From friends at AOL Motley Fools:
The Motley Fool's
IOMG in Fooldom TODAY
Wednesday, July 17, 1996
In early morning trading, Iomega was up $2 1/2 to $26 1/4 (+10.53%).
TODAY'S RECAP: Intel's earnings report (beating estimates) and yesterday's
reversal in the market has brought an overriding mood of relief to the board.
Most of the best thinking last night was consumed with the news that Seagate
would be manufacturing Jaz disks. ~MF Debit~ has excerpts from the Seagate
Conference call below, and a number of Fools give their thoughts of the
implications, ramifications, and celebrations involved. ~ROCKETENGR~ reports
that he has actually seen an LS-120 (relax, it was at a trade show). And
Elvis sings.
SMALL WORLD DEPT.: A channel check from Jerusalem.
~RGESEYMOUR~ REPORTS: "I've just posted a new Rogue piece on Iomega that
looks at Meyer Berman's comments on CNBC yesterday; Rick Cornfeld's
revelations about Compaq last week here in the Fool; and the overall issue of
online/offline discussion of Iomega and the effect on the stock. Of
particular interest is an extended response from CNBC's Mark Haines to my
inquiry concerning Berman's appearance and CNBC's influence in general. It's
now on the Fool and will be available thereafter in Rogue (keyword: Rogue)."
Written and compiled by MF Numbers, MF Cheeze and MF Jeanie
Edited and mailed by MF Selena.
Kudos? Gripes? Questions? Let us know.
And now, the Best of the Board... Started 9:30 a.m. 7/16/96.
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Subj: Weekend Roy, UT Road Report
At 96-07-16 09:46:36 EDT ~Cmorgan764~posted the results of his drive by
sightings in Roy, UT. In between touring the area he checked the Iomega
corporate parking lots over the weekend and found, "Slowing demand? To me it
seems we need to dispatch medical help to Roy. Those wonderful people are
working weekends and shifts of all hours of the day to meet exploding demand.
:-) "
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Subj: H P
Date: 96-07-16 12:23:07 EDT
From: MISTIC 7
I called HP today and spoke to a senior project engineer. I asked him why HP
dumped the disk drive unit. He said quote"IOMG IS RUNNING THE SHOW, we have
lost a lot of market share. IOMG is the clear winner and no one knows it.
He also said IOMG had new products in the wings that will tie the bow.
He also said they can not play against SEAGATE and ----then he stopped saying
he can't say any more.
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Subj: Re: Valuation
Date: 96-07-16 12:35:25 EDT
From: KarlW12733
OK, Trader Z last night put up a good post about valuation based on revenues.
I have been valuing IO on the basis of revenues also. In the face of all the
fluff and hype both pro and con about Iomega it is settling to look at some
numbers. These numbers are speculative but have a basis in reality and make
me feel quite good about the future of IO.
Morgan Stanley predicted 90,000,000 zip drives by 2000. at an average of
$100 that is 9 billion in revenues. Over 4 years that alone gives an avg.
annual revenue of 2.25 billion per year. Add in discs, Jaz, ditto,
accessories and a conservative estimate for me would be another 50% in revs
or about 1.125 billion. Round this off and get 3-3.5 billion per year.
More data: Several months ago IO had an ad in the WSJ for personnel. It said
"Be a part of a 2 billion dollar company". I assume this is an internal
projection. Given this as a floor and the 3.5 billion as a ceiling, that
makes me comfortable with an average in revs by 2000 of 2.75 billion.
Now look at some other companies. Seagate, whose fortunes are not nearly as
rosy as IO's sells at a sales to revenue ratio of 1. On the other hand, USRX
sells at a ratio of 4.
Which company is IO more like?
If we assume 2.75 average revs over the next 4 years and a price/rev ratio of
3, than IO is a triple at these prices.( Currently market cap of about 2.5
billion). If you want to use a Price/rev ratio of 1 then we are fairly
valued now. I'll take a ratio of 2 and call it a double.
I remind you that I have used conservative numbers. I realize this is
somewhat of a theoretical exercise but it is much more solid than most of the
fluff thrown around by both sides. It gives me a good reason, other than
just a "feeling" to hang on at these prices.
