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Monday, February 23, 1998 Friday, Iomega closed at $.8 3/4, down $1/16 (-0.71%) THIS WEEKEND'S RECAP: The Iomega message board was quite active over the weekend despite little movement in the stock's price on Friday. Posters found issues such as operations, advertising, Micron, Sony, Buz and the economics of the market awaiting them on the board. Others discussed pros and cons of owning Iomega, shared information about new products and talked about the new "Zip Inside" (or "Zip Built In") logo seen in some new ads. 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++ RJDIV gives reasons to love and hate Iomega
Recap written and posts compiled by TMF Weekly. _______________________________ And now, the Best of the Board...Started 9:00pm ET 2/19/98. 1+++++++++++++++++++++++++++
Subject: Reasons to love & hate, but buy Iomega now Reasons to hate IOM..... 1- recent stock price performance 2- IOM bashers 3- Nomai problem 4- Shareholder lawsuits 5- Sony's vaporware HiFD 6- IOM's market bad sentiment 7- Analyst's thoughts about IOM (1 product company) Reasons to love and buy IOM..... 1- With IOM's recent stock price performance, IOM's price is cheap considering it's GPE. With a P/E around 19 and an average projected 5 year growth rate of around 30%, the GPE is around 1.58 (which is excellent). 2- IOM bashers. Herb is gone, and eventually, as IOM continues to grow revenues & earnings, the rest of them will eventually have to come around and recognize IOM as a great growth company. 3- Nomai problem. The fight isn't over yet, and since Laurie Keating, VP General Counsel recently purchased 20,000 shares, I feel more confident about this situation. 4- Shareholder lawsuits. I'm not sure about this, but someone on the board posted that companies are insured against lawsuits from Ambulance chasers. 5- Sony's vaporware HiFD. Sony will have a huge battle on their hands considering there are about 13 Million Zip drives already in use. Look at past history. Why did Betamax die? It was because demand for VHS far exceeded demand for Betamax. Also, do you think large companies like Dell and Compaq will buy a product from a rival computer maker to help their profits when they can buy from an independent like Iomega, especially when Zip's installed base will probably be close to 18 million (rough guess) by the time HiFD is released. I still feel if Iomega were to release Zip 200, this would will render Sony's HiFD D.O.A. 6- IOM's market bad sentiment. This will change to positive as IOM's revenues & earnings increase, and the bashers will fade away. A few years ago, all the analysts hated INTC & AOL (look where they are now). With the amount of products (old & new) has IOM sells, IOM's revenues & earnings will increase dramatically. 7- Analyst's thoughts about IOM (1 product company). Look at the list below (taken from QVC online). This is not a 1 product company anymore. Also, Buz and DittoMax are not listed, and clik will be released soon. Considering the price of flash memory, clik should do well. Iomega ZIP Plus External Drive - Parallel & SCSI$196.35 Iomega 10GB Dittomax Media - 1 Pack$24.86 Iomega 5GB DittoMax Media - 1 Pack$24.96 Iomega 3GB DittoMax Media - 3 Pack$54.52 Iomega Jaz 1GB Disk - Single Pack$129.00 Iomega Zip Carrying Case - Black$34.63 Iomega JAZ Traveller SCSI to Parallel Port Converter$49.52 Iomega Insider Internal 1GB Jaz Drive - Green$319.00 Iomega ZIP MAC Format 100MB Media - 1 Pack$12.50 Iomega ZIP PC Format 100MB Media - 1 Pack$12.50 Iomega JAZ PCI SCSI Accelerator$109.00 Iomega Zip 100 Plus w/ Hot Multimedia Software$198.93 Iomega Zip Zoom SCSI Accelerator Card$44.88 Iomega JAZ Drive - 1GB External SCSI Disk Drive - Green$419.00 Iomega Ditto 2GB Backup Tape Drive$179.00 Iomega JAZ Drive - 1GB External SCSI Disk Drive$419.00 Iomega Zip100 Zip Drive - Parallel Port Version- External$149.83 Iomega Zip100 Zip Drive - External Drive$149.83 Iomega 7GB DittoMax Media - 2 Pack$56.82 The bottom line is buy when a stock has been beaten down but fundamentals are still intact, and when the market hates a stock. How much money have investors made who bought INTC & AOL when they were hated? Just look at IOM's expansion (leasing many new buildings, hiring many workers, etc.). Does this look like a company that does not have tremendous potential going forward? Look at IOM's competition SYQT & IMN (Iomega is killing these "so-called" Iomega killers, looking at their recent earnings reports and layoffs). IMN and many other tech companies are downsizing, Iomega is EXPANDING. All the signs are there for IOM to make all the skeptics wrong. As far as the $100 million ad campaign is concerned, I can't wait for the day when Iomega can afford to spend $200 million in advertising. At the rate Iomega is growing, it won't be long. Many of the opinions are mine, but you be the judge. It took some time to write this post. I would appreciate some replies. Is this microphone on???? 2+++++++++++++++++++++++++++
