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Friday, March 20, 1998 Thursday, Iomega closed at $7 1/4, unchanged. TODAY'S RECAP: Sanity reigns in the Iomega board again as posters have assimilated the potential poor earnings for this quarter and have moved on to discussions of Zip competition, Iomega and others' marketing strategies (good and bad), valuation numbers and even suggestions for improving the company -- some of which included letting Kim Edwards (CEO) try his luck at another company. 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++ ZilberHere addresses the role of Zips and Swan drives and the average
computer consumer.
Recap written and posts compiled by TMF
Weekly. _______________________________ And now, the Best of the Board...Started 7:00pm ET 3/18/98. 1+++++++++++++++++++++++++++
Subject: Re: Swan Song I said: << Whereas, it is inconceivable that the public would ever embrace an external high-density floppy drive format that looks, from the outside, exactly like their standard internal floppy drive. >> You said: << Absolutely, I totally ignore the specs when shopping for computer equipment and I'm sure everyone else does as well. >> Sarcasm aside, your generalization has a deafening ring of truth. Many, many computer users do not read or comprehend technical specs. They buy what a salesman tells them to, as long as it sounds credible and within their budget, and they staunchly try to avoid changing anything once they've got a system that works. Swan (et al) is a non-starter for all of the millions of WIndows boxes that already exist, because there is no credible sales pitch which could convince consumers to replace their reliable old internal floppy drive with an expensive and untested new one. Nor will the masses be rushing out to add a second, external drive that looks for all the world like the same internal floppy drive they already have. (Dual floppy systems went out of style in 1985 ... the second drive was a luxury nobody needed.) Yes, of course one could explain -- very patiently, over and over again -- that the external superfloppy drive has more capacity, and is therefore worth the extra trouble and expense. But that's truly the most credible argument for nothing less than an external ZIP -- the well-established market leader with a solid track record and a vast installed base. What conceivable reason would consumers (or their salesmen or systems gurus) have to favor a theoretical Swan external over a ZIP, when the marketplace has soundly rejected the very similar (and non-vaporous) backward-compatible drive from Imation? This is what I'm waiting to hear from the Swan boosters, but nobody's lined up to produce that market research yet. Is Swan poised to market product to those who haven't gotten around to installing a Zip and therefore remain hugely open-minded? Unless Swan's private financiers are prepared to sell product at a huge loss for years to come, they can't possibly have the resources to make a serious dent in that "higher fruit." market. The real challenge here will be to convince these people that they need superfloppies at all. Professionals who needed reliable high-density have already bought all the Zips they need for the time being, and this market saturation probably accounts for most of the present sales slowdown. Meanwhile, casual computer users still do not know why they need high-density disks, and they will sieze upon any clumsy workaround if they can get avoid the extra trouble and expense of installing one. At least a couple of times every week, I have to wrestle with clients' files which have been archived across multiple standard floppies ... or I have to rescan photos which were originally resolved to fit a single floppy's capacity rather than the required publishing specifications. When I plead with these clients to buy a Zip ( -- or even a Syquest if they're predisposed toward the older brand -- ) they hem and haw and shrug, but they don't buy anyone's high-density drive. They've managed to avoid it so far and, unfortunately, I can't charge them more for failing to make my life and livelihood easier. For all the short-term setbacks they've caused Iomega -- and the snickers they've generated -- management is absolutely right to be saturating the media with brand recognition advertising. I salute them for having the guts to do it now, in spite of the impact they knew it would have on the current quarter's EPS. Over time, their message will get through to the non-technical computer users, the "higher fruit." (Zip stores ... lots of stuff ... hmmmm .... Oh, yeah, come to think of it, that would come in handy!) Educate me, Swanboys. Up until now, you've spread nothing but unverifiable speculations. Come clean and share what you think you know, and how you have come to know it. How much investment capital does Swan really have to play with? What kind of manufacturing infrastructure is in place or under construction? What price point will their products initially target, at retail and to OEMs? How long are they prepared to lose money? How do they plan to compete for "higher fruit" -- with a $200 million ad campaign? How do they plan to convert Zip's massive installed user base over to Swan? On a dare? "Technical superiority" is both a matter of opinion and (for better or worse) quite irrelevent here. If you have nothing more to say besides "Look out, Zip!," then let's just drop it. You come off like quasi-religious cultists rather than rational investors, and I'm not about to make decisions because the Cult of Swan has spoken. 2+++++++++++++++++++++++++++
