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Non-Tech : Any info about Iomega (IOM)?
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To: mgsam who wrote (2683)6/9/1996 3:24:00 PM
From: Joe Rizzo   of 58324
 
Mgsam, One more thought on the price/sales analysis. I have been racking my brain trying to figure out why Iomega should not sell at 3x's 1996 sales of $1.5 billion if the bulls are right. The answer is simple, there is no way the drives deserve a price/sales of 3, only the disks. Thus if average drives o/s for 1996 = 4 mm (very high assumption), then the most Zip disk that can be sold in 1996 will be 40 mm (very high assumption again). Using $8 per disk of revenue, this equals $320 mm. Thus the disk business is worth $960 mm in 1996.

The drive piece is $1.18 billion. Seagate and Western both manufacture drives with average selling prices higher than Iomega and do not subcontract out--thus should have higher margins on the manufacturing of drives. Yet, net of cash these firms sell at anywhere from .3 to .7 x's sales. Assuming .7 x's Zip drive sales of $1.18 billion, the drive business is worth $826 mm (a very high assumption again). Thus the total business is worth $960 mm + $826 mm + 183 mm cash from secondary or $1.96 billion. Divide by 143 mm shares and the generous value in 1996 equals $13.70. If you want to say that the zip drive business is worth 6x's my aggressive zip disk 1996 projection, feel free. This yields a price per share of $20.41.

Joe Rizzo
JMR Trading

PS I wish I had been part of that story. I have to confess someone told me about Iomega when it was $7 per share, and I did a cursory analysis and then did not buy. However, I did not short the stock until recently. Sun Microsystems has been my biggest position for the last two years, but even there I am out of 80% of my original position. Much of the good news is already discounted as in Iomega.
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