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Non-Tech : Any info about Iomega (IOM)?
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To: Janice Shell who wrote (4041)7/4/1996 2:43:00 AM
From: Ken Marcus   of 58324
 
Mary says that the jaz price reduction is risky but worth it. I can see the logic there. However, I think it is more risky to not lower prices and just wait for some competition to make them do it. This way they not only discourage competition by slimming down their potential margins, but by increasing their installed base they make it increasingly difficult for other manufacturers to enter.

When they originally did the marketing studies that led them to engineer the zip and jaz, they got input as far as what people were willing to pay for what. So, in my opinion thay already have a pretty good idea how much sales fo zip and jaz will increase with the reduced prices/rebates. I forget if it was in a conference call or at the shareholders meeting, KE mentioned that for similar products when the price was dropped by half, demand went up 4 to 10 times. Their eventual plan is to have the external zip $99 at retail.

I believe that iomega first experimented with the $50 rebate on the epson branded zip drives; and based on that decided to expand it to iomega brand zip drives; obviously they ran the numbers and liked what they saw.

Economies of scale: A general rule of thumb in manufacturing is that for each doubling of production costs decrease 15%. We already see some of these economies in the fact that IMPX sells the read channel chip to iomega for around $5 instead of the usual $9. So, if we figure that zip sales would double 3 times=(2x2x2)or 8x the original volume, with a price decrease to $99; and, we also apply the 15% rule of thumb on cost reductions, then we see that iomega's margin on zip drives would still decrease, but not by nearly as much as some believe.

On another note:
My projections for Q2 revenues: 330 million plus. This is very conservative since I only added 15% to the run rate for the last 46 days (if I recall correctly) which was 289 million.

ken
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