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Tuesday, November 04, 1997 Monday, Iomega closed at $28 9/16, up $1 3/4 (+6.53%). TODAY'S RECAP: Two major topics occupied the Iomega message board yesterday: a "new" product announcement from SyQuest and an upcoming "big announcement" from the Iomega web page. Comparison and analysis of the first abounded, as did random speculation about the latter. 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++ MBAspeak compares SyQuest's "new" product versus the Zip.
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 10:01pm ET 11/2/97. 1+++++++++++++++++++++++++++
Subject: Sparq vs Zip? ----A battle at COMDEX---- In this corner, the SparQ @ $199, $34/ gig. and in this corner, the Zip @ $99 $10+/100megs. In favor of the SparQ:
- good price point. Against:
- not in production, yet. In favor of the Zip:
- $99 good price point Against:
- $199 for Zip+ may be challenged Critical issues for both:
- production capabilities Just brainstorming... add or delete issues at will, 2+++++++++++++++++++++++++++
Subject: Re: Sparq vs Zip? I tried to post similar thoughts before but apparently leaving my computer for two minutes was enough of a wait for AOL to log me off and the message disappeared. Ahem. But enough about AOL. I am dubious about Syquest making any money on the drives but I'm hoping the more technically enabled among us can tear one open to find out. Disks would seem to be a better bet to turn a profit. I do not see this thing as any kind of competition for the Zip. It seems to me to be aimed directly at the Jaz, where, depending on the specs/reliability issues it seems a legitimate contender. Zip prices are substantially less in pure dollars ($200 gets you the drive and a Gig-o-pack now) and the installed base is, IMO, impossible to overcome for any device. The Jaz has widespread acceptance at the upper end of computer users, but the SparQ price points widen the market for 1-gig portable consumers (exactly as the CompUSA(??) spokesperson said in the story) with an instant advantage. Can Jaz come down in price enough that its superior brand name and reputation will offset the remaining price difference? I think if Iomega can get the internal down to $200-$225 and the disk prices down to $60-70 it might be enough to douse the SparQ. Again, all this assumes SyQuest has come up with something that works as well as a Jaz. I also think SyQuest now has created direct, incompatible competition for the SyJet. It's as though Iomega created a Jaz 667MB drive. Doesn't make much sense. Paul Loop 3+++++++++++++++++++++++++++
Subject: Re: FEEDBACK WANTED <<What , if anything , do you think Iomega should do to their Jaz drive & cart pricing, advt. etc, in response to the new SparQ ?>> The gross margin on Jaz disks is over 50% as far as I can tell. They tend to retail for $89-99 still, or 10 cents per megabyte. Stores that sell Jaz carts often sell entire hard drives for 5 cents per megabyte. One could conclude that the cost to manufacture a Jaz cart is in the ballpark of $25-30 from this. It would be trivial to slice Jaz cartridge prices deeply, however the effect on margins would obviously be pronounced. As for the Jaz drive, presumably it is cheaper to make than it was. It is a $299/$399 product right now that, I supsect, carries an appreciable gross margin, though I'd hesitate to guess what it is. Significantly, Iomega has sold 1 million + Jaz drives and the "compatibility benefit" of that installed base is their most significant advantage in a battle where I doubt they want to fight on price. At $199 for Jaz and $49 for cartridges, they would be squeezing much of their profit out of the Jaz I product line, all to stop a competitor that cannot be installed on SCSI buses and can only be installed internally if performance matters at all. I would say, in fact, that SparQ (can you say lawsuit from Sun Microsystems?), is not at all aimed at the high end of the market. In fact, it is running away from that market so fast I am somewhat mystified by the decision to bother with an EIDE drive. Due to compatibility issues, this drive will not be adopted by anyone who works in publishing or digital video. Due to performance, it is ruled out for both as well. It is designed, it seems to hurt Iomega and three of its products:
* the $149 Zip, which now looks kind of small to me with a $199 gig drive