Before I started following IO and this board 9 months ago I couldn't even
spell revenoos. I have gotten a tremendous education about business and
investing from this forum. I would sure like to see a return to more
analytical posts instead of the visceral stuff we are seeing now.
I believe IO is one of the companies of the decade. Right up there with
Intel, GE, and Microsoft as far as execution, business plan, marketing, and
product are concerned. We are fortunate to be able to watch it unfold.
I would welcome comments about this valuation.
Karl
P.S My numbers are a little different than last night's similar post. That
was a draft that I inadvertently posted.
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Subj: A Brilliant Strategic Alliance
Date: 96-07-16 13:00:24 EDT
From: JTahir
I never expected this. Given the potential threat of Jaz to Seagate's
business, I was worried that Seagate would either buy Syquest and take over
production of the SyJet or develop its own removable storage drive. Seagate,
with both the technical know-how and the capital, posed a considerable threat
to Jaz's dominance. It would be a battle fought long and hard if Seagate
entered the fray. This alliance eliminates the potential for a bloodbath
and, as of this moment, as far as my feeble eyes can see in this murky gloom,
assures the Jaz of becoming the high-end standard.
As the IOMG spokesman said, there is no competition. None for the Jaz, and a
hopeless skirmish by CPQ against the Zip. How does CPQ expect to become a
standard ceding the consumer market? They think Zip won't enter the
commercial market? It's already there, and the fact that it IS the New
Floppy consumer market, makes its presence in the commercial market doubly
advantageous.
The alliance with Seagate puts even added pressure on Compaq to surrender.
If there was a hope of catching Zip, CPQ needed time. It needed IOMG to
become engaged on another front, its attention divided. Now with Seagate out
of the mix, it's hopeless for CPQ. IOMG can squash CPQ solely on price,
never mind the tech aspect. No wonder CPQ is keeping the LS-120 such a low
profile item. No one wants to be identified with a loser.
Fundamentally, IOMG has never been stronger, but we're gonna have to forget
about stock price for awhile. The market may continue to punish us for our
high-flying ways. Nobody likes cheeky, boastful investors. We all root for
the arrogant to get screwed. Obviously that has been the tenor to a lot of
these off-line anti-IOMG stories.
But enough of that. KE has done a great job and this last was a brilliant
strategic move. IOMG is truly on its way to becoming a multi-billion dollar
company and possibly, if things continue to go right, stepping up in class to
the CSCOs, INTCs and MSFTs. It's got a shot.
Rustam
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Subj: Re: My Biggest Fear
Date: 96-07-16 15:48:27 EDT
From: MCCONATHY
<<<Charles (McConathy). Excellent comment, allaying some of your
apprehensions about Jaz quality with involvement of SEG. Don't you think that
SEG and IOMG are governed by the same principles in respect to quality and
channel management? Do you think that SEG might be included in future fab
arrangements for the Jaz drive, or is it likely that KE is sufficiently
comfortable with capacity at this time? Your views are always appreciated
because of your candor (and despite some naysayers here). >>>
I know for sure that fixed hard disk drives from Seagate have less read/write
issues than Jaz. Discs or platters must be made very flat to keep heads from
making contact with the fast rotating high spots since the heads fly only a
few microns above the disc.
Seagate has had many years of Winchester experience... Winchester is new to
Iomega. Bournelli and Zip and the old Floptical did not use rigid media.
Therefore if Iomega can get a solid source of media from Seagate I would
think there would be less issues. This is a good move. Seagate people have
been nosing around about the removable market. To what extent their plans -
who really knows. If they should get with Iomega and make Jaz the standard
that would be a good thing too. Hopefully with their multitude of engineers
spread around the several Seagate facilities (Minneapolis, OK City, Scotts
Valley, Colorado, Costa Mesa, etc) they could help build a better mouse trap.
If this be case then the user would benefit since there would be one less
removable drive and cart to contend with when sharing data (And Lord Knows
there is too many now).
