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Monday, January 26, 1998 Friday, Iomega closed at $8 13/16, down $7/32 (-2.42%). THIS WEEKEND'S RECAP: After Iomega reported earnings below consensus expectations, the message board was bombarded with posts -- most had some response to company strategy, Kim Edwards' performance during the conference call, the newly-announced $100 million advertising campaign, the cost and quality of the Superbowl commercials, product cost for the consumer and more. Not much positive emerged from the board, but a comprehensive overall outlook of the company's current status and future potential did result from the more than 600 posts. Enjoy! INDEX:
1++ Cfischer6 responds to Sony's threat to the Zip market
Recap written and posts compiled by TMF Weekly. _______________________________ And now, the Best of the Board...Started 10:15pm ET 1/22/98. 1+++++++++++++++++++++++++++
Subject: Re: New Warfront for IOM? << Has anyone thought of how Zip's drive to standardization may be a similar fight that X2 is having with K52 Flex modems? Guess what? X2 had a HUGE headstart (everyone and their brother endorsed it) and now Flex is overtaking it! First to market does not ensure a winner...price wins a lot...SONY can afford to lose a H___ of a lot of money to wage this war... Maybe that explains the Superbowl expenditures...SONY is COMING! >> You comparing apples to oranges. X2 was 6 months ahead of k56flex, not three years. Sony doesn't even have HiFD working yet. I'm willing to bet it will never get realeased. We currently have 12 million installed, and we're adding over a million per month. If sony gets it out in q2, like the 'plan', we'll have, what, 17 million by then? More, since they're ramping up production? If x2 had a 17 million head start, k56 would never have come out. Even now, the vast majority of people have a 33.6 or less modem. I know I do. And i spend a lot of time online. But for the extra bit of speed, (40000-46000 baud vs. 28000), it wasn't worth the extra $150. And you're saying price wins a lot? HiFD is going to be priced at $199 (what's an oem zip cost?), and its disks are going to be priced higher than zip disks. Sony has admitted to this. HiFD won't sell much at all. 2+++++++++++++++++++++++++++
Subject: Recent earnings/vs/current stock prices Here are recent earnings of various companies compared to Iomega.... EPS Current Stock price Iomega .13 9 1/32 MU .04 32 3/4 COMS .04 31 RDRT .02 w/o chg (-1.88 w/chg) 14 7/16 SEG -.08 w/o chg (-.75 w/chg) 20 EFII .07 15 5/8 YHOO .05 w/o chg (-.03 w/chg) 62 3/8 IMN -.97 (9/30/97) 13 7/8 AMD -.09 18 3/8 AMZN -39 61 5/8 Here are only a few examples. Notice IOM's stock price is BELOW ALL of the above mentioned companies, even though earnings were better (much better in some cases) than ALL of the above. Please feel free to add to this list. Also, many posted earnings below year ago period. Iomega, on the other hand, posted RECORD earnings well above year ago but dropped 4 points because it missed estimates by 1 or 2 lousy cents. Is there something wrong with this picture??? 3+++++++++++++++++++++++++++
Subject: Paying the Piper January shockers in recent history: 1969 Jets beat Colts 1980 U.S. Hockey team wins gold medal 1991 Giants beat 49ers then Bills to win Superbowl 1998 Iomega reports $0.13 I could go into a whole discussion of how we perceive things by the yardsticks we use. Iomega had a great quarter except the yardstick was not record revenues and net income. The yardstick was $0.15 and they did not live up to it. The bigger problem is that NOBODY expected Iomega to miss this quarter. Iomega gave two reasons that make sense: Asian currency and Product delays. Iomega warned us about the latter but never hinted at the former. In my own mind, I think what happened has less to do with Asia and/or product delays. What I believe happened is that Iomega finally paid the piper for the retail Zip shortages that were experienced between April and September. If you think back to late March IOM was $7 and not doing much. In mid-April there starts spot shortages of Zip drives at retail. The shortages get worse as demand runs ahead of component-constrained supply. Iomega has to make a decision at this point: whether to give the Zips they can make to OEMs or to retail customers. Iomega chooses OEMs believing that its most important long term to keep Dell, Apple, et al happiest. I agree that this was the correct decision. What is interesting is that the lack of Zip drives didn't seem to effect EPS