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Wednesday, November 27, 1996 Iomega was down $1/2 Thursday, closing at $22 (-2.22%). TODAY'S RECAP: Yawn. Wake us when Thanksgiving is over. Tuesday the market already seemed to be celebrating the November holiday, at least as far as Iomega was concerned. No important news was released, and the stock merely bounced around in its customary trading range, maybe out of force of habit. As a matter of fact, Tuesday was the *eighth* trading day in a row where IOM finished the day changed by exactly $1/2 per share -- three of those days it was up, five of those days it was down. That's just one of those thrilling-yet-pointless details you notice when you watch the ticker too much. Still, our World Famous Iomega Board (WFIB) did manage to get a couple of good threads going. One, initiated by ~BoyDude~, posed the question whether network servers could fulfill individual storage needs, and thus be a threat to Iomega's removable drives. Meanwhile, ~PKeeler~ and some other Fools were considering Iomega's chances for meeting the 4Q earnings estimates Wall Street analysts have set for IOM. PROGRAMMING NOTE: Tomorrow the stock markets will be closed in observance of the Thanksgiving holiday. ~IOM in Fooldom Today~ will be taking the day off, too, but have no fear -- we'll be back in action for Friday's trading session! 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 IOM Today window and try again. 1++BoyDude wonders whether servers might compete with Iomega drives as a storage medium. 2++Anna in VA reports a Zacks upgrade of IOM. 3++MF KarenK explains executive compensation as it relates to insider sales. 4++GWCII reports that Standard and Poors has initiated coverage of IOM with a "hold" rating. 5++HSimons113 speaks in favor of the Swan drive over Iomega's Zip. 6++PKeeler crunches some numbers in an effort to determine whether Iomega can meet its 4Q estimates. 7++ORNurse362 recalls the meeting with Swan CEO Eden Kim at Iomega's last shareholders' meeting. 8++TraceBV joins with PKeeler in considering Iomega's prospects for 4Q. 9++Waverunner considers online storage. 10++DJIA101362 encourages knowledgeable Iomega shareholders to contribute to Iomega's tech support efforts on AOL. 11++JonTara considers Zip disk storage compared to online servers. 12++Skichang gives his look at the 4Q numbers. 13++Arentz65 analyzes Zip "penetration" in OEMs.
And now, the Best of the Board...Started 3 am ET 11/26/96.
1++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Storage on the server Date: 96-11-26 03:35:44 EST From: BoyDude
Dear Iomegians:
Had a conversation with a friend of mine that works at a local University this morning. We discussed the idea that personal storage needs of the future will be met by placing your stuff on servers and not on jaz or zips. This is already happening at her College. (They have T-1 lines which makes everything very fast as well). I know we've discussed this before. But besides having your own backup of stuff on a jaz or zip, does this massive storage on servers present a real threat to IOM? Is this something corporations are much more interested in then the average consumer? Is this why IOM hasn't penetrated the corporate market?
Jeff Brouws 2++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: WONDERFUL NEWS Date: 96-11-26 06:08:19 EST From: Anna in VA
Zacks upgraded IOM to a 2 !!!! (1 best - 5 worst). IOM was at 4 for the last few months. This upgrade is due to H&Q's estimates which are 16 cents for this 4th QTR and 77 cents for 1997.
Anna in VA 3++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Insider Selling Date: 96-11-26 09:43:46 EST From: MF KarenK
<<I do not have time to read every message on this board, and i was wondering if all you Iomega fans are aware of the huge amounts of IOM shares that were sold or about to be sold by several of the top executives of the company. The Iomega press release in response to inquiries from WSJ was that this was all part of "routine diversification!" When an executive sells 95% (yes, that is NINETY-FIVE PERCENT) of his shares in the company, that sounds like loss of confidence not diversification to me!!>>
I really didn't want to continue this thread, but I do have one thing to add. I spent some time over the weekend reading the 1995 Iomega annual report and the documentation that came with the proxy. Executive compensation is discussed there, at length, and I suggest that anyone unsure about insider selling, read this.