Charles F. McConathy
ProMax
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Subj: The future looks bright
Date: 96-07-16 17:55:55 EDT
From: CLFDAV
Many interesting points have been brought up today regarding Seagate. For
what its worth (FWIW) here is my take on Seagate.
1) If you can't beat em, join em. Seagate probably has a better view of the
disk storage market than anyone around, since they are the acknowledged
leader in that market. By joining forces with Iomega to produce the Jaz
carts, the ramp up capabilities of Seagate give Iomega a huge supplier of Jaz
cartridges. And gives Seagate the potential to make a better margin than they
do on other products they currently sell.
2) Why does Iomega need so many Jaz cartridges? Because the Jaz drive is
selling faster than the Zip drives did when they were introduced. Just read
the channel checks. The Jaz drive has at least as much potential to become a
standard as the Zip drive does (I think the Zip will be the next floppy
standard). Jaz sales are going to blow everyone away. Its the stealth product
in Iomega's line up. Most people still don't see how fast this product is
selling. Keep in mind that Seagate is CURRENTLY making Jaz carts. They have
been shipping for some time. We didn't have a clue about this. Talk about a
well kept secret!
2) People have repeatedly stated "Who is going to make the drives, if Seagate
is making the carts?" I would like to suggest that I do not remember hearing
that Iomega production of Jaz drives was too low to handle the demand. In
fact I remember reading that Iomega expected to have the Jaz production
facilities fully automated in the second quarter. Is it possible that Iomega
currently has enough production capacity to meet Jaz demand?
3) Its the Zip drive that needs increased production right now. Some people
may be overlooking the fact that the Zip drives are the ones OEM's are going
to be putting in their computers. The production partner(s) I am expecting
would be for the Zip drive, not the Jaz drive (for now).
4) If Iomega announced the Seagate partnership before earnings, I expect an
even bigger announcement after earnings. Seagate further adds to the image of
Iomega as a leading company and to their products as industry standards. This
is fantastic news.
5) Seagate has helped Iomega give fair warning to any possible competitors.
Iomega is deadly serious about dominating the removable storage market. They
will form strategic partnerships with companies that will work with them.
They will crush the competition by giving the consumers what they want at the
prices they want to pay. $149 Zips, $399 Jaz, can $90, $80 or less Jaz carts
be far behind when Seagate gets production going in full force? Remember the
more you sell, the cheaper they are to produce. What is next? $100 zips,
$250 Jaz. These are all stated goals of Iomega. So far, they haven't missed
on any front.
6) Future products to look for from Iomega. Laptop Zips, Zip 200, Jaz 2 etc.
are already under development or working at this time.
What else do they have up their sleeves? I wish I knew. But I do know one
thing. This company may be one of the greatest success stories in history
when the dust settles. {8)
Have a great evening,
Cliff Davis
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Subj: Elvis Sings !!!
Date: 96-07-16 21:28:33 EDT
From: SundialMan
Can it be?? I was called to the phone this evening by what I thought was
another broker trying to sign me up. Just as I said, "Put my name on your
DON'T CALL LIST" (they can be sued if that same firm calls you again), I
heard Elvis on the other line singing:
You ain't nothing but an LS-120,
Sales stallin' on a dime
You ain't nothing but an LS-120,
Sales stallin' on a dime
You ain't ever caught the Zip drive
And you ain't no friend of mine
When Berman said you were high class
Well, that was just a lie
When Berman said you were high class
Well, that was just a lie
You ain't ever caught the Zip drive
And you're out of time
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Subj: The Seagate C-Call
Date: 96-07-17 00:40:59 EDT
From: MF Debit
Hi, I'm still working on the Q&A section of this call write-up. But, I know
you all are interested in what was said regarding Iomega and the Jaz
cartridge manufacturing. It was not mentioned in the company's presentation
but came up in the Q&A (mostly by Todd Bakar from H&Q). This is what was
asked and what Seagate said:
<<With regard to the announcement today that Seagate will manufacture the Jaz
cartridges for Iomega Corporation's Jaz drive, Seagate said that basically
they saw an opportunity to use their manufacturing expertise and also their
vertical integration with their media and saw an excellent opportunity and
are prepared to take advantage of it. Obviously to the extent that Jaz is
successful, that business will be successful and Seagate found it a good
opportunity to participate in the removable market.
