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Thursday, September 25, 1997 Wednesay, Iomega closed at $26 5/8, down $13/16 (-2.96%). TODAY'S RECAP: Yesterday, posters tackled a number of issues, not the least of which centered around the potential costs of owning the new Jaz2 drive versus the existing SyJet drive. Others focused on the impact of Nomai, cloned Zip disks, and the usability and longevity of Zip technology. 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++ HYPEMENOT comments on costs of ownership of SyJet and Jaz2 drives.
Recap written by TMF Weekly; posts
compiled by TMF Weekly. As always, the following posts represent the thoughts of our contributors, not those of The Motley Fool.
And now, the Best of the Board...Started 9:01pm ET 9/23/97. 1+++++++++++++++++++++++++++
Subject: Total Cost of Ownership Although Steve24601 posted a message earlier, in which he concluded (unhappily) that the cost of owning a Jaz II was greater, at all levels of usage, than that of owning a SyJet, the difference is even larger than he portrayed because he is apparently unaware that the price of the SyJet was reduced about a month ago to $299.95 for the internal version(s), and $399.95 for the externals. This raises some interesting questions for those participants who believe that Jaz II will "vanquish" SyQuest (or even make it difficult for them to continue to successfully market the SyJet). The fact is that the Jaz ll drive offers only 33% more capacity than the SyJet, but the internal version costs 83% more ($549.95 vs. $299.95), and the external version costs 62.5% more ($649.95 vs. $399.95). And these comparisons do not take into account the free 2nd 1.5GB cartridge which SyQuest is offering to purchasers of the drive through October. Further, SyJet disks are sold for $99.95 each (in 3-paks) or 6 2/3 cents per MB, versus an intended price of $149.95 for Jaz II disks (in 3-paks) or 7 1/2 cents per MB. Thus, the reality is that the more disks one uses, the greater the cost advantage in favor of the SyJet. Considering these cost of ownership comparisons, its hard to understand why anyone should consider Jaz II a "threat" to the SyJet. Of course, for those users who require 2GB of capacity on a single disk, Jaz II will obviously be the only choice. But for those users who do not require more than the 1.5GB per disk capacity offered by the SyJet, the very large difference in initial cost (made even greater by the offer of a second "free" disk) and the ongoing advantage of a lower cost per MB, should weigh heavily in SyQuest's favor. To graphically illustrate the difference, for $299.95 a consumer can purchase an internal SyJet with 2 disks (3GB) or, spend $549.95 and get a Jaz II with 1 disk (2GB). Except for that "must have 2GB on a disk" audience (probably very modest in size) Jaz II is likely to stumble over its own high cost in trying to garner would-be SyJet purchasers (or even those who can get along just fine with the original Jaz's 1GB capacity and $299.95 price). Of course, I expect very few here to agree, but after all this waiting, I find the "value" aspects of Jaz II very disappointing, not to mention that the absolute price points for both the internal and external models, appear well beyond today's market norms. Although none of the IO advocates that regularly post here has been willing to comment on the pricing, I seem to recall a number of them suggesting in prior months, that the 2GB Jaz would probably be priced $100 higher than the 1GB version (which would have been equal to the SyJet's initial pricing and, undoubtedly, would have constituted a serious threat for SyQuest) rather than the $250 difference which Iomega announced yesterday. 2+++++++++++++++++++++++++++
Subject: I R Phone Call. BTW, I spoke to IR today and Mr. Thatcher told me that the French Injuction against NOMAI has NOT BEEN LIFTED.To put bluntly, Nomai is bullsh*ting....and both the French and German cases cannot be adequatelty reviewd yet by their attorneys, because it takes 2-3 weeks for the European Courts to deliver the written decision. It is first done verbally, in this case over a phone call. Two weeks ago. I expect some legal action on IOM's part will be taken and announced over the next few weeks. Also the just(2 days ago) obtained samples of the Nomai disk and are undoubtedly tearing it apart to see whatelse they've copied and how it might(with some gentle prodding)destroy the drive. From what EPS computer told me about their Apex series, the Internal Laptop Zips have shipped to oems. I kinda of got an impression that the shortage of Internals has not been because of production problems but from oem demand that they obviously underestimated(wishful thinking on my part). No news on n.Hand......they're talking "sometime in 1998" All and all it was a good call because it lessoned my fear of the Nomai situation. 3+++++++++++++++++++++++++++
