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Friday, October 11, 1996 Iomega was up $1/8 Thursday, closing at $23 1/4 (+0.54%). TODAY' RECAPS: "No news is good news," says the adage, but lack of fresh information can be maddening to those of us who are Iomega-obsessed. In what now seems to be an endless series of dull but steady-as-she-goes days for Iomega, nothing in the known universe happened to affect the company in any way whatsoever. Fools contributing to our forum have done their best to keep the conversation churning away as usual, but most seem resigned to waiting for the hard data that will arrive with Iomega's third quarter earnings report on October 17th. Perking up an otherwise comatose day was the discovery of an article in a marketing trade publication spotlighting Iomega CEO Kim Edwards and his leather-clad gang of easy ridin' rebels... but then, you can read more about that below... 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++MF Jeanie summarizes an article in Sales & Marketing Management
Magazine. And now, the Best of the Board...Started 3 a.m. 10/10/96
1+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Great IO Publicity Date: 96-10-10 13:57:35 EDT From: MF Jeanie
The following information was given by ~KMil123~ in the Fool chat room just now. He had a copy of the October issue of Sales & Marketing Management Magazine.
Pg 64 -- IOMEGA'S TURNAROUND.
"Rebels With A Cause"
--cool photo of Kim Edwards, Ted Briscoe, VP Sales, and one other executive -- all dressed in leather jackets in front of big Harleys parked in front of Iomega's warehouse.
Subtitle: "Kim Edwards and his gang of aggressive marketers have brought Iomega back from the brink of bankruptcy with a take-no-prisoners business strategy"
I've not seen the article. According to KMil123 it is very objective (not 100% love fest) but overall, very positive and promising.
As KMil adds, KE couldn't have bought better advertising!
As for the publication, I'm a bit familiar with it. S&MM is a trade magazine - business-to-business to the Sales & Marketing industry.
It's read by most magazine publishers and a lot of ad types as well.
Good readership demographics and well respected in the industry.
Looks like Iomega's getting attention outside of the world of Wall Street and that's good news to me.
~KMil123~ suggests we all go to the library to see the picture of our Company's paradigm-smashing rebels :)
Jeanie 2+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Seagate Date: 96-10-10 18:34:05 EDT From: OLAmerican
Since hard drive industry sales has meaning to IO watchers, I thought this info would be relevant: Seagate Technology Inc. reported a 7.1% increase in fiscal first-quarter earnings despite a 3.7% decline in sales. Net income for the quarter ended Sept. 27 rose to $129.4 million, or $1.06 a fully diluted share, handily beating analysts' estimates of $1.00 a share. In the year-ago quarter, which was restated to reflect Seagate's merger in February with Conner Peripherals Inc., the company earned $120.8 million, or $1.05 a diluted share. That included a $2.8 million write-off of in-process research and development related to the acquisition of Sytron Corp., without which year-ago earnings would have totaled $1.07 a diluted share. Sales for the top overall supplier of disk drives dipped to $2.06 billion. Seagate said that in its latest first quarter it reversed about $9.6 million of restructuring charges it took in connection with the Conner Peripherals merger. However, that reversal was offset by about $9.5 million in other nonrecurring merger related costs. Seagate has been on an acquisition binge of late as part of a strategy of diversify beyond the cutthroat business of data-storage products by establishing a presence in the so-called enterprise-management business and other markets. The company, which had revenue of $8 billion last year, said it wants to have $1 billion in revenue from just software by 1999. 3+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Inventory Turns Date: 96-10-10 22:20:35 EDT From: RB61
Thought I would repost this from the Reading Financial Statement Folder since we had earlier talked about IOMG's upcoming earnings release and our discussion of inventory levels.
<<Since many companies will be reporting their qtrly results within the next few weeks, I thought it might be good to look back at some of the key parts of a company's financial statement for use in helping us evaluate how their doing. One key area is management of inventory.
Why is the level of ending inventory so important? Why do we even want to look at ending inventory? Two reasons: 1) Efficiency and 2) Effectiveness.
