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Tuesday, December 10, 1996 Iomega was down $1/4 Monday, closing at $23 1/4 (-1.06%). TODAY'S RECAP: Some compelling threads that began last weekend have spilled over into this week. Contributors are still wondering about Iomega's commitment to advertising in this busy retail quarter: What is Iomega's strategy? Does the seeming lack of television advertising suggest that there is runaway demand, or is there something more sinister (like a production snag) going on? Could it be that Iomega management has somehow misread demand? And what of those elaborate Point-Of-Sale displays popping up in computer retail outlets? Nobody knows for sure, but that never stopped a Fool from thinking out loud. ~MF DrJimbo~, ~MF Ben~, and ~Hal Rubel~ are among those contributing to this interesting conversation. Also, for all you soap opera fans, the discussion between ~HYPEMENOT~ and ~PKeeler~ is still churning away. Fortunately, this sometimes less-than-civil tete-a-tete has been yielding a great deal of light along with the heat. It's not always pleasant to see these disagreements... But then, hey -- nobody ever said Cyberspace was going to be pretty! 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++MF DrJimbo attempts to draw some conclusions from Iomega's current level
of advertising. As always, the following posts represent the thoughts of our contributors, not those of The Motley Fool. And now, the Best of the Board...Started 3 am ET 12/9/96.
1++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Advertising Date: 96-12-09 12:29:15 EST From: MF DrJimbo
So Ben, I curious as to your interpretation of why the level of Iomega advertising is less than many of us expected. You seem to imply that if advertising has been cut back because of supply, its because Iomega failed to forecast demand correctly. Is that what you think is most likely, or are you just supplying an alternative interpretation?
I see the following alternatives:
1. Iomega doesn't have the supply to meet the increased demand that heavy advertising would bring. While advertising unavailable products might enhance the brand name, its not a good use of cash. If supply is insufficient we have a few alternatives: a. Its such a blow-out retail season that Iomega could not have predicted or prepared for the level of demand b. There are production problems due to a transition between manufacturers (Iomega, Epson, Matsushita) and the company dropped the ball. c. The company could have predicted demand and ramped supply enough, but failed. d. The company actually planned a smooth ramp in manufacturing and is keeping demand where it wants to by adjusting advertising. A ramp to really meet the full potential demand may not have been advisable this year in preparation for next year.
2. Iomega discovered than mass marketing advertising and co-op advertising in store and mail order circulars doesn't increase sales as much as point of sale advertising and store positioning.
3. Iomega doesn't have the cash to pay for the advertising.
Any thoughts? 2++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Advertising Date: 96-12-09 13:07:26 EST From: PKeeler
>>> 2. Iomega discovered than mass marketing advertising and co-op advertising in store and mail order circulars doesn't increase sales as much as point of sale advertising and store positioning. <<<
While outside advertising has been sparse; instore presence has been greatly upgraded. All the big computer stores in Northern New Jersey have Iomega end caps and the interactive packard-bell computers in the most strategic spots. In the Edison CompUSA the Iomega interactive display sits in the main aisle between the software and computers. In the Springfield Computer City the interactive display sits in the middle of all the new computers. In the Parsippany CompUSA the display is right next to the upgrades department in the main entrance aisle.
These locations cannot be cheap. Further, buying all these p-bell computers and display cases couldn't have been cheap. Just the hardware must have cost $1-2 million dollars.
Further, little cardboard cut outs telling people not to forget to buy Zip or Jaz disks are everywhere. Any computer with an internal Zip drive gets completely dressed up in Iomega cardboard. "We've put a little Zip in it" is written on a big arrow that attaches to the computer case and points to the IDE Insider.
PKeeler Patrick Keeler
P.S. Only thing left is for Iomega to hire Christmas singers to sing "Jingle Bells" and hand out Iomega literature or buttons :D 3++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Keeler's Projections - Pt 3 Date: 96-12-09 17:59:13 EST From: HYPEMENOT
PKeeler
Youve really got my head spinning. First, I never said that I hold any particular group of analysts - such as the Wise analysts (as you refer to them) in high esteem. My personal experience has taught me that there are both good and bad analysts at large, prestigious firms as well as at small, relatively unknown firms (and, even out here in cyberspace), so please dont assume that I have some special regard for these so-called Establishment firms.
In your response yesterday to my criticism of the huge differences in your assumptions in two projections made over a 10-day span you state << I never said that either of these models were linked in any way. >>
That is just plain LUDICROUS. Both projections dealt with the same time frame - calendar 1997. The difference was that the first Model attempted to estimate IOs total earnings by projecting volume and profit margins for every major product, while the second applied the same methodology, but focused on just the earnings that would flow from the sale of Zip disks. In analytical terms, the second exercise was simply a SUBSET of the first.