much. Revenues were a bit below expectations but people can see the drive shortage and the EPS comes in, the stock moves up. Iomega's Income Statement after revenues looks better than it should as they are not selling as many Zip drives as possible. Before I continue I should relate how I see the relationship between disks and drives. You see, when someone buys a Zip drive they usually buy a certain amount of disks at the time of drive purchase. However, a certain number of customers buy more disks at some future time. Now with OEM drives I believe both types of sales see lower disk units. In other words, on average OEM customers buy less Zip disks at time of PC purchase as well as later. Or maybe the subsequent purchase is at a time further in the future than a retail buyer. Back to the Summer. Iomega reports estimate beating numbers in June and October even though revenues don't grow as much as people think going in. Unit sales also increase and so does the OEM percentage. I believe Iomega was living off disk sales to people who bought drives in 4Q96 and 1Q97. This just reported quarter Iomega saw a decline in the Zip tie ratio. This is because they had decided to direct available Zip drives to the OEM channel. OEM ratios are expected to be lower and they are. It has always been a problem that Iomega is a pretty unique company. Analysts and us Fools have to be constantly learning. Nobody caught on to the fact that the retail Zip shortage in the Summer would hurt EPS in the Winter. I'm not even sure Iomega knew that would happen. We were all put off guard because during the shortage the EPS and Net Margin were good. Further, if they had been able to ship Jaz2, or if Asian currency had only fallen half as much, we might never have noticed. What is fascinating is that with all the above, Gross Margin increased this quarter. If you had told me that Zip tie ratios would fall significantly and Gross Margin would increase I would have thought you crazy. Iomega credited drive cost reductions and selling the higher margined ZipPlus drive. Looking out longer than tomorrow's open, this seemingly increased profitability is a great omen. The Zip shortage ended in mid-September. How long will it take for the effects to subside and tie ratios to return to normal? I don't know. Analysts will have to sort this all out and adjust their thinking. Long and short term investors will now have to wait to see what happens to FY98 estimates. Currently the average is $0.61; on this estimate IOM at $9 has a forward PE of 15 which is really too cheap. With all the things that went wrong this quarter they still grew earnings 77%. If IOM stays at $9 or even goes lower, the market would be factoring in forward earnings much much lower than $0.61. Personally, I think they will still beat $0.61 this year. IOM currently has a trailing PE of 21. I've owned IOM for almost 3 years and this is easiest the cheapest the stock has been. With a market cap of $2.5 billion and Trailing 12 month Sales of $1.7 billion this is the cheapest Iomega's trailing PSR has been in 3 years. Stocks can always get cheaper, always. But eventually value is recognized. 4+++++++++++++++++++++++++++
Subject: More Things Things To Do After You've Heard The Conference Call >Take deep breath, step back from ledge >Cancel order for "IOM '98" pool placque >Delete "Meep Meep" from sig file >Blame El Nino >See Titanic. Root for iceberg >Fly to Asia. Grab total stranger by lapels. Shout, "What is WITH you people??!" >Reassess Green Bay's chances of winning >Agree to cooperate with the Starr Commission >Delay purchase of Jaz2 on expectation of Jaz3 release >Before beginning conversation, have Linda Tripp checked for wires >Blame the papparazzi >Sell off shares. Apply for position as unpaid White House intern >Send Vernon Jordan to Utah for spin control >Snuff candles at family shrine to KE >Help Jeanie remove tattoo >Turn gaze away from computer monitor. Discover alternate universe outside IOM folder... 5+++++++++++++++++++++++++++