Efficiency - Inventory is a large item on the balance sheet. This ties up cash which may be better used elsewhere. Ideally, you want inventory to be at a level equal to your immediate needs (just in time inventory). Inventory has hidden costs associated with it's existence: 1) Interest paid (or lost) for financing it's purchase. 2) Warehousing costs. and 3) Management costs for its logistical handling.
Effectiveness - Inventory is the fuel for sales. Without inventory, there are no sales. For example, if inventory levels are kept too low, potential sales are lost due to sporadic shortages of finished product.
Each industry's optimal level of inventory is unique. Steel manufacturing requires several months stockpile of raw material in inventory. Whereas, a manufacturer of perishable goods may require a very short stockpile of raw material and an even shorter stockpile of finished inventory. Using inventory turns is a very useful way to try to determine whether or not a company is being efficient and effective with its level of inventory.
Inventory Turns is a measurement designed to determine how many times inventory has been acquired and turned into sales during the course of a year. Again, this is computed on an ANNUAL basis. So an inventory turn ratio of 6 means that inventory was acquired and sold six times during the course of the year. It's important to understand the plans a company might have for this inventory. An example might be Microsoft during 1995.
In the Fall, Microsoft was to release the Windows95 operating software. This would be a big rollout. If inventory was not sufficient to meet anticipated sales, lost selling opportunities or buyer frustration could be the result. Therefore, Miscrosoft had to build up it's inventory of Windows95 prior to its release. Without knowing the reason why Microsoft wanted this increased inventory, on the surface, it would appear that Microsoft had way too much inventory. Having an inventory level higher than normally expected raises warning flags. It should be investigated. But if the reason is known and makes sense, then a level of comfort can be maintained.
Let's look at XYZ company's financial statements for a simple explanation of how to calculate inventory turns.
Inventory balance on 12/31/95 $98.703m Inventory balance on 3/31/96 $105.631m
Cost of sales for the 1st qtr. $162.088m
Again, this is just a simple example, but let's start off by finding the average inventory level for the 1st qtr. We start by adding the beginning inventory balance ($98.703m) and the ending balance (105.631m) and dividing by 2 = $102.167m. We will use this number for our average inventory balance for the quarter.
Now to find our ratio. Take the 1st qtr Cost of Sales = $162.088m divided by our average inventory of $102.167m and we get a ratio of 1.5865.
Now to find the average days it took to turn over inventory in the 1st qtr. 91 days in the 1st qtr divided by our ratio 1.5865 = 57.36 days to turn over (or sell and replace) our inventory.
With 365 days in the year divided by 57.36 days to turn over inventory = 6.36 inventory turns on an annual basis.
So, XYZ company sold or turned over all their inventory about every 2 months or less (12 months divided by 6.36 turns).
Inventory levels for a company should be adjusted for seasonality issues as well as new product introductions.
Fool On,
Robert>> 4+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Inventory Level Date: 96-10-10 22:51:42 EDT From: RB61
Over the past few days the discussion of IOMG's 3rd qtr potential ending inventory level has been discussed. I would like to add my two cents to this discussion.
IOMG is now entering the traditional holiday selling season. For wholesalers (for this purpose, I will include IOMG as a wholesaler), this holiday season starts in September and goes very strong through November, with a slight decrease in December. Retailers are very mindful of this season as well as the wholesalers. Retailers want their orders filled fast. If you don't have what they want WHEN they want it, you have just lost a sale. This is the time of year when many stores make most of their profits. This point is extremely important in our discussion of IOMG's inventory levels.
On a normal basis, IOMG should have between 1 and 2 months inventory at the end of the qtr. I repeat, ON A NORMAL BASIS. The end of the 3rd qtr will not be a normal basis. KE saw this back in July when he stated very clearly that IOMG's goal was to build up inventory going into the 4th qtr. At the end of the 2nd qtr, IOMG had $146m in inventory, which represented 65.3 days inventory at a constance sales pace equal to the 2nd qtr.
The analysts are estimating sales for the 4th qtr in excess of $400m. This compares to $326m in sales for all of 1995. So in one qtr, they will sell more than 20% more than they did in the entire last fiscal year. To do this it, is imperative that they have the inventory to sell when the retailers/distributors want it. When do they want it? October and November. I believe KE well understood this. Therefore, IOMG has to build up a level of inventory during the slow summer months to meet this anticipated demand. If IOMG didn't plan accordingly, lost sales would be the result. At this stage of IOMG's game plan, that is a worse sin than having too much inventory.
