To those who care (I am not a shareholder and have no intention to offend anyone).
HERB GREENBERG'S BUSINESS INSIDER
Iomega Investors Will Be Learning What `Challenging' Means
Is the Zip about to become just another product?
Herb Greenberg
Iomega is back. (OK, my fingers and toes are crossed, but I really think we're getting to the point where you'll start seeing a lot less of the ``I'' word in this column).
The reason: the zip may be going out of Zip sales.
Yesterday the Roy, Utah, company reported second-quarter earnings. On the surface, they looked pretty good, beating the published estimates at 11 cents per share compared with the 2 cents per share loss a year ago. But they missed the informal estimates of 13 cents to 15 cents per share.
If that was the story, I wouldn't bore you with Iomega again.
Enter CEO Kim Edwards and his conference call with analysts.
In the call, he used the word ``challenging'' to describe the company's current quarter. Any derivative of the word ``challenge'' is never good news. It's a euphemism that must be taught in CEO
school for trouble. Red light! Do not pass go. Do not collect $200.
Companies that trade at 50-times next year's earnings, as Iomega does, can't afford that kind of
trouble.
But Edwards didn't just chat about the challenges facing Iomega. He also said business in Europe, which accounts for around 40 percent of his sales, has been slower than expected and ``will remain
soft'' this summer.
OK, now I understand what one Iomega supplier meant when he told me earlier this week that ``the level of intensity that the company had with us has abated. From the time they first introduced the
Zip drive, we were told to, `ramp, ramp, ramp' to get up to the levels they need.''
This same supplier started hearing rumors several weeks ago that Iomega was curtailing orders from some suppliers. While he hadn't lost any Iomega business, the rumors coincided with his personal
observation that Iomega officials had stopped haranguing him to produce.
And let's not forget those zippy rebates. A few weeks ago Iomega said it was offering $50 rebates on the Zip drives for the summer.
Rebates are never good news. They usually mean a product isn't selling fast enough. But the company tried to put a positive spin on the story, saying they were part of a long-term program to reduce prices and increase market share.
(Care to buy a slightly used bridge?)
Meanwhile, the company's order backlog is falling and its inventory of unsold products is rising. Edwards didn't have a spin for that.
Even the recurring story that computer manufactures will start installing Zip drives en masse -- any day now -- doesn't appear to be evolving the way Iomega fans had been expecting. Asked by one
analyst about sales to manufacturers, Edwards cautioned that they're insignificant.
So, what will the spin be this time? The company has started by saying this is a typical summer slowdown (excuse me, but should't that have already been factored into this story?) And much of the focus by the company and its fans appears to be on the normally robust fourth quarter.
But once a growth company is perceived to be stumbling, Wall Street tends to stand back until it delivers results.
This is a story we see over and over again -- with technology companies in particular.
The most recent example was Creative Technology. It created the Sound Blaster sound card, which makes it possible for personal computers to serve up sound.
Sound Blaster quickly became THE industry standard. The aisles of computer stores were stacked with colorful Sound Blaster boxes, just like Zip is today.
The Sound Blaster product was soon built into most PCs at the factory. But after the initial burst of buying, prices fell, the rate of growth slowed and Creative's stock, well, after peaking (post-split) at
21 two years ago, it steadily dwindled to its current price of around 5.
Stocks like these are great for traders, but not necessarily for investors. |
