to make a presentation this afternoon at the Emerald/Home State Pennsylvania Investment Forum in Pittsburgh, Pennsylvania. 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++BB MD worries about Iomega's growth over the very long term. And now, the Best of the Board... Started 3 a.m. 10/2/96.
1+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Why I can't sleep Date: 96-10-02 03:01:33 EDT From: BB MD
Late at night, I keep getting a very bothersome thought.
Every once in awhile, someone on this board alludes to it, but there is never any good follow-up discussion.
Here it is: Let's say in the future (3 years?, 4 years?), the zip is as successful as we could ever imagine. Iomega and all it's partners sell 50 million zip drives per year. Also using the famous 10:1 tie rate, they sell 500 million zip discs per year. Because of price cutting, they make $2.00 profit on each disc, and $5.00 profit on each drive. To make the numbers easy, let's say they make 250 million in profit from jaz, ditto, etc
So far, it' sounds exciting.
They make 1.5 billion in profit per year!!!
Let's say by then they have 150 million share outstanding. So they make $10/share per year.
Here's why I can't sleep: By then, iomega will be a mature growth company (it's hard to sell more than 50 million drives per year), so by then they only will have a Seagate-like P.E. of 10.
Therefore, if every one of our wildest dreams come true, iomega will be worth $100/share in 4 years. If they only make a profit of $1.00 per disc, then iomega will be worth about $66/share in 4 years.
In other words, everything has to go perfectly, iomega has to become the standard, no other product (DVD? CD-R?) will ever surface to end iomega's reign as the 'Microsoft of Storage', etc..
.... and if it all comes to pass, iomega will be worth $60-100/share in 4 years.
So help me, if iomega ever does get to $40 again this year, I will be gone.
Please, somebody discuss this.
Bruce Brantman 2+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Why I can't sleep Date: 96-10-02 10:15:08 EDT From: MF DrJimbo
BB MD-
Your analysis is generally on the mark. We've discussed this at times before. In fact, when the subject of Zip replacing the floppy was first floated, it was clear that a mature Zip would not be a growth engine.
The answer is that no one here would want to own a big, lazy Iomega that did nothing other than collect licensing fees and send them to stock holders as dividends.
As Zip matures, that $10.00 EPS has to go back into the company to fund R&D and promotion for new products in the next phase of growth. The removable storage market has lots of growth in it now. In 5 years, if all goes as planned, that will no longer be true.
Iomega will have to leverage its name brand recognition, marketing know-how, industry partnerships, distribution strength and technological leadership into new areas. As Microsoft leveraged its ownership of the OS to also own the Office Suite market.
Where will Iomega go after removable storage? I presume another PC hardware niche. I presume Iomega R&D is working on products even now.
One other point- the upgrade market. Its the other place a company like Microsoft gets recurring revenue from previous buyers by improving products. Of course with hardware the upgrade has to be compelling. But as we move to higher capacity, improved speed Zip drives, some of the millions who already own Zip will buy an improved model. 3+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Zip shipments down Date: 96-10-02 11:11:10 EDT From: RSchoensta
Iomega told us in March that they shipped the 1 millionth zip. In June they told us that they shipped the 2 millionth zip. And in October they tell us they have shipped the 3 millionth zip.
Now March, April and May = 3 months. So 1 mil/3 = 330,000 zips per month were shipped between March and June.
June, July, August and September = 4 months. 1/4 = 250,000 zips a month shipped.
Which by the way jives pretty closely with JPM figures.
Bottom line is that zip shipments are slowing.
I brought this up in chat and MF Jeanie said seasonal slowdown as expected.
Perhaps. Although I don't recall anyone predicting a decline in zip shipments. I believe just a slowdown in the rate of growth was expected.
But the fact remains the absolute number of zips shipped appears to have declined.
Any comments?
Rich Schoenstadt 4+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: More on Disclosure Date: 96-10-02 16:45:47 EDT From: MF ETurkey
HYPEMENOT writes in response to my comments:
Me<<<<<< Keep the competition guessing and don't let anyone know how large the market is. >>>
HYPEMENOT: <<<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 don't see how you can seriously argue this policy has since had any validity.>>>
I was, in fact, referring to the origins of the policy of non-disclosure, with the prospects of the company believing it could sell a substantial number of drives to the 100M estimated boxes that will come out in 2000. That is enough to make any company lick their chops in anticipation.