Without explanation, you decided to vastly increase your assumptions about Zip drive unit sales and Zip disk tie ratios, which resulted in a forecast for total Zip disk sales in 1997 of 67.1 million, or 57% higher than the 44 million disks you estimated in your broad-based Model just TEN DAYS EARLIER. And your defense of this is to simply say that the two models (both of which project the exact same item - 1997 Zip disk sales) are NOT LINKED in any way. Well my response is equally simple - they are SUPPOSED to be linked. That is, unless you simply arrive at these so-called assumptions in some whimsical manner. Whatever the methodology, I think readers are entitled to some rational explanation of how you can produce estimates of Zip disk sales which are, by far, the single most important determinant (according to your own data) of IOs earnings, that change by 57% over a 10-day time span!
One thing I can tell you for certain is that, if someone like myself had done a similar exercise, but revised the numbers sharply DOWNWARD, this board would have been flooded with messages demanding that I explain the basis on which I had made such a change.
As for your query about my own expectations for Zip drive and disk sales (and this is where you and I really part company) I wouldnt even attempt to make a public projection (yes, I do regard this board as a public forum) given the virtually complete vacuum of information that has resulted from Iomegas overly restrictive disclosure policy. Until IO decides to provide some useful history regarding the progression of drive and disk sales over several quarters, Ill eliminate the possibility of misleading others by keeping my uninformed guesses to myself.
Also, while were on the subject of making tenuous projections, keep in mind that they rest (precariously in my view) not only on a smattering of occasional facts and vague utterances from IOs management (BTW, KE never said in the Q3 CC that Zip tie ratios had risen - he said they were better than expected), but also on conclusions about competitive products - which you seem to consistently regard with disdain. I truly dislike Monday morning quarterbacking, but wasnt it you who said (emphatically) last Summer that the design of the LS-120 was such that it couldnt be produced in a version thin enough to fit in a notebook? Apart from this specific instance, it strikes me that you regularly find fault with competing products - usually pronouncing them DOA. Maybe Im being unfair, but I suspect these product evaluations are heavily colored both by your enthusiasm for IOs products, and your desire to believe that no other products pose any real competitive threat.
HYPEMENOT 4++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Keeler's Projections - Pt Date: 96-12-09 18:30:44 EST From: PKeeler
In a message dated 96-12-09 18:00:51 EST, you write:
>>> First, I never said that I hold any particular group of analysts - such as the Wise analysts (as you refer to them) in high esteem. <<<
Good to hear. Now if you could just lower yourself to have some fun with us peons...
>>> That is just plain LUDICROUS. Both projections dealt with the same time frame - calendar 1997. The difference was that the first Model attempted to estimate IOs total earnings by projecting volume and profit margins for every major product, while the second applied the same methodology, but focused on just the earnings that would flow from the sale of Zip disks. In analytical terms, the second exercise was simply a SUBSET of the first. <<<
Wrong. They had nothing to do with one another. You are attempting to argue with me over my thoughts, I should know the truth. BTW, 10 days in an eternity on this board :) Maybe one of these days I will post an all-encomposing view of 1997 as I see it. But I wouldn't dare until I understand all the possibilities. The only way for me to learn is to post guesses and get responses and constructive criticisms. That is the purpose of this forum. One problem is that n.hand is a huge unknown.
>>> As for your query about my own expectations for Zip drive and disk sales (and this is where you and I really part company) I wouldnt even attempt to make a public projection <snip> . Until IO decides to provide some useful l history regarding the progression of drive and disk sales over several quarters,<snip> <<<
cough..cough...cop out..cough...cough :)
Lighten up and have some fun. Actually, bigger men than you or I (Kevinfurr for one) have the same policy.
<< Also, while were on the subject of making tenuous projections, keep in mind that they rest (precariously in my view) not only on a smattering of occasional facts and vague utterances from IOs management (BTW, KE never said in the Q3 CC that Zip tie ratios had risen - he said they were better than expected), <<
Better than expected and the ratios had increased AFAIK. I'm sure someone will break this tie (no pun intended :) )
>>> but also on conclusions about competitive products - which you seem to consistently regard with disdain. I truly dislike Monday morning quarterbacking, but wasnt it you who said (emphatically) last Summer that the design of the LS-120 was such that it couldnt be produced in a version thin enough to fit in a notebook? <<<
No, that was Cynicalguy. I might have echoed him but I would hope I would have made that clear. BTW, do we know this to be untrue? Has someone seen a 12.7 mm or 15 mm LS-120? Vaporware fits any size :)
>>> Apart from this specific instance, it strikes me that you regularly find fault with competing products - usually pronouncing them DOA. Maybe Im being unfair, but I suspect these product evaluations are heavily colored both by your enthusiasm for IOs products, and your desire to believe that no other products pose any real competitive threat. >>
So far I've been right. The only competitor that ever worried me was the EZ-135. That's only because I overestimated the computer market's need for performance. Zip conquering the EZ-135 taught me a lot. None of these new competitors can touch the EZ-135 or the Zip.