Subject: Rockefeller From an interview of John D Rockefeller by the government, during an antitrust investigation of Standard Oil in 1899 Q- What are the chief disadvantages or dangers to the public arising from them (large corporations and trusts)? A- The dangers are that the power conferred by combination may be abused, that combinations may be formed for speculation in stocks rather than for conducting business, and for this purpose prices may be temporarily raised instead of being lowered. I think KE may perhaps be a Rockefeller disciple. It seems clear to me that there are two possible reasons for IOM missing estimates this quarter: 1. KE is an idiot 2. KE doesn't give a darn about the short term and is solely focused on replacing the floppy with the Zip drive. I think most will agree 2 is more likely. I certainly don't like the idea that he is willing to let investors get creamed, but I can understand where he is coming from. Rockefeller's point is that the Chief Executive of a business's primary duty is to build the business, not to grow the stock price. "Prices may be temporarily raised instead of being lowered"- does this seem similar to the idea of keeping Zip disk and drive prices high or reducing R&D, just to make estimates but end up hurting long term potential? Whoever decided to put the extra $4M in reserves knew that could make the difference if it was put in earnings, but did it anyway. Why? To maximize the potential for long term success. That person decided that the extra $4M would increase the chances of achieving their long term goals, which they also decided was more important than meeting estimates. Who knows, they may have already reduced reserves to make $.14? Perhaps real earnings were only $.12, but they goosed them a bit to avoid penny stock status. My point is that they knew what they were doing when they decided how to manage earnings, and there must have been a good reason for what they did. Don't get me wrong. I have many better things to do with the thousands of dollars that I lost to day than to have them simply disappear from my portfolio. But before calling for KE's head, I want to figure out where the company is going in the future. And from now on, Iomega is a different company to me. To me, quarterly earnings do not matter any longer. They could lose money and my position will not change. I will no longer value IOM on PE, PSR, TA or any other standard measure. Others may do this in the short term and make plenty of money, but for my investing purposes, these ratios are meaningless. My valuation tool from now on is the FRP- the Floppy Replacement Percentage. 6+++++++++++++++++++++++++++
Subject: Re: Recent earnings/vs/current stock prices I think it's important to recognize that Iomega continues to pay the price from its enormous price run up of a couple of years ago. I wish I had understood then that the stock price had gotten far, far ahead of itself. As the Three Wise Men on CNBC noted this morning, Iom had a split adjusted price of 27 cents at one point in 1995. So it's still a 32-36 fold increase over three years. I know if I had bought at that level, I wouldn't care much that the market is (ONCE AGAIN) acting like a voting machine instead of a weighing machine. Even at these levels, Iomega's market cap--a significant issue when comparing companies, earnings, etc.--still well exceeds two billion dollars. That's because we have a gosh-awful number of shares now. More that 250 million shares outstanding. All that said, I agree that it's ridiculous for the stock to be at these levels. Grow earnings in excess of 70%--I believe that's correct--and watch your stock price fall by 1/3. 1% of the stock ownership decides to jump overboard at any price--IT"S FALLING!! IT'S FALLING!!--so the 99% have to watch from the sidelines. Business wise, many on this board two years ago believed that Zip would take the OEM world by storm easily and quickly. It just hasn't happened that way. It's been incremental, gradual, tooth-and-toenail, a SKU here and a SKU there, a struggle in terms of % penetration into new PC's. Hindsight tells me now that supply and production constraints determined slow inclusion % from the beginning, but it also seems that getting the box makers to include Zip hasn't been a walk in the park. I think the licensees could have ramped up last year if the OEM's were screaming for another 10 million Zips last January. Having reached the level of inclusion in new PC's, I don't see another product easily and quickly overtaking or replacing the Zip as the mass storage drive of choice for OEM's. If that is true, and we can look for say 8 of 10 new PC's to be Zipped 2-3 years from now, then it seems to me that Iomega is worth owning on that basis alone. One caveat: if the Sony HiFD is good enough, and cheap enough, I suppose Sony could buy the market away from Iomega. Can someone give a valid insight or two or this? Do you see this as the biggest risk going forward? TMF Keeler and others: Given reasonable valuations (I don't think a forward PE of 15 is reasonable), and forward growth of say 35% per year, what do you see as a target price for Iomega in 3-5 years? That's what really matters, not what the quote machine said at 9:42:37 this morning. Please, how about a little more rational discussion, and a little less squealing. 7+++++++++++++++++++++++++++