What level of inventory do I expect? Not really certain. But I expect around $90m in finished goods out of the total. If $400m in sales for the qtr is to be achieved, I would anticipate sales for October and November of around $300 to $325m. So whatever IOMG's inventory level (within reason), it will most likely already be mostly sold off by the middle of November or earlier. Again, this is well within the 2 month, or 6 inventory turn level they have had the past two qtrs.
Since Matsushita will not be on line until later on in making Zip drives, IOMG and Seiko-Epson will have to do most of the ramping up for the qtr. It makes sense to not work lots of overtime and add temporary workers to meet the demand when you can build up inventory in an orderly manner when sales are slower, such as the 3rd qtr.
Just my thoughts.
Fool On,
Robert 5+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: Apple and LS120 Date: 96-10-10 22:55:25 EDT From: Hal Rubel
A Hard Look at Apple and LS120: The Mac-Mentality factor.
Apple would likely view LS120 as innovative.
a. LS120 frees the customer from having to buy an external SCSI storage device (a Zip). without precluding the use of floppies. (Yes, its slow, but who regularly runs their system from a removable storage disk any way. If you need to, buy a Zip, they're cheap)
b. It would look like a freebie because Mac buyers are looking more for functionality rather than commodity pricing and historically have been willing to pay more per unit to get it. They won't notice the built-in cost as much as PC buyers tend to do.
c. If Apple features it, Mac users will rationalize it as functional. (Don't underestimate this aspect of the Mac mentality.)
d. Apple is looking more than ever for a way to distinguish their product from the PC. Standard items are an anathema to the Mac image. Let the customer buy a Zip if they need it. Macs most often seem to store and transport to other Macs anyway.
e. Apple is not big on massively equipped machines. Never offered built-in tape, Magnito-Optical, 5" floppy etc. That is what the built-in plug and play SCSI port is for. Apple is now brutal about limiting the variability or their product line. They want to be easily understood by the potential buyer.
f. 100 mb storage is Peanuts to a higher portion of Mac users than to PC users. PC users will soon come to feel the same, but by that time Zip will be higher capacity.
Conclusion: Apple can't hurt Zip. As a matter of fact, it would seem that Macs have embraced Zip out of proportion to their numbers already. But the Apple production line can not help Zip in my opinion because Apple just does do not build-up machines with factory install options. Apple's Mac features customer driven expandability by Plug-and-Play SCSI instead. But thats OK because this is where I think Zip will prosper in the Apple world.
H. R. 6+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: Apple and LS120 Date: 96-10-10 23:47:44 EDT From: WileEDog
Hal-
As a long time Mac User, I have one question for you.
What the hell are you talking about?
<<a. LS120 frees the customer from having to buy an external SCSI storage device (a Zip). without precluding the use of floppies. (Yes, its slow, but who regularly runs their system from a removable storage disk any way. If you need to, buy a Zip, they're cheap)>>
Why is this any different from a PC user?
<<b. It would look like a freebie because Mac buyers are looking more for functionality rather than commodity pricing and historically have been willing to pay more per unit to get it. They won't notice the built-in cost as much as PC buyers tend to do.>>
So we're all mindless drones who blindly purchase anything with that little multi-colored apple logo on it? Boy I hope they don't make luxury cars or I'll go broke in a hurry... Recently Mac has been almost ridiculously cost conscious, particularly with the new clones out. The new Power Computing machines are by far the best deal for the money right now from a performance standpoint (Wintel included) and they offer internal Zips and Jaz's as well.
<<c. If Apple features it, Mac users will rationalize it as functional. (Don't underestimate this aspect of the Mac mentality.)>>
Oh great Gil, lead us to the promised land! The kingdom of computing bliss awaits us if only you will show the way! What's this, an LS-120? My God! The sign of eternal harmony throughout the universe!!!!!
