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Friday, October 17, 1997 Thursday, Iomega closed at $24 3/4, up $3/16 (+0.76%). TODAY'S RECAP: Before the market close, the Iomega board was abuzz with pre-earnings announcement speculation. After the market close and Iomega's announcement of .22 cents a share earnings (.02 above expectations), the Iomega board was abuzz with post-earnings announcement debate. A few of those posts are copied below, in addition to more information on the forthcoming Sony/Fuji 200MB drive, Iomega's Buz in PC Photo magazine and IOM's upcoming advertising campaign. 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++ Ken2Marcus redirects the Sony debate and recalls some history.
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 10/15/97. 1+++++++++++++++++++++++++++
Subject: Re: Sony/Fuji & the EZ-135 << Now compare this with Sony. They are consumer electronics. They have the design and marketing savy that SyQuest does not and few do. This is a company that has the capacity to design a killer looking product, manufacture it as cheaply as possible (and still make a profit), slap a company name on it known around the world, and advertise it with Superbowl ads. Sony has the capacity to correct most of the errors SyQuest made. >> The marketing people responsible for the proposed drive are not the same people who do the consumer electronics stuff like VCRs and TVs. If they were great at imposing new standards and marketing them, then their minidisk and 3 1/2 inch MO would have been successes. By the time this thing comes out, if it does, Sony will be a another year behind on their learning/cost curve and Iomega will have 15 to 20 million zips out there. Iomega has the lead position in an otherwise fragmented market, this is to their advantage. << killer looking product >> Internals: looks = nothing externals: backward compatability = nothing 1 year from now: Sony 200 meg capacity is nothing. Iomega has had a 200 meg zip for a while, they just have chosen not to market it. Maybe in a year when the Sony drive is trying to rear its head, Iomega will release it. a $199 drive a year from now is a threat. But not a zip killer. Pre-release LS 120 specs were great. Prerelease Sony specs sound good too. We shall see. 2+++++++++++++++++++++++++++
Subject: Iomega's advertising - finally! All I can say is, it's about time. The lack of any major campaign all year has bothered me. Yes, I've seen the spot ads in Newsweek, etc.... but nothing tied together that resembles an all-out targeting-the-masses kind of campaign that I've been looking for. This lack of advertising, as much as the channel shortgages, told me that Iomega was just not, well.... Iomega-Ready yet. It seems that the entire year has been concentrated on dealing with parts shortgages, getting the Zip in the box and the bugs out of the Zip (laptop that is), shaking out management and ramping production. Initiating a blitz in Nov-Dec just as "average Joe & Jill" are beginning to think about holiday gift buying is sensational news. It indicates they have been successful in meeting production goals to handle the demand this will create. They will now penetrate the masses with placements on Seinfeld and NYPD Blue. I firmly believe there's a huge audience of computer users who are only on the cusp of recognizing this product's use and the company's name. This exposure comes at exactly the right time to nail that mindshare. Warning -- boring anecdote follows: Over the weekend I visited friends in Maine; as we exchanged email addresses over dinner, somehow the conversation drifted onto computers (both Mac users) and out of the blue, I was asked if I had ever heard of an "Omega zip drive". (At which point my husband groaned and went outdoors with a cigar). My hostess explained how she really thought she needed a Zip, but wasn't too sure if it would be too "technically difficult" for her to set up and use. This woman works at home, remote from her company (as I do) and she produces newsletters and other statistical data. Here is a person whose work is totally reliant on computer technology and she's about as tech savvy as I am (which is not at all). She worried about buying a peripheral when she had no ready-access to tech support to help with installation. I explained that bringing home my new Zip was no different from bringing home the new toaster I bought recently. Neither appliance needs an instruction manual. You plug it in, and put the bread (disk) in the slot. Yesterday she emailed me to say she ordered her Zip. In her email, she was no longer calling it an Omega Zip... but typed it "i-Omega". That's when I realized she has had some vague visual exposure to the brand name somewhere. My gut feeling is that there's millions out there just like her, and this holiday ad blitz is going to push them from just vague awareness into acute action. Not a moment to soon, IMO. While the Nuisance of Nomai and the Sony Surprise has garnered the attention of the financial press, that small esoteric audience will be no match for the gathering storm known as massive consumer awareness. The challenge remains... is Iomega Ready? It could be a blue Christmas :-) 3+++++++++++++++++++++++++++
Subject: BUZ in PC Photo Buz is featured as an Editor's Choice Input device in an article entitled Great New Stuff in the November/December issue of PC Photo magazine. The title of the article and the layout seem to have subliminal connections to iomega slogans and ad layout - but then maybe I would be the only one to get the message (after all, I hope that they sell a boat load of these things). Also, in the same issue (as should be expected) is a full page ad for the iomega buz on page 25. The headline reads <<You can't pick your relatives....But you can edit them out of your videos.>> Pretty funny page. Good luck today Joe Devenney 4+++++++++++++++++++++++++++