Subject: The new Zip commercial Saw it on CNBC, and my first reaction was relief. First, because it wasn't shot thru that gimmicky "fish-eye" lens that makes everyone look dorky. Second, it didn't add to the geek image by having some out-of-focus dork holding a mountain of computer disks - yuk! Third, it mentioned Iomega, Zip and "stuff" several times, with shots of the product. And finally, I could understand the message. No huge military aircraft to subliminally suggest how much data you can hold (boring). The scene is your average chaotic household going through the morning madness of "hey, mom...where's my stuff"... it's peppy and entertaining... complete with cute kids and a funny-looking dog. Sort of the Cleavers in the computer age. A voice-over reinforces that everyone needs their own Zip disk to keep their "stuff" separate from everyone else's...so they can find it when they need it. BTW, this is a loose interpretation from a first viewing, so I could be wrong -- but, and this is important -- that was my perception, and with a 30-second spot, perception is all that matters. Obviously the strategy is to position Zip drive as something every home has, or should have.... and the emphasis is on making sure you have enough disks (tie ratios) so mom, dad, junior and sis can all find their stuff. Last line: "Hey mom, where's my retainer?" (cute dog cocks his head..... ) Spot ends with a shot of Zip drive surrounded by multi-color Zip disks, hand labeled with the family's stuff. It's definitely aimed at the retail consumer and I think it's perfect for mass television. Now for the bad news, CNBC aired this commercial as part of a segment about how Iomega got slammed in last night's trading... due to missing estimates combined with Kim Edwards stating that the company was spending $100 Million on an ad campaign in an effort to boost Zip sales... and how he admitted that resulting sales from this expenditure might not offset the expenses right away... etc., etc. Then they showed the spot planned for the Super Bowl. The subtle implication (to me, anyway) was that this company is taking a big gamble that these ads will work, and if huge sales don't result, then forward earnings could take a hit. 8+++++++++++++++++++++++++++
Subject: Betting the Company Jeanie writes: << Then they showed the spot planned for the Super Bowl. The subtle implication (to me, anyway) was that this company is taking a big gamble that these ads will work, and if huge sales don't result, then forward earnings could take a hit. >> When I listened to the conference call, it wasn't subtle. The analysts zoomed right in on it. If CNBC left the viewer with the implication that Iomega was taking a big gamble, then they accurately portrayed what transpired on the call yesterday. It is a big gamble. That is why the stock took such a big hit, in my opinion. $100M in ad expenditures. If IOM has 7% margins, then to recover that $100M those ads must take in a huge pile of dough. About 1.5B if I did my math right. (And still a lot of money if I did it wrong. ) So Iomega would have to have revenues of over 3B in 1998 if they were merely going to break even on that investment for the year. In effect, they must make Zips ubiquitous. There really is no halfway point of saying, well, we have a great product, sell a bunch and make a lot of money, even if it isn't sold on most computers. There may be some analysts that think this gamble is, basically, betting the company. That ad campaign had better be good. 9+++++++++++++++++++++++++++
Subject: Re: Production Capacity << If demand is slacking off it would seem they already have enough capacity. I'm not trying to be negative. I just don't understand the finer aspects of economics, or perhaps I'm not as familiar with IOM's business plan as I thought. MarkRogo, a little help here maybe? >> I haven't time to analyze this at length right now, but you deserve some response. First, demand is not slowing; demand growth is slowing. Zip sales were up about 100% last year. This year, that may be down to 50-80%. The problem is this: They have come to the conclusion that while price cuts help, the don't simply "make it so." The Zip distributor price is down low enough that retailers