|
|
|
|
Monday, October 13, 1997 Friday, Iomega closed at $24 7/8, up $1/2 (+2.05%) THIS WEEKEND'S RECAP: It was rough sailing on the board this weekend. When the storms cleared, most of the issues centered around the upcoming earnings report and the recent rise in SyQuest's stock price. 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++ Benjamin70 does an in-depth analysis of the recent IDC report
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 10/9/97. 1++++++++++++++++++++
Subject: Closer Look at IDC 9/97 Report Message-id: <19971012181901.OAA19863@ladder01.news.aol.com> Widen screen for best view A Closer Look at Industry Numbers IDC's September 1997 report on removable storage indicates a few interesting conclusions, some of which I expected, some I did not. A closer look. Chart 1 First, a look at their low-capacity (100-200 meg) drive units shipped numbers and installed base: (000) 1996 1997 1998 1999 2000 SUPER DRIVES units 4,524 7,573 12,542 20,572 33,265 base 5,603 13,155 25,689 45,211 72,902 Chart 2 Now, I'll throw in PC units sales estimates through 1999, taken from multiple sources. Again, units sold and installed base at end of year. (000) 1996 1997 1998 1999 2000 PCs units 72,000 85,000 98,000 115,000 - base 215,000 255,000 300,000 350,000 - Chart 3 The next chart represents the low capacity drives units sold as a percentage of PC units sold and low capacity installed base as a percentage of PC installed base. NOTE: These percentages reflect absolute maximums and do not reflect actual percentages of PCs sold with a super-floppy. See Final Conclusions for more. (000) 1996 1997 1998 1999 2000 % units 6% 9% 13% 18% - base 3% 5% 9% 13% - Observations: Please notice, again, that the installed base of PCs does not increase each year by the amount of PCs sold in that year. For example, from 1996 to 1997, the installed base of PCs is estimated to increase from 215,000 to 255,000, a 40,000 increase. Yet, more than 80,000 PCs are estimated to be sold -- note, all numbers are in thousands. In otherwords, about half of the PCs sold this year will be replacement PCs that do not increase the installed base. Assume those PCs that are replaced get junked, scraped, parted out, etc.. Chart 4 In that same respect, I looked at the IDC super-floppy numbers in the same way, taking the installed base from last year, adding the number of new units sold, and calculated the difference between those two. For example, if we take the 1998 installed base of super floppies, 5,603, and add the 1997 units sold number to it we get 5,603 + 7,573 = 13,176. Yet, installed base is estimated to be 13,155. A slight difference but a difference nonetheless. Some drives will die, get retired, etc. It isn't until 1999 that the percentage of new units -- as opposed to replacement units -- from total units dips below 95%. Below is a chart representing the percentage of new units to total units sold. The important thing to remember is that "retired" units don't add to the installed base for super-floppies but for PCs, "retired" units increases the percentage of installed super-floppies to PCs (000) 1996 1997 1998 1999 2000 New as % of Total Super-Floppy 99% 99% 99% 95% 83% PCs 49% 49% 48% 46% - Chart 5 Before I get to conclusions, I wanted to throw out another interesting metric in the report, ASV. ASV is defined by IDC as <<<"if sold OEM" convention of reporting pricing. This pricing is equivalent to the average price if the drive manufacturers sold all products to original equipment manufacturers (OEMs).>>> In otherwords, this is IDC's estimate of OEM price and therefore IDC's revenue numbers are lower than expected. As revenue numbers are easy to calculate with ASV and unit numbers, I left them out. $ 1996 1997 1998 1999 2000 ASV Super-Floppy 100 94 82 75 71 Final Conclusions: Again, look at chart 3. In 1997, 91% of PCs sold will not come with a super-floppy and actually, that is a minimum. That assumes that 100% of the super-floppy units sold this year were OEM units. That assumption is incorrect. Even if we assume that 40% of all super-floppies were OEM units this year, an extremely high and unrealistic number, we would see that less than 4% of PCs shipped in 1997 came with a super-floppy. Less than 4%. We can safely estimate that more than 96% of PCs sold in 1997 did not come with a super-floppy. What does this all mean? First, it means that Iomega should concentrate on the remaining 96% market share, not who or how the 4% is split-up. Iomega, according to the IDC report, had a 