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Friday, October 04, 1996 Iomega was down $1 1/8 Thursday, closing at $22 1/8 (-4.84%). TODAY'S RECAP: Thursday was another one of those days when the stock makes a large move with little or no news to account for the action. Yes, there was a page-one story in Thursday's Investor's Business Daily, and yes, Iomega's Treasurer Robert Simmons did give a presentation at Emerald's Pittsburgh Investment Forum in the afternoon. But neither event seems enough to explain the $1.125 move downward. Shall we chalk it up to profit-taking? Naw. Let's just say Iomega was down yesterday, and we really don't know why. Posts culled below include commentary on the IBD article, more study of Iomega's announcement that it has shipped over 3 million Zip drives, and a report by ~PittsBull~ from Emerald's investment forum. 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++Ind Sales comments on the IBD article and on Iomega's position in
general. And now, the Best of the Board... Started 3 a.m. 10/3/96.
1+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Tomorrow's IBD-synopsis Date: 96-10-03 12:46:31 EDT From: Ind Sales
I certainly do not take today's IBD article on Iomega as a negative, or a positive development. There is nothing new here, but it does represent fairhanded journalism, IMHO.
The main stumbling block on these boards still appears to be the rose-colored glasses approach. Iomega has developed very rapidly, in both sales and stature. The company has developed significant strategies with some very key players in the industry, and they are to be commended for their work.
Iomega is a real company, with significantly more respect in the financial community than it had even three months ago. Iomega is in a dog fight for market share, competitive advantage, and PROFITS. It occurred to me some time ago that rising revenues would be more than offset by decreasing profit margins. This is the short term. If Iomega can sustain the sales growth, then the earnings will fall into place later on.
For now, I don't think there will be much price action, except maybe downward somewhat, until they really capture the OEM market and produce repeat business on the Disk side. That is where the earnings take place. Iomega will simply have to eat some margin in order to swallow the market. They must also, IMHO, take CONTROL of the market and be dominant. This does not mean the retail sector, which they already have now, but the OEM market.
Zips must proliferate throughout the Micron, Dell, Gateway, Packard Bell product lines in order to succeed. To do this, think of how you all bought a computer. Adding $100 to the cost of a computer puts it at a significant disadvantage. The IBD article was right on here. In order to succeed in the future, Iomega will definitely produce lower margins than now grace the P&L's. But one year out, the disk business should help out immensely.
Steve Hinchey
IND SALES 2+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Today's IBD Article Date: 96-10-03 14:58:44 EDT From: DEATH EOH
No wonder most here liked this article, it carries factual errors and exaggerated statements that are favorable to Iomega.
First, the article states that 3 million Zip drives were sold in the FIRST YEAR after introduction. Dead wrong (as everyone here knows) the 3mm figure covers 18-19 months, and also represents units shipped, not sold. Interesting that all the supposed truth seekers here who get so incensed whenever an article contains a misstatement that is unfavorable to IO, didn't even comment on this obvious error - which just happens to be favorable.
Obviously, since favorable errors of ACTUAL FACT have not been commented on here (that is, until my post), it is not even a little surprising that no one has said anything about the HUGE EXAGGERATION made by Joe Besecker in stating that the collaboration of chip companies to integrate three or four chips into a single device would allow Iomega to cut production costs IN HALF in 1997. Forgive me, but I'm not sure whether this gets filed in my TOOTH FAIRY folder, or the EASTER BUNNY folder. The only 50% number that could ever realistically enter into this equation, would be the 50% profit margin that Intel & TI, etc. would EARN their SELFLESS, BENEVOLENT efforts to help supply Iomega. 3+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: The Matsushita Factor Date: 96-10-03 16:54:04 EDT From: MF Ben
The Matsushita Factor
3/95: Zip ships 2/96: 1 million shipped 6/96: 2 million 9/96: 3 million
Those are the facts, numbers from Iomega. I like starting with facts and moving from there. Personal quirk.