are willing to sell at $99 in some cases (probably making a narrow profit when so doing), and their sales pick up... but Mr. and Mrs. Joe Sixpack still don't buy a Zip drive or demand it in a new PC. The OEMs are still saying "prove it to me that I need this thing in my machines." The way to do that is to keep retail demand up. Iomega needs to show the benefits, indeed the necessity of having an archive/backup/shareable media device. They have convinced many, but not the masses. This is probably a classic second stage in "Crossing the Chasm"-speak. I did some interesting number crunching today and in my "base case", Iomega would penetrate 35% of the OEM market in 2001. In that case, things are good; 35-40% earnings growth from here. But the risk in this stock is this. My base case represents the gap between failure and success on the Zip-replaces-floppy front. The fact is, my upside case calls for 70% of PCs to have Zips and my not-yet-created (too scary) downside case will call for 15% of PCs to have Zips. None of my cases assume that Iomega will invent new products other that Zip, Jaz, Ditto and clik!. They do assume that Jaz2 is succeeded by Jaz4 and other future Jaz products. They don't assume Zip2 at all. They assume Ditto stays alive by growing. I think, though, that Iomega has an upside case that they won't get around to for 12 months yet. Iomega will likely leverage its two most powerful assets: the Zip drive and its brand, to so sell other products. These may include, but are not limited to, Terastor drives, DLT-type tape drives, DVD-RAM, etc. etc. I know what you are all going to say: the margins are not there if you don't "own" the media. That is true. But if you are a brand company, you sometimes take 10-20% gross margin products when your only involvement with them is branding them and using your channels to get them distributed. These may be important in the 1999-2000 time frame. Between now and then, there is a lot of blocking, tackling and hoping. They've got to sell more Zips. Price cuts and education ads are the key here (as is OEM salesmanship broadly). They've got to restore Jaz volumes and kick them into high gear (3 million capacity is a lot for a product I currently have slotted at 1.3 million in 1998 (things get joyous in a hurry if they do 2-2.5 million by the way). They've got to get some camera maker to make a clik-cam and get it into a WinCE device in the new sub-sub-note class of laptop replacements. The hope is that the ads work and kick off a new round of retail Zip buying. If Iomega can sell a lot of retail Zips they'll make more than enough dough to justify the ad blitz; more importantly, if 8-10 million Zips sell at retail this year, the box makers will be more likely to clamor to put them in at the factory. 10++++++++++++++++++++++++++
Subject: Analysts' poor record This month's Forbes magazine has an article detailing an analysis where analyst expectations over a 1000+ company sample was tracked and compared to actual earnings over the last few years. To make sure to reduce bias they only included companies with 4 or more analysts following. Guess what? The analysts were on average almost 40% off, year in and year out! Pretty poor track record! So now, we crash because we miss earnings estimate by a penny. With such horrible forecast accuracy, all other things being equal, the quarterly prediction should have been 15 cents....plus or minus 6 cents! Now, I'm being a little sarcastic here, but it's to make a point: What really counts in the long run isn't earnings expectations but actual earnings. Earnings which, if I'm not mistaken grew 77% versus last year. So isn't all this drop a bit excessive? Yes, I am concerned by the low growth in US Zip volume, but it seems to me that no one is factoring in disk revenue growth potential on the installed base either, nor making any attempt at valuation based on revised earnings growth. 11++++++++++++++++++++++++++