Subject: Re: Reasons to love & hate, but buy Iomega now << It took some time to write this post. I would appreciate some replies. Is this microphone on???? >> If you insist on relpies, I will provide one. I think you missed the boat on reasons to dislike IOM. There are plenty of good bear arguments to be made, though few actually make them. Here are your reasons, mine follow: << Reasons to hate IOM..... 1- recent stock price performance 2- IOM bashers 3- Nomai problem 4- Shareholder lawsuits 5- Sony's vaporware HiFD 6- IOM's market bad sentiment 7- Analyst's thoughts about IOM (1 product company) >> Now let us look at a few others: Operations: The company has failed to get new product out the door in a timely fashion. Jaz2, Buz, Zip+ (in volume) Worse yet, they announced a new product that wasn't ready that substantially impacted an already existing successful one. This is a substantial managment problem. Margins: Why is this company working at 6% net margin? With the type of razor blade model we have been screaming about for 3 years, where is the gravy? The answer lies partly in SG&A (bloated?), and partly in. . . Disks: If they were knocking down doors in their core business model, that would mean the disks were flying off the shelves. I'm not quite sure this is happening, based on everything we are seeing. Risk of Advertising: As important as it is to advertise, no one knows how well it will succeed. This means uncertainty and possible failure. This directly impacts the risk:reward relationship that goes to the heart of any kind of stock analysis. Intellectual Property: You cite Nomai, but in reality the problem is far bigger than that. If Nomai can do it, why not Sony or any other disk manufacturer? They could either either make their own or license from Nomai. Nomai need not do it on their own. That is for the Zip disks. How about Jaz disks? Is there a retroflector on the disks? Nomai is cloning high margin Jaz disks too. How will that turn out? More risk, which again impacts the risk:reward relationship. Lack of Guidance: The lack of guidance to analysts increases the risk and instability in this stock. The less sure these folks are of the numbers they use, the bigger the chance for downside surprises. Many companies learn from their mistakes. This one seems to make the same ones over and over. Example: The company said that Jaz2 is now shipping. Anyone seen one? No. The date is now March for its release. Great. I thought that the press release was written in present tense, as in shipping now, not future tense, as in "next month". I think you should forget the nonsense of "bad market sentiment". That is a red herring. If this company proves it can produce substantial, sustainable, increasing earnings, the stock will rise. They did a great job of branding themselves, but now they need to take it to the next level. Can this managment team do it? In my view, the stock is down due to the substantial risks of owning it. 3+++++++++++++++++++++++++++
Subject: Re: Reasons to love & hate, but buy Iomega now TMF Turk wrote: << Operations: The company has failed to get new product out the door in a timely fashion. Jaz2, Buz, Zip+ (in volume) Worse yet, they announced a new product that wasn't ready that substantially impacted an already existing successful one. This is a substantial managment problem. >> In all fairness to the Operations people at Iomega, I would like to point out that in roughly two years they have boosted production of external Zip drives probably 2000% without buying another plant (external Zip drives are not made at Penang but the same Phillipine facility they have been made at since Sept. 95). Iomega has also boosted production of drives from around 333K per quarter to maybe 1.5 million per quarter in 1.5 years. All that with the purchase of one plant for around $30 million dollars. The average cost on a Zip drive has probably dropped in half in the last 18 months. Drive cost reductions increased Gross Margin in a quarter where disk sales were below internal expectations. I believe these facts are the real measure of the companies Operations people; not missing Jaz 2 drive ship date by 2-3 months. The facts above show that Iomega is a top notch organization when it comes to making its product at competitive costs. All production problems have really come from subcontractors not being able to, or unwilling to, keep up. 4+++++++++++++++++++++++++++
Subject: <<Goodbye floppy? Micron offers Zip drive
standard>> (Was: WOW finally great news!!!) << Goodbye floppy? Micron offers Zip drive standard >> I didn't make up the above title. Nor did any other Iomega bull here. It is the title of a newly posted article from InfoWorld Electric. Thanks to Barneydone for bringing us the news. I like the InfoWorld article title a lot. And if you like that tiltle too, you should read the article in full. The link is provided here: News (InfoWorld)
