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Thursday, October 09, 1997 Wednesday, Iomega closed at $25 1/8, up $2 3/16 (+9.54%). TODAY'S RECAP: Iomega's stock price rebounded significantly yesterday, and the board had no shortage of discussion about it and what it possibly means for the upcoming Oct. 16th earnings announcement. Topics covered yesterday include more analysis of the Malaysian currency situation, the potential 200MB Zip disk/drive, and SyQuest and OR Tech. as competitors. Enjoy! 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++ HYPEMENOT fine-tunes thoughts on the Malaysian currency troubles and
the impact on Iomega.
Recap written by TMF Weekly; posts
compiled by TMF Weekly. 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 9:01pm ET 10/7/97. 1+++++++++++++++++++++++++++
Subject: Re: The decline in IOM << I don't follow the logic of "Malaysia Problems" being the culprit. Currency related problems in Malaysia have no impact on a company that manufactures there; a company would only have problems if it was attempting to sell into Malaysia. If anything, there might be a slight positive to companies producing in Malaysia because the wages you pay are converted from US Dollars to the local currency - which is devalued which means it takes less of your Dollars to make the payroll. >> Walter, Two things about my earlier post re the currency turmoil in the Far East. First, I should have been more careful in wording it since, while I think the currency turmoil is, very likely, being interpreted by the market as a negative, I do not think that this development alone accounts for the 6+ point decline in IOM from its near term peak on 9/8. Second, I agree with you about the potential near term "plus" of a devalued ringit (?) being translated into fewer dollars (thereby cutting the "dollar" cost of producing the Zip in Malaysia). But that is only one (although the most immediate) possible effect. I'm far from an expert on such matters, but currencies don't usually decline a quick 30%, especially when the policy of the country in question has been to keep their currency constant in dollar terms, without their being some fundamental underlying distortion/problem. So all I am saying is that can (and, IMO, probably has) add a level of uncertainty in the mind's of professional investment managers that has little or nothing to do with how Iomega is currently executing its business plan. I certainly could be wrong in my judgement about this, and beyond that, subsequent events could prove such concerns to be unfounded. But, I would not dismiss lightly what has happened to Malaysia's currency over the past month or so. It could turn out to be of little consequence, but the history of such events suggests that caution is an appropriate investor response. 2+++++++++++++++++++++++++++
Subject: Re: How about a SYQT legal defense fund! From the Reuters story on Syquest: <<``They're causing us to spend money on our defense,'' he said. ``We've got it (the costs of the defense) all planned out.'' >> What Mr. Marinaro is talking about is something that has become very common in big litigation. Syquest certainly had its attorneys prepare a budget setting forth the anticipated defense costs. However (and I speak here from experience) ... There is nothing more unpredictable than litigation costs -- and they are never lower than you expected. There are often more documents to review than you anticipated, and they take longer to select, index, computerize and review. You learn of witnesses you didn't know about, and they need to be interviewed and/or deposed. Your experts charge you more money than you expected, and what do you do, fire them? You can't or you lose the case. New issues arise, and you need new witnesses and experts to cover them. Your opponent names expert witnesses that you didn't expect, and you must find experts of your own to counter their testimony. Depositions last longer than you thought. The other side is not as cooperative in discovery as you hoped, and you must write, file, and argue motions to compel. Force your attorneys to stick to the budget, and that is a sure ticket to disaster. But if you go beyond the budget, you have to find a way to pay the money. And don't forget this. If you are the defendant, like Syquest, and you win the lawsuit, you will still never get your attorneys fees back. 3+++++++++++++++++++++++++++