BTW, by giving the Zip a 65% market share in my latest post I'm saying that market share has been significantly eroded. If the Zip sells 7.5 million units, that leaves 4.5 million units for Swan and the LS-120. Do you see them shipping that many units next year? If DiskTrend gives you the total at over 11,000,000 large capacity floppies, and you can get specific info from OR Tech, Swan, Mitsumi, Matsushita, and/or Compaq about UHC and LS-120 then you can guess Zips right? You (and MF Ben...don't want to single you out) criticize Iomega, but are any of these other companies publishing unit sales in any more detail?
PKeeler Patrick Keeler 5++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Advertising: MF DrJimbo Date: 96-12-09 22:13:16 EST From: MF Ben
<<<So Ben, I curious as to your interpretation of why the level of Iomega advertising is less than many of us expected. You seem to imply that if advertising has been cut back because of supply, its because Iomega failed to forecast demand correctly. Is that what you think is most likely, or are you just supplying an alternative interpretation?>>>>
Actually, I don't believe advertising has been cut back because of supply as I don't believe there is a supply problem. However, I do believe that if people are to make the suggestion that the lack of Zip SKU announcements recently is because of supply, that they should consider that if Iomega does not have the capability to SHIFT supply to the IDE internal model to sufficient levels (i.e. 20% or so) in the 6 months since the IBM OEM discussion, THEN Iomega has a problem.
I don't think that we can blindly say the dearth of new SKUs is a supply problem without looking at the amount of time Iomega has had in order to correct the problem. Even Apple can produce in 6 months.
<<<a. Its such a blow-out retail season that Iomega could not have predicted or prepared for the level of demand>>>
Possible, but I can order from a Mac mail order store and get a Zip tomorrow. Remember April '95 and the 5 week backorders? My point is that if Zips ARE available, then they could have made an IDE internal instead of that external SCSI. Of course they lose the SCSI sale, but Edwards has said that OEMs are of the highest priority (I agree) and even though the internal would be lower revenue/margins, it is definitely a better sale in my book, especially if it allows more SKUs to sign on.
<<<b. There are production problems due to a transition between manufacturers (Iomega, Epson, Matsushita) and the company dropped the ball.>>>
Maybe. Wouldn't be the first time. Iomega had a heck of a time last year with the massive ramp-up as all suppliers could not ramp at the same rate so they had X amount of widgets but not enough of doogles, meaning the drives couldn't be assembled. One part can hold up the whole thing. problem with single-source supply, especially small ones -- hence bye-bye to IMP. Could be. I don't pretend to know but I'll keep it as a possibility.
<<<c. The company could have predicted demand and ramped supply enough, but failed.>>>
Could be too. Hope not. If so, I hope they learned a lesson.
<<<d. The company actually planned a smooth ramp in manufacturing and is keeping demand where it wants to by adjusting advertising. A ramp to really meet the full potential demand may not have been advisable this year in preparation for next year.>>>
Again, you assume that advertising is only to sell product. I disagree. Nintendo 64, as was so beautifully pointed out, is heavily advertising. Advertising also sells brand name equity as well as keeps sales from going to competitors -- something I suspect going on with Nintendo -- when supply is tight.
<<<Iomega discovered than mass marketing advertising and co-op advertising in store and mail order circulars doesn't increase sales as much as point of sale advertising and store positioning.>>>
Again, you are looking at advertising as a single utility tool. Increasing sales is ONLY one aspect of advertising. Intel doesn't really spur sales with their campaigns. What do they do?
My mom doesn't know much about computers but when she buys one she KNOWS she wants "Intel." Why? She has no idea. Is this new? Did people care what chip it was in 1992? Nope. Why do they now?
<<<3. Iomega doesn't have the cash to pay for the advertising.>>>
Uhhh, seen the balance sheet? They have the cash.