<<d. Apple is looking more than ever for a way to distinguish their product from the PC. Standard items are an anathema to the Mac image. Let the customer buy a Zip if they need it. Macs most often seem to store and transport to other Macs anyway.>>
Actually, Apple is looking more and more to make their machines compatible with the Windows world. Gil Amelio and Bill Gates have met often in recent times, and Apple has BIG hopes for the CHRP machines which will run Windows NT faster then anything Intel has the capability to produce. Apple doesnt need to wear leather jackets and ride Harley's, they now want to make MONEY.
<<e. Apple is not big on massively equipped machines. Never offered built-in tape, Magnito-Optical, 5" floppy etc. That is what the built-in plug and play SCSI port is for. Apple is now brutal about limiting the variability or their product line. They want to be easily understood by the potential buyer.>>
Apple dealers will sell you whatever you want to attach to your machine, from Zips to dustbusters. Again, how is this different from Dell, Gateway, et. al.?
<<f. 100 mb storage is Peanuts to a higher portion of Mac users than to PC users. PC users will soon come to feel the same, but by that time Zip will be higher capacity. >>
Well isn't that what a jazz is for? How does 120Mb from an LS-120 suddenly solve my problem?
Conclusion: You have no idea what you're talking about. Don't lump Mac users into some fanatic religious cult. Many of us even think for ourselves, and use Macs because they give greater capability and less ridiculous hassles than PC's. If something better than a Mac comes along tomorrow, you can be damn sure I'll buy it. If the entire market seems to be embracing Zip and Jazz drives, Apple won't put LS-120's ( that by-the-way aren't Mac compatible) in their computers just to be "different." On top of that, most of the disk purchases that Iomega is basing its "razor blade" marketing model on will come from the Mac using graphics industry, where tie ratios will be extremely high. Don't discount the Apple market, and don't discount Mac users.
Wileedog 7+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: Inventory question Date: 96-10-11 00:30:10 EDT From: RB61
E-mail reposted with permission from MF ETurkey:
<<RB61,
Robert, just so I am clear, the inventory iomega reflects on its books as of the close of business on September 30, should give us guidance to both production as well as iomega sales expectations. We should assume an inventory goal of close to 0 for finished goods on Dec. 31. Does this look right?. . .
Total sales for Q4 = maximum production + inventory on Sept. 30.
Now where do we extrapolate from here?
Eric>>
Eric,
You bring up some good points. As far as Finished Goods Inventory at the end of December, IOMG does not want FG to be $0. Now that production is really ramping up (with Matsushita on board shortly), IOMG will have to manage Finished goods from the 4th qtr onward. During 1995 and the early part of 1996, IOMG could sell all it produced. While this was fun to see, sales were lost. I often wonder if IOMG had the production capacity last year that they do now, if Syqt would have lost all that money on the EZ 135 :>). I have to believe that people wanted to buy the Zip (or were brought into the store wanting to buy a Zip) but because they were unavailable, they bought the EZ135 instead. Lost sales.
IOMG doesn't want to lose sales any longer. Therefore, I think they will want to keep a level of Finished Goods available to meet anticipated needs. $0 Finished Goods means that they have to hurry up an make the drives to fill an order. Very inefficient doing this. Also, potential to lose sales. So I believe that going forward, they will want to maintain some Finished Goods inventory. Even in the days when IOMG could sell everything they produced, they still had Finished Goods of around $5m.
As far as trying to anticipate 4th qtr sales using 3rd qtr ending inventory, I would say that this would be very difficult. However, I do think that Finished Goods for the qtr in combination with 3rd qtr sales, may indicate a level of sales going forward. The two must be looked at hand in hand. I really believe that the production capacity will greatly increase throughout the qtr. I think one major item that will drive all of this is the Zip Chip. The Zip chip is supposed to be available in the 1st qtr. This should enable IOMG to lower the price of the Zip after the holidays. This will in turn increase sales when normally sales would soften. Didn't KE indicate that when the price gets to $99, he anticipates an exponential increase in units sold (8-10 times?).
When the results are released next Thursday, lets look at both the inventory numbers and the sales numbers to see how they correlate. It should be interesting. Again, thanks for your question.
Fool On,
Robert
End Report. Posts covered through 3 a.m. 10/11/96. _______________________________
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