The fact is, anyone could have done it, but they didn't. Iomega is just as much a marketing company as a technology one, and they found out what folks wanted and how much they would pay for it.
There isn't anything terribly fancy about Zip technology. . .it is the floppy magnetic media that has been there and done that, and is cheap to produce. This means that competition by behemoth drive manufacturers was something to be VERY concerned about if iomega's market research was accurate as to potential demand - in other words, entry into the market at its infancy would have been rather easy.
Having survived introduction into the market with the drive, it still behooved them to keep their mouths shut if they believed they had struck gold. In addition to worrying about competition, they had to worry about possible takeovers if someone else came to the same conclusion. In October, 1995, the last time I bought common shares, the company could still be had for under 3 bucks a share. You would agree I am sure, that if others had realized the potential, that a takeover was a real possibility.
Skip ahead now to the present. . .you say the time has come to loosen up the information spigot, right? Perhaps. But remember the game isn't over, and competitors are still out there. You write:
<<<Starting at least as far back as the end of the March 1996 quarter, how can anyone contend that it wasn't abundantly apparent to any competitor (actual or potential) that both Zip and Jaz were highly successful products, selling in large and clearly increasing quantities.>>>
Was this clear to Syquest? To the folks making the LS-120? To Swan or to to Sony (if they come out with a competing drive in a few months)? If the game isn't over, should they speak up too much? Loose Lips Sink Ships.
<<<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 don't want to engage in a substantive discussion of a facet of management policy, that appears to have no legitimate defense.>>>
I am delighted to engage in debate and discussion of management. I know what it is like to be burned by crooks (Is there anyone who HASN'T my Crazy Eddie Fribbles yet?) and I have been watching with fascination the incompetence in the eye laser industry with Summit Technology.
But the fact is this company has 10 bagged for me since my first purchase, and, as my brother said, I have to give them the benefit of the doubt on close calls.
<<<Indeed, in keeping with this posture yours was the only post that even attempted to provide an explanation in defense IOis stunted disclosure policy. >>>
Just so we understand each other, I did not say I always agree with the policy in its current state, but was trying to explain why it existed.
In fact, at the PC Expo last June when iomega held a press conference to introduce the laptop Zip, I was personally excluded from it (despite having obtained press credentials) because I do some of this MF stuff on the side. Yes, I want more information, yes I will ask tough questions to management given the chance, but as a shareholder, I ultimately have to give them the benefit of the doubt if they tell me to go stuff it, which they have done.
It is my opinion that in the coming months iomega will loosen up more and more with the information spigot, slowly, as they become more comfortable with their market lead.
Lastly, I disagree with MF Ben on the subject of the announcement of the 3 Millionth Zip. Anything that might intimidate newcomers to the party, or that will imply to buyers that "everyone is getting them" is OK by me.
Eric 5+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Over "X" Million Sold!!! Date: 96-10-02 18:09:38 EDT From: MF ETurkey
You know, the more I think about it, the more I like the idea of iomega screaming the number of Zips sold. In fact, I wouldn't mind seeing it right on the box in the store. Nice and bold. Just keeping adding a number the way McDonalds taught the world to.
Why? So that Joe Consumer knows:
1. He is dealing with a company that is not fly-by-night;
2. That it is a "standard" item;
3. That it is not likely to disappear soon;
4. That there is a good chance his friends have it;
5. To alleviate the worries/concerns of buyers that they may be getting the 'wrong" drive;
6. It is a claim no other super-floppy maker can make.
This is a consumer product, not just technological.
Let them go forth and trumpet success from the ramparts.
Eric
P.S. I would note to HYPEMENOT by the way, that while Chiros may come up short on the number of Zips sold in 1996, he was working from precious little information. He said 5-6M?? And the number is likely to be 4-5M?? All things considered, not bad for a rookie. 6+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Sentinel Date: 96-10-02 20:14:47 EDT From: PKeeler
Two to three months ago there was a Rueters (?) press release saying that Sentinel had procured a loan guarantee from the Belgian gov't to build (expand?) a plant to make Zip drives. Iomega had previously announced that Sentinel was to build Zip disks. I eagerly awaited the press release from Iomega announcing Sentinel as the third (with Iomega and S-E) source for Zip drives. It has never come.
