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Tuesday, December 17, 1996 Iomega was down $1 3/4 Monday, closing at $17 (-9.33%). TODAY'S RECAP: The December Malaise continues... Monday was a nasty day for tech stocks in general and Iomega in particular. Sad to say, IOM shares have now surrendered almost 30% of their value since the close of trading on December 4th, and have declined in price without interruption a dismaying eight trading sessions in a row. Bears in our folder are gloating, while many bulls are sounding desperate and angry. Should you summon the courage to enter our forum, for now we suggest that you first read Dante's Inferno, more or less as you would any good travel guide. One small bit of news was released Monday: StorMedia Incorporated (Nasdaq: STMD) "announced that it has been qualified as a supplier for Iomega Corporation's (NYSE: IOM) popular Jaz cartridges," according to a company statement. The complete news release is available to America Online members at Keyword: Market News. 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++JKnuth5871 considers Iomega's gross margins.
And now, the Best of the Board...Started 3 am ET 12/16/96. 1++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Gross margins/ disks Date: 96-12-16 07:32:38 EST From: JKnuth5871
Regarding the influence of one product on gross margins. The influence of high margin disks on gross margin may be quite large. This depends in large part on when or if Matsushita starts taking up production of the drives, and at what percent of total production. Look at the impact of product mix in any situation. If 80% of gross revenue dollars are from 20% margin drives, and only 20% margin from 50% margin disks, gross margin trends towards the higher gross revenue product. ( too obvious). As Matsushita takes up production of drives, gross margin to IOM will be made up of more %wise high margin disks. One of the KEY issues of the next 12 months is the percentage of drives that will be produced by matsushita. At some future point IOM may be getting more gross revenue $$ from disk sales than drive sales, but this is completely dependant on Matsushita production relative to total drive production. To me, this issue seems secondary only to demand for ZIP in the future as THE KEY POINT in iomega's net margin improvement. I am surprised there hasn't been more discussion on this issue, or for that matter other things such as the timing and cost reduction of chip integration, et al.
CAUTION SPECULATION BELOW. 1 drive IOM REV. 119 =100% IOM production 7 disks IOM REV. 60
1 drive IOM REV. 119 with 50% Matsushita production 14 disks IOM REV. 120
END SPECULATION
Admittedly simplistic model, which does not take into account possible lower tie-ratios ( total drives to total disks), or any future price reduction on drives. The key for quarter to quarter gross margin improvement is to look at quarter to quarter tie-ratios.I see no reason why IOM cannot have gross margins in excess of 30% IF AND WHEN WE SEE SIGNIFICANT PARTICIPATION FROM MATSUSHITA. Of course they may use this to drive the installed base of drives by lowering even further the retail price of drives, in fact they probably will have to due to price competition from matsushita. Look at epson zips vs. iomega zips in the marketplace. Even when epson was still a partner, there were significant differences at retail.
Jim Knuth 2++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: LS-120 Ad in PC Week Date: 96-12-16 17:37:35 EST From: CyberVster
LS-120 Ad in PC Week
Finally the competition has placed an ad. Ill describe it, its on page 86-87 (Dec 16th issue) (yes a 2 page spread! Big$$$) Most of the page is black Just off of center is a view from inside an LS-120 slot looking out at the world. A pair of eyes are looking into the slot from the outside. Across the top of the page is the headline "Looks like a floppy drive, feels like a floppy drive, works like a floppy drive." Under that in parentheses if says "(A 120 megabyte floppy drive.)"
The lower right quadrant of the ad has a paragraph of text surrounding a small picture of the LS-120 disk.
The headline of the descriptive paragraph says "LS-120 technology. 120 Megabytes. 3.5" floppy compatible. The paragraph read; "Take a good look at the next PC you buy and make sure its floppy drive has the LS-120 advantage: hassle-free, high capacity storage. Only the LS-120 can give you 120 MB of floppy capacity, higher performance, and the ability to read and write to the 1.44MB and 720K floppies you use all the time. LS-120 is the same simple floppy you already know how to use - just faster and roomier. Its brought to you by a consortium of global leaders which includes Imation (a new company including the former data storage business of 3M), Compaq, Panasonic, Mitsubishi, Maxell, OR Technology, and Exabyte. Its the new standard. No matter how you look at it. Find out more at www.LS120.com or call us at 1-800-888-1889, ext. 4002."
Under this paragraph is a stylized logo LS (circle-pyramid logo) 120.