Subject: Re: Definitive Plan of Action << Hey, we are all human ... does someone really think he is God? >> Chiros thought he was. Ok Ok Ok, it was just a JOKE.. get over it.. But I will bet a buck (or an IOM share, whichever is worth more) that somebody, probably Len Purkis, and perhaps a European or Asian operations director gets the axe prior to the shareholders meeting. There is NO way that Kim (Mr Personality) Edwards is gonna stand there and take all this heat by himself. Having been barbequed over a low flame these last several weeks(or is it months?) by David Dunn, the press, every half-ssed law firm, and virtually the entire investment community , IOM needs to change , even if only for perceptions sake, the way they do things. Couple of suggestions for Kim Edwards and the board of Directors 1. Buy back a boat load of shares. show your shareholders, employees, and the financial community that you believe in this company. 2. Take steps to enhance shareholder value. You've hung alot of people out to dry for a long time Kim, and while it was tolerated when the stock was performing well, the natives are getting restless. Suggestion... License disk manufacturing to Sony, Maxell, anybody.. FAST 3. Take the IOM show on the road . Court the big houses ... talk up the companies prospects.. EARN THAT DESPERATELY NEEDED COVERAGE. A lot of people are very happy that smug IOM has taken a big dive.. cant blame them.. For the most part, I have given up posting here, and I am close to giving up on the stock as well. I'll give you 1 last chance Kim... redefine the company's objectives, reestablish the companies credibility, rebuid the companies management team, open up the vault and purchase some shares and turn this damn ship around... NOW Otherwise I am outta here, and I will leave believing that you were less than honest with me, a long time shareholder, and owner of Iomega stock. 3+++++++++++++++++++++++++++
Subject: The Forest The bear story on Iomega was not told on this board or in the media. Iomega is probably not going to be profitable in Q1 because of some new competition, or cheap disk knock offs, or the end of the removable storage "fad." These were the reasons given over the last 6 months for why the future was not bright for Iomega. The reason certainly is not the fact that Best Buy does not carry a Zip drive in every computer. Best Buy was always to be the last place Zip would replace the floppy. Somewhere along the way Iomega became very dependent on the OEM channel for Sales growth. I don't know if it was at 25% of Zip unit sales or the recent 35% of unit sales. Doesn't matter much now. The PC industry had a very rough January and February, maybe even December. How about a game: Is this from Iomega's press release? "[company] said that its first quarter sales are expected to be about the same as those for the first quarter a year ago. Earnings are expected to be roughly break-even" How about this one: "Weaker than anticipated demand, particularly in OEM turns (orders from PC manufacturers to be shipped within the quarter), is expected to cause revenue and net income levels to fall below [company's] expectations" Sounds familiar, how about these: "[company] said sell-through dried up in the last 4-5 months" "the company chose not to recognize $25 to $30 million in revenues for products shipped into the value-added reseller channel because of high inventory levels at [company's] distributors." The quotes are from Compaq, Intel, and Adaptec respectively. There is something very wrong in PC land and Iomega is caught in the net as well. How about this quote: "CompUSA Inc. (NYSE: CPU), America's Largest Computer Superstore(R) retailer, today stated that the Company currently believes that its comparable store sales gain in its fiscal third quarter ending March 28, 1998 may be lower than the Company's planned mid-single-digit level." My take? 1996 and 1997 were fantastic years for PC makers but 1998 is not near as good. CPQ (and possibly others) are stuck with too many PCs and have stopped shipments from its suppliers like IOM, INTC, and ADPT. This slack in demand seems to be for all products, not just PCs. Possibly the corporate upgrade spending driving PC sales the last few years has tailed off. For Iomega especially, and most companies that supply PC makers with OEM products, any cut back up top can hit hard because order visibility is so poor. Looking back, when Iomega traded down with the disk drive makers maybe that was the sign. The glut hit the disk drive guys first and was the warning. It was too easy to dismiss because CPQ and DELL were doing so well. Supposedly, DELL is still doing well. INTC, CPQ, ADPT, and IOM are not. 4+++++++++++++++++++++++++++
