YES, IDA WALKER'S CONCERNS NEED TO BE ADDRESSED!!!
We assume, whatever your real name is, that your motivation is purely out of the kindness of your heart to warn the small investor of the pitfalls of internet hype. We will assume that you are not a Wall Street Professional trying to drive the stock price down (for whatever reasons) in the middle of pricing negotiations between Iomega CEO, Kim Edwards (who is trying to raise $250M through a secondary offering to fund the marketing and development of Iomega products; to smash existing computing paradigms; and to dominate, if not monopolize, the high capacity removable storage market) and H&Q and JPM customers. We will also assume that you are not party to any Iomega competition who is attempting to slow the pace ofIomega dominance of this industry. Naturally, we assume that you are not a short seller of Iomega stock. Your reply #2335, the first one that you ever posted, is well written, present seemingly reasoned arguments, and show that you are not stupid. Also you are technically savvy enough to be one of the few participants of the Silicon Investor without an email address, you are more than just an innocent new participant. In any case you deserve a meaningful response. Far be it from me to question your motives.
Your main argument to prove that 'Iomega's share price is way too high' is to compare Iomega's current market capitalization ($5.1B) to that of Dell ($5b), Compaq ($13B), and Gateway ($3B); Sun Micro ($11B); Varian ($1.8); Micron ($6.7B), Texas Instrument ($11B); and Microsoft.
We do not really know if this was your original intention or not, but you are making an adequate rebuttal very difficult and very tedious if we were to do it properly. You are really asking us to compare apples, to oranges, to peanuts, to automobiles, and to foul weather gear and clothing. It can be done and if we have to we will.
But suffice it to say, we should just justify Iomega's market capitalization on it's own merits and leave fair market valuation of these other stocks to analysts in their respective fields. There must be very good reasons why Netscape has a higher relative valuation than Coca Cola, and coca Cola has relatively higher valuation than Chrysler, and why Chrysler has a higher valuation than ValuJet. If you knew precisely what these resons were, you would be a multimillionaire, and you wouldn't be here trying to scar the hell out of small investors.
THE FUNDAMENTALS
Iomega for many years was a highly respected company in a niche market. It sold a removable storage device, the Bernoulli box, primarily to the various departments within the US Government. It met and exceeded precise price and quality specifications put out by the Gevernment Services Agency. Theprices were high and the margins were very low, but everyone was fairly happy. Two years ago, Iomega management was reorganized. In came Kim Edwards, a mid level executive from the General Electric Organization. He was trained in methodologies of the Jack Welsh school of management. His stated objective is not to shift computing paradigms, but to smash them. Exactly what this means is anyone's guess. But, from early results, we can guess.
The removable storage device industry is relatively small. It consist of Syquest and Iomega. This industry is quite different from the fixed hard drive industry. Seagate, Connor Peripherals, and Western Digital would never have considered Iomega as a competitor. Storage Technology, IBM, et al is still another story that we don't want to get into to make this comparison even more difficult. The point here is that you really have to know the industry and the nuances of this industry to really be able to analyze appropriate market valuations.
Iomega is now poised to invade some turf that has not been its traditional market. A high capacity removable disk drive can doanything that a fixed hard disk drive can do, but there are many, many things that a high capacity removable disk drive can do that fixed disk hard drive cannot do. Iomega and its high capacity removable disk drive is now poised to smash existing computing paradigms. Issues such as performance, application, capacities, and pricing are subject matters that should be discussed at great depth and detail for understanding of true valuations. But, we will leave that for another discussion.
SALES POTENTIAL
You very skillfully question Iomega's sales potential by offering duplicitous suppositions. You first pose the question and provide a devious answer, when you state 'are Iomega's products hot, well you had better hope so because they need to sell about $4.5 billion dollars worth just to justify their current stock price. That's a Zip and Jaz in every working person's computer, about 100 million. I myself have no need for one'. That is a mouth full of (I presume innocent) innuendo and deceit. Are you really that naive as to believe that a market does not exist beyond these shores. People in China, India, Indonesia, Japan, SE Asia, Australia, South America, not to mention the former Soviet Union do consitite a 'market', the Middle East, and Europe may take umbrage when you dismiss their potential to particpate and compete in the new world order.
As for the achievability of $4.5 billion dollars of Iomega products, the question really is how fast Iomega can reach that level, and will that rate be much faster than those to which you make comparison. The stock market is a very harsh mistress - always asking 'what have you done for me lately?'. It rewards and anticipates future growth and profitability giving past performance and slower growth lower valuations. Iomega will have roughly 600% growth this coming quarter versus same quarter a year ago. Quarter to quarter, Iomega will 50% growth this quarter and the past three quarters. Also annual growth for 1996 over 1995 will be roughly 500%.
CURRENT VALUATION
The current capitalization ($5.1B) happens to be 3 times anticipated 1996 sales. Is 3 X sales too much to pay for Iomega. Maybe and maybe not. Is it possible for Iomega to double 1996 sales in 1997. Maybe and maybe not. Is it smart to invest in Iomega and to bet that Iomega will achieve $1.7B sales in 1996 and maybe to double sales in 1997. Maybe and maybe not. Is it smart to bet Iomega will not achieve these levels of sales, that is, to short the stock. ABSOLUTELY NOT. You would really have to be stupid.
THE NEW PARADIGM
Just in case you have missed the subtlety of the new business model, the new paradigm, the question you have to ask is what is the razor blade and razor analogy? And, what is an annuity income? What is the potential for high margins in the razor blade part of the business. Finally, how many blades can be sold with repect to each razor that is either sold orgiven away? If you are short this stock, you had better find answers to these questions.
And who am I to question your motives? |
