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Monday, April 06, 1998 Friday, Iomega closed at $6 7/8, down $1/8 (-1.79%). TODAY'S RECAP: Two news announcements from Iomega -- the promotion of Scott Flaig to chief operating officer from executive vice president and a settlement of a lawsuit (see the post from ~ETurkey~) -- sparked some conversation on the board, but most posters continued discussing the role of SyQuest in Iomega sales, sub-$1,000 computers and Zip pricing, and even what questions should be asked of IOM's Board. 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.
1++ Duuwhee comments on SyQuest making money and what it means for
Iomega.
Recap written and posts compiled by TMF
Weekly. _______________________________ And now, the Best of the Board...Started 9:30pm ET 4/2/98. 1+++++++++++++++++++++++++++
Subject: Re: No syqt threat Mark writes (in angry red): << Who cares whether SyQuest is making money anyway? >> I ripped this out of context, but I do care. Iomega faces a very interesting and well implemented survival strategy. It is difficult to counter a competitor who is willing and able to buy market share. I am a contractor, and I've seen people cutting their own throats to get jobs. While they are dominating the marketplace, every architect looks at my numbers, and then looks at me like I'm Jesse James. They check to see if all my guys are hauling tools in Mercedes convertibles. The good thing is that unless they are morons new to laundering drug money, they go under within a year. Well, SYQT can just burn a few more warrants worth of cash. (the morons just go missing) This puts IOM in a tough spot. They are already looking at a loser Q, yet they need to cut Jaz prices to kill SparQ. Most consumers in the niche seem aware enough of quality to pay another 30%-50% for Jaz, yet it seems that would crush IOM in the short term. Mark, how would you go about countering the SparQ; while maintaining near term profitability? I'd cut Jaz prices and use some of the ad budget to promote Jaz hard and push sales. I'd hammer at return and QC issues in SYQT products; while promoting my own verifiably high QC and use my money to play some hardball. They say the market leading gorilla should ignore the upstart monkey.... unless it begins to grab market and mind share... then the gorilla is supposed to drop out of its tree and kick some monkey butt. The Jaz niche is enormously profitable, and that is why KE never would break out sales ratios. Well, SYQT figured it out ok anyway and hamstrung the cash cow. Duh. Gary Marks had to know how profitable Jaz was going to be before he left. The damage is done. How would you all fix it?? 2+++++++++++++++++++++++++++
Subject: Re: No syqt threat MarkRogo wrote: << You are really being like the ostrich here, and I don't get why. Not in the least. SyQuest hurts Iomega in a major way. The 100,000 drives they will sell in Q1 will almost entirely cut into Iomega sales. >> This seems to sum up the syqt is the reason Iom is hurting argument and thus illustrates my problem with the argument. Frist of all, I'm not being an ostrich. I'm simply dealing with facts. I'm not creating anecdotal stories (mythical guy A goes into any store B and looks at this box and that and thinks this and buys SparQ) to support my argument. I'm not using anecdotes at all. Just plain facts as we know them. Mark states that SYQT will sell 100,000 drives. Not might, or maybe but WILL. I find that incredible since they didn't sell half as many as that in the Christmas quarter. I see no real change in supply or demand at retail now vs. December. Maybe they will sell that many; we will see. But to state it as fact is jumping the gun at least. Now the statement that 100K SparQ's would come right out of Iomega sales. What a linear way to look at the World. The World is a dynamic place though and linear thought rarely models it correctly. This seems to be the mantra with this crowd, every SparQ sale is a non-Iomega sale. How many Syquest drives sold in 1Q97? Do any of you know? Please add up the sales of all the following for Jan-Mar 1997: All Syquest drives PD-CD LS-120 Shark All MO drives Apex If I had to guess the combined number for all these was more than 100K. PD and MO alone probably sold 100,000 units worldwide. All other removable cartridge drives were made by Iomega. My basic premise, which nobody has responded to, is that SparQ simply is filling this niche between high end and low end. A niche that has always been there. That Iomega is not losing sales and most likely purposely avoids this segment as not worth the investment. Another possibility is that Sparq takes sales that would otherwise had been QIC tape drives. Would dovetail nicely with the incredibly cost conscious consumer everyone seems to believe is out there. Nothing is cheaper than tape and 1-2GB tape drive sales are way down from last year. Now, if sales other than Zip or Jaz were higher than 100K a year ago and SparQ sales are 100K this year then Iomega gained market share in my opinion. I say that because the optical drives above are really declining. Sparq is taking sales from MO, PD, Tape and EZFlyer. 3+++++++++++++++++++++++++++
Subject: Settlement Approved IOMEGA CORP's settlement of a consumer fraud class-action lawsuit was approved by Delaware chancery court judge. Vice Chancellor Stephen Lamb approved Iomega's agreement to provide free customer support by telephone or by Internet but said he would rule later on legal fees for the plaintiffs' lawyers. In the 1997 lawsuit Iomega was accused of breaching its product warranties and of failing to provide customers with adequate technical support. The settlement applies to about five million customers who bought Iomega products in the period from July 16, 1994 to Sept. 1, 1997. (Reuters 01:37 PM ET 04/03/98) For the full text story, see http://www.infobeat.com/stories/cgi/story.cgi?id=2553602806-908 4+++++++++++++++++++++++++++