From my reading, it seems to me that Iomega pays executives and board members with stock options. Also, if a new executive comes on board, and he/she is issued some options, that means they can buy the stock at MARKET PRICE at the time the option is issued. BUT, they are not allowed to sell this stock for a certain period of time. Iomega also seems to issue new stock options as an incentive. Therefore, if you cashed out older options, you probably will be issued new ones at current market prices. That means that any new options issued at this point in time will be for exercise at 22 3/8 per share.
Please contact Iomega and get a copy of the annual report before assuming that executives have lost confidence. I do not feel that way, especially in light of the fact that Iomega re-bought the same amount of shares sold. It is also important to realize that management owns almost 24MM shares, so 1MM sold is a very small percentage.
I really don't want to keep this thread alive...I just want to remind people to do their homework and read the documentation that Iomega provides. Now, if my interpretation is erroneous, please feel free to correct me.
Foolishly, Karen 4++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: S&P covering IOM Date: 96-11-26 11:02:54 EST From: GWCII
11/25/96 Standard % Poors initiating coverage with a hold, ranked *** , Sees $0.40 for '96 and $0.75 for '97. Analyst P. Wood sees increased competition with the LS-120 ramping manufacturing capabilities...He says IOM is fairly valued at 30x '97 estimates.
Sorry if this was already reported. 5++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Swan Kicks ASS Date: 96-11-26 16:01:51 EST From: HSimons113
The reason for all the short selling and executive selling is the best product has yet to be released . I'm Talking about the the Swan UHC drive.Did you Know that Matsumi has the capacity to produce 750,000 UHC drives a month. If I owned Iomega I would be scared to.These drives are faster,hold more memory, $50 cheaper. I'm waiting for the SWAN. 6++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: .18/6.5/25% Can it be done? Date: 96-11-26 20:51:23 EST From: PKeeler
I've seen quite a few people wonder if Iomega can hit estimates this quarter. I certainly don't know, and I doubt Len Purkis knows. I hope he doesn't care...but that's besides the point. First Call shows current mean estimates at $0.18 this quarter. If the bar was set low last quarter then certainly the bar has been set high for this quarter. There are two ways to look at it, neither are logical but I will list them:
1. Iomega beat the year ago quarter in October (3Q95) by 350% this year (.09 vs. .02) so it shouldn't be hard for this quarter (4Q96) to be up ONLY 125% from a year ago (.18 vs. .08).
2. Iomega sales were only up 10% (311 vs 283) from the second quarter to the third quarter so how can they double sales in the fourth quarter to double eps?
They are not logical arguments because they dismiss too many variables. However #2 is something to think about. Better now than on January 18th...
Iomega had a 3.9% net margin last quarter on Sales of $311 MM. If this net margin does not change, and there are around 140 MM shares outstanding, Iomega WILL have to book $630 MM dollars in Sales in the 4Q. IMHO, that is impossible.
I think the best that can be expected is 25% sequential growth or $389 MM in Sales for 4Q96.
Check this table out:
Shares Outstanding = 140 Million EPS = $0.18 Net Income = $25.2 Million
Net Margin Revenue Needed ($MM) 3.0% $840 3.5% $720 4.0% $630 4.5% $560 5.0% $504 5.5% $458 6.0% $420 6.5% $387 7.0% $360
In this scenario, Iomega has to increase Net Margin Percentage to 6-7% from 3.9% in the 3Q96 to hit estimates; along with increasing Sales 25%. Can it be done? I think its possible because 3Q96 had some one time costs (e.g. Penang start up, Christmas Inventory build-up). If you go back to 2Q96 Iomega had a Net Margin Percentage of 4.9%, which is not far from the 6-7% range necessary. I think 1.5% can be squeezed from the much increased Jaz production level and Zip and Jaz disk sales over the 2Q96 levels. R&D expense being the wild card as always (I don't think Iomega could increase R&D spending fast enough to keep the percentage up if Sales are up 25%). If Sales did increase 25%, R&D and SG&A could be increased by millions of dollars but fall as a percentage of Sales which would increase Net Margin.