89% share of the super-floppy market in 1996 and bothering with the other 11% doesn't seem nearly as important as gaining more of the unclaimed pie. Second, is the statement that "the majority of low-end magnetic drives shipped in desktop applications(95%) in 1996 because of the low-cost nature and high level of functionality. Looking forward, IDC does not expect that this pattern will change significantly; the vast majority of product (88%) will still be shipping in desktop applications by 2001." IDC doesn't expect mobile applications to account for more than 2 million super-floppy units in 2001. While this doesn't diminish the importance of laptop Zip in my mind, as I feel the higher ASP and higher margins will have a most beneficial effect on Iomega's quarterly numbers as well as that for mindshare purposes, the Zip must be laptop-capable, it does lesson, to some extent, my trepidation about the absolute mayhem of form factors that was bound to result. Third, the average OEM price as estimated going forward by IDC seems somewhat higher than I would have believed. Of course, just because they estimate it does not make it so, but it does represent a basis from which a discussion can begin. I actually consider the surprising high OEM price estimate to be somewhat bullish for both Iomega's revenue and margins going forward. However, the converse is that these costs seem out of line with the PC makers trend to get box prices as low as possible. This may not also adequately reflect license production sales. We shall see how this double-edged sword turns out. Fourth, the low replacement rates seems to give us something to work with in terms of OEM percentages going forward as well as the expected utility of super-floppy equipped PCs versus non super-floppy equipped PCs. For example, taking 1999 where 20 million super-floppies will be sold and 115 million PCs will be sold. Of those 20 million super-floppies, 95% will be new sales, as evidenced by the increase in install base, while 5% will be replacement sales. Of those 115 million PCs sold, only around 50 million will be new sales and the rest will be replacement sales. Look at it this way, 65 million PCs are expected to be "retired" in 1999 while only around 1 million super floppies are expected to hit the junk heap. Giving a PC an average life of three years, we would expect that 2 million super-floppies would be retired. Why? In 1996, 3% of all computers had a supper-floppy so the retirement of those PCs three years later would be expected to be equivalent. But, you astutely notice that 1996 had an extremely low OEM rate -- Iomega's was below 10% of units sold -- indicating, in this case, a high percentage of external units that aret ransferable to the new PC. This doesn't have to be the case as not all after-market units must be external, but more after-market units are external than OEM units, giving the statistical edge to the observation. Where does that leave us? Well, it's good news in that an OEM PC sale with a super-floppy that is a replacement sale does a little extra work on the installed base percentage because you not only gain an extra super-floppy install base PC, but you killed off a non-super floppy install base PC as well. IDC seems to indicate that will be case for super-floppies through 2000, when the replacement percentage shoots up to over 15% -- meaning 15% of all super-floppy sales in 2000 will be replacing an old super-floppy. The numbers themselves, while below many estimates here, are also somewhat encouraging. Specifically, the super-floppy market, with over 96% of the OEM market up for grabs, can take advantage of two methods of growth: 1) the growth of the PC industry itself. In otherwords, someone with 100% market share can only grow as fast as the industry growth. (which is why Intel and Microsoft go into other markets) 2) the growth of market share. Grabbing a bigger piece of a pie means a positive slope and happiness. By grabbing a bigger piece of an expanding pie, Iomega has the opportunity to capture both growth opportunities. Can Iomega reach an installed base of 12 million this year? According to the IDC numbers, no. I think they should be pretty close -- See Quarter 3 Round-up Post soon -- just as I believe that barring acts of major stupidity and continued production blunders, the Zip installed base should hit close to 24 million by 12/31/98. The word "standard," thrown around so often here like so much grain, seems a little misplaced. By 1999, the total super-floppy market, even if