I am posting the following because I think it adds to the discussion.
Ricornfeld seems to present a fair and balanced comparison between the two companies and some interesting analysis. AND it is just another opinion.
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Subject: Why SYQT isn't IOM
Date: Sun, Oct 12, 1997 4:28 PM
From: RICORNFELD
Message-id: <19971012162801.MAA11554@ladder01.news.aol.com>
What I am posting here seems so obvious that it hardly seems worth it. (It also may be off topic here, but since it involves a comparison between Iomega and Syquest, I figure it is fair game.)
I certainly respect Howard Rosencrans, who I met at the IOM annual meeting in 1996. His recommendation is not to be sneezed at. But considering the caution with which he expressed it, it seems that he may have been trying to catch the trading frenzy that hit SYQT in the last few days as buyers hoped they were buying into the next Iomega in its early stages.
That caution is warranted, I believe. I don't see much similarity between Iomega and Syquest other than that they compete in the same market. First, Iomega didn't start to rise from the low single digits (in pre-split terms) in late 1994 until AFTER it had demonstrated its products at Comdex, not before. SYQT is rising because of the prospect of new products that no one has seen. It is sort of on the "if-come." If Iomega was speculative in those
early days, when a product actually existed, SYQT has to be considered "super-speculative."
Second, when Iomega did start its rise, it was off the radar screen for most of Wall Street. It crept up quietly and never had a wild day like SYQT's on Friday (or several other similar days in the past few weeks) until the Zip drive was on the market and there were many reports of insatiable demand. In fact, I don't recall a day when Iomega was near the top of trading volume until late 1995, shortly before the first split.
Third, up to this time, IOM has held the vast majority of the low end of the market with Zip and the vast majority of the much-smaller high end with Jaz. Let's assume that SYQT's new product is everything the company's backers hope it is. Will it will eliminate Jaz from the marketplace? Doubtful. So it will share that market with Jaz. It will not compete with Zip in the low end of the market, which SYQT has conceded to IOM. That market, of
course, is much bigger than the high end occupied by Jaz. So the most SYQT can hope for is to take some of the Jaz market.
If SYQT can take a significant portion of the high end away from Jaz, the next question is whether it can do so profitably. On that question, I cannot express an informed opinion, though history is not kind to SYQT's backers. But let us assume it can. We now have a lot of "ifs." But even "if" they they all come true, the earnings per share must be "shared" with ... what? How many shares are out there? Somewhere upwards of 100,000,000, when you
include everything the company has promised to creditors? Can SYQT hope to make enough profit to support the kind of market cap it needs to if the price is to rise substantially. To me, it doesn't seem likely.
Finally, there is the advice from Peter Lynch in One up on Wall Street. He advised against trying to catch the "next" anything. He said that after one company has seen a fabulous rise in its stock price, investors will sometimes buy into another company in that industry, hoping to duplicate its success. If I remember correctly, Lynchy said the "next" anything never happens.
Rick
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