Post of the Day
June 17, 1998

From our AOL
Iomega Board

Subject: Expo Thoughts - Zip
Author: ETurkey

I won't cover again the nuggets of information gleaned from Expo that my brother and Patrick covered. There wasn't anything momentous, other than what did not OEM annoucement for the Clik drive.

The Business Model has changed for Zip

When I, and so many others, bought shares in this company, the model was clear. Sell the drives dirt cheap and make the bucks on the disks. Two things happened to damage that model.

First: Not as many disks sold as hoped for. Not yet anyway. Maybe digital photog will be a killer app, maybe not. In any event, theories aside, iomega must deal with the facts as they are. Disk sales are lower than expected and not offsetting the minimal, if any, margins on the drives.

Second: The licensees have not been producing the drives that iomega was to sell the high margin disks for. What that means is that iomega is much more of a component manufacturer than they had ever hoped for.

Conclusion: Iomega must treat their drive operations like a mere component manufacturer, as the very low margin OEM units become a greater and greater percentage of drive sales. Last Q, as higher margin external sales dropped, internals jumped to 50%. Next quarter, and in the ensuing ones, with more CPQ and IBM machines (and no doubt others) getting internals, how high will that number be? 60% 70%? 90%?
"Iomega must therefore excise every ounce of fat in the operations...and Iomega has plenty of fat."  
Iomega must therefore excise every ounce of fat in the operations...and Iomega has plenty of fat. This means treating that portion of the business as a commodity maker of drives when it comes to operations.

The Question: Is Jim Sierk the man to do it? Iomega needs a reorganization badly. Needs it now. Can an interim CEO do it?

The Efforts: Jim Taylor (the marketing GATE guy) and Flaig (the new COO Dell guy) are apparently working hand in hand to get real forcasts of demand (which Edwards never did) and set up the Just In Time manufacturing needed to achieve the smooth operations needed to obtain any profit from those OEM drives. Taylor was appalled at the mess left behind when it came to the issue of forcasting. He says that they are getting up to speed in this arena and that getting the cost out of operations is an ongoing subject of the utmost importance.

So there it is, Iomega has now shifted gears somewhat and is working to suck the costs out of their drive manufacturing, which are now a far bigger, and lower margin, part of the company than anyone had intended.
  "Of note, the company asserts that they will be more open with information than they have in the past."
Can they make money on the internals? It has been speculated that the company loses money on each internal they ship. Sierk denies this, and says they make some margin on every product that goes out. Of course, that margin must be awfully slim since the lincensees aren't producing.

Of note, the company asserts that they will be more open with information than they have in the past. While that seems to be the objective of Sierk, Taylor and Flaig, it remains to be seen if Chairman Dunn will allow it. The information spiggot seems to have cracked open a bit...and we will see what follows...

More later on clik....

Also later, Dan promises to do a review of the show girls of PC Expo.

The Great Turkey Website

Go To Iomega Board

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