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Iomega was down $1 3/8 Monday, closing at $16 (-7.91%). TODAY'S RECAP: An important announcement from Iomega headquarters had the IOM board spinning Monday. Highlights from Iomega's press release: Iomega will lay off between 500-700 workers from its manufacturing facilities in Roy, Utah. The significance of these developments, as you may well expect, is under close examination in our forum. Some see the moves as consistent with Iomega's long-stated plans to reduce the costs of production over time; others are interpreting them as a sign of slackening demand. Many contributors, bull and bear alike, offered expressions of sympathy for the displaced workers. AOL members can find Iomega's complete press release, along with related stories, at Keyword: Market News. PROGRAMMING NOTE: If there was something you wanted to get done in 1996, you'd better get busy. Tomorrow, ~Iomega in Fooldom Today~ takes the day off to celebrate New Year's. We'll be back with our first report of 1997 on Thursday, January 2nd. 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 ETurkey seeks explanations for questions raised by the latest
announcements. 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 12/30/96. |
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1++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: The News Release Date: 96-12-30 17:36:28 EST From: MF ETurkey
First: Wasn't that European HQ just opened a year or two ago? If so, then the vaunted long-term planning of top management hit a glitch.
Second: I see in the release that Roy will no longer be making drives...meaning there is no North American manufacturing at all. That looks odd to me...I thought they were gearing up for manufacturing in Roy, in Belgium (Sentinel) and in Asia, to cover much of the world. I'm not sure I understand this type of consolidation at all. Are they putting all their productions eggs in one basket?
My sympathies to the Roy workers who may be reading all this who may be out of a job shortly.
Eric 2++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Lay-offs Date: 96-12-30 18:44:24 EST From: JKnuth5871
It's sad to see american workers lose their jobs, without a doubt. Bearish possibilities are : lowered growth in demand for zip, jaz,etc. Bullish possibility: Matsushita may be producing zip in the first quarter at a higher rate than previously anticipated, with attendant lower costs. I don't see zip in the majority of boxes unless it's less than $ 50, and this is one step in that direction. Is it reasonable to believe that the unit cost of zip will be reduced by $12-$14 just by moving production overseas? That amounts to a cost savings of 15-20%,or thereabouts on the internals.
Jim Knuth
My sympathy to those in Roy. 3++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:The News Release Date: 96-12-30 19:39:53 EST From: John126
<<Second: I see in the release that Roy will no longer be making drives...meaning there is no North American manufacturing at all. That looks odd to me...I thought they were gearing up for manufacturing in Roy, in Belgium (Sentinel) and in Asia, to cover much of the world. I'm not sure I understand this type of consolidation at all. Are they putting all their productions eggs in one basket?>>
I disagree. Asia ramped up faster and the responsibility of management was to make products meeting demand at the most cost effective location. They will still have idle capacity, their most expensive to operate, in the US which will be brought back with future demand.
<<First: Wasn't that European HQ just opened a year or two ago? If so, then the vaunted long-term planning of top management hit a glitch.>>
I expect this is a small part of the writeoff and when moving into a new market you must be flexible. At least they responded. 4++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Production Date: 96-12-30 19:49:47 EST From: MF PKeeler
Iomega is continuing to shuffle production. What I found lacking in the press release was disk production in Roy. I always thought disks were made in Roy and at MegaMedia. I guess either Sentinel is nearly online to make disks, Megamedia can handle present worldwide demand, or Roy disk production has been outsourced. What was the name of that small California floppy making outfit that will make Zip disks? Explains why such a small player was contracted. Maybe they are making "prototype" n-hand disks. I know Zip and n-hand share a lot of circuitry, but how similar is the automated production equipment? There's a question I'd like to know the answer too.
KE should take all the employees they are going to lay off and sit them in front of a tech support phone ;-)
There's been much discussion of OEM component sourcing here and in the media. Conventional wisdom says an OEM wants 3 sources of component production. My old thinking was that, for Zip drives, it would be Roy (although small), Penang (formerly Seiko-Epson), and MCI. After they shut down Roy, they will have Penang and MCI (1 day left in 4th quarter guys). There are possibilities: OEMs don't really care, Iomega is keeping S-E's Philippine operation in place and ramping Penang, MCI will have two manufacturing locations, or there is a new Zip drive source that has not been announced.
The goings on in Europe since 2nd Qtr conference call have been dramatic. KE was not kidding when he said they'd shake things up. Anecdotal evidence from Usenet postings seems to show that European supply has greatly improved. Europe might be where all the broad based advertising has gone. All those Zip commercials Fools wanted on NBC might be playing on the BBC ;-) RobinBen1, can you check European and Asian advertising levels?