Cheers,
Benjamin 6++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Takeover????? Date: 96-12-10 00:16:19 EST From: MCCONATHY
<<<It appears likely that the ZIP/JAZ drives will replace the floppy and that Iomega will eventually (if not already) challenge Seagate's dominance in the high capacity hard disk drive business. Since Seagate has a habit of acquiring its competitors, it would seem to make a lot of sense for them to take the same strategy with Iomega.>>>
I read the above and thought I can't let this pass without a comment.
First, its is hard to replace something like the floppy that has 50 Billion installed (give a take a few billion). We pay about 40 cents for bulk high capacity floppies today. We ship disk utilities on them which is very cost effective. I would hate to think I would have to pay over $10.00 for a removable media cartridge to ship a utility we license for $4.00 or less. The floppy is not dead yet.
Further, all new or updated application software that I have received lately, like Word, Excell, Premiere, After Effects, PageMaker, Photoshop, were shipped on CD-ROM. Makes for very fast installation and to press one these disc might cost the publisher $1.00 or maybe as much as $2.00. Thus how can a removable cartridge replace this cost effective tool unless it is equal or better in price and there is Zillions of the drives installed. A very large percentage of computers have CD-ROM drives. CD is a very cost effective way of distributing data.
As to Seagate. This makes me laugh to think that Iomega is a threat to their high end storage business. By high end I mean 4 GB and up. 1 and 2 GB hard disk drives are commodity. First of all Seagate cannot keep up with the demand for 4 and 9 GB UltraSCSI and soon to be 23 GB hard disk drives. No way is 100 and 1000 MB removable media drives a threat to Seagate's high end business. There is two separate markets for fixed and removable disk storage. Each has its place.
In my opinion, if Seagate considered a buyout it would be for reasons other than Iomega challenging them in the high capacity disk drive market.
And if they did you would see a much tighter run organization with ISO-9000 or 9001 put in place quickly. Seagate has many years of mfg precision drives. I ask the question...why would they not design their own in place of a buy out?
For What Its Worth. Now go ahead and be the first to beat me up. Some of the posts I read tonight remind me of a bunch of gamblers in Vegas who can't leave the table since they just know the next roll or next hand will be the one to bail them out. A long time ago I went to a Vegas night show and this guy did a thing on gamblers. He said wow they would sit there all night even if they knew the dealer had a big hammer and would most likely hit them on the head every so often. He made the crowd laugh because it was true. There is a funny thing about hope...hope took a bunch of poor miners to their death looking for their pot of gold. On the other hand without some hope we have little to live for. 7++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: IOMEGA Advertising Date: 96-12-10 00:39:06 EST From: Hal Rubel
RE: "IOMEGA barely does any advertising as it does not need to do so."
Actually, Iomega does a lot of advertising. Every time you see the Iomega Product, Logo, Price, and Rebate in some computer company's advertisement, Iomega is paying to help underwrite the expense.
This form of advertising is commonly referred to as "Co-op Advertising". Some of those computer product catalogs that clog our mailboxes are entirely underwritten by the manufacturers of the products featured. Some catalog companies may actually be making a profit on a catalog issue before the first customer order even comes in. That's one reason we get so many catalogs.
So, Iomega is paying something for advertising. At least it is going directly to generate sales. I very much agree, though, that the buying public is fully aware of this product, eliminating the need for general advertising.
H. R.
P. S. Good News!! The Christmas selling frenzy at computer retailers begins around this time each year. Peak selling runs from approx. Dec. 10th thru Jan. 15th. Really hot items can account for 40% of annual sales during this period. Zip Drives and Disks are definitly in this category. Do not estimate this Quarter's sales without special noting of store activity during the next few days! Best Wishes.
H. R. 8++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Advertising: MF DrJimbo Date: 96-12-10 01:03:16 EST From: MarkM10073
As long as we're still guessing at the reasons behind the lack of advertising, I'll toss out my own hypothesis:
Iomega is aiming to increase the ratio of OEM drives to aftermarket drives and does not want to undermine the OEM's with ads directed solely to the aftermarket. (Maybe they've learned a few lessons Charles?). After all, there's nothing to keep a consumer from buying a Compaq, for example, and attaching a Zip drive to it. SCSI isn't even as big a problem as it used to be, with more and more boxes coming equipped with SCSI devices. Ads for aftermarket devices could be counterproductive while Iomega is focusing on getting into the SKU's.
Regarding Ben's argument that their advertising should be as much for awareness as unit sales, Iomega has always done a good job of getting their name out without resorting to advertising. I don't know if they've made the Vogue list again, but the Iomega name does keep cropping up in unusual places. As for the stores, the POS displays are everywhere. I'm not sure that more ads would make a big difference.
FWIW,
Mark
End Report. Posts covered through 3 am ET 12/10/96. _______________________________
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