How worried am I? Not much. I'm not margined and I try and look out 6-9 months with Iomega not 6-9 weeks. The question I'm asking is can Iomega beat $0.80/share (mean estimate) in 1997? Easily, IMO, as I will show in my next post. In other words, buy with Cash and realize that 4Q96 estimates will most likely be lowered even if Iomega could hit them, but that Iomega will crush 1997 estimates.
PKeeler Patrick Keeler 7++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Swan Kicks ASS Date: 96-11-26 21:22:41 EST From: ORNurse362
John Simons (HSimons113) wrote "...I'm waiting for Swan..." Good, I hope you don't get too cold. :)
I usually don't post much, because most of what is said I usually agree with, and I'm generally too lazy to do my own research. But, FWIW, I'll relate the very personal FEELINGS I had at the IOMG shareholders' cocktail party after listening to Mr. Kim from Swan. BTW, he stated he owned some IOMG at that time (4/96).
I felt Mr. Kim was very evasive, promising, maybe, to have some product available for OEM testing by the end of the year. Then, maybe, production would start sometime in 1Q97/2Q97 (help me out, guys, those who were there). When asked whether the proposed backward compatibility issue was important, he stated that the manufacturers would make that decision based on price point...logical statement. I seem to recall he was asked whether the backwards compatibility issue would add to component complexity and manufacturing difficulty, but I don't recall what the answer was, or whether he answered it at all.
What I'm trying to get at, is, I didn't feel real worried at that time in the short or long term. I rather felt that Mr. Kim was fishing for something else... maybe a piece of the manufacturing pie?
Again, the foregoing are my opinions. I've been wrong before (okay, maybe twice or more :) ), and I'm sure I'll be corrected if I'm wrong this time.
Dan Currently Recuperating From Working the World Cup Ski Races 8++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:.18/6.5/25% Can it be do Date: 96-11-26 22:51:32 EST From: TraceBV
Before anyone casts the first stone at posters who are trying to estimate earnings, ask yourself if the subject hasn't crossed your own mind. IMHO, this is one of the most relevant topics for shareholders' discussion. After all, aren't we investing for PROFITS?
Maybe the so-called on-line "whisper number" syndrome affected IOM in 2Q, but I think it was a non-issue by 3Q because the absurdity had been made public (CNBC) and therefore lost its "whisper" magic. I don't believe that any amount of outrageous or intelligent guesses on this board will have any effect on IOM's post-reporting price action.
It's IOM, NYSE now. Big money will probably buy, sell, or hold based on the comparison to the forecasts of the Wise. If the big money has its own "whisper" ideas, I doubt that we Fools will sway their opinions. It would be vain self-flattery to think "we" could set this stock up for a crash anymore simply by tossing numbers around.
It's nice to see some intelligent justification for those estimates, however, rather than just ".28 on 550mil!... crush!!!..." etc. PKeeler just made some excellent posts re earnings. Thanks!
Even though it's awfully early, I've kicked some #s around myself using my own very simplistic model:
1. I am looking for $22mil net (.16 eps X 136mil sh) on $368mil revenues, (5.9% net margin.)
2. I think R&D might have been heavy last Q for n.hand, and I see it declining as % of rev.
3. Drive margins will probably be lower due to the increase in OEM %. I feel this might be partially mitigated by lower rebate requests from retail buyers (Christmas shoppers may not want to seem el-cheapo by mangling the bar code, etc.) BTW, I don't see drive margins improving at all until Zip is $99 retail without rebate and the dream-team chip is a full go. Price and cost should decline in tandem until the desired price-point is reached.
4. Advertising and promo expense look to be much higher.
5. Even if Zip drives aren't under every Christmas tree, I'm hoping Zip disks are in every stocking. I think 4Q tie ratios will be higher than ever before, hence the improved net margin.