MF PKeeler Patrick Keeler 5++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Various Stuff Date: 96-12-30 20:19:56 EST From: MF ETurkey
First: Congrats to PKeeler ( or sympathies, depending on your viewpoint)
Second: I wrote:
<<<I see in the release that Roy will no longer be making drives...meaning there is no North American manufacturing at all. That looks odd to me...I thought they were gearing up for manufacturing in Roy, in Belgium (Sentinel) and in Asia, to cover much of the world.<<
And a response came back saying. . .<<<I agree with MF ETurkey where he notes [above]<<< I am all for reducing manufacturing costs, but I read this release as an indication that IOM is reducing production from original plans. Not a good sign for this long term holder.>>>
Whoa. I didn't say I thought there would be reduced production, but I did say that management changed their plans. According to an AP story now out, that is exactly what happened. It says in, in discussing the new plant. .
<<<Iomega paid $28 million for the plant in Penang, Malaysia, in July. At the time, Iomega chief executive Kim Edwards said the plant was meant to augment manufacturing in Utah, not replace it. ``This is simply part of our overall global plan to establish manufacturing sites around the world,'' Edwards said at the time, attempting to allay fears the Roy manufacturing plant would be closed.>>>
So, it seems that there has in fact been a change in plans. I don't know if that is either good or bad, only time will tell, but it is a change nonetheless in long term strategy to have plants in different regions of the world.
Third: A week or so ago there was an article in the New York Times on Malaysia and the rapid industrialization of the company, much of it hi-tech, as it starts to go head-to-head with Singapore. I don't know if it is available anymore on the Web, but it was insightful on the subject that we are dealing with today.
Eric 6++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:EPS Date: 96-12-30 23:14:21 EST From: HYPEMENOT
<<< From: Hooligan70
Here are some numbers. Go get em boys and girls
4th Qtr EST Rev=$410 mil
$410 mil x 25% net margins=$102.5 mil
$10 mil/$102.5 mil=9.7% >>>
---------------------------------------------------------------------------------------------------- Hooligan70,
Sorry to have to inform you of the flaw in your analysis, but unless you inadvertently mixed up IO's Gross Margin, with its Net margin, you haven't got a clue as to what this Company's profitability really is. In the last September quarter Iomega had a net after-tax margin of 4.1%. Since I don't have all their numbers in front of me, but I do recall their Mgt. saying in the Q3 conference call that their tax rate was 39%, that would indicate that their pre-tax net margin was between 6.7%-6.8%. If you apply that to your exercise above you get the following.
4th Qtr. Est Revenue = $410 mil.
$410 mil. X 6.75% = $27.675 mil.
$10 mil.(pretax charge) / $27.675(pretax earns) = 36.1%
The above numbers are intended only to illustrate the math. I think it is likely that IO will have a meaningful increase in pre-tax margin from the depressed level of Q3, and (assuming the channel checks reported on this board are accurate) will exceed the $410 million you used for total revenue. My guess is that the following is a more reasonable representation.
4th Qtr. Est. Revenue = $425 mil.
$425 mil. X 8.5% = $36.125 mil.
$10 mil.(pretax charge) / $ 36.125 mil.(pretax earns.) = 27.7%
Incidentally, if these numbers turned out to an accurate prediction they would produce (after applying a 39% tax rate and dividing by approx. 137 mill. fully diluted shares)
After-tax Earnings of $22.036 mill. or $ 0.161 a share (before special charge)
After-tax Earnings of $15.936 mill. or $ 0.116 a share (after $10 mill. charge)
Again, let me emphasize that the numbers I inserted for revenue and pre-tax margin are nothing more than my own personal guesses.
HYPEMENOT 7++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Products and Markets Date: 96-12-30 23:41:11 EST From: MF PKeeler
I think there is a misconception about Iomega and its products. To the casual observer Iomega is the Zip drive. Maybe the observer knows about Jaz and Ditto but consider them minor (which Jaz currently is and Ditto always will be). Here is what I perceive as their thinking: "The Zip drive is 2 years old. How many technology products last two years? Its go to be obsolete soon, competition is coming from all directions. Iomega has announced some new product but it won't be out until late 1997. In fact, its last new product was the Jaz in February 1996."