Subject: Re: The decline in IOM << I'm far from an expert on such matters, but currencies don't usually decline a quick 30%, especially when the policy of the country in question has been to keep their currency constant in dollar terms, without their being some fundamental underlying distortion/problem. >> Currencies frequently devalue 30% and more worldwide. Some notables in the past 30 years include most Central and South American countries, Israel, many African countries and Russia. I don't know what you mean by constant in dollar terms, but most countries in the world peg their valuation to the US dollar, which in turn is pegged to productivity. If a nation's currency is devalued.... and a US company manufactures product there.... it is generally a plus for the company. The devaluation, by definition, reduces the cost of labor, facilities and most domestically provided materials to the rest of the world. The only thing that can negatively affect the windfall are cost of imported raw materials and political events. Otherwise..... a 30% devaluation is beneficial to outside manufacturers. So, in basic terms, a 30% devaluation of the ringit is very favorable to the IOM Malaysian facility, and makes products manufactured in Malaysia more saleable to the rest of the world. 4+++++++++++++++++++++++++++
Subject: Re: This article scary The following is a series of distracted ramblings prompted by the days "news"; <<[SyQuest] wants to move beyond traditional niche markets to boost revenue.>> Actually this is a good move. Iomega has kicked their butts out of their traditional market and left them the scraps.I greeted the news of the sales to China with a razzberry, but it was a decent move by a desperate company. On another note, Is it my misperception, or does OR Technology consistently come up with a series of important sounding releases around IOM earnings time? I still think that part of the Imation - OR Tech strategy is to blunt the stock price of IOM... preempting any acquisitions using stock by IOM. These releases remind us that OR and Imation intend to be players. They have forged some good looking alliances; and someone has to be bankrolling the R&D. Ask yourself why the LS-120 can get the cost benefits of a massive ramp.... without huge sales. Somebodies R&D department with deep pockets is sinking some bucks into this, and I think IMN's balance sheet is showing the most strain. The problem with this strategy is that Imation and OR Tech need to win within the next year or they are busted. Or they need to beg for more money to throw down a rathole. I feel the Slim Line drive represents the greatest roadblock to total dominance by IOM of all the competition. IOM needs to be first to market, or the issue of what is to be standard gets cloudy. Laptop Slimline sales would push external sales and open doors into the desktop; doors IOM needs to slam shut now. 5+++++++++++++++++++++++++++
Subject: Re: The decline in IOM Just a lurker putting in my two cents. I don't have the facts in front of me, but I do recall reading a release from Seagate a couple of months ago concerning the currency problem in Malaysia. I believe it basically said the problem was caused by Tailand releasing a tie of its currency to the dollar. This tie had been causing the Tai currency to become increasingly overvalued, I'm not sure of the reasons they gave for this, (I'm an engineer, not an economist, thank God!). The other Southeast Asia currencies reacted as well due to their close financial links, and due to the reaction of currency traders. This could explain the relative quickness in the devaluation. I believe it was as bad as 3.35 ringit per dollar today, compared to about 2.5 to 1 about six months ago. Seagate was concerned with a drop in sales in the region, due to the economic weakness, since SE Asia is one of its stronger markets. I don't know about Iomega's market there, maybe someone can supply this info. By the way, I was recently in Penang, and although the smoke is fairly severe and annoying, it certainly (IMO) will have no effect on production. It was not significantly affecting production for the company I was representing. But I can say with no reservations that Penang is still a long shot from being the next Silicon Valley. Headaches are common for hightech production facilities, a few of which include, unskilled uneducated engineers and technicians, unstable power, poor infrastructure in general, and high competition for labor, to name a few. In short, I believe there are plenty of other hazards besides the smoke issue much more worthy of concern. Of course there are many strong points to Penang as well, (considering the amount of recent industrialization, you can bet they are significant), but I was only commenting on the relative insignificance of the smoke issue. FWIW. 6+++++++++++++++++++++++++++
Subject: More GOOD news/MUSIC Dear fellow Iomegans, everyone wants to talk about the stock price dropping, but I want to talk about "real" good news. Another company, this time Akai (last time it was Roland) has come out with a new machine called the Akai DPS12 Digital Personal Studio that uses an internal Jaz drive. The whole unit sells for $1349 (digital recorder and all) and I bet will sell like hotcakes. More jaz drives, more jaz disks, why would anyone not believe this comany is going to make alot of money? 7+++++++++++++++++++++++++++