The company was asked, given the fact that they will be using some of their
media production to produce Jaz disks, where they are in terms of their
overall capacity designed for Seagate products. They spoke specifically about
producing 75% or so of their needs internally. Seagate said that they are
currently running at about 50% of their total internal requirements and are
still in the process of qualifications that they believe will get them into
the 75% range by the end of the calendar year. The Iomega relationship does
not negatively impact that. The La Paz drive, that they are ramping now,
should be doing close to 5 times the volume in the next quarter over the last
quarter and that drive is all internal media and internal heads.
The company was asked if they had any interest in building Iomega Jaz drives,
in addition to the Jaz cartridges, given the fact that Iomega is looking for
additional manufacturing partners on that front. The company answered that
they have been looking at the removable market for a long time and anything
they might decide to do we will have to wait until they decide to tell us
what they are going to do, if anything. They said that we cannot conclude
that because they are doing the Jaz cartridge, that they are going to do
another deal.>>
I hope that helps your discussion. The full report will be up in Earnings
Central soon.
Debbie
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Subj: Re:25 -26 cents.
Date: 96-07-17 00:41:58 EDT
From: Gverdun
>>>Subj: 25 -26 cents.
Date: 96-07-16 22:52:25 EDT
From: Mason0923
The shorts will cover Wednesday and Thursday with strong INTC # today and the
Seagate deal out in the open I am hoping for 25-26 cents. Thanks for the
after hour prices lets hope for 30 dollars before the close Thursday.<<<
***If*** IOMG earned enough profits to be able to report 25-26/share (I would
love to see how you worked up this number), it would be in IOMG's and our
(shareholders interest) for IOMG to report 15 cents per share and hold the
remaining 10-11 cents/share in reserve against incoming rebates (that would
be roughly 13 million). .15/share still beats estimates by a mile, shows
87.5% growth in EPS between consecutive quarters, shows 850% growth over Q2
last year, and provides an excellent cushion against the $50 zip rebates by
providing reserve money.
Assuming that 500 thousand drives will be sold with redeemable rebates by
September 1996 ( I am also assuming that overseas sales and OEM sales will
grow at a faster rate then domestic retail sales). Assuming that every
single person mailed in their rebate (probably will not happen but I am
trying to be conservative :D) --- the total monies needed to be paid will run
the range of about 25 million bucks. The reserves for the rebates are
important as it will allow IOMG to show a better profit Q3 as they have
already earned the monies held over. Furthermore considering that the
rebates will take about 6-8 weeks to actually be cashed in by the customer
this process will continue into Q4 (min. August rebates will be redeemed in
October, potentially,). The reserves will provide a smoothing over "hedge"
while IO continues to ramp production which in turn will lower its cost on
Zips. What a great solution to locking in the market!
As it is, I suspect that about 5-6 mill will be held in reserves for this and
earnings will be around .14/share....
Just some thoughts,
GVerdun
An IOMG long...
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Subj: UFO (LS-120) Sighting
Date: 96-07-17 00:55:32 EDT
From: ROCKETENGR
Went to "Technology Event" today sponsored by local computer systems co
(Huntsville, AL). Quite a few exhibitors there (Compaq, Apple, Intel,
Microsoft, Sony, AST, HP, Global Village, IOMG and others). Went to Compaq
table and asked if they had seen an LS-120. Sales guy said sure, and here it
is! Unit was installed in a Deskpro model. Unit was pretty nifty looking,
but disk appeared very flimsy. Operation was fine, although relatively slow
compared to my Zip. Asked salesman when I could buy one and he said next
month. I asked where and he said from the company sponsoring the show. How
much I asked? About $230. He also said that they would not be available
retail (consumer stores) and that he thought main market would be for high
end machines. My opinion of device: Would probably do well if brought to
market about a year ago, wasn't 50% more expensive than Zip, and wasn't more
than twice as slow as Zip. I believe MKE will have no trouble ramping up to
meet demand in this narrow channel. Will check back in a month to see if
they are really available then. Hope to see you nice folks in SLC again next
year. Been here (and long) since folder 3-4 and this is my first post. (now
that's self control). BTW new Wal-Mart Supercenter in home area (pop.