IMO, this is a misrepresentation. Iomega adds to this though by not taking the time to educate Wall Street. Iomega has three broad product categories Zip, Jaz, and Ditto. In 1995 Iomega had the Zip portable SCSI, Zip portable PP, Ditto 420, Ditto Easy 800, 5.25" SCSI Insider. All products targeted at the mass market and to some extent the professional and laptop (few other choices) market. Only the SCSI Insider targeted the OEM market (inside Power Computing computers) in a small way.
In 1996 Iomega introduced the following new products: IDE Zip, 3.5" SCSI Insider Zip, Jaz Insider, Jaz Portable, Ditto 3200, Ditto 2 GB. The Ditto 2 GB is the only product directed at the mass market (as PP and SCSI portable Zips were still dominant). The 3.5" scsi insider Zip and IDE Zip were first products developed by Iomega for OEM market. SCSI Insider also released in volume at end of year. The Jaz drive was targeted at the professional (power user) market. At the end of 1996 Iomega is #1 in every removable storage market (not counting 3.5" hdd floppy) except laptops and flash memory.
In early 1997 Iomega will be selling 15 mm then 12.7 mm Zips for laptops. By the end of 1997 Iomega will be selling n-hand as micro form factor removable storage to be used in place of flash memory.
Iomega has real competition and vaporware competition in all of these markets except the external Zip market (which is currently the biggest). However, no company competes with Iomega in every market that Iomega is in. Nor does any company compete in any three markets.
To summarize the market, product and the competition as best I understand it:
Mass Market Tape Drives: Ditto 2 GB, Ditto 800 (competition: Seagate and HP) Mass Market Removable Storage: Zip drive (competition: none) Mass Market Micro Storage: n-hand in late 1997 (competition: none, so far) Mass Market Laptop Removable: Slim Zip 2/97 (competition: LS-120?)
Pro-sumer market Tape Drive: Ditto 3200 (Comp: HP and Seagate) Pro-sumer market Removable: Jaz drive (competition: SyQuest, Nomai, PD/CD) Pro-Sumer Micro Storage: n-hand in late 1997 (comp: Sandisk, MKE, SSFD) Pro-sumer Laptop Removable: slim Zip 2/97 (comp: PCMCIA hard drives, PD/CD)
OEM Market Tape Drive: Ditto 800, 3200 (comp: HP) OEM Market Removable storage: IDE/SCSI Insider (comp: LS-120, PD/CD, Mitsumi UHC?)
Iomega has the dominant market share in 4 of 10 of the above and major market share in 6 of 10. They are trying to be #1 in all 10 by the end of 1997. IMO, they have a shot.
MF PKeeler Patrick Keeler 8++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:when to expense Date: 96-12-30 23:43:14 EST From: MF Jeanie
CayugaDan asks:
<<For the CPA types:
Under what circumstances can a company take a one time expense a year before the expenses are accrued? This is what they're doing, right?
-Dan Heck I'd love to expense any part of my '97 expenses this year!>>
Well, I'm obviously no CPA, Dan... but I recall every year in December, the bean counters would come down to the marketing dept and ask me what big expenses I had contracted for in the new year that they could expense to the closing year. They were always particularly anxious for these expenses when we had had a gangbusters year.
Since advertising, printing and production works on such a long lead time. . . I could usually produce several large contracts and irrevocable commitments to satisfy the tax gurus who then did whatever it is tax people do.
Bottom line is, we were a private company trying to reduce the taxable profits. . . but I suppose the same principle could work for a public company who can "afford" to reduce earnings?
Jeanie 9++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: $10 Million charge Date: 96-12-30 23:44:24 EST From: Brian COG
As a CPA turned Executive, I can tell you there are two times that management is sorely tempted to accelerate the recognition of a non-recurring charge: 1) When they are about to come out with a blow-out quarter, and 2) When they are about to come out with an OOPS quarter.
All channel check information would indicate the quarter's sales were very strong, so you may draw your own conclusions. See you tomorrow at the opening bell for the last gasp of tax motivated selling.
Brian 10++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Still .16 for 4 quarter? Date: 96-12-31 00:01:04 EST From: MF PKeeler
>>> From: STEVEW1449
Even with 10 million write off (.05)? Or, will analysts LOWER estimates once again?
--Lost and confused. <<<
I think we are right where we were going into 3Q96 eps announcement. Analysts will lower their estimates but by how much? Just as in September, if analysts lower to a number that is still above Street expectations that will be very bullish. For example: if the bears think Iomega will do $0.14 this quarter (although hypemenot thinks they're booking $425 MM in revenue ;-) ), and JPM and H&Q lower to $0.13, than that implies a pre-charge number of $0.17-$0.18. Beating old estimates and trouncing the Street's "whisper" number of $0.14.