Subject: Re: Why Zip? I work on a consulting team that is using 2 Zips and a Syquest (not sure which one, but I know the cartridges are around 1GB). The difference in the way we treat the drives and carts is interesting. Note: I'm not sure the technology of the SPARQ is the same as the drive I see in action every day. -I share files with the other Zip owner by, literally, throwing disks back and forth across a large conference room. On the other hand, the Syquest owner handles his carts with great care. He panics if the drive is jostled with the cart engaged. We challenged him to throw his cart across the room--he declined. We handle Zip disks just like 3.5 floppys. They get tossed into brief cases and computer bags, thrown around rooms, stored just about anywhere without concern about damage. -We don't take in precautions when handling the Zip drives. If they get bumped while in operation--no problem. When we shut down we just put'em in the computer bag and dump the bags in the car. The Syquest owner handles his drive as if it were a delicate instrument. It can't be moved or jostled while in operation. It happened once--the cart was damaged. If he loses a cart it cost a great deal more than if a Zip disk is damaged. In addition, he is very careful about packing and transporting the drive. Could be over doing it in this aspect. -We constantly go to client computers with our Zips and guest software to download large databases or spreadsheets. Once you boot up with a Zip you can disconnect and reconnect without rebooting. No can do with the Syquest. So, why Zip? Tougher, more convenient, more capable. Speed and disk size are not the primary considerations for us. 12++++++++++++++++++++++++++
Subject: Re: Read The Press Release If you read the press release and look at the numbers, three things stand out: 1) SG&A expenspes increased by $36 million (4QTR 97 versus 4QTR 96). Notice how "advertising" was placed last in the explanation. IMHO, I suspect that the detailed income statement would show that advertising accounts for the bulk of the increase. 2) Postponement of shipment of new products until 1QTR98 3) Revenues increased ($1.7billion v.$1.2billion in 96); net income increased ($115 million v. $57 million in 96); net margin went up (33.4% v. 29% in 4QTR96). AND MOST IMPORTANTLY for those who have run businesses: Positive cash flow for both the quarter and the year ($32million and $137million) respectively. In the last three months of 1997, IOM's cash increased by $30 million. As most of you know, accounting rules can be used to manipulate income either way (deferred expenses or revenue, depreciation or amortization period, etc.). However, one can not hide cash flow which - in IOM case - looks solid IMHO. As many of you have already mentioned, IOM management embarked on an ambitious advertisement campaign whose expenses hurt 4QTR97 number. By delaying shipment of new products until 1QTR98, IMHO, management basically put the bulk of the ad expenses in 97 while transferring some '97 revenues to '98 (via delayed product shipments). If the ad campaign succeeds, the results will be stellar. If not, the revenue transfer will cushion the results. Basically, IMHO, they wrote off 4QTR97 in order to make quantum leaps in 98. In looking at the numbers (especially cash flow and margin), IMHO, this company is a good buy at $9 (approx. 20 times 98 est. earnings) with solid cashflow and low debt. 13++++++++++++++++++++++++++
Subject: What Bothers Me Beyond the numbers and beyond the poor showing of Iomega management during the conference call, what is nagging me and I suspect the street is that the company is having problems in the face of virtually no competition. In this cuthroat business you must seize on every little window of opportunity. Product delays, component shortages, mistakes in PR, and the $199 Zip Plus and the $600 Jaz II have given competition more of a chance. Iomega is viewed like Satchel Paige characterized. "Don't look behind, because someone is gaining on you." (apologies if this is not an exact quote.) Because the company is viewed as a one hit wonder, everyone is waiting for the competitior to knock it off. This is why articles like Eric Savitz's proclaiming the Sony HIFD the eventual floppy replacement winner, can even be published. This is why we get short- term buy and long-term hold recommendations from Soundview. Unfortunately, Iomega has recently not helped ease these fears. I believe this is why the stock fell from the low thirties (pre-split) to the mid twenties. While competition is still limited, you can be sure that Mark Rogo is correct, that every Spar Q or SyJet sold is hurting Iomega. You can also be sure that when the LS120 laptop comes out it will provide serious competition to the Zip laptop. And you better believe that the Laptop LS120 has the possibility of breathing some life into the comatose desktop LS120. This is why I and so many others were so anxious to get the Laptop Zip rolling. The LS120 laptop has space advantages over the laptop Zip that can be exploited. What this all means is that Iomega's breathing room (forget elbow room) has narrowed considerably. This is not a time to boast about 12 or 13 million Zips installed what a lead Iomega has and how fast the company has grown. This is a time for Iomega to correct the many mistakes it has made over the last several months, stop acting like an arrogant fat cat and start to execute with the kind of excellence that raises companies to a status that keeps its shareholders happy. By the way, I did like the Superbowl Ad. But advertisement without execution is pretty meaningless right now, and beyond being an anxious shareholder, I have for the first time lost some confidence in the Iomega leadership. 14++++++++++++++++++++++++++