http://www.infoworld.com/cgi-bin/ It was writtern by Dan Briody for InfoWorld Electric, posted at 12:15 PM PT, Feb 20, 1998. If you like the title, you will love the first paragraph: <<Micron is planning to relegate the 1.44MB floppy drive to option status and offer the 100MB Zip drive instead, bringing the future of removable storage closer to now. ... >> It is not just "A: Zip". It is also "no floppy". "Relegate the 1.44MB floppy drive to option status." This may be one more step further than I thought Micron would do. I thought Micron would just offer Zip as A:Zip and still keep the floppy as B:drive. But I am definitely not complaining here. When? <<The move by Micron to make the Zip the primary drive in its forthcoming Millenia PCs in March .... >> Zip seems to be trading places with floppy. Ladies and gentlemen, we may be witnessing computer history happening right in front of our eyes. The article quoted Tim Bajarin, president of Creative Strategies, as saying "It is a leap of faith for Micron, but floppies are completely going out, ... Micron is doing what Apple did in the '80s, when they went straight to 3.5-inch floppies from 5.25-inch. ... " And a little bit more from the article: << ... Many PC OEMs already offer a high-capacity removable storage option on their PCs, but if other OEMs follow suit and make them the default drive, the floppy won't be around long. ... >> "floppies are completely going out" and "the floppy won't be around long": It may not just be that Zip seems to be trading places with floppy. The floppy may be fading away. As long as the floppy is going out, I don't mind if it won't go out quickly, as quickly as some seem to imply in the article. There could be a transition period. But don't get too excited yet. The article later quoted Fara Yale of Dataquest as saying: "This is an important first step for high-capacity technologies in replacing the floppy ..." Only the first step and there could be other technologies? Well, maybe just for balancing. You should read the whole article and judge for yourself. It was interesting that I happened to call Micron Electronics sales yesterday. I am really in the market for some systems with Zips. I asked a salesperson at Micron for systems with A:Zips. She told me A:Zip systems are not available yet. I then asked her for an availability date. She said she wouldn't know. Still on the phone, I remembered I read somewhere that Micron A:Zip systems would be ready in March. So, I tried again: "Will A:Zip systems be available in March, beginning of March, or by end of March?" She said "don't know and don't think so". She added: "Maybe later", and added "The Zips in those systems will replace the floppies, those systems will have only A:Zips and no floppies." I asked: "Not even if I still want the floppy as B:drive?". She didn't answer. She made it sound like she didn't know what she was talking about. 5+++++++++++++++++++++++++++
Subject: Re: <<Goodbye floppy? Micron offers Zip drive
standard>> (Was: WOW finally great news!!!) Novw posted: << Still on the phone, I remembered I read somewhere that Micron A:Zip systems would be ready in March. So, I tried again: "Will A:Zip systems be available in March, beginning of March, or by end of March?" She said "don't know and don't think so". She added: "Maybe later", and added "The Zips in those systems will replace the floppies, those systems will have only A:Zips and no floppies." I asked: "Not even if I still want the floppy as B:drive?". She didn't answer. She made it sound like she didn't know what she was talking about. >> The November or December press release by Micron said "early 1998" for Zip as a: drive. The release also stated the Floppy would be moved to b: drive. I would be more than just a little surprised if they removed floppy at this juncture. Since their press release I have decided to move up from my current 486 DX-33. I have been speaking regularly with a sales rep from Micron about it. I have definitely decided, though, to hold out for Zip a: drive before I buy. For me waiting for Zip a: is symbolic in my investment in IOM. I have found that the sales reps typically are not given (intentionally IMO) much info on availability of upcoming products/features. I am quite anxious to get my new PC and last week got fed up with waiting. Last Thursday (2/12) I went on a crusade determined to get some type of commitment out of someone at Micron. After being transferred no less than 3 times I ended up talking to a guy in Sales (who said he didn't know). I got fairly insistent that I expected an answer. He said he would check and call me back the next day. Well when I came home Friday night there was a message for me that a: Zip would be in March. This is confirmed now by the article. Some little known facts I have learned about Micron that give an indication of their willingness to take bold moves to attempt to establish themselves as market leaders are: they wer first to offer CD-ROM as an option, first to make CD-ROM standard (these first 2 I believe were previously mentioned here), and they were the first to install sound cards. The impressive part isn't just that they were first but that they were ALSO right! Is Zip just one more item this bold company will lead the market on? Bob P.S. In an effort to get me through for the next few weeks I will be installing a DX2-66 CPU this weekend (big deal, huh?). It was free so what the heck : ) 6+++++++++++++++++++++++++++