Subject: Re: 200MB Zip is coming? << Even though a 200MB version wouldn't sell for double the retail price, it might well produce much more than twice the profits per disk. For example, say a 100MB disk costs $3.50 and sells for a avg. wholesale price of $8 while a 200Mb disk costs $4.50 and sells for an avg wholesale price of $15. This gives $11.50 of profit vs $4.50. >> Brilliant post, Bob. Mostly everyone,IMO, has been thinking that increasing the capacity of the ZIp and Jaz would leading to lower profits because most people would be using less disks or cartridges. Not knowing enough about production costs of these disks and cartridges, I look to others who have this expertise. Instead of possibly lowering earnings based on your assumptions or analysis, the opposite would be true. Namely a susbtantial in crease in profits. Any others here who have manufacturing knowledge can comment on this issue? This is a real thought provoker. Thanks Bob. 8+++++++++++++++++++++++++++
Subject: Re: 200MB Zip is coming? I posted: << say a 100MB disk costs $3.50 and sells for a avg. wholesale price of $8 while a 200Mb disk costs $4.50 and sells for an avg wholesale price of $15. This gives $11.50 of profit vs $4.50. >> Nick posts: << Very interesting thought, Bob. Mostly everyone,IMO, has been thinking that doubling the capacity of the drive whether it would be Zip or Jaz might lower drastically the consumption of the cartridges. Your brilliant supposition may be true for the Zip but maybe less for the Jaz. I don't know enough about manufacturing costs here to have an opinion on it. Great post, Bob!!! >> Thanks for "brilliant" comment. I'll take this opportunity to correct my "not so brilliant" math - the $11.50 profit mentioned above should have been $10.50. Yes, indeed Zip is different than Jaz. The Fuji ATOMM media used in Zip should have essentially the same yield for 25Mb, 100Mb and 200Mb densities. There is a relatively small difference in cost due to formatting and testing the media for a particular capacity. Jaz 2 media is a different story, as I understand it, HMTT is producing new media for Jaz 2 that has a new learning curve and probably lower yields than the original Jaz. I had expected IOM to charge a larger premium for Jaz 2 carts, so perhaps the costs are more favorable than I originally thought. As usual, FWIW, 9+++++++++++++++++++++++++++
Subject: Ditto Max Just advertised in PC CONNECTION Ditto max tape drive. 199.95 for internal version. This item is going to sell fast. Store up to 10 megs of data with back up speeds of 36mb/min. tapes range from 19.95 for 3 meg tape to 34.95 for a 10 meg tape. There are some downfalls from this. Will Jazz no longer be bought for back ups? what do you think? All and all this will be a hot item for any person or small business which require daily back up. 10++++++++++++++++++++++++++
Subject: Re: Howard Stern = $$$$ << I think the money SyQuest will spend on advertising on Howard Stern is well spent. Ask anyone and they will tell you much of Snapples success in the early years is without a dout attributed to their advertising on Howard's show. >> Stern was very responsible for Snapple's success, no doubt. However, Snapple commercials were done live while the SyJet commercials are not done live or even by Stern. The SyJet commercial, the two times I've heard it so far, has run in the middle of other commercials and has not been very easily recognized. The commercial is about a guy who doesn't want to carry stuff around on a laptop between East and West Coast offices. SyQuest recommends he put a SyJet in each location. Argument would work for Jaz also. BTW, Stern has owned a Zip drive for 2 years. A couple of times he has discussed it on the air as a way of exchanging files with his staff if I remember correctly. SyQuest originally thought they could beat the Zip with a faster drive. Then they thought it had to be in a loud box (those EZ-135 boxes were ugly). Then they thought the drive had to be connected to the parallel port. Then they decided they needed a drive that would at least let them only lose a few dollars per sale and not a hundred. Then they decided they needed a bigger capacity drive. Now they need expanded advertising... It would be laughable if IOM the stock really would react in any way to news about competition. How many times can you cry wolf on that topic? Patrick Keeler 11++++++++++++++++++++++++++
Subject: Re: Howard & Rush You are correct Scott. You should be highly commended for remembering this Rush Limbaugh Iomega fact. It seems just yesterday. I also distinctly recall that shortly after he received his first Iomega Zip from a Motley Fool member, Rush then began to tout Iomega's. Jaz, Ditto and Zip. Yes indeed, Rush Limbaugh, Howard Stern, Jay Leno and David Letterman have demonstrated Iomega's products several times over the past few years. All these gentlemen have, with much enthusiasm, referred to the Iomega products as being sterling in quality! Thanks again Scott. Have a great evening Sam Russo, Jr. _______________________________ End Report. Posts covered through 9:00pm ET 10/8/97. _______________________________
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