15,000) has Zip and Ditto. Now that's marketing!
Alan L. Norwood
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Subj: Re: Hot Jazz
Date: 96-07-17 01:18:17 EDT
From: MCCONATHY
<<<I have read several comments on the newsgroup boards of people complaining
how hot the Jazz runs. So hot that it was posted that IOMG is not supporting
internal Jazz drives for Macs. Why it would make a difference whose tower it
is in I don't know. I am aware of the fact that the Zip runs cool.
Generally, hot disk drives aren't good for data. Comments?>>>
I will comment. Zips spin at 1800 RPM. Jaz Spin at 5400 RPM. Zips take a lot
less power thus do not need a fan in their cabinet.
Jaz do indeed get hot without some air movement over the drive. That is
exactly the reason our cabinet has a fan. We tested several arrangements of
cabinets and vents that did not include a fan. We could not qualify the Jaz
unless we included a fan.
As to Jaz getting hot in the Macintosh 8500 and 9500. We have not found that
to be the case at all. In fact they run much cooler in the tower cabinets
than they do in Iomega cabinets. Our records show we have less support calls
and failures with integrals than externals.
Heat is an enemy to data storage systems. A Seagate Engineer once told me
that for every 5 degrees temperature over spec you can deduct 10% from MTBF
(Mean Time Between Failure) or the expected life.
A quote from a customer today...."It looks to me like Iomega just enlarged
the Zip cabinet for the Jaz and forgot that the drive was much more
complicated".
I just took an order for an internal...The customer owned an advertising
agency and has been using Magneto Optical drives for sometime. She asked me
if it was true there was a 5% cartridge failure. I said not, that rumor is
kinda high. I said no our experience is more 2%. She said well that is a lot
less than my MO has been so go ahead with the order.
For what its worth...
Charles F. McConathy
ProMax
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Subj: Re: LS 120 in 2 of 14 CPQ mod
Date: 96-07-17 01:26:04 EDT
From: BOBTHEBEAR
FWIW. The Compaq rep was in Sears today. I asked him when the LS120's were
coming. His answer shocked me. He didn't believe that they were coming. He
said that they tried the PD-CD last year and hardly sold one of them. So in
checking for customer enthusiasm for the LS120, they found none, so they're
not going to sell it. Now, this is only one rep, and he may not know what
he's talking about, but it sure was an interesting conversation. I tend to
believe him, we shall see soon enough. Did anyone here about Compaq's
presentation on Monday?
Good luck Bob the Bear
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Subj: Re: The Seagate C-Call
Date: 96-07-17 01:49:39 EDT
From: MF Debit
Whoops, there was a late question about the Jaz disks:
<<An analyst stated, with regard to the Iomega Jaz cartridge, that he assumed
Seagate wouldn't take that business if the gross margins are below Seagate's
corporate average. The company responded that his assumption is a fair
assumption, but it is probably also fair to think about it in the context of
operating margins rather than gross margins.
The company was asked whether Seagate was the sole supplier for the Jaz
cartridge business or if the business was available to others too. They
replied that, to their knowledge, it is available to other people and other
people are making it right now including Iomega.>>
The full Seagate call is up in Earnings Central now. It is fairly long, so I
just cut the Jaz related stuff out for this board.
Debbie
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Subj: Zip Zip & Away
Date: 96-07-17 05:43:01 EDT
From: REN KAI
Posting from Jerusalem via AOL hook up through Tel Aviv ($6..00 per hour
xtra).
I just came from downtown Jerusalem computer store called "The Bug".
Salesperson says they are eagerly awaiting Zips next week. Says he has had
numerous requests.
Its a big world out there and someone's got to back it up.
Peace,
Ren
End Report. Posts covered through 9 a.m. 7/17/96.
Sorry about the formating.
Regards,
Erik. |