Across the bottom of the pages is a white band about 1" thick, within the band are the names of the consortium. Compaq, Exabyte, O.R. Technology, Maxell, Mitsubishi, Panasonic, Imation (borne of 3M Innovation)
The ad was placed by Imation according to the index.
My comments, You have to buy a new computer to get this drive! And as far as I know it has to be a Compaq. So, lets say you get one, just where are you going to take that disk to read it? Probably, you will just copy it to your zip so you can be sure others can use it.
Mark How much would you pay for this drive in a new system? 3++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: LS-120 data sheet 1 Date: 96-12-16 20:35:11 EST From: CyberVster
How It Works
The a:drive from OR Technology was designed to replace the floppy disk drive. While its outward appearance is almost indistinguishable from that of its floppy technology counterpart, the a:drive achieves 120MB of storage when used with LS-120 media.
At the same time, the a:drive is downward compatible with current 3.5-inch floppy disk technology. It can read and write to both 720KB and 1.44MB diskettes, providing an upward migration path for millions of personal computer users and the billions of diskettes they own.
As its name indicates, the a:drive can be used as a bootable drive in any system in which it is installed. From the start, OR Technology created the 1-inch high a:drive with this purpose in mind. Extensive development has optimized the device for internal use as an integral system component.
It was designed to be the ideal form, fit and function replacement for the floppy disk drive. The a:drive is an advanced technology product, yet so familiar you already know how to use it.
A Bootable Drive
OR Technology has worked closely with Microsoft Corp. and Compaq Computer Corp. developing standards to enable the operating system, the computer system and the a:drive to work together. Both Windows 95 and Windows NT operating systems have now been updated to recognize the a:drive as a bootable drive in both 120MB and 1.44MB mode. To accomplish this, changes were required to the system BIOS.
In addition, OR Technology has been active in the ATAPI standards committee developing the necessary protocol for devices that read and write. As a result the a:drive is ATAPI compatible and can be attached to the same internal IDE cable the hard disk drive uses.
Unlike alternative technologies, the compact a:drive meets current industry standards established for floppy disk drive and floppy diskette form factors. It can be easily configured for use in standard notebook or desktop PC drive bays.
The low average power consumption of 1.5 watts, wide operating temperature range and the durability of LS-120 media make the a:drive ideal for internal installation.
Now that the internal ATAPI implementation has been completed, the most challenging aspects of development from both a hardware and software perspective have been resolved. Future product generations may be developed for use in external SCSI and parallel port environments with relative ease.
LS-120 technology evolved from conventional floppy, hard disk and CD-ROM technology and uses many of the readily available components found in these products. Like its floppy disk drive predecessor, the technology relies on magnetic data tracks for read/write functions. However, an optical system is used to precisely position a dual gap head and enables 2,490 data tracks per inch (tpi) and 120MB of data storage. In comparison, conventional floppy technology uses 135 tpi for 1.44MB. The dual-gap head allows the LS-120 drive to read and write to conventional floppy diskettes as well as 120MB LS-120 diskettes (The a:drive is also downward compatible with 1.2MB floppy formats from NEC and Toshiba).
In addition to providing higher capacity, the a:drive differs from the common floppy disk drive in other ways. It's faster, smarter, more reliable and, from an OEM perspective, is easier to incorporate because it uses the same cable as the hard disk drive.
Of all these enhancements, the a:drive's precision head positioning system is by far the greatest advancement over current technology. Light, holograms, lenses and mirrors make up this system and provide the information needed to exactly position the head.
The Optic System
At the heart of the optic system is a hologram. Held on the tip of your finger, it looks like a tiny piece of square-shaped glass. It contains a two dimensional image developed from a complex computer optimization program that took into account light efficiency, thermal dynamics and geometry constraints.
A laser diode, just like those found in compact disk drives, provides the light source which illuminates the hologram. As light passes through the hologram, it forms a pattern of six spots. Three of these spots are used to position the head on LS-120 media and three are used to position the head on 720KB or 1.44MB floppy diskettes. Each set of three spots contains two "striped" spots and a single spot without stripes. The striped spots are actually made up of seven individual pin points of light which give the spot a striped appearance.
As light leaves the hologram, a lens focuses the spots. A mirror bounces the light in two directions; up to the surface of an LS-120 disk as it spins parallel to the optic system and down to a photo encoder.