Naturally, I would prefer .18, but I think it's just a bridge too far for this Q. I see .16 as more realistic. If we get a pre-earnings downward revision again this quarter, I think IOM stock will suffer. Last Q, all was forgiven. This time, blood will flow. My hope is that more analysts enter the picture with lower numbers to bring the mean down. Heaven forbid missing the #!
All IMHO,
Cordially, Trace 9++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:MF Cheeze-Server storage Date: 96-11-27 00:09:24 EST From: Waverunner
I have mentioned in the past that in the late 70's I sold Xerox small business systems. With the daisy wheel printer they made great word processors. But for 25-30 K when the IBM PC came out for 3K the future wasn't too bright. Anyhow, to make a long story short, I finished my computer sales career selling online business inventory systems. Dumb terminals hooked up to central computer which held the information. Guess what? Businesses had MASSIVE RESISTANCE to having THEIR information stored on someone elses computer. What's the quote, "failure to learn from history and you're doomed to repeating" or something like that. Network PC's and servers will be intranet solutions, and are viable, IMHO. But the notion that individuals and small businesses will entrust their STUFF to outside sources is ludicrous. It ain't gonna happen just because Larry Ellison or Scott McNealy says it will. Doing a little market research can pay off. Just ask Iomega.
Dave PS My research may be old, but with human nature, and publicized network failures (AOL outage), perceptions change hard. 10++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Fool tech support. Date: 96-11-27 00:32:32 EST From: DJIA101362
Earlier today I spent some time looking through some of the newsgroups on the web. There are 2 newsgroups in particular that seem to have discussion about Iomega products.
1. comp.sys.ibm.pc.hardware.storage 2. alt.iomega.zip.jazz (they spelled jaz incorrectly)
Some of the posts deal with pre-sales type questions but the majority of the questions pertain to troubleshooting.
I have never had the need to call Iomega tech support for any reason, knock on wood. But many of these people seem quite frustrated and some are even angry. The point Im getting to is, many of the Fools are just as knowledgeable as IOM tech support and by answering questions and solving problems, you will definitely be helping your investment in IOM.
Many of these frustrated individuals would not dare recommend an Iomega product to a friend but we can help change that. With the unlimited AOL usage kicking in soon, maybe some of our more knowledgeable Fools could spend some time helping out others and spreading some Iomega goodwill.
On another note, last night I went to Computer City. While standing near the Iomega products display, a man and woman walked by. The woman said to the man, "we have that blue thing in our office." Watch out for that "blue thing", its spreading like wildfire.
Only 29 days till Xmas Fools. 11++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:MF Cheeze-Server storage Date: 96-11-27 00:40:36 EST From: JonTara
<<BoyDude goes on to ask what kind of threat this might pose to Iomega, and I am wondering myself how storage online works. For starters, what's a T-1 line? How fast is it? Does it make the process more expensive? Stuff like that.
I'd like someone with some experience with these networks to explain how they work to someone who has never used them as a storage medium. Bottom line is, would someone using it wish he had a Zip? Or are all of us Iomegaheads too dumb to know what we're missing?>>
OK, here goes. The rare post from me that could somehow, remotely be considered in some kind of minimal bullish light. :)
Apples and oranges. A silly comparison and network storage is certainly no threat to Zip.
A T-1 operates at 1.5Mb/sec - that's megabit/sec. Or, about 187,500 characters/second.
Most small local ISPs use a T-1 to connect to the Internet. Even if you had a T-1 in your hose, the notion of replacing a Zip or a hard drive (what the NC people are really after) is laughable. A *slow* hard drive nowadays runs about 10 times faster than a T-1.
Now, things even-up a little bit when you get to cable modems. A cable modem is about 7 times as fast as a T-1, but still a bit slower than a mid-range hard disk. And you are sharing it with a lot of your neighbors.
Things change drastically when you get to a LAN, like you have within most companies that operate in a single building. LANs typically operate at 10Mb/sec (about the same speed as a cable modem) and newer ones now operate at 100Mb/sec - fast enough to keep up with any hard disk. There are many reasons why a company might prefer to use a single "disk farm" rather than individual disks on people's desks (archiving, control, reliability) and I suspect that this is actually the environment where NCs might get their first widespread acceptance. (Or not - the concept has not been embraced by IS professionals.)
