Re: Zip sales & the 4th quarter
Rocky, you posted: >>>Iomega has had more than 2 years to try and make Zip standard. With its low installed base percentage and low OEM inclusion, it has failed. <snip> The sad fact is that Zip sales have leveled out.<<<
This prompted me to review the last IOM CC. Before I comment, here's a brief summary of Zip related factors impacting sales for the 4th quarter:
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* Zip unit volume was up 26% over the 2nd qtr
* OEM Zips were up more than 60% over the 2nd qtr
* OEM Zips represented over 35% of total Zips shipped
* OEM Zips represented most of the overall unit increase
* ZipPlus and notebook Zips are shipping in the 4th qtr
* 3rd qtr sales were a record 432 million
* Shipping ATAPI to OEMs has freed up IDE chip constraints
* Quality problem causing Zip shutdown is solved
* 3rd qtr Zip margins improved due to higher disk volumes
* 3rd qtr Zip margins improved due to lower drive costs
* IOM committed to achiving external Zip retail of $99
* 3rd qtr backlog grew to a record 379 million
* Retail backlog grew proportionately larger
* Record number of Zips shipped in Sept
* Production level increased from Sept entering 4th qtr
* 4th quarter started with continued strong sell-through
* A lot of Zips shipped in Sept haven't gone to revenue yet
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I believe Iomega is doing a good job of keeping to KE's orginal plan. With an installed base of over 10 million and the $99 price point pretty much achieved, manufacturing efficiencies will now support the cost and volume needs of the OEMs. Customers are demanding Zips pre-installed in their new machines. This is clear due to the tremendous increases in Zip sales to OEMs.
While this transition from retail to OEM impacts Iomega in a number of ways, it is exactly what should be happening at this point in time. OEM's needed to see high demand and low costs and today they