out What does all this mean? Well, actually probably not much. Let's look at why: First, production capacity. SyQuest last year sold <500,000 drives total. I know this because on $120M in revenues, and an average selling price to SyQuest of somewhere around $200 (remember, SyJet is the key product), backing out the cartridge revenues, you cannot possibly tell me they sold more than 500K drives. I'd guess it was more like 350K. Even if SparQ took the world by storm, SyQuest could not satisfy the market demand. But, you are saying, Iomega had this problem and they solved it. Yes, but Iomega was growing with high-margin, profitable products and, even still, it took them a long time to solve the problem, a lot of friendly banks, and a secondary stock offering. SyQuest has so many creditors with a hand in the pie, that I doubt they could do anything on the order of what Iomega did as far as capital formation and accumulation. Second, even if SyQuest busts out with SparQ, I suspect Jaz sales will continue to be somewhat strong, especially since those businesses that use it now for compatibility will presumably not defect in any significant numbers. That means SparQ's installed base will not, appreciably, dent Jaz's. And, Iomega will doubtless bring Jaz prices down over time, moving them more in line with SyQuest's, whether the motivation is directly competitive or merely to reflect lower production costs. That leads us to third thing, which is pricing more broadly. I don't think the ubiquitous $99 Zip external is part of the Christmas menu, but I sure think it's part of the 1998 menu, perhaps after Q1 of next year. The build cost should be falling appreciably now that production is running generally near 1 million units a month. I know nothing about the status of the chip integration projects, but I suspect that proceeds apace and that, once in place, that will bring down build costs a bunch. Finally, I am left with increasing confusion about the SyQuest strategy. They have now introduced a product that effectively kills off one product (the EZFlyer) entirely and mortally wounds another (the SyJet). The drives themselves would seem to carry a very small gross margin (retail selling price $199, distributor price maybe $170, build costs for SyQuest perhaps $125-150?). The incredibly aggressive cartridge deal means that cartridge margins cannot be much either (maybe $10 per cartridge?). In the most optimistic scenario, SyQuest makes gross margins of $50 million or so on this product line over the course of a year. It would seem that in the best case, this helps get the company to the point where cost of goods sold for the total company is equal to revenues. This is not the strategy that I believe most of its investors are lookin for. They should really be after profitability in niche markets as opposed to the "lose money on every sale but make up for it with volume" technique they seem to be after. Iomega's stock was hardly rocked by the announcement today, I might add (in case you are out there my friend ChiChiX). 4+++++++++++++++++++++++++++
Subject: the big announcement just went to the iomega web site. the opening screen says this many more days until the big announcement. above it is a picture of two hands with all fingers up. 10 days to an announcement? any ideas? by the way, i couldn't load any other pages in the site. 5+++++++++++++++++++++++++++
Subject: n*hand logo Went to the Iomegazine site and clicked on n*hand product info (looking for that "big announcement" ad and couldn't find it)...but did anyone notice the graphics on the n*hand disk they have pictured there? Take a look at your Annual Report ('96). That 'hand' graphic on the cover of the report is now the logo for n*hand. So, someone want to tell me which page has the "10 days to big announcement" info? Lost in space, 6+++++++++++++++++++++++++++
Subject: Re: the big announcement What the heck, they put a big teaser on their Website... it's an open invitation for speculation. Big announcement will be (ta da) n.hand... ("N.hand will be center stage at Comdex," says KE) ... inside a digital camera ... (the logical appliance for a "big announcement") ... made by Hewlett-Packard... (current OEM with close R&D ties to Iomega, making a bold move in consumer electronics field) ... or Kodak ... (taking a calculated risk to help stem diminishing market share with innovative storage differentiator) ... or a wild card (Konica?)... Of course, this is all just a wild a__ guess. Like the hand motif on the Website, too. _______________________________ End Report. Posts covered through 9:00pm ET 11/3/97. _______________________________
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