Subject: Why We Should Spend $100 Millions in Advertisement For those who read "Gamble on the Mainstream", this is a consolidated version and I changed the title for the post. Let's discuss the issues I talked about here. As we all know, Iomega's only future (unless the clik! soon clicks) lies in the total adoption of the Zip as the new floppy standard because sooner or later, Iomage will exhaust the "early-adoptors" market (meaning we will run out of savvy computor users who were and are Zip buyers). The Q4 slowdown in America might be an indication of just that (the exhaustion). So Iomega has to go after mainstream (ordinary users). This is a step no great technology company can avoid! (They knew that and had planned on doing that all along. Or maybe they don't?) I have no trouble with their using $100 millions in commercials, but I do have concerns and dislikes. First, investors and analysts were psychologically unprepared. As far as I know, Iomega had never outlined its strategies for going to the mainstream and prepared investors for tough battles ahead (going into mainstream is extremely tough). In Q3 conference call, KE described the Q4 commercial plan but never indicated that the Q4 plan was part of a bigger strategy. So, the announcement of $100 spending sounded more like a rescure plan than a confident pursuit. KE should have said in Q3 conference call (when everything looked okay) that they had a plan to sacrifice the short-term for its eventual success and "fasten your seatbelt." They've been too secretive! Secondly, to convince mainstream, Iomega has three points to make. (1) Why Zip, not floppy? It is more than just "stuff", back-up, file size, it is about conveniene. Mainstream does not care "cool" or cutting-edge technology, it only cares the benefit they can get from a product. For a Zip drive, the benefit is convenience. You only need one disk to store all your files, big or small, and you can elminate all your floppies and their labels. And you won't lose a single file, a single disk if you use two zip disks to double save all your files. Does any Iomega commercial make this point to mainstream users? (2) Zip is fast. You have to tell people the speed of floppy is simply unbearable! Let them feel that and then hate the slowness. Otherwise, ordinary people will simply be happy with the floppy. (3) Compatibility: Because other people have it, so I have to have it too. This has been proven to be the motive for many mainstream users. No Iomega commercials EMPHASIZE that. By emphasize the compatibility issue, you give SyQuest no chance. To me, the main problem with Iomega commercials is that it sends too many different messages -- big size, fast, compatibility, cool, hip -- and the theme is too vague for mainstream. What is my "stuff"? "I don't have much stuff." (The "stuff theme" worked for early adopters because it is cool. And ordinary computor user doesn't care coolness that is why many of them buy $999 computors. They are pragmatists.) The new theme for Iomega's commercials should be: "Why Floppy is not Good for You, but Zip is?" The slogan could "Floppy is Sloppy!" Then you say, because of the convenience (managebility of files), speed, compatibility, Zip is the best solution for your stuff. Our commercials need a coherent theme and be extremely focused on the target -- the floppy. After all, isn't that what Iomega wants to do, to replace the floppy? Why don't you say so and tell them why. Having said so much about their marketing plan and sounding unsatisfied, I will say that I still have a lot confidence in the Company. I will write down later why I think so. 15++++++++++++++++++++++++++
