From today's WSJ for those that still care:
Iomega Warns of Quarterly Loss On Weak Sales, Marketing Costs
An INTERACTIVE JOURNAL News Roundup
Iomega Corp. warned Monday that it will post a first-quarter loss, an announcement that sent its shares sharply lower.
The Roy, Utah, maker of the popular Zip drive and other removable data-storage devices said it expects to lose between $10 million and $25 million in the first quarter. Revenue in the period will be relatively flat compared with the year-ago first quarter, it said.
In the year-ago quarter, Iomega earned $23 million, or 17 cents a share, on sales of $361.3 million. Analysts surveyed by First Call have predicted first-quarter earnings of nine cents a share.
In composite trading Friday on the New York Stock Exchange, shares of Iomega lost $1.50, or 17%, to $7.125.
The company also said it expects to have negative cash flow for the latest quarter. Iomega attributed the decline to a sales shortfall, combined with $20 million in marketing expenses. It said shipments in the quarter in all regions are lower than anticipated, especially in its international aftermarket.
The extra marketing expense is part of a controversial $100 million
[DELETED UNINTENTIONALLY] fourth-quarter earnings report.
Last week, a group of Iomega shareholders filed suit against the company, in part because of the "massive" expense of the advertising campaign.
Iomega said the remaining few weeks of the quarter will have a "significant" impact on the first-quarter results. The company will report first-quarter financial results April 16.
Separately, Iomega reported Friday afternoon that Chief Executive Officer Kim B. Edwards received $1.1 million in cash and bonus compensation in 1997. In a proxy filing, Iomega also said Mr. Edwards exercised 949,000 options to realize about $12.8 million last year. That represented about 14% of his stock options in the company, a spokeswoman said. Mr. Edwards apparently received no new stock options awards in the year, although a footnote in the filing said he received 80,000 options as part of his bonus agreement from 1995.
Iomega was once a Wall Street highflier, but its star has fallen. While its shares soared in early 1996, its performance since mid-1996 has been little short of catastrophic. Investors who bought Iomega then -- and many did partly because of feverish interest on Internet newsgroups -- have seen the value of their investments plummet by more than 70%.
The reason for the wild gyrations is that Iomega has morphed through three different stages of existence. First it was a virtual unknown with a niche product and an untested marketing strategy. A second phase began in 1996, when it came to the attention of a circle of on-line investors, many of them fans of the Motley Fool bulletin board. Today, many people remember Iomega only for that brief period of hype.
Iomega seems to be in Phase Three of its existence: a real business that's in it for the long haul. Yet becoming a real business has meant dealing with some real problems.
Roughly 65% of Iomega's $1.73 billion in sales last year came from its Zip drive, which stores 100 megabytes of data on a removable disk a bit larger than a standard floppy. The Zip was designed for making backup copies of valuable information, although many people now use it as regular storage for big files. Iomega makes most of its money not on the drives themselves but on the removable disks -- a high-tech version of the old relationship between razors and blades.
But the demand for the "blades" appears to be slowing. That's partially because overall growth in the data-storage market is slowing, and partially because those now buying computers containing Iomega drives aren't enthusiastic "early adopters," meaning they tend to buy fewer of the replacement cartridges that are the company's main profit source.
In January, Iomega missed analysts' fourth-quarter estimates by a few
pennies, announced a 10-fold increase in its advertising budget and said that inventory levels were rising. That ominous combination of information caused its shares to fall nearly 35% overnight.
Market watchers have other concerns as well. Nomai SA, a French
company, is trying to sell a Zip-compatible disk drive at 30% less than the price of Iomega's, forcing Iomega to pay stiff legal bills in its effort to keep the product off the market. Defeat for Iomega in that courtroom battle could lead to plunging revenue. |
