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Non-Tech : Any info about Iomega (IOM)?
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To: mgsam who wrote (2634)6/9/1996 1:32:00 PM
From: Joe Rizzo   of 58324
 
Mgsam, Chiros must be a doctoral candidate in fiction. His number do not add up. Real quickly:

1) He uses 130 mm shares o/s, yet the company has 143 mm shares on a fully diluted basis. This is the only number one can use since the convertible cash is gone and the employee options o/s are exercisable at $2 per share. So, for starters one has to question a financial analysis which doesn't even get the shares o/s right. Further technology companies always issue more shares. So it is very likely that shares o/s will be 150 mm in 1997, not 130 mm.

2) Chiros assumes that zip disks wholesale for $8 and have $6 per share gross margins. I'll take my chances this is not true. Intel only has gross margins of 50% to 55%. Further, Intel does not subcontract manufacturing. Also, I understand zips are retailing for $8.50 in some places already.

3) Chiros in the EPS estimate states that SGA and R&D will total "conservatively" $240 mm. Yet in his Price/Sales analysis he states that sales for 1997 will be between $3 and $3.8 billion. This implies an SGA and R&D as percent of sales of 6.3% to 8%. Seagate has 10%. Most great company's spend 8 to 10% on R&D alone. I'll take my chances that Iomega can not achieve this low expense ratio.

4) Thus even if you believe these "conservative growth estimates" of going from $222 mm in the March quarter of 1996 to $850 mm per quarter in 1997, Iomega can not earn Chiros projections.

Once again to reiterate the bulls case. Iomega will be $100 in six months, therby creating value from $150 mm to $15 billion in less than two years. Iomega sales will grow from $222 mm last quarter to $850 mm per quarter in 1997, while average selling price on zip drives per unit declines 50%. The company's gross margins on zip disks will be in the 75% range. No competitor will be formidable. Management will execute this growth path flawlessly, notwithstanding its comments that capacity for Iomega and partners is only 5 mm zip drives.

I just hope the company does not slip off of this high wire act.

Joe Rizzo
JMR Trading

PS Shorting the stock is no longer a problem. I am getting a full rebate from Bear Stearns again.
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