Today I called Kalt and Associates and talked with Andy Rathman (sp?) who confirmed that Sentinel will be making Zip drives in Belgium. I forgot to ask if they will be licensed or subcontracted. Doesn't matter much short term.
I think that announcement of production partners is a better gauge of future Zip sales/demand than trying to decipher these "millionth Zip sold" releases. As can be seen in posts so far, moving the date of the 2 millionth Zip around in June dramatically effects the conclusion drawn. Further, Iomega could have shipped 4 million drives and still only release the 3 million figure. IMO, Tim Hill got tired of saying 2 million and KE has let him now say 3 million.
So now Sentinel, Seiko-Epson, Iomega (?) and Matsushita are going to manufacture Zip drives. The magical 3 sources everyone says is needed to secure OEMs. Since KE first gave indications to some investors that Zip sales are slowing/maturing they have added two production sources. IDC seems to think the large floppy market will continue to grow rapidly. The addition of 2 production sources since June seems to confirm IDC's analysis. It also seems to disprove the notion that sales of Zips have plateaued long term. I think Zip sales will be relatively flat 2Q96 to 3Q96 for the seasonal reasons KE harped on. However, the adding of multiple production sources implies to me that 3Q97 is going to be significantly higher than 3Q96.
PKeeler Patrick Keeler 7+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: 3mm Zip Announcement Date: 96-10-02 20:26:41 EDT From: MF Ben
<<<Let's let Tim Hill decide how to sell the drives. If announcing milestone numbers is part of his sales pitch, then so be it. It's his prerogative. And announcing or not announcing sales numbers every quarter is Kim Edwards' prerogative. Let's not confuse the two.>>>
First, I don't agree. While the disclosure laws are meek, I doubt many here will say that quarterly unit numbers are not important to computing the relative health and ongoing viability of the company. Actually, many folders have been spent on the subject. MANY. Why? Obviously many investors and would-be investors consider it material information.
What you see as Edwards' "prerogative" I see as a shareholder right, unless Iomega tells me a good reason otherwise. So far they haven't. At the very least they should give us a reason, no? I As shareholders we don't deserve rational either?
I don't want to micromanage. As long as they don't spend all their time with the investment bankers and let operation efficiencies slide again, they can do with their time as they please. However, as a shareholder there are some metrics that are very important to my understanding of their financial well-being. Anyone who doesn't want to hear the numbers can close their ears for that part of the conference call.
Hill can sell all the drives he pleases and I want him to, but I'd rather Iomega gave the shareholders the accurate numbers every quarter. I made it out to be a choice and I took the shareholder rather than PR side, for once. It shouldn't have to be.
I can't think of ONE good reason why Iomega won't give out quarterly unit numbers now. The competition or "industry secret" stuff is crap as I bet that most insiders, certainly Sony, Seagate, Intel, Epson, and others, HAVE those numbers or something close as they are "partners". With DiskTrend and others estimating "superfloppy" future sales, this "niche" is no longer much of a secret and this company, with some of the biggest heavyweights in its manufacturing corner, is no longer a small fry. Time to take the "classified" moniker off the folder and join the new world as a mature, large, industry heavyweight and forget about acting like the tiny loser it once was.
It seems to me that the only ones without accurate numbers ARE the shareholders. Who that actually benefits/protects is a dumb question. Not me. Iomega should have nothing to fear. If the numbers are good then shareholders will be happy. If they aren't, then we should know. Leave the cloak and dagger crap for those who believe their are ghosts in their closets out to get them and give me one good reason Iomega shouldn't just say, "we sold 600,000 Zip drives this quarter as opposed to Q2 last year when we sold 15,000."
My spreadsheet would love it. You can be happy with PR milestone fodder. I want what should be disclosed as material to the company's health and of material interest to the shareholders.
