SJSharkey and Michael,
<<[SJSharkey] The problem with the analysis is that scrap and obsolete inventory also go to the cost of sales line item. So if a company had large scrap or took large reserves for excess and obsolete inventory during the quarter, gross margins would look poor.>>
Both valid points. However, in the case of write-downs SyQuest has in past reported the charge. Of course this is the "new" SyQuest, so who knows. As far as scrap, that is a matter of production yields and is part of the cost of the drive. Of course, yields can go up.
<<[Michael] What you're missing is that the cost of goods (per unit) was higher than it will be in future quarters (theoretically) due to ramping costs. They could also gain some efficiency through higher volumes.>>
That's true, but my opinion is that SparQ was a desperation play. I believe it is a SyJet that has some minor modifications including the removal of one head (minor cost change). I think SyQuest is just keeping a foot in the door, and hoping they can implement a SparQ drive that was actually designed for the $200 price point.
There is something else to consider.... If Iomega matched the SparQ price with the Jaz (by the way I wouldn't be surprised if the Jaz is cheaper to build than the SparQ because of volumes and life cycle phase), Iomega would likely lose tons more money than SyQuest. It's all in the volume.
So, although the SparQ is hurting SyQuest, it could conceivably hurt Iomega more. |