Subject: Iomega Valuation Dear Paul (TMF Parlay), I'm looking at a revenue valuation model, but still have some minor doubts interpreting it: It seems to me that part of what's happening to IOM's share price is that the market is moving it toward a valuation that is more in line with the standard valuations for disk drive manufacturers - or other commoditized cyclical industries. This makes sense from the standpoint of your recent bear argument in the Dueling Fools, insofar as the argument suggests that Iomega's business model may be approaching saturation. The logical place to look, then, for guidance is the market's current valuation of the three industry leaders in HDD's, Seagate, Western Digital, and Quantum. 12 mnth Revs: LT Debt: Shares out: Price: (Market Cap+Debt)/Sales: --------------- ------------- ------------- -------- -------------- SEG 8,047,000 703,000 242,274 22 11/16 .77 WDC 4,235,900 nil 87,384 16 9/16 .34 QNTM 6,083,400 569,100 136,453 20 3/8 .55 IOM 1,740,000 50,100 283,469 7 1/4 1.21 (# of shares and $ in thousands except share price. Data from WSJ Interactive Briefing Books for periods ending 12/97.) By the thesis that the markets are inexorably moving toward valuing Iomega like the commoditized cyclical players such as the three HDD manufactureres above, then using the revenue valuation model, all other things remaining equal, we might expect the (P+D)/S ratio for IOM to move into the range of .34 to .77, with a target around the mean of .55 - or, a price per share of between 2 1/32 and 4 5/8, with a target around 3 3/8. That would mean the stock still may have 50%+ more to fall from its present price before becoming sustainable. There are many other ways to value IOM, of course, but as the events of the past few months have unfolded, this model has arguably become more and more compelling. The one significant thorn which remains in the thesis, however, is Syquest - the most direct competitor to IOM 12 mnth Revs: LT Debt: Shares out: Price: (Market Cap+Debt)/Sales: --------------- ------------- ------------- -------- -------------- SYQT 106,500 2,900 72,013 2 27/32 1.95 Now then, Syquest is arguably much closer to the abyss than Iomega, so it's difficult to explain why it might enjoy a 61% premium in valuation by this model. Of course, it may simply be a case of Syquest being seen as having enough room to expand from its meager revenue history and market share to preclude this model from being applicable to it for the time being. That is, that the market does not view Syquest's market as approaching saturation, even though their most direct competitor, IOM, is becoming viewed this way. I'm wondering, Paul, if you, or anyone else on the IOM message board, has some serious thoughts on this model. (Note to the message board: No - I am not interested in being flamed in droves by the people following the message boards. If you disagree with me, fine, present an alternative thesis, and support it with data, please.) It presents a troubling picture for anyone still holding IOM. 5+++++++++++++++++++++++++++
Subject: Re: Imation announces major ad campaign << ROFL.....Imation stock holders -- look out below....We have been there, done that ;-) 120 MB SuperDisk, 1.44 MB Standard Diskettes Appear in USA Today Proclaiming : "Save a Little, Save a Lot, Save the World." >> You gotta now how much I hate to say this, but... From what I've seen of Iomega's ad campaign, LS already is doing better. They kick off their campaign, already having a decent slogan. "Save the world". Hey, it appeals to me somewhat. At least I'll remember the ad. IOM, on the other hand, has now in their umpteenth ad campaign and still has no focus. No slogan. No memorable character. "It's your stuff", the retainer family, the dude in the Condor, the disk stack lady all don't count. They're one or two ad wonders. "It's your stuff" is another example of IOM trying to make something out of nothing. To the average joe- "It's your stuff" leads to "what's my stuff? what are they trying to sell? what the hell are you talking about?" I don't know. I'm not a pro advertiser. But reading "Save a little, save a lot, save the world" in a press release on the IOM board as an IOM shareholder ALREADY catches my attention better to the LS ads than any of the Iomega ads have done. This is my way of saying, "so far I think IOM's ads have pretty much sucked" 6+++++++++++++++++++++++++++