Zip accounts for 99% of it, still won't come with even 1 out of every 5 PCs sold. Two years away and not even 1 out of every 5 PCs doesn't seem like "standard" to me, at least not the way folks around here use it. The point is we should probably consider what represents adequate entrenchment rather than what constitutes "standard" (which to me always seemed like more than half, but that is neither here nor there). Of course, none of this deals with tie ratios but I don't think that study will be coming before late next year if even that. So, even giving Iomega a 99% share doesn't mean we can make an adequate valuation as a key piece of information is still missing: tie. What that means is that there is no certainty, that there is risk, and that is what the market is all about. Those who claim investment in Iomega is a "no brainer" seem to miss the concept of risk and valuation. Concentrating on the key pieces that can affect the valuation seems like the better use of time to me. In all, IDC's report gives us some interesting insight, especially to OEM pricing going forward, laptop units going forward, and unit numbers. IDC's 2001 estimate, which I left off because I think forecasting that far ahead right now is more of a wild guess than informed research, is, for the record, an installed base of 113 million super floppy units and sales of 53 million for the year. The 73 million installed base in 2000 seems a better metric to examine. A large share, such as 85% of these, would give Iomega a 62 million installed base. A serious platform, no doubt. However, that is not a certainty and it should not be considered as such. Benjamin P.S. Just for fun and possible dicussion, at $25 and a ~12 million installed base '97 and a ~24 million installed base '98, Iomega is trading at about $300 per '97 installed Zip and about $140 per '98 installed Zip. Of course, Iomega has other revenue streams besides Zip, such as Jaz, but I thought it might be interesting to look at an installed base valuation as many here consider the key to be disk sales, which can essentially be treated as an annuity. 2+++++++++++++++++++
Subject: Re: Be careful Message-id: <19971011011900.VAA29448@ladder02.news.aol.com> Just a note to those who may be impressed with Syqt's recent stock rise and are thinking of investing: 1) Syqt's 4th qtr ended September 30, 1997. This means that they must conform to an annual audit by their outside CPA firm. 2) Since their CPA firm is fairly new to the engagement (don't remember exactly when, but there was a change in firms within the past year or so), they will be looking very closely at all reserves. 3) IF (and I am going on past history here), Syqt is unable to produce product at a profit, the CPA firm will make them write down inventory and future purchase commitments to a "lower of cost or market". Historically, inventory is valued at cost. However, if the market price of the goods sold is higher than it's costs to produce, Syqt will have to expense the difference. This led to negative gross margins in the past. 4) Syqt has in the past, deferred releasing their 4th qtr results until the last day available to file by the SEC. This is never a good sign. The 4th qtr for any company is a critical quarter. They must satisfy their CPA's of the reasonableness of a position in their reserves and accruals. Whereas on a quarterly basis, a company can somewhat "manipulate or guide" the numbers, at year end, with an outside audit, this becomes much more difficult. Invest wisely and with care. Fool On, Robert 3+++++++++++++++++++++
Subject: My Q3 '97 Take First off, apologies to any responses to prior posts. With over 500 unread posts I hit that MARK ALL READ button and moved on. If I missed something that was a direct response, again, my apologies, but feel free to email. Seems like lots of posted stuff could just as easily be emailed instead. The Input Revolution™ gone astray, I guess. Iomega Q3 '97 I'm looking for a good quarter here. Some thoughts. Zip is it Why I own this company. I've said this before, but I think it bears repeating: Zip is an anomaly in the tech world as a product that has an extremely long price/performance shelf life. Jaz will, by definition, constantly need to be revised, updated, capacity increased, etc., as it is targeted to a segment of the computer using population that views the product as perishable. There will always be competition on the high-end. SyQuest has learned a bitter lesson over the past two years: don't compete with Iomega on its