Any info about Iomega (IOM)? Message Board

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Non-Tech : Any info about Iomega (IOM)?

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To: wally hieslmair who wrote (9828)	10/23/1996 9:48:00 AM
From: Dale Stempson	of 58324

Wally, If I recall correctly, H&Q stated shortly after the 3rd quarter earnings release that their 4th quarter expectation was for $420 million in sales and EPS of $0.16. These are interesting numbers in that they represent a reasonable 35% increase in sales and a large 78% increase in earnings per share. H&Q must believe that Iomega is going to be able to reduce costs significantly in order to account for this percentage difference. How are they going to do that? If Iomega were to maintain their 26.3% Gross Margin on Sales, then they would have to lower their Total Operating Expenses as a percentage of sales from last quarter's 19.6% to 17.6%. This scenario seems unlikely since KE will be spending big bucks for their massive Christmas marketing program. More important than that, KE stated he plans to increase R&D spending from 3.4% of revenue to 5%. This would indicate a $10 million increase in R&D spending alone. It is probable that the expense percentages will increase rather than decrease. So, if operating expenses are going to increase, that means that Iomega will have to significantly reduce their Cost of Sales. Their Gross Margin on Sales would have to improve from 26.3% to 30%. Iomega's 4th quarter operating statement would probably have to look something like this to meet H&Q's estimates: $420 Sales $294 Cost of Sales $126 Gross Margin $ 70 SGA Expenses $ 20 R&D Expenses $ 90 TTL Operating Expenses $ 36 Operating Income $ 36 Income Before Taxes $ 14 Taxes $ 22 Net Income $0.16 Net Income Per Share 137 Million Shares Outstanding It is also expected that low margin OEM sales will increase as a percentage of units sold. This will make achieving an increase in gross margins more difficult. Last quarter, the Boys of Roy were amazing. They were able to absorb both the rebates and the price cuts, and still keep margins very close to 2nd quarter levels. My bet is that they'll reduce costs and beat the numbers again. In fact, if they're going to ever achieve their goal of a $99 price tag, Iomega must continue to somehow cut their costs. Regards - Dale

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