Benjamin
P.S. I predict three "surprises" in the next 12 months that NO ONE ever even thought of, including KE. When they happen, please remember I said it here first and that NO ONE ever thought of them but me. You'll know them when they come and I want full credit to the point as if I had a hand in their negotiations and drafted the deals myself. 8+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Zip shipments down Date: 96-10-02 20:27:22 EDT From: JJKozub
RSchoensta. I am questioning, not criticizing. I follow these numbers more carefully than tea leaves and the high priced hybrid bulbs that I plant in my garden. For concrete reference I have the following which was composed by Ken1Marcus on this board, on 6/15/96, 12:22 PM (EDT). I can't recall the folder # but that should be easy enough. I printed it out then and summarize below, with my comments in parentheses. Ken said:<<I estimate the cumulative number of Zip drives sold per month from the following 7 pieces of publicly available information. I also assume that the numbers from month to month vary smoothly (you have to make some assumptions and smoothness seems to be the simplest one).
1) skip 2) PR News release March 15, 1996 - Shipment of Zip drives pass one million (that was a cumulative figure since product was introduced in March 1995) 3)April 19 Conference call w/analysts: We shipped our first millionth Zip drive in February, less than one year after the first shipment. 4) Same day and conference call: 'We are please to note that we shipped as many Zip drives in the first Q as we did in all of 1995" 5)PR News release June 3,1996: to date approximately 2 million sold... 6)same day (I believe) K Edwards states that IOMG & partner's current capacity in FY96 is approximately 5M drives. >> Ken1Marcus then proceeds to do a monthly breakdown of sales with cumulative figures, showing the first million in 2/96, and a cumulative total of 1,389,000 at the end of Q1; 2,532,000 at the end of Q2; and, lo and behold, 3,934,000 at the end of Q3. If you deduct the FY95 figures from this, you have about 3.3 million by end of Q3. Ken's Q4 estimates are 1,576,000 to reflect heavy sales during the peak quarter, and ending FY96 with a net total of about 4.9 million. BTW all other peoples' estimates were way off the mark (I have kept the most sensible ones) -- only Ken1Marcus came rather close. Hence, when "they"say over 3 million, it could be 3.3 million. Much depends on starting and ending dates (e.g., beginning Feb or end Feb). This is one of the reasons why, in the interest of using a scalpel rather than a bludgeon, I question the empirical base of your estimates. Again, I suggest looking at Ken1Marcus' painstaking work, which covers several posts on June 15, shortly after noon (EDT). Regards. 9+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Tomorrow's IBD-synopsis Date: 96-10-02 22:08:37 EDT From: MF Jeanie
Investor's Business Daily - The Case For-And Against-Iomega
I can only give you a few teasers here due to copyrights.
Under the question "Would Warren Buffet ever invest in Iomega Corp?"
... there is a comparison to his core holding, Gillette.
...and it talks about the disks being to Iomega what razor blades were/are to Gillette.
Joe Besecker of Emerald Research is quoted as saying "the game is to sell disks" and he estimates pretax margins are more than 50% for Iomega's disks.
After some discussion about the MCI licensing and other recent agreements, he says:
''They have the potential to be to the storage industry what Intel is to chips and Microsoft is to software,'' Besecker said.
After some discussion about the recent action in the stock price of IOMG.... Todd Bakar of H&Q says: "It's acting again like it was six months ago"
And then the other side of the story is presented from the bears point of view, as the huge short interest is discussed.
Meyer Berman is quoted as saying Iomega "had its chance to become a standard, and now competition is coming from all other the place"
It's a very long article.... should be interesting to see the reaction to it tomorrow :-)
Jeanie 10+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: 3mm Zip Announcement Date: 96-10-03 02:11:59 EDT From: MF Logman
<<You can be happy with PR milestone fodder. I want what should be disclosed as material to the company's health and of material interest to the shareholders.>>
Ben, I'm afraid you missed the entire gist of my message. I agree with you that the company should be more forthcoming with material information for shareholders. When have I said different? My dissent was with your wanting the company to end the one practice of disclosure (terming it amateurish) in favor of adopting another in its place. Why chastise Hill when Edwards is the one withholding the information you and I both seek?
Is there some law that says marketing can't announce the milestone numbers when achieved and then management give further clarification and breakdown at the end of the quarter? If there is, I'm not aware of it.
--Barry
End Report. Posts covered through 3 a.m. 10/3/96 _______________________________
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