Subject: Conversation with Sony Had a phone conversation this afternoon with Julie Steckmest of Sony, who kindly answered my email of yesterday by offering to call me. I have her permission to relay our conversation to this folder. Pricing of HiFD -- No price yet. Yesterday's release was a "technology announcement" only; within the next 60 days Sony will be making a "product announcement" which will include pricing information. Marketing Timetable -- The HiFD is being marketed to OEMs now. All top 10 PC makers have received the product for review. They expect to have OEM announcements "before long". Shipping is expected in Spring 98. Sustained Data Rates -- the 3.6 MB/sec is the burst rate. Sustained data rates for read: 2.8 to 3.6 MB/sec; for write it is 1.0 to 1.2 MB/sec. SEEK TIME is unknown. Disks are twice as thick as a regular 1.44 floppy disk. They are not compatible with Iomega disks/drives. No Laptop HiFD planned at this time, however they are investigating it. Desktop internals only. Internal interfaces are ATAPI and FDD. External versions will probably be just SCSI - doubtful for PP. More later after I go over my notes. 5+++++++++++++++++++++++++++
Subject: Re: Response to "post of the day" << Mr. Rogo appears disappointed in the growth of IOM. He is looking for "2x that (40% +/- per annum for five years)." I am very happy with ~ 50% growth in stock value in 6 mos--twice my expectation for a full year. Maybe it is all a matter of expectations and perspective. HELL, MAYBE ITS JUST BLIND LUCK!!!! >> Let me make one thing perfectly clear: I don't have a problem with the stock's performance over the last few months... I am looking for 80% EPS growth compounded for the next five years, however, to sustain that kind of growth. Am I crazy? Maybe, but I don't think so. If drive unit sales increase 40% annually from here, then there will be 70 million Zips out there in 2001. Those Zips will consume 210 million disks or so in 2001. If each of those brings $2-3 in gross margin, that would be $400-600 million in Zip disk gross margin. Let's say all those drives, and Jazes, adn Buzes, and RecordIts, and n-hands, and whatnot was totally a breakeven business and also covered the overhead of the Zip disk business. Of course, all the rest of that stuff would probably be profitable, but let's say it isn't. Then Iomega would earn $400-600 million in 2001. That would be about $4 per share. This year will be say .90, so, assuming 80% compounded EPS growth and only 23 million Zip drive sales in 2001 1997 .90 1998 1.62 1999 2.91 2000 5.24 2001 9.45 We wouldn't come close to my target of $9.45/share in earnings.... Not at all. But don't most of us think that Zip sales will be closer to 40 million in 2001? If Zip holds 75% of the market at that time for super-floppies and IDC is right about a 53 million unit market, then Iomega will sell 40 million Zips. I'd guess the market is closer to 2-3x what IDC says (nearly all PCs, of which 150 million or sell, should have something better than a 1.44). Let's say I believe 100 million super-floppies sell that year and Iomega sells less than half of those, or 40 million. Very plausible whether the market is 53 million or 130 million (the smaller the market, the more likely Iomega has "won" the battle and dominates the non-essential, super-floppy maket; the larger the market, the more likely there is fragmentation although it is possible Iomega would sell a lot more drives there). Regardless, to get to 40 million drive sales in 2001, Iomega would have to grow Zip units at 60% compounded, causing the total Zip installed base to be 100,000,000 drives in 2001. That would yield perhaps 300 million disk sales and $600-900 million in Zip disk gross margin... The top end of that range is maybe $6.50 per share in EPS, two third of what we'd need to achieve the $9.45 an 80% compounded EPS growth would yield. Unless of course, the multiple got bid up some. Right now, the stock is trading at 40x earnings. If it reached 60x earnings, I'd reach my goals for the stock. Of course, this is all pie in the sky. All of it. But yes, I am looking for an 80% compound return over the next 4+ years on Iomega, including the move to $35 that should occur by next quarters earnings. The market seems willing to give Iomega a 40ish P/E based on past performance of the company (1995-1997 earnings growth has been stellar). With a year end total of .90 or so, the stock should reach $35 from here by January. In short, I'm looking for the stock to increase in value appromately 10-12 fold from here. If I don't believe in that scenario going forward, I will probably trim my holding. It is a speculative industry and all sorts of things could change the future: new technology, slowdown in PC sales, Sony strongarm tactics, Mitsumi miracles, ubiquitous wireless data obviating the need for medium size storage devices, etc. etc. etc. 6+++++++++++++++++++++++++++
Subject: My Take If the chip problems are resolved, and if they indeed have 14M annualized Zip capacity (without a parts problem), and if that is a real 380M backlog (without too many redundancies), then this company would be on track to do what they said they would do. If. Eric Turkewitz 7+++++++++++++++++++++++++++
Subject: my note from call -$379 million backlog up from $183 last Q. -14 million production capacity- with NEC and MCI starting early in 1998 at 100k a month and 50k a month. -oem zips up 60% Q3 over Q2, on top of 60% Q2 over Q1 -production NOT THE PROBLEM, component supplies the problem, they are pretty much getting resolved now -Fuji has a great relationship with IOM and Kim felt it would stay that way (IOM is a large customer) -Sony is a competitor that may have issues facing their technology that they haven't encountered yet -OEM's account for overall 35% of total Zips, UP from 30% last Q -Jazz unit sales were flat, due to 3 weeks of shutdown (25%) in manufacturing -Sales were booming in Sept and many of the shipped product won't count as sales until Q4. -Advertizing campaign (partially paid for in Q3) will hit NYPD, MAD ABOUT YOU, SEINFELD, AND FRAZIER the week of Nov 17-25 -Buz delayed until Q1 98, N-hand will be very different (see at Comdex in Nov) and should not hit until Q2 98 -rebates paid by stores More later if no one else posts, got to go _______________________________ End Report. Posts covered through 9:30pm ET 10/16/97. _______________________________
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