I've been trying to figure out how I feel about 1 million Zips in the past three months and how Iomega could come close to the 5-6 million installed base of Zips as forecasted by many, including me, at the beginning of the year. Some, including me again, forecasted even MORE at times, based on early '96 production growth or other factors. Those higher numbers look like pipe dreams when compared to the facts above.
Pipe dreams?
By the numbers, Iomega had either really pump production up now in order to ship a few more drives out this year and come close to the 6 million installed base as expected, or, production is in place and due to seasonality as well as management mistakes as well as a "weaker" Europe, sales lagged behind production. Either production wasn't on par with what was needed or demand wasn't. You pick but watch the use of the past tense please. Thank you for wiping your feet.
Before the die-hards scream that they know better, have sources, have heard through the grapevine, through midnight notes passed in Pastrami sandwiches delivered by UPS people to avoid the notice of the enemy spies, that shipping only a million drives in and around Q3 was a plan, was full production, was Edwards' pulling the wool over everyone's eyes, was the fault of shorts, media lies, and Edwards' really hasn't been replaced by the ghost of Richard Nixon...
Let's get real. I like real. I like this company. I like these numbers. I believe it is possible for Iomega to ship around 2 million drives this quarter (Q4) but not a Zip more. Producing a little more than 4 million Zips this year would be quite a feat. Let's face it, it is more drives than Iomega expected two years ago to ship over the lifetime of the Zip.
Doubling production quarter over quarter, when those production numbers ALREADY have 7 digits to them, would be a management miracle (care to compare production growth from Q2 to Q3). Trying to convince me that Iomega/Epson will ship 3-4 million Zips in Q4 (after shipping 1 million in Q3) without some facts, some analysis from the concrete is just plain crazy. And there isn't a tooth fairy. Really. No, I mean it. No tooth fairy. Sorry.
(2 million may be stretching it tight as a drum but I believe we had excess production during Q3 so that the 1 million Zips shipped do not represent full quarterly production run rates and that 2 million Zips in 3 months is plausible)
So, 4 million this year (approximate and justifiable by the numbers estimate), 1 million or so last year, makes 5 million installed. Respectable. The bottom of the estimates. A pretty damn good number worthy of respect, fear, and future revenue streams but not what was forecasted, right? Right.
Will the installed base make it to that 6 million mark this year?
Not with Iomega/Epson Zips.
:-)
The Matsushita Factor. The wildcard. The question mark. Could be just a small ramp-up to test waters or a flood to OEMs. No one here can pretend to know unless the pastrami sandwich has told them otherwise.
I don't listen to talking lunchmeat anyway. Would you?
While Matsushita could increase that installed base quite dramatically, quite quickly, (or not in both cases), Iomega will not receive the revenue from the sales, only the license profit, pure profit, pure happiness, and while it grows the EPS number it does little to that revenue number out of the gate. Why? Drive sales fuel disk sales but rarely immediately. The lag. As well, OEM tie ratios may affect overall tie ratios. I imagine they will lower them in the short run. Which would you rather have though, a lower tie and higher revenue and EPS or higher tie and lower revenue and EPS. Me too. No brainer. I won't fret over a lower tie IF it is for good reason.
In any case, '97 will be much different than '96. I look forward to it. I look forward to how Matsushita will change the landscape, shift revenue streams for Iomega, improve margins, accept production growth responsibility, and generally make life harder for all those who try an figure out this company on these boards.
It certainly is getting more and more complex as we go along. To be expected. Those still looking for easy, pat answers may want to rethink the changes this company has undergone the past 18 months. Or maybe pick up the phone and get a sandwich delivered. I hear the ham and cheese knows all about future OEM deals.