I'm expecting analysts to lower, but how much will be interesting. If JPM were to lower more than $0.05 (i.e. lower than $0.11) they would need a bearish reason. If they lowered more than $0.05 and cited slow sales or currency problems then IOM could really get to be a bargain. ;-(
I don't think they have the guts, or information, to leave estimates at $0.16. They will lower.
MF PKeeler Patrick Keeler
P.S. "Lost and confused" is not a good sign, hope I helped. 11++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Important AP Quotes Date: 96-12-31 01:00:03 EST From: SHERRMEYER
Here are some selected Quotes from the AP story found in Industry News section(Technology)
<<Snip>> By KRISTEN MOULTON AP Business Writer SALT LAKE CITY -- Iomega Corp. plans to shift manufacturing of its portable computer disk drives to a plant in Malaysia, eliminating 500-700 jobs at its Roy, Utah, plant.
Iomega, a leader in portable data storage units, said Monday that the move will help the company keep its costs down and thus, prices low for consumers in the competitive market.
<<Snip>> The production and packaging employees at Roy were told that they'll lose their jobs beginning in March.
<<Snip>> The company employed 1,900 in Roy in November, including the jobs that will be eliminated. Worldwide, the company had 2,800 employees, up more than 1,000 from the previous year as demand for Iomega's disk drives soared.
<<snip>> ``Malaysia is where most of the components for disk drives are made. A majority of our suppliers are there,'' Maloy said. The company will save on shipping costs by making the move.
<<snip>> Iomega paid $28 million for the plant in Penang, Malaysia, in July. At the time, Iomega chief executive Kim Edwards said the plant was meant to augment manufacturing in Utah, not replace it.
``This is simply part of our overall global plan to establish manufacturing sites around the world,'' Edwards said at the time, attempting to allay fears the Roy manufacturing plant would be closed.
On Monday, the company said it was able to bring the Penang plant on-line more quickly than expected.
<<snipp>> The company made the announcement Monday because it intends to take a one-time pre-tax charge of $10 million in the fourth quarter ending Tuesday. The efse their jobs are still being made, but the number should be between 500 and 700. The only manufacturing left in Roy will be on prototypes the company develops, he said.
<<snipp>> Many of those who will lose their jobs were hired after new management began turning the company around in 1994, bringing some of the hottest new computer peripherals to the market this decade.
Iomega's fortunes have soared since the new disk drives were introduced in 1995, with sales rising from $141.4 million in 1994 to more than $1 billion this year.
Analyst Joseph Besecker of Emerald Research said that while Iomega's decision is hard on employees, it was the right business move.
``It's kind of like if you're going to make movies, you gotta be in Hollywood. If you're going to make electronic components, you gotta be in the Near East,'' Besecker said.
``They need to drive costs out of their product line, or there will be no product line. This was a decision they had to make to remain competitive,'' he said.
<<snip>>
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Hey fools, I especially love this one particular Quote from the article:
"The company made the announcement Monday because it intends to take a one-time pre-tax charge of $10 million in the fourth quarter ending Tuesday. The effect on earnings will be ``negligible,'' one analyst said. " 12++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:The News Release Date: 96-12-31 01:19:55 EST From: JBK13
JJKozub states << I assume that you know the production capacity of the Panang plant to be no greater than at present.>> Nope, I sure don't. But that is not what I said. My post was merely stating the obvious -- that is, that IOM is cutting production from what it is capable of. The maximum Penang production is a fixed number, however large that may be or is going to be. That amount was a given when the plant was purchased (unless of course some revolutionary steps were taken to speed up production between then and now that was not assumed at the time of purchase). At that time IOM indicated it was going to be producing in three locations as MF ETurkey mentioned. Now, with Penang coming (hopefully) to full tilt, IOM could produce still more product at Roy. It is choosing not to. Likewise, IOM could have produced more, if it continued its relationship with Seagate. It chose not to. That is not to say production is decreasing, just that it is not going to be as high as it could have been. To me, that means sales (or projected sales) are not living up to extreme optimistic projections. Hopefully, the assumed reduced cost of production will make up for that. I still don't see much good news in the announcement for what has been, to date, a phenomenal growth company . I hope I am proved wrong.
JBKelly
PS -- has MSFT ever laid off anyone from Redmond?
End Report. Posts covered through 3 am ET 12/31/96.
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