Chris,
Iomega doubling is reasonable within a year; 10x doesn't seem doable.
Optimistic scenario - 4th Q 1996 - PC makers who have announced inclusion of
ZIP on at least some models (IBM, Gateway, Packard Bell, etc) represent
order of 50% of total market. If ZIP is a successful product, its reasonable
it will be sold at 1/4 to 1/3 penetration of those offering = ~ 50% x 30% = ~15% of PC market volume
Don't know exact current number, but range of 50 to 100 MM PC's per year
is probably correct & 30% of 50% x 75MM = 11 MM ZIP drives/ year RATE.
A previously posted analysis of ~$200 revenue to Iomega (drive + disc)
would provide annualized revenues of $200 x 11 MM = $2.2 B /Yr. If you thro in Ditto
& rest of product line, & look at pre-ZIP sales, maybe total of $2.5 B annualized
sales rate.
Typical successful high tech manufacturing firms net profit on sales averages , rather tightly,
10%. 10% of $2.5 B = $250 MM profit & with ~ 120 MM shares outstanding,
= ~ $2.00 /Year Earnings. If you put a 30:1 to 40:1 PE ratio, then you have
a target price of $60 to $80/share -if all goes well.
Eventually, you might have penetration of 50% to 75% of market,
IF ZIP becomes close to a standard, replacing floppies. You may have
then 4 x above revenues, although lower prices may be necessary to
penetrate market. Therefore at best, at market saturation, $7 - $8 /share
Earnings / year. However, at close to market saturation, expected growth rate
will be much lower & expected PE no higher than a Seagate, or West. Digital,
@ 15:1. 15 x $7.00/sh = $105/sh stock price in 2 -3 years. Not bad but not 10x
current.
To reach above, have to be VERY successful with ZIP, but no new product (or
at least, none that don't canniblize ZIP sales). Also assumed is that
with institutions having to own when Iomega is $10B/yr, PE will be in
line with rest of market, not astronomical just because we high techies own it
& pray to a higher god. Iomega may be a cult, but it is really NOT a religion.
Would appreciate comments on this analysis. I'm comfortable with the 10% margin (I know Cisco
just reported at close to 20%, but historically this is never sustainable, just that fixed costs
can't always grow as fast as revenues)& PE's I've assumed. Any better numbers on total PC market
size, maximun penetration,or where JAZZ will fit in market are solicited. |