Subject: Ads To Get The Slot (Was Re: Long Term Iomega) Ken2Marcus posted and wisely asked: << Is it worth it for Iomega to spend 20 million for the next few quarters on advertising if it means they will get the floppy slot? ... >> Of course it would be. But Iomega doesn't seem to know how to advertise for that purpose. Or does it (and I just don't know because I haven't seen any)? If Iomega only knows to hire the most expensive ad agency but neither one of them knows how to make up cute, cool or hype ads to get the message out, then why don't they just say it out straight? Like saying something similar to one or two of the following at a time and switch around: "When you buy a new computer, ask for one with a Zip built-in." "Ordering a new computer? 'Demand' one with a Zip built-in." Or if you want to be more arrogant ;-) : "You call that a new computer, without a Zip built-in? How could you move files around nowadays without a Zip?" Or, if you want to "mellow" down a little bit: "Avoid buying an instantly obsolete computer. Choose one with a Zip built-in. You can't move modern files around without a Zip." "Want to keep up with your neighbors, and exchange files with your friends? Ask for a new computer with a Zip built-in. Floppy just isn't big enough for moving files around anymore." "When you buy a new computer, make sure to ask for a Zip built-in. Anything else just won't do it --- either like the old floppy which is too small for your files, or other gadgets that won't be compatible and exchange files with the more than 12 million Zips out there... " " ... More than 12 million Zips out there. Offices have Zips, schools have Zips, Kinko's have Zips, your neighbors have Zips, and yes, even your mother-in-law may have one. Zip ..... The Right Drive (TM). Choose the computer model with The Right Drive built-in." "Zip uses 100MB disks ....The Right Size (TM) disks. Not too big so you can organize your files quickly... but big enough for you to move files around for sometime to come ..." " ...Capcity tailored for modern files and your growing needs. Can't do it without a Zip. Zip ... The Right Drive (TM) arriving at the right time. Choose the computer model with The Right Drive built-in today and tomorrow." I can think of hundreds of different ways. .... then list a few computer models with Zip built-in ... maybe computer OEMs would even reimburse Iomega some ad fees. I know, I know and I know. Some "professionals" are laughing at me ... statistics show this and that ... experience tells us this and that ... surveys say copmputer shoppers this and that .... and I didn't say this and that right, the grammar, the spellings... should have only so many words .... it is laughable ..... Hey, I am just expressing some ideas .... and I am not charging Iomega a few millions ... Iomega, let's get down to business with the ads instead of just being "cute", if Iomega doesn't know how to get business done at the same time of being cute, cool or hype in the ads. Ad agency may be interested in putting out cute ads so people may be talking about the ads themselves (but may not even notice what the products they were selling.) And I have nothing against being cute, cool or hype. ;-) Iomega has to get down to business with the ads, being cute or not. That is my main point. 7+++++++++++++++++++++++++++
Subject: Re: Back to basics NovW writes: << Thanks to Tgizip for posting: "How about getting back to basics. What >happened to the great drive to get the price of Zip at retail to 99.00?" Not only that. And there could have been untold and unknown legitimate reasons for not lowering the price right away. >> I believe KE said there would be no pricing changes to Zip in order to help offset the increased AD expense. I recall this from 4th qtr 98 conf. call. Just think what the loss would be if they reduced prices on Zip and Zip+ before the ADs have an effect on demand. A much larger loss would occur. Just to attempt to put this into perspective take an estimate of the number of units of Zip sold this quarter or projected to be sold and multiply by a $50 price reduction on external Zip drives. At 1 million External Zip Drives sold we have a $50 Million reduction in Revenue. Using this example demand for the drives would have to increase by 50% or 500,000 units to equal the same revenue. At 2 Million drives sold you get a $100 Million reduction in Revenue which would require demand for the drives to increase by 50% or 1 Million units to equal the same revenue. Looking at 3 Million drives this quarter gets down right scary. Revenue would be reduced by $150 Million. Sales would have had to increase by 50% or 1.5 Million drives to reach the same revenue. My guess is that IOM has done market research that told them that the advertising would do more to stimulate demand than a price reduction of $50.00. _______________________________
End Report. Posts covered through 9:00pm ET 3/19/98.
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