Cheers,
Benjamin
P.S. If anyone wants to try and figure out Matsushita's game plan, as it now has a important relationship to the short-term (Q4) installed based but not (IMO) any significant effect on short-term revenue for IOMG, I'd be willing to play the sounding board. Could be worthwhile 4+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:The Matsushita Factor Date: 96-10-03 19:46:51 EDT From: PKeeler
MF Ben wrote: >>> In any case, '97 will be much different than '96. I look forward to it. I look forward to how Matsushita will change the landscape, shift revenue streams for Iomega, improve margins, accept production growth responsibility, and generally make life harder for all those who try an figure out this company on these boards. <<<
I agree. You forgot Sentinel which will make things 33% tougher. This is no longer a small unknown story stock. We must pay attention to the analysts now more than ever. But blindly following the analysts is dangerous also (i.e. Micron). Somewhere in their is the Foolish approach. Estimates are for $0.77 eps for 1997. If Iomega hits this everything will be dandy. Everything else is peripheral (look a pun).
EricS31726 wrote: >>> If the loss in profit from the rebate is offset by the improving tie ratio and profit margins, shouldn't this quarter's profits be in line with last quarter's. <<<
IF is a big word. I doubt Net Margin would improve 22%-44% in one quarter. JPM has forecasted a slight drop in Net Margin.
If your not comfortable now with hearing a number within 20% of $0.07 on October 17th you should re-examine why your invested in this stock. Personally, I'm ready for it because I understand that it is the Christmas season that will make or break Iomega as a high flying stock or company. If Iomega misses 4Q estimates (and FY96 estimates) the PE will contract. I don't think 3Q will make a difference unless its 30-40% high or low. I really don't see how it could be lower than $0.04 if they sold 800K to 1000K Zips last quarter. I also don't see how it could be higher than $0.10 if they sold 800K to 1000K Zips last quarter.
I'm not "setting the bar low" I'm just calling it as I see it. Show me how you can sell 1 million Zips with a $50 rebate and make $14.5 million in Net Income and I'll believe.
PKeeler Patrick Keeler 5+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Emerald Forum Date: 96-10-03 23:03:13 EDT From: PittsBull
Since folks were asking, I thought I'd post some random observations about Emerald's Pittsburgh Investment Forum that featured our beloved Iomega as well many other small to mid-sized growth companies the majority of which are based in the Keystone State. The forum was setup to give investors, brokers, and analysts a chance to meet with the various officers of the companies that Emerald Research extensively follows--many of which are also held by Emerald's HomeState Growth Fund, which was also being plugged (annual average return of 21.5 percent). Now the observations:
1. Joe Besecker is a hell of a guy, very generous and gracious. A CEO of one of the other companies presenting at the forum told me over a meal that no other fundamental research outfit had done the job Emerald did when evaluating his company.
2. Robert Simmons, Iomega's treasurer, gave the presentation and fielded the questions.
3. Joe Besecker, quoting Andrew Carnegie (former Pittsburgher), foreshadowed Mr. Simmons's presentation by stating "actions speak louder than words" (or words to that effect).
4. Mr. Simmons's talk was basically a canned (actually it was zipped on his zip disk with his laptop)multimedia presentation that didn't reveal anything that hasn't been discussed adnauseum here. It did feature a hammer falling across the screen as the mantra "smashing paradigms" was pounded into our collective heads numerous times as well as that of a cartoon character that rose from the bottom the screen with one single solitary red lump on his head at the end the presentation. I felt his head should have been a bloody pulp based the number of times the hammer fell, but I didn't make the presentation.
5. Several questions were allowed: The company won't release tie-ratio's for Jaz or Zip because they don't want the competition to know the numbers. In regards to the Competition (he mentioned LS-120 by name) he said that the competition had done them a really big favor by effectively giving Iomega an enormous headstart. In regards to Europe, he said they have folks over there working on it, but his manner was confident and satisfied not defensive when answering the question. Chiros had him re-explain a slide showing 2 million Zips and 3 million total "storage solutions" sold by the end of May and comparing that with the recent announcement of 3 million Zips and 5 million total "storage solutions" sold by the end of Sept. They will continue to make these announcements from time to time but may eventually adopt McDonalds method by declaring "millions and millions" instead.
6. I met Handsome Ed and Chiros.
7. Stan Corker, a Brit and storage expert formerly of IDC, will be replacing Joe Besecker and Joe Garner as the primary analyst at Emerald for Iomega.