Subject: Re: Why Zip? Your argument is flawed by the fact that you do not have to spend the amount of money you claim to, in order to own a Zip drive that would be somewhat equal to the Sparq drive. You claim an $80 cost of an SCSI adapter. This comes for free with the purchase of an internal Zip drive. You claim it costs $130 to buy a ten pack of Zip disks. I bought a ten pack at my local Circuit City last weekend for $99. You also claim it costs $150 to buy the drive to begin with, when they are being advertised at least $30 lower than that at any given time. Look in this Sunday's New York Times, on the back of the Arts and Leisure section for a current sale price. (New York City edition, as that is where I live.) Finally, you neglect to mention that, when you buy the internal Zip, you get a free 100mb disk with it that has a very useful "Zip tools software", which has a $49 value. Your argument about the need to carry 10 disks as opposed to one is simply not relevant to most people. Zip was designed to easily carry 100 Mb's of information around. (Home to office or school) Who need's to carry a gigobyte of information around on a regular basis? My math, then, would seem to indicate a rather different result. Zip cost me $120. Add $198 for 2 Gig's worth of disks. Add nothing for a SCSI card.Discount the cost of one disk with software. Minus $49. Total=$269 @ 1MB per second.Your Sparq costs $300 @ 1.25MB per second. Result is that you pay $31 (or so) for a quicker transfer rate of .25MB My argument here does not purport to say that competion is not heating up in the storage industry. I am saying that we are well positioned from a price standpoint. I also find it rather extraordinary that nobody has mentioned the timing of the ads on television are actually very good from one particular viewpoint. When all those people who bought "Sub $1000" PC's for Christmas realize that 1.5 Gigabyte hard drives are not in any way big enough for todays games and applications, what are they gonna do? And, perhaps more important, how long do you think it will take the average user to realize this? In my case, (with a 2.4 Gig drive) it dawned on me within a month or so. The Super Bowl is within a month of Christmas. This is excellent timing in my opinion, and should provide some very good results. I am long IOM, and own their product. I am happy and positive on both. I will perhaps jump into the stock price discussion when I have some more time. Until then, I hope everyone has a wonderful Super Bowl weekend. 16++++++++++++++++++++++++++
Subject: $100 million Presentation; NOT I was very upset with the way KE presented the $100 million ad campaign. He could have easily presented the ad campaign in a very positive light. Example: "As you know, our goal is the replacement of the floppy. To this end, 1997 was been a spectacular year. Our OEM Zip drive sales were up 11 times over the OEM drive sales in 1996. Our OEM sales for the 4th Q were 1 million drives. That is more than the total, retail and OEM, sales we had in the frist Q of 1997. That is right on target with our objective of getting into the box. Up until this point we have not had the production capacity to keep up with demand. However, we have grown our ability to produce drives from the stated value of 8 million per year (1Q97) to the current ability to produce 20 million drives per year. Furthermore, our licensee's are currently producing and have ramp plans in place to support 6 - 12 million drives this year. As you know, the independent projections of Zip type drive sales in 1998 stands between 12.5 million and 21.4 million drives. We intend to maintain our current commanding market share. Furthermore, we see 1998 as the year that we "cross the chasm" into a truly mass market appeal product. Thus, with the production capacity in place we are embarking on a $100 million Zip marketing campaign. Our objectives for this campaign are as follows: 1) Educate the masses on the need for a Zip drive. 2) Increase tie ratios by encouraging the use of Zip disks (especially by the Zip Built-In consumers) 3) Create strong branding 4) Co-op Ads with Box makers to encourage Zip Built-In pull through .....etc. The roll out of this campaign will be approximately 1Q = 15MM, 2Q = 15MM, 3Q = 30MM, 4Q = 40MM. This will allow us to access the effectiveness of our campaign by mid 2Q and make any necessary adjustments before the big push begins in 3Q." I think with that type of presentation I would have still have my money. Oh well, I guess even great news can be spun into a negative risky endeavor. _______________________________ End Report. Posts covered through 2:00pm ET 1/25/98 _______________________________
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