Bloomberg's latest opinion: but first, special thanks to D.T. Nguyen,
Ken Marcus and Motley Fool for giving me the courage to buy more (my
original shares cost $3.11 split adjusted!) IOMG at $37.75 on Tuesday.
It finished up a dollar that day, but slipped down to $35 on Wednesday...
only to rally and close above $40 with that last hour rally. Been
nice since then.
--beginning of article
Iomega drives may be harder sell than shares
ROY, Utah (May 31, 1996 00:05 a.m. EDT--Copyright © 1996 Bloomberg) -- Iomega Corp. may have a tougher time selling its high-powered computer disk drives than its high-flying shares.
The company can't count on setting a standard for the next generation of disk drives -- which store information for use by personal computers -- because it now faces some much bigger competitors, analysts said.
And even if Iomega wins that battle, it may have trouble convincing people to abandon the standard 3 1/2-inch drive and buy its more expensive Zip drive, which provides more than 70 times the storage capacity on a single disk.
Most computer users don't need anything more than the current drive and it's much cheaper to produce, said Jim Porter, president of Disk/Trend, a consulting firm that charts disk sales for the industry.
"Are you going to replace the conventional floppy? I'm in the 'Hell no' camp," Porter said.
The prospect that Iomega's drive could become an industry standard helped boost its stock price almost six-fold this year. Its shares hit a high of 55 1/8 last Thursday from a low of 8 3/64 at the beginning of the year, adjusted for a stock split. Today it traded as high as 48 3/8 and ranked as the most active stock in U.S. markets.
The Roy, Utah-based company's stock trades at 17.6 times sales for 1995, and 103 times analysts' estimated earnings for 1996. The company is short on cash, with only about $700,000 in the bank as of March 31. It filed earlier this month to raise more money by selling 5 million common shares.
Iomega's stock surge reflects the fact that the need for storage capacity has increased along with the power of computers. Audio and video files used in multimedia presentations, such as "home pages" on the Internet's World Wide Web, require much more memory to store than text or spreadsheets do. Software programs have become more complex as well.
That's led to increases in the size of personal computers' hard drives, which store information internally. Hard drives on new PCs average 1 gigabyte of memory, enough to store 250 copies of the novel "Moby Dick." That's up from 400 megabytes just two years ago, and 40 megabytes a decade ago.
By comparison, the storage capacity of floppy disks has been fixed since 1988 at 1.44 megabytes. The limited size, among other things, prompted software companies to put 80 percent of their programs on CD-ROMs rather than floppies last year.
Iomega's Zip drive works with disks storing 100 megabytes. The company began shipping the drive in March 1995 as an add-on product for PCs. In this year's first quarter, it introduced a version that PC makers could build into their products.
The company shipped 1.5 million of the Zip drives so far and could have 8 million delivered by the end of the year, said Rich Becks, a manager at Iomega who signs up PC makers to offer them as standard equipment. Disk/Trend's Porter estimates the figure as closer to 3.5 million.
Either way, Iomega now faces competition from Compaq Computer Corp., the world's largest personal computer maker. Compaq helped develop a rival high-powered disk drive that it started packaging last month in its DeskPro line of PCs for corporate clients.
The drive, called the LS-120, can store 20 percent more information on a disk than Iomega's Zip drive. It can also read the current 3 1/2-inch floppy disks, which the Zip drive can't.
On the other hand, the Zip drive reads information stored on floppies almost twice as fast as the LS-120 does, according to statistics from Iomega and Minnesota Mining & Manufacturing Corp., the world's largest maker of floppy disks.
3M makes disks for the LS-120. The drives come from Matsushita-Kotobuki Electronics Industries Ltd., a unit of Japan's Matsushita Electric Industrial Co. -- known for its Panasonic brand of consumer electronics.
"What we are seeing is the battle for the new standard," said Robert Abraham, vice president for Freeman Associates Inc. an information storage consulting firm. Among PC makers, he said, "There's a polarization, with some going one way and some going the other."
Compaq passed on putting a Zip drive in the DeskPro because it would have needed to build in a current floppy drive as well, said Paul Gottseger, a director of marketing. "Most PC's don't have an abundance of space to squander," he said.
--end of article-- |