Subject: Re: A Question for the Board Here is my list of questions for the stockholders meeting: Have the Zip OEM customers been generally satisfied or dissatisfied with the quality level shipped by Iomega? It was noted last year that Iomega strived to met a $50 price point for the OEM Zip. Has Iomega met the $50 price point on any non special deals? If so, does the production cost allow for positive margins at a $50 OEM price? Are any of the Zip drive licensees in volume production of the Zip? If so, approximately how many units have they shipped? A European judge ruled that some part of the Zip disk "code" contained on the the disk was not copyrightable. How does this effect Iomega's ability to protect the disk business? A European judge ruled that future 15mm Zip drives imported into the European community must not reject Nomai's implementation of the Zip reflector. Has the 15mm Zip drive been modified for Europe? How does this ruling effect Iomega's ability to protect the disk business? The Ditto business appears to be continually shrinking. Does Iomega expect this trend to reverse or continue? Should we expect to see new tape products coming from Iomega? Is Iomega correctly sized (human resources wise) given the sales performance expected in the near future? What is the status of Iomega's efforts in achieving company wide ISO 9000 certification? Can you share some product quality improvements attrituable to the changes made on the road to certification? Fuji was at one time the only media supplier for the Zip disk. Have any other vendors been qualified to produce Zip media? If yes, are any other vendors actually suppling media? At one time, possibility that the N-hand disk could be read in a Zip drive with a caddy was discussed. Does that possiblity still exist in Clik!? Will we see a Clik! to Zip caddy? Buz product reviews have not been stellar. Are R&D resources still be spent on Buz? Can we expect to see multiple generations of the Buz product or will the product be dropped or sold? 5+++++++++++++++++++++++++++
Subject: BW/Harris Poll--Cheapness not necessarily top priority. Some recent posts regarding the inevitable rise of the sub-$1000 computer reminded me of the Business Week / Harris poll featured in the March 23 Business Week: Beginning with "The PC juggernaut rolls on ---into home offices and family rooms everywhere", this article went on to note that of Americans who intend to buy a PC within the year, nearly two thirds will be buying a computer for the first time. The pollsters also found that: "Even better for PC makers, respondents expect to spend an average of $1,500 on the basic machine---$2,400 with monitor, software, and accessories. Only 20%, in fact, expect the bill to be under $1000." They further commented to the effect that cheap PC's still have their place as a machine for the kids, or to get online and do a bit of financial management. Based on this, the box makers may not be squeezed as hard as we had thought; this may give them more leeway to include Zip built-in, assuming the demand is there, or can be generated. 6+++++++++++++++++++++++++++
Subject: Re: BW/Harris Poll--Cheapness not necessarily top priority.
<< "Even better for PC makers, respondents expect to spend an average of $1,500 on the basic machine---$2,400 with monitor, software, and accessories. Only 20%, in fact, expect the bill to be under $1000." Based on this, the box makers may not be squeezed as hard as we had thought; this may give them more leeway to include Zip built-in, assuming the demand is there, or can be generated. >> Hooey! The $1000 PC is here to stay and will dominate the market as far as the eye can see. Corporations still like to replace PCs every 3 years or so. The less they pay, the better. Consumers are more frugal, still. Look at the world of computing. 166MHz machines are still being sold, even as medium-end laptops. Yet you can buy one for home at $799. The top end is a 333MHz Pentium II -- arguably a little better than 2x as fast. Next year, that $800 PC will sport a 266MHz Celeron+ (the model that doesn't exist yet but will be out by XMas with embedded cache), while the top end will be a 450-500MHz Pentium II. The gap to the top will be shrinking and -- in themeantime -- the $800 model will edge closer and closer to state of the art, in terms of months-since-introduced rather than simply %age of top speed. Iomega would be foolhardy to ignore this trend. It is real and somewhat permanent. The genie is out of the bottle. Compaq, Dell, etc. can't put it back in without losing market share. I look for a $400 full-fleged Cyrix-based PC at MicroCenter this XMas (they have a $499 model now and a $599 that would satisfy at least 75% of home PC users in performance; hell, few have a machine at home that fast today). I look for Compaq and HP to hit the $599 price point or at worst the $699 price point. $999 models are going to be "deluxe models" and $1499 models are gonna be "super-deluxe models". I ramble on about this because I re-read the Business Week article, this time in good old print (I get BW in hardcopy as a subscriber). It's amazing how much clearer things are on (a) second pass and (b) in ink and paper instead of photons and glass. It really appears to me that Iomega has given enough indication that part of Kim's problems concerned "quality" in the broadest sense. One is left wondering: What would margins be and what would capacitybe if Zip were coming off the line with a much, much lower defect rate? That's really what I read in the article. If that's true, it means there is a lot of room to cut the price of the Zip drive -- all versions. And that's gonna be necessary because the OEM price is going to have to hit $29 probably before the year 2000 and fall from there. Think about that $600 PC and what it's gonna take to get in there. The floppy at $20/2000 was a 1% piece. Now at $16 over $800 it's a 2% piece. The Zip at $50/800 is over 6%. At $30/600, it's a lot more palatable andplausible. It's gonna need to get there. Every other component is falling rapidly, too. _______________________________
End Report. Posts covered through 9:00pm ET 4/5/98.
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