territory, i.e., low-end, price sensitive consumers but go for the high-end. We'll see if they stick to that lesson, but the point here, as I always try to keep it, is about Iomega, not anyone else. The only one that can kill Barnes is Barnes I don't know how long I've been saying that but it feels like years. With over 96% of all new PCs sold not coming with any super-floppy, there is a lot of unstaked territory out there [see prior post for calculations from IDC and other estimates]. It doesn't matter if Company X has 1% share and Company Y has 9%. Company Y's goal isn't to take that 1% away from Company X but to get the remaining 90% that is up for grabs. That is what I'm saying when I say LS120 is irrelevant. One LS120 SKU or two or three or ten doesn't mean much to Iomega. It is the unstaked market share they are targeting, the 90%, not the 1%. Is that 1% a real victory for Iomega? Does it effect the valuation? Should it? I argue no, that is the wrong emphasis. For some reason, straw man victories seem very important on this board. Whatever. On the same token, we can't get wrapped up in meaningless metrics. I often see SKU counts posted here as if there is some definite correlation. As if a 100% increase in SKUs means anything. The "quality" of the SKU, as defined by unit sales, is as important as the number of SKUs. Would you rather have 100 SKUs that sell an average of 10,000 units a year each or 15 SKUs that sell 75,000 units a year each? So, please, stop hyping the number of SKUs as if there is a 1.00 correlation between number of SKUs and units sold. Let's face it, "quality" SKUs, such as those offered HP, Compaq, IBM, and Dell are the real brass rings. Joe Bob's PCs, Tackle and Bait isn't exactly going to sell many Zips or have an effect on Iomega's valuation. Hype away, but then don't react with righteous indignation when Wall Street doesn't reward the Joe Bob/Zip announcement with a huge run-up. Installed Base and Quarter Units I wonder if Iomega had their first 2 million unit quarter. Could be. But I fear that the production was, once again, not up to snuff. Operationally excellence means making sure you can produce at capacity if need be. It means inventory management. It means supply chain management. Ask Michael Dell. Ask Japanese corporations who practically invented top-notch supply-chain management. *Nonetheless, I expect a 9 million shipped milestone this month, perhaps at the call, though I don't think they hit it before the quarter closed. Regardless, I'd like to hear the milestone this month. *I also want to see OEM units up as a percentage of total units. SKU numbers may be of little relevance as the "quality" of each SKU must be determined but if units increased and OEM units as a percentage increased, then we know that OEM progress is sailing along. I also expect the same type of disclosure on this issue as last quarter. Iomega's disclosure is still pretty poor. Disclosure of actual events is not the same as guidance. One is a historical fact, the other is a prediction on the future. Let's try and keep the two concepts separate. Iomega's disclosure (not its lack of guidance) is pretty paltry. *Revenue: $450 seems about right. I don't see a huge blowout here and within 5% seems safe. *Net: I'm expecting north of 6.5% as the higher revenue and margin products probably shipped out before Sunday, at least in some quantities. Bottom line, Iomega should beat by a couple of pennies, perhaps three or four. I'm curious about the performance bonuses after last year's screw-up. They changed it to take the hit across all quarters but when is the deadline for the evaluation? Someone dig that up from a footnote? Did I forget About Jaz? Not really. I do expect Jaz to contribute somewhere in the rough area of 30% of Iomega's Q3 revenue but Jaz is a different type of market. According to IDC, for those who care, SyQuest had 30% share of the high-end removable market and Iomega had 60% share in 1996. I don't expect SyQuest to go away, just for them to smarten up and leave the low-end market alone and concentrate on what they do know, high-end removable. The high-end market won't be the cake-walk everyone expects -- more of a reason to love Zip -- and I would venture to say that in 1997, Iomega's market share of the high-end removable market will be less than its 60% share during 1996. Hold me to it. Questions for the gang: 1) Production issues. What is up? If there was a chip flaw, say so. Just speak. Ramped production going into Q4 is important. Let us know now, not later. We need the skinny on Iomega production. 