Subject: What would it take? For the most important part of this post, please skip to the next to last paragraph (asking "what would it take...") if you are short on time. Today I had a couple thoughts about competition for the floppy replacement wars, and I believe that it will be a lot harder for HiFD (or anything else besides Zip) to replace the floppy than I had originally considered. Ponder this: There are already 12million+ Zip owners out there. In order to replace the floppy, they will have to penetrate this base, replacing not only floppies but Zips as well. These users are important because they are more likely to be the power users, the early adopters, the techies, the graphics and educational sectors, etc. Basically anyone who's not Joe Consumer. The trendsetters, not the trend followers. If both devices (Zip and HiFD) were starting from zero, it might be (would be?) an even battle for these users. But considering the lead that Zip already has, I don't believe that anyone else has a chance to steal them from Zip. First consider cost: HiFD will cost (by the lowest estimate I've heard) $149 for the external. But remember, we're not dealing with new users here, we're trying to steal Zip users. So you have to add in the cost of throwing out their Zip drive and disks. In my case, it's $149 for the drive, and $129 for a gigapack. Adding these three costs together, my cost to buy a HiFD is effectively $427! This does not include HiFD disks, either! Even in the best case for HiFD, a $99 drive and two $10 disks, the effective cost is $268! Next, we have the factor of built in Zips. Who is going to want to buy an external HiFD when they already have an internal Zip and floppy? Anybody? So until they buy a new computer, there's a couple million more "impossible" HiFD sales. How about people who NEED Zip's compatibility? People who are using Zip, and need to pass their Zips to a diverse group of others? Are they going to assume that everybody they know is going to drop the personal standard? I doubt it. So throw out a couple million more corporate, graphics, etc, Zip owners. Heck, then there's plenty of people who simply see no need for backward compatibility, those comfortable with Zip and don't want to mess with a good thing, IOM shareholders <g> and plenty more who simply won't switch from Zip to HiFD until they absolutely have to. What I'm trying to say is that there are well over 12 million users out there to whom it will be EXTREMELY difficult for Sony to sell a different "floppy AND Zip replacement." Not to mention Windows 98 coming out before HiFD does. I'm sure this will further increase file sizes, making backward compatibility even more useless. If we were starting from zero, this would be a double edged sword because of HiFD's larger disk size, but because we're not starting from zero and Sony is relying on BC as a selling point, I believe the HiFD is hit much harder than Zip. So what would it take to steal these users from Zip? What would it take to steal YOU from Zip? Graphics people, accountants, home users, backup people, and everybody else--- what would it take to steal YOU from Zip? What would the HiFD have to do in order for you to say "okay, I'm getting rid of the Zip I already own and I'm going to buy a HiFD"? Obviously each of these factors (money, compatibility) affects everybody differently. Personally, it would take a heck of a lot for me to switch. Compatibility would be the main thing. Zip fulfills every other need I have for a superfloppy, and would continue to fill it even if everybody else had something else. So in order for me to switch, I would have to see AT LEAST 25% of the Zipped market switch, as well as a significant amount of the unZipped market (no, not Clinton). I certainly wouldn't want to be the first one with a HiFD, because I'm compatible with no one (as opposed to about 20% with Zip), and as an external device it wouldn't fill any needs that Zip didn't fill already. Plus, I don't like the idea of throwing out $300 and spending another $200 minimum for a new drive and disks. Most importantly, I still own IOM! ;) Ok, so let's get some responses--- what would it take? 7+++++++++++++++++++++++++++
Subject: Buz Experience Last night picked up Buz after missing the Fed Ex delivery. Right after, I went out with a friend and had 5 Margaritas (Not the real big ones). Came home and installed Buz without any hitches. My main concern was changing my ISA card that connects to the internal Jaz drive and connecting it to the Buz PCI card. I thought their would be some compatiability problem. But It couldn't have went better. Directions were clear and precise when you read them. I went through final section on setting up the Audio In recording properties to quickly. After capturing video, the audio was not be playing. Bounced back to read this final section of the manual and was able to fix my problem. Iom and partners have another hit . Great price point, good quality and neat software. 8+++++++++++++++++++++++++++