Subject: Email from Nomai USA President!!!!!! A surprise email arrived today--from the President of Nomai USA!! When the Nomai disk announcement came out last week I emailed Nomai HQ in France with the following.... << I travel to France often. How can I purchase your new Zip disks? What stores will be carrying them? How soon will they be available? Thank you. >> Today I received this reply from KEVIN SCHEIER, president of Nomai USA.... << Hello Kerry: The XHD Zip compatible will be available in Dec. or Jan. I don't know at this time where you can buy in France. I will advise when we get the product." Kevin >> I'm not gonna post Mr. Scheier's email address or office ph. # here cuz I want to keep a good dialogue going with him and don't want him to get flamed by some of the crazies here. But if any well-known responsible Fool wants the info, lemme know. 4+++++++++++++++++++++++++++
Subject: Re: Total Cost of Ownership greetings! Let me first say that I used the totally unscientific method of opening a recent Computer Shopper to find prices. So, if I missed a price reduction by Syquest, well...oops....sorry. But what is important is that IOM has come out with a second product that is, more or less, in the same class as Syjet. Yeah, we can both post until our fingers are worn to the bone, but let me put forth the following argument.... Most consumers are driven by two factors: price and reputation. IOM has good prices and Syquest has better prices. IOM has better reputation whereas Syquest does not. Therefore, in the end, for the next few quarters, IOM and Syquest will share this 1 GB+ removable market. Does this mean that IOM will tank? NO. IOM does not need to win the 1GB + market to survive. The majority of IOM earnings come from Zip. So, for now, even if Jaz 2 loses big time to Syjet or Terrastore, IOM will remain in business on Zip alone. Yeah, it won't grow, but, ultimately, it will survive. Does this mean that SYQT will tank? Probably not. SYQT looks like it needs this market more than IOM in that it has given up on EZ flyer (correct me if I'm wrong...). If Jaz and Jaz 2 or Terrastore stomps all over Syjet, Syquest is likely to go belly up. Therefore, Jaz 2 represents a bigger threat to Syquest than does the Syjet to IOM. Does this mean that Terrastore (or whoever) will kill IOM? No. As state above, IOM can survive on Zip alone, although all us longs will probably be poorer.... Currently, there is ample room for both IOM and SYQT products in the 1GB+ market, so, I really see this as not a big deal, certainly not a make or break for either company yet. But what it does point out is that IOM is following a path that may prove profitable. IOM continues to threaten the major competitor SYQT with similar products. IOM is also branching out to other products, Buz and n*hand (some day...) come to mind, and diversifying away from total reliance on Zip. Is this good or bad? Time will tell. I reported TCO to point out that IOM has not hit the price points that I thought it might. I also noted that in terms of TCO, the removable media is not such a bad thing after all, when compared to some of the fixed hard drives. 5+++++++++++++++++++++++++++
Subject: HD Brous increases estimated earnings At the risk of prompting a new series of messages from Manreal1, Zacks listed the following today: IOM: HD BROUS & CO. increased estimate for fiscal year ending 12/97 from $0.84 to $0.90 on 09/22/97 IOM: HD BROUS & CO. increased estimate for quarter ending 09/97 from $0.18 to $0.21 on 09/22/97 IOM: HD BROUS & CO. increased estimate for quarter ending 12/97 from $0.30 to $0.33 on 09/22/97 Ira Smilovitz 6+++++++++++++++++++++++++++
