Archie, I am happy to hear you are long on IOMG. This stock is for long
term investors, and not for speculators. Even shorts were burned before,
and they will be burned again.
Looking at the short term for IOMG: this company is growing, positioning in
the market and trying to establish itself as industry standard for
removable drives. All of these requires expenses:
- rebates, as Victoria pointed out $ 4M is about .03 in EPS. Now $4M is
covering about 60K drives. Now, during this promotion, how many
drives will be sold? 240K? Then it will be .12 against EPS. This
rebates amount to $50. You can be sure that 99% of the buyers will
turn in for the rebates. This is not $ 1.00 toothpaste rebates
which the manufacturer knows that only a small percentage will
redeem since it cost 32 c just to mail it.
- Malaysia : good move to supply the Asian Market (remember 2/3 of the
world lives in Asia). This is a growing market, and local production
can serve the market better. Do not forget that Syquest fab is in
Asia, and it is big in Australia.
Short term: this $28M purchase incurs additional major expenses: new
machineries, set up costs etc.
Long term: economics of scale - margins should improve.
- R&D : additional $4M - I would be disappointed if IOMG is complacent
and be happy just with Zip and Jaz. I do not know what is in the
works, but KE and his crew are smart people. They must already be
thinking of DVD, albeit the negative of DVD is only recordable once, but it
can be used for archiving. Now this R&D is positive for L/T.
When KE says that there are challenges in 3Q, maybe they include some of the
above factors. Maybe he prepares MF and overenthusiastic investors for ST bumps.
There are many smart WS analysts and they probably not just evaluate the
bottom lines only, but other variables as well.
Long term IOMG is just an excellent company!
Archie, reading your post I know that you are a Gentleman and practices
kindness to mankind. My salute to you. I suscribe to your philosopy of
random kindness, hopefully it spreads like mushroom.
Thumb and pinky longhorn alumni.
Warmest regards,
A.L. - L is for Long on IOMG.
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