On the media, the seven stripes of light are projected over seven tracks and provide tracking information. The non-striped spot, known as a modulation spot, measures variations in the servo pattern etched on the media so that the intensity of light making up the striped spots can be adjusted on the fly.
The interaction of the spots with the LS-120 media provides the tracking information required to write data accurately on tracks that are 10.2 microns wide. Understanding how the spots and media work together can be aided by taking a closer look at the unique attributes of LS-120 media.
LS-120 Media
The media inside the LS-120 diskette shell is manufactured from a PET (polyethylene terathalate) substrate and uses a dual layer coating of high-density metal particle (MP) for high coercivity. The media is thinner (.0025-inch in comparison to .003-inch) than that found in traditional floppy diskettes and provide better head-to-media contact.
At the factory, one surface of the LS-120 diskette is laser etched with a precise servo pattern. The laser etching is not constant, but intermittent, producing tracks that are "stitched" instead of being continuous stripes. The process creates 900 concentric circles with tracks that vary in length from 43 to 77 microns depending on their location. Shorter tracks are closer to the hub or center of the media while longer tracks reside at its edge. The distance between all tracks is equal regardless of location.
The optical track pitch is 20.4 microns wide including a 2 micron wide laser inscribed marks surrounding magnetic tracks (From track edge to next track edge, measurement begins with a one-micron-wide half stitch, eight microns of data, another two microns of laser mark and another eight micron track bordered by a final half stitch. At this point the period starts all over again). The stitches contain the tracking information while the magnetic tracks contain the data. LS-120 technology optimizes the amount of space where data can be stored unlike alternative technologies that rely on magnetic servo. The laser servo data is written in between the data tracks, in an area that is typically used for guard bands, instead of taking up valuable data space.
As a result, 20 to 30 percent more data can be written using laser servo in comparison to magnetic servo. In addition, the servo information on LS-120 media is indelible. This feature enables users to bulk erase and reformat disks easily for additional use. 4++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Valuation Date: 96-12-16 20:38:31 EST From: SOBurnham
where did you guys ever come with the crazy idea that a hardware manufacturer should trade based on a price-to-sales ratio? some software co.s are valued that way, but I (and every other professional investor) never value a hardware company on any basis other than PE or on a multiple of cash flow. as this co. has no cash flow (duh, just compare the q2 balance sheet to the q3 balance sheet), it therefore has no real eps and is worthless. it probably doesn't trade to zero, but it is grossly overvalued anywhere above single digits. actually, media vision did trade to zero! a great short. 5++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:TV campaign Date: 96-12-16 20:40:19 EST From: MF Jeanie
<<What happened to all those "cool" TV ads you all raved about after the SLC annual meeting ?>>
I have been wondering the same thing. Other than co-op ads (primarily Office Max) I've seen no television spots at all.
Also, I've been looking for that print campaign that was prepared as a multi-page promotional piece at... Chicago Expo, was it? You know, the cool sounding one that showed a series of situations where people interrupted some major moment to ask: "Hey, is that a Zip on your desk?"
Fully expected a national campaign to roll out after the elections -- certainly by Thanksgiving.
Would give anything to share a cup of coffee with Tim Hill and ask him about this. Not interested in his stock options... not interested in KE's wardrobe... but I am interested in why the aborted ad campaign.
Any theories, Fools?
Jeanie 6++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:TV campaign Date: 96-12-16 21:42:29 EST From: MF ETurkey
MF Jeanie writes:
<<<Would give anything to share a cup of coffee with Tim Hill and ask him about this. Not interested in his stock options... not interested in KE's wardrobe... but I am interested in why the aborted ad campaign.
Any theories, Fools?>>>
I'll take a stab at what the thinking may be, though I confess to being VERY interested as to what the real reason is. Here is a theory . . .
In Q1 we see the confluence of two significant events, new Intel processors (which means new SKUs) and new manufacturing from Matsushita for the OEM placement (which means new SKUs)
Iomega, having limited ad dollars to work with, decides to spend a hefty chunk in Q1 instead of the popular Q4, kicking off a big effort at their main target now: OEM inclusion.
Hey, it's a theory.
Eric 7++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:TV campaign Date: 96-12-16 22:07:03 EST From: AJBoese
>>I am interested in why the aborted ad campaign.
Any theories, Fools?
Jeanie<<
This question is bugging me too. I can't think of any good reason why IOM is not flooding the tv channels with advertising. I know they have great ads--so why aren't we seeing them?