Subject: JAZ Reliability Until the Nomai copycat issue arose, my greatest concern about Iomega's future had to do with Jaz reliability. Benjamin70 noted in a post recently that he had two Jaz drives die on or soon after arrival in his possession. I was glad to read that Jaz 2 will apparently be more reliable. My source on such things is a technically proficient friend (hardware and software) who writes and supports software and hardware for the biostatistics department of a major university. In 1997 his organization has purchased 46 Jaz drives and at least 92 disks, spread them out over 46 data collection points, and used/uses them to transfer huge data files on a regular basis to the central office of the study. Since he now has a good basis for judgment, about 9 months' experience with so many Jaz drives and disks, I asked him this week about the reliability issue. Remember, this is a very savvy and technically oriented person working in a field where reliability is a major concern--and he is the point person in charge of the hardware and software for the project. His answer: "Jaz has proved more reliable than I expected it to be when we began using it." He is more than satisfied with Jaz in performance and reliability FOR THIS PARTICULAR USE . He was honest that he would not rely on a single off-site Jaz disk as his only backup for mission critical data; he would use at least two disks for that purpose. He also shared his opinion that Iomega would do well to give technical people like himself access to the software interface of Jaz, so that the software could be tweaked to be more user-friendly in an very narrow, specialized application like his (46 drives in 46 places being used by hundreds of people who don't know the technology.) For example, he has had to reformat disks on a number of occasions, a process that apparently requires about 20 minutes and a good bit of coaching. He would prefer to build in a simpler, more direct "point and click" approach so that people at field sites could do this function more quickly and easily. Iomega refused to give him access to the software for this purpose. Does this make sense to you techno wizards? 7+++++++++++++++++++++++++++
Subject: Zip outdated technology? FYI...Here's an interesting post I found in our website's Iomega folder. The writer's point seems to be that Zip may already be outdated technology, but because of its prominence -- 8 million installed base -- even heavily-financed competition will have trouble penetrating its market share. Anyway, I thought the poster's comments about Jaz's potential to surpass Zip and comments about DVD might spur some discussion among the Fools here. (note: the first line is omitted because it personally addressed a couple of other posters and is irrelevant to the message) << My point being that if three conglomerates (3M,Matsushita,and CPQ) can't penetrate the ZIP market with LS-120 or the 'Superdrive' (or whatever the name is) after spending hundreds of millions of dollars, what technology will? Now, don't get me wrong, IOM NEEDS to come out with new products to keep ahead (Reference the 'shark', 'trout' or 'nibble'). I say that with tongue-in-cheek because one and a half years ago I stated on the AOL board that the ZIP technology was outdated. I repeat, the 'ZIP' technology is outdated. Don't get me wrong, I love IO, however, lets look ahead. In the same catagory, The LS-120 or the Superdisk is trying to 'impregnate' the removable storage industry. It hasn't worked, the 'Bastards' are out there, eight million strong. IOM has established PROMINENCE in the industry over other competitors. Now, with that prominence, there will always be a need for removable storage. I may be going out on a limb... I think that the JAZZ should start to pick up, then surpass the ZIP. However, in the meantime, I think that the ZIP is the red-headed stepchild of the market (Wall Street). Also, I think that IO should spend a little 'R&D' cash researching DVD (like they haven't). >> "Red-headed stepchild of Wall Street" - LOL! Love that analogy :-) 8+++++++++++++++++++++++++++
Subject: Re: Zip outdated technology? << I repeat, the 'ZIP' technology is outdated. Don't get me wrong, I love IO, however, lets look ahead. In the same catagory, The LS-120 or the Superdisk is trying to 'impregnate' the removable storage industry. <SNIP> I may be going out on a limb... I think that the JAZZ should start to pick up, then surpass the ZIP. >> Actually, I agree with the first part. Zip isn't exactly cutting edge technology. It may be smart use of existing technology, but it isn't revolutionary (more like, smart evolution). And that is actually the way it should be. A major part of Zip's appeal is cost and cutting-edge is expensive. Not to mention, reliability is important and years and years of floppy data makes for a good, solid base upon which to anchor a project. So, it is