For the individual consumer, though, the closest we are likely to get to this central storage scenario is using a server at our ISP as a repository of data that we might frequently access from different locations. Of course, some people do that now - using things like FTP. NCs will make this easier, and, in fact, some features that are coming up in new Netscape and Microsoft products will make central server storage much easier to use from the desktop.
But think of it more as replacing a floppy, for now, than for replacing a hard disk or a Zip. A small floppy.
Note that this certainly isn't the only solution to "the problem" (if, indeed there really is one that needs to be solved...) Competing technologies include wireless access (also to a server, though), docking stations and IR wireless (for transferring stuff from your PC to a PDA or notebook computer) etc. And, of course Zip disks.
The one thing that central storage doe seem to have going for it is (potentially) universality. If your data is "spinning" on some server, you can (potentially) get to it from your home computer, a kiosk at the airport, through a cellular modem on your PDA or notebook computer, or on new phones that have a graphical LCD display (already being made). Try plugging a Zip into a telephone.
(Oh, geez, please, don't even start. I can hear the spreadsheet grinding even now. :) ) 12++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:.18/6.5/25% Pkeeler Date: 96-11-27 00:58:58 EST From: Skichang
Pkeeler,
Few comments here:
1. it is true from 2 qtr 96 to 3 qtr 96, it showed only 9.32% sales growth. However, if you add the ZIP rebate and Jaz price reduction into 3 qtr 96, you can get the true sales growth rate. I believe that will be between 20% to 25% from 2 qtr and the rebate and price reduction was from the end of 2 qtr.
2. your calculation about the 4 qtr revenue required to achieve 0.18 EPS was incorrect. If you can follow my calculation, Lets say if gross margin improve to 28% which I believe it can, IOM will need 391M sales to get 0.18 EPS for 4 qtr.
I am not going to estimate what is 4 qtrs revenue. I am only stating how much it will take to get $0.18 EPS.
Your assumption is wrong for 4 qtr 96 and it is wrong for 1997. Please redo your math. I will be happy to assist you. E-mail me.
Why don't we let the analysts do the math, I believe their estimate will not off too much. Let's focus on "USER AND PRODUCTS".
3Q-96 4Q-96 Sales 310,085 391,000 Cost -228,424 -281,520
Gross Margin 81,661 (26.34%) 109,480 (28.00%)
GEN EXP 50,323 57,871 R&D 10,475 11,523 PRE-TAX INCOME 20,863 40,086
INTEREST EXP 71 0 INC TAX -8,168 -15,634 NET INCOME 12,766 24,452 EPS 0.09 0.18 SHARE O/S 137M 13++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Zip penetration Date: 96-11-27 02:59:41 EST From: Arentz65
I was looking at Web sites and found this info and thought it should be posted. I have seen people suggest that Zip inclusion is not very high. I disagree and i think the numbers below show why. ea *****
Packard Bell has two series of computers. The Multimedia series and the Platinum series(which includes 3 Platinum Pro's).
Packard Bell Multimedia series = 10 total with Zip included in 1 = 10% Packard Bell Platinum series = 9 total with Zip included in 3 = 33% All Packard Bell models = 19 total with Zip included in 4 = 21%
NEC has 28 desktop systems In various series. Zip Is included in 7 = 25%
HP Pavilion 7000 models, 11 total with Zip included in 2= 18% If you add the 2 Pavilion 5000 series computers that don't include zips the percentage is 15%. I did not count the HP business machines(no zip penetration yet).
So the penetration rates are: Packard Bell = 21%. NEC = 25% HP's home machines = 15%
For a device that was released less than 2 years ago I think these are very high penetration levels. As far as i know no other technology has ever been added to computers this quickly.
End Report. Posts covered through 3 am ET 11/27/96. _______________________________
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