Here are some possible theories:
1) They're selling so many zip drives that they don't want/don't need to boost demand right now.
This theory just doesn't make sense to me. Even if they are moving lots of product, they still should be building brand awareness.
2) They are advertising a lot--but mostly in stores, not on tv/radio.
But JP Morgan noted that not as many people are out buying new computers this year, so there are presumably less people in the stores to see all this advertising. Anyway, they still should be trying to get their name out to all those people who don't wander into computer stores all that much.
3) There really is something to that argument about the rebates draining IOM's cash, and they're cutting back on advertising to make up for the revenue lost to rebates.
I don't think we'll know the answer to this one until earnings come out. I sure hope it's not the case.
4) They want to save up money to help launch in a big way all those new products that are coming out in 1997 (n-hand, 200mb zip drives, etc.). Or maybe they're already de-emphasizing the 100mb zips in anticipation of coming out soon with newer, better zip drives (i.e. n-hand compatible ones).
Maybe, though personally I think it would be a mistake to come out with newer, more expensive zip drives any time soon. The zip is a classic. Make it the standard first, then start improving it.
5) Tim Hill hates his job and is going to quit. He's already sold his shares, now he's slowly sabotaging the company from within.
Worth considering. Stranger things have happened.
6) They've decided, based on extensive marketing research, that advertising won't really help their sales much anyway, so why bother.
If this is the case, then they need new marketing researchers.
Well, those are all the theories I can think of now, though none of them really seem to clear up the mystery.
Any other theories out there?
--Alex 8++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:TV campaign Date: 96-12-16 23:13:25 EST From: RobinBen1
MF ETurkey writes:
<<<In Q1 we see the confluence of two significant events, new Intel processors (which means new SKUs) and new manufacturing from Matsushita for the OEM placement (which means new SKUs)
Iomega, having limited ad dollars to work with, decides to spend a hefty chunk in Q1 instead of the popular Q4, kicking off a big effort at their main target now: OEM inclusion.
Hey, it's a theory.>>>
It's probably a pretty good theory. I'm in the middle of compiling ad spending for IOM, but Nov/Dec data isn't available yet. I'll post all the spending in the next couple of days. I work in an advertising agency so this type of data is readily available to us and compiled by Competitive Media Reporting/LNA. The actual dollars are not 100% accurate. Magazine spending is based on one time or open rates and do not reflect any volume discounts. Television spending is based on average industry costs. While costs are not accurate, the when and where usually is.
Here's a topline, by quarter (BTW spending is reflective of both Ditto and Zip):
1Q: $2,143,000 (appox. 25% in magazines, 55% spot tv, 16% national cable tv, 4% newspapers) 2Q: $4,572,200 (approx.67% mags., 21% spot tv, 1% national cable tv, 11% newspapers) 3Q: $2,549,300 (99.9% magazines, a few spots on national cable, BUT newspaper costs not available) Oct.$1,260,700 (national cable and newspaper costs not available, no spot tv spending in Oct, so this is just magazine spending)
My theory:
I agree with MFTurkey, but IOM focused heavily on 1Q as well as 2Q to generate additional awareness and interest among potential OEM's. 3Q and October spending is primarily in print, with heavy emphasis on computer magazines. Thus, targeting existing computer owners. Other than the posters who have mentioned Zip advertising in Holiday Gift Giving Guides in various magazines, has any seen any Full Page ads in November or December magazines?
I'll post more on the spending soon. Too tired to do it now. :)
Robin 9++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Observations--past hx Date: 96-12-17 01:52:03 EST From: MF Jeanie
<<After all, the JPM downgrade and the breakoff with Seagate were pretty mild stuff. >>
Sunraydoc, your remark just reminded me of my conversation today with Howard Kalt (IOM's Investor Relations) when I used the same words "JPM downgrade"... Kalt jumped in with "they did *not* downgrade"... they lowered estimates, but the Buy rec and '97 targets were not downgraded. Semantics, I guess.... but thought it worth passing on to you all :)
As for Seagate "breakoff" -- Kalt explained that Seagate had excess capacity last summer and Iomega needed them until they could get the new plant in Penang up and running. Seagate was intended as a temporary stopgap until IO's "world class plant", as Kalt described it, was ready. That time has come - as of the end of January. Mr. Kalt said that is exactly what he explained to Mr.Greenberg when he called about Seagate, too :)
FWIW,
Jeanie
End Report. Posts covered through 3 am ET 12/1/96. _______________________________
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