true, Zip is, at its core, outdated, but it is relative. Figure that the 100 megs (or 94 megs formatted) capacity becomes a smaller percentage of average hard drive size every year as that average increases. But keeping that percentage steady isn't the point. The point is that cutting edge is expensive but balancing what is "enough" (enough speed, enough capacity, enough reliability) is sometimes more important. Especially in this case. The point is valid but, ironically, that is a core strength of Zip, not a weakness. As for Jaz "surpassing" Zip, I don't see it on a unit basis and I certainly don't see it on a revenue of net basis. Jaz is, by definition, a higher-end product, one based on a much less reliable and much less consumer-friendly media, winchester. That is actually one of my arguements against selling Jaz to the consumer level. A mis-match between product and consumer can be a problem. However, as a high-end product, one that almost by definition needs to be on the cutting edge, we have a smaller market. Yes, the larger ASP means more revenue per drive, but even, and I think this is a huge stretch, at 2 million units a year (again, I don't see that happening but I don't think anyone, even the wildest Bull, would argue for more next year), the ASP would need to be 6x the Zip's, without disks. At a more reasonable unit basis, you'd need a 12x ASP. And remember, installed base is the key to disks and Jaz may be a largely replacement sale product (i.e., folks migrate to the next high-end product and "retire" the old drive), which reduces the overall installed base relative to a product without such high replacement percentages. That, I believe, is the key to why Zip will out net Jaz going forward. Another example of the core difference is the price/performance factor. For arguement's sake, have both Zip Plus and Jaz2 introduced next month. Zip then, would get a 40% speed increase and no capacity increase after remaining end-user unchanged for 31 months. Jaz gets a speed increase and doubled capacity after 18 months -- take out the token shipment period. I'd actually argue that the Jaz model introduction time-frame will speed up from year, perhaps getting the interval down to 12 month. The nature of high-end. 9+++++++++++++++++++++++++++
Subject: IOMEGA'S FUTURE Nomai may be the best thing to happen to Iomega. Let's assume Nomai does manufacture and market Zip cartridge "clones"; further, let's assume they are of equal quality to Iomega's. What is Iomega to do? Simple -- match Nomai's price. Whatever Iomega would lose in profit margins they would gain in market share. Moreover, lowering prices on cartridges would only hasten the Zip's acceptance as the "new floppy" thereby increasing sales (and visibility) even further. The trend in the PC industry is to faster and more capable components. The high-end of any market commands the premium, the low-end never does. And the high-end inevitably becomes the low-end at some point. Eventually, 100MB Zip cartridges would cost less anyway as Iomega introduces new (i.e. faster and more capacious) storage media. Just let recent history be a guide. Does it matter whose products are faster or cheaper? No. Look at the semiconductor market. AMD's chips cost 25% less than Intel's. Yet who commands market share? Who is faster to market with new products? Who has the marketing presence and manufacturing muscle? Nomai is to Iomega what AMD is to Intel. I'll never forget how melodramatically the market reacted when Compaq announced that their sub-$1,000 PC's would contain Cyrix chips. The market had Intel dead and buried. Well, we know where both companies are now. Let Nomai (or any other company for that matter) crank up their assembly line ASAP. From what I've read, demand for Iomega's products remains strong. Needless to say, Iomega's earnings per share for the past several quarters have been growing at a rate of 70%-350% from the previous year's quarters (according to the S&P stock report). Considering that we're headed into both the strongest PC buying season of the year (with more OEM's offering the Zip as either standard or optional equipment than ever before) and a corporate upgrade cycle (in addition to many new high-end, high-margin Iomega products), it would seem to me that all target prices are underestimated. _______________________________ End Report. Posts covered through 9:00pm ET 9/24/97. _______________________________
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