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Non-Tech : Any info about Iomega (IOM)?
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To: Rodney B. Hill who wrote (6835)9/2/1996 4:27:00 PM
From: Patrick Keeler   of 58324
 
Production price of Zip has been falling every month since August 1995 (info in 2Q conf. call). If Iomega had lowered the cost of the Zip to reflect every savings in production cost we would have seen lower and lower retail prices and would probably be below $149 now (IMO). However, this was not the case as Iomega was paying for expansion of the company through internal cash flow. They needed the revenues so they could build more and more Zips. Once Iomega completed the secondary and took in $191 MM dollars they could afford to finally lower the cost of the Zip. This is great long term as more Zips beget more Zips and Zip disks. It is probably out of Cash that Iomega will pay for the rebates (if that's kosher) not Net Income.

Iomega does not have to improve production cost 25% since July 1996 to make up the 25% rebate to break even. Undoubtedly, the production cost has fallen at least this much over 18 months. The IDE Zip sells to Micron for $75 (eventual IDE Zip cost - $50), how much more can the external cost (probably $50 based on Ditto prices)? SG&A remained CONSTANT from 1Q to 2Q as revenues increased 27%!

Iomega's marketing starts with a price point. They then decide if they can build the drive for that price. If they can they do. Iomega has never sold a single drive Ditto, Zip, or Jaz below cost. Why would they start now?

EPS might be static or weak this quarter but revenues (IOMG still gets full wholesale price on the drives) should be up tremendously. Iomega is positioning itself for the 4Q and so am I. Pick your entry point and hold through 4Q96 results (about 1/21/97).
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