2) MCI and NEC. Speak. Speak. Speak. This is a key issue to shareholders and the information should be given out. Are they shipping? In quantity? Where? What happened with that MCI/improvement deal? Seems awfully quiet on this front. 3) Laptop Zip: Where art thou? The question really is -- now that it is a Q4 product -- is it producing in quantity? And when can we truly expect ramp? And in the same vein, how about fessing up with actual Zip Plus and n.hand dates now. I'd rather Iomega say it now then 2 days before the announced ship date. To date, by my reckoning, since Zip, no major product has shipped as originally announced by Iomega. 4) I'd also like clarification of that "not all models" bit with the Nomai disks. Besides the lawyer fees, what is the actual protection here. Is this an installed base issue or a going forward issue? What about ZipPlus? Looking Ahead to Q4 The revenue boost effect should be strong here, as Jaz2, Zip Plus, and Laptop Zip hit -- I hope. Since Zip, I can't recall a single product that Iomega has shipped as scheduled (has anyone see RecordIt yet?). The gross margin effect isn't as clear as we do not know the margins of these products, especially earlier in their production cycles. What we do know is that these products have a higher ASP (average selling price) meaning that the two product lines, Zip and Jaz, should see higher ASPs in Q4 over Q3, leading to an increase in revenue per unit. Throw in an increase in units and we get to the somewhat massive increase in revenue as forecasted. I do expect to see some more OEM announcements in Q4, especially on the laptop front. As I said, just as with Zip, the larger market for laptop Zip is the aftermarket, not the OEM. This is purely a function on installed base versus new sales, with installed base being a few times larger easily. Laptop Zip, however, has the problem that one or two models does not fit all -- like PP and SCSI. While I don't have the numbers, the Toshiba Tecra and Sat. Pro models, and the IBM 700 series seem to be the best models to start with on the PC side, especially since all of that installed base, I believe, could be sold to with only three different form factors of laptop Zip. Valuation Issues Probably the single largest weakness of this board. I see lots and lots and lots of posts screaming Iomega is undervalued, exclamation marks everywhere, price targets, attacks on the press, the shorts, blame everywhere for a "low" stock price or an "undervalued" stock. Yet, I don't see many attempts at valuations and those I do see are often PEG based with seriously debatable growth numbers. What I do see are embarrassing attempts to forge a "fake" whisper number by some bulls on this board. Why would you own this stock if you seriously thought Iomega would miss EPS numbers by ~50%? No wonder this board lacks credibility. That pretty much kills it right there. To add insult to injury, major mistakes are left unacknowledged, unaccounted for. I expect Iomega to do well this quarter and next, push $1.8 billion in revenue and maybe even get close to $1.00 in EPS for the year, but that is but the beginning of a valuation. Is less than 2 times trailing sales and 1.5 next year's sales undervalued? And next year, can Iomega push above $2.5b? What about $1.50 in EPS? What would that mean to the valuation? Few seem to want to even try to give their opinion and some basis to that question. Rather, it is better to scream "undervalued" and attack the lying, bribed media. Where is the major equity analyst coverage? Bulge bracket seems to stay away. I'll end this by saying that if I don't respond to your post, don't take it personally. I find these boards less and less useful. There seems to be a "club" or "clique" that gets to decide what is worthy of being discussed and who is worthy of discussing it. All other points of view need not apply. This mob mentality coupled with the horrid behavior I have witnessed, from threats to nasty phone calls to "blacklisting" (even by members of the TMF) for daring to differ from the approved party line to paranoid accusations against whole professions, makes me cringe. I plan to remain invested in Iomega, just not this board. One has a much better return than the other. Pity too. All that collective intelligence and energy and so much of it goes into enforcing the "approved" points of view. Benjamin _______________________________
WE
DELIVER - Get IOM
In Fooldom Today delivered
|
||||||||||
|
|||||||||||