8.They gave away two Zip drives during lunch--both winners didn't look like they had a clue as to what they had just won.
9. During lunch, I'd been having a nice conversation with the man sitting to the right of me. He was a broker in town and a very pleasant fellow. After they had given away the two Zip drives, he leaned over to me and said, "I had a client lose his shirt when we shorted Iomega last spring and got squeezed out around $40." He also told me he doesn't own a home PC and really wasn't sure what a Zip drive was all about. I just drank my coffee and smiled. 6+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Out of my room Date: 96-10-04 02:29:49 EDT From: Foolshdog
>>>>>> If the loss in profit from the rebate is offset by the improving tie ratio and profit margins, shouldn't this quarter's profits be in line with last quarter's. <<<<<<<<<<<<
Hi everyone. I thought I would pop in here and share some thoughts about some of the recent developments and topics of the folder. Actually the above snippet as well as some conversations I've had in chat and much of the recent tone in this folder has me a bit concerned. I think there are a lot of shareholders in this stock that are lost and confused about what is happening with Iomega the company. Unfortunately, this folder IMO is not providing the counsel it once did, not even close.
Please don't misunderstand me. I don't have all the answers either. But there was a time that collectively this folder came up with a lot of them. My image of earnings prospects for IOMG has been permanently altered in the last few months. First the Q2 results were bad (I mean for a company sporting a low to mid triple digit PE), then the C word was used to describe Q3, and then finally a few weeks ago both major Wallstreet firms(involved) lower their estimates on the same day. These are three big earnings' shoes that have dropped in just three months. Yet there has been virtually no discussion in this folder about why and what it all means? And there seem to be many here that don't grasp the importance of earnings and how and why they directly effect the stock price(both when it was at 50 and when it was at 13). I know many here don't invest based on earnings(ex: TA or momentum) and I can respect that. I'm not referring to that group. I'm referring to the people that have been and are told daily about the Motley Fool style of investing and have even come to believe it. I mean if I'm not mistaken earnings are pretty big in the MF methods and it's probably safe to say a lot of folks reading this board have come here to learn about this style and how it applies to their investment in IOMG.
So what are they told and what should they be told? Well first they are told that Q2 earnings were just fine, and that the reason the stock behaved so badly was some wacky on line earnings estimates. In fact they are told, we've solved that problem. We simply won't encourage or tolerate any more of that behavior. Problem solved. Well how 'bout the low estimates for Q3? Oh, don't worry, high tech companies don't make money in Q3. Hell this is positive we weren't expecting anything. Q4, that's when we'll show 'em. Now go back to your room.
I'm sure this is starting to get boring so I'll get to my point. It is unbelievable to me that people reading these boards have not been clued in yet to why these earnings are suffering(again relatively speaking). I'm sorry if I'm breaking some unspoken code of the board and for those that are not interested please move on. It seems clear to me the reason the earnings have not been up to snuff is the tie ratio has been suffering in recent quarters, quite the opposite of what the unfortunate poster above believes. This is also why revenues have been shockingly low(assuming the clandestine phone call that both analysts received is accurate). They have been selling the drives in good numbers(BTW don't read too much into the milestone press releases - KE wants it to be a secret and he's not stupid enough to give any useful information) but I think as it turns out the second and third million purchasers don't buy as many disks with their drives or need as many later as the first million purchasers. It makes sense to me. The early adapters were the heavy users and now especially when we start seeing the OEM #'s increase, more and more zip owners will be happy with just a few disks.
Anyway I thought I would just get that little piece of fundamental info into this folder to hopefully help some folks that are curious. I never thought I would see the time when the bears in this folder are making a lot more sense than the bulls but that has definitely been the case the last few days. FWIW, I am still very long on this stock but have taken advantage of the recent strength to unload most of my truck I backed up a month ago. Thanks to all and to all a goodnight.
Jim Arden(Foolshdog)
End Report. Posts covered through 3 a.m. 10/4/96 _______________________________
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