Subject: Re: What would it take? Rob: My only comment on your analysis is that I think it is incorrect to factor in the cost of the already-owned Zip drives. You state that: << HiFD will cost (by the lowest estimate I've heard) $149 for the external. But remember, we're not dealing with new users here, we're trying to steal Zip users. So you have to add in the cost of throwing out their Zip drive and disks. In my case, it's $149 for the drive, and $129 for a gigapack. Adding these three costs together, my cost to buy a HiFD is effectively $427! This does not include HiFD disks, either! Even in the best case for HiFD, a $99 drive and two $10 disks, the effective cost is $268! >> My point is that you have to be careful about "add[ing] in the cost of throwing out" the existing hardware, because those costs are "sunk costs." Economic theory tells us that sunk costs are supposed to be irrelevant to forward-looking decisions. Why? Because that money is spent, or sunk, regardless of your future decision and the future decison cannot affect that. From your example, if I choose not to buy the HiFD drive, I will have in my possession (1) a Zip drive worth $149 original cost (depreciated for use), (2) a gigapack worth $129 original cost (depreciated for use), and (3) $149 cash. If I decide to buy an HiFD drive, I will have in my possession (1) a Zip drive worth $149 original cost (depreciated for use), (2) a gigapack worth $129 original cost (depreciated for use), and (3) a new HiFD drive worth $149. The only difference in the two sums is whether I would rather have cash or an HiFD drive; because the Zip components are sunk costs, they "wash" in the equation and should not affect the buying decision. Please note that I only said that you have to "be careful" about adding in these costs, not that you should not add them in -- even though economic theory tells us that such sunk costs should be totally disregarded in making the purchase decision. The reason that I do not follow economic theory to the letter here is because this appears to me to be one of those situations where people often act with economic irrationality -- in English, people do seem to care what they paid for their existing equipment when they make such decisions, even if they shouldn't. A respected economist is reported to have spent a fair sum of money buying a 6-month membership to a health club, including pool privileges. As soon as he spent it, the money of course became a sunk cost -- no way to recover it or affect the amount of expenditure through future behavior. Nonetheless, the economist told his class the next day that he felt that he must use the pool every day for the entire term of the membership so that the "per use" cost of swimming would be kept low. When one of the students pointed out to the economist that this was an inappropriate analysis of sunk costs, the professor replied: "But these are MY sunk costs." Which is a very roundabout way of saying that a fair proportion of the population may well consider their sunk costs in making this decision, as you state you would. But don't take it as a given. 9+++++++++++++++++++++++++++
Subject: J & R COMPUTER WORLD ADS FWIW J & R full page ads on last page of the Business Section of Sunday New York Times: For many weeks the ad featured refurbished JAZ at $199. For about 2 weeks they featured the above and the Sparq. For about 2 weeks they featured the Sparq only. Last week and this week they featured three IOM products: 1) Zip Plus @ $199.99 2) Ditto Max @ $299.99 3) Jaz External @ $299.99 and the Jaz Internal @ $279.99 They also featured 2 out of 3 Macs as 'zipped' and one Compaq Presario as 'zipped'. But what really caught my eye today, and probably enabled me to risk putting up a post, is something I have never seen before. On all three (3) ads for the 'zipped' desktops there is printed a very large, logo type, symbol. The symbol is a globe with the word ZIP on it and around half the globle is a semicircle. The symbol is half an inch in diameter, much larger than the apple symbol which is only half as large. The symbol is very eye-catching. If a reader did not already know what a Zip Drive is, he or she may well be stimulated enough to wonder why Apple and Compaq are super imposing this symbol on their advertisements. There appear to be some letters on the semicircle, but I could not make them out even with the help of a microscope. Perhaps they are not letters??? It would be a great spot on which to print something like "ZIP INCLUDED", or words to that effect. _______________________________ End Report. Posts covered through 6:00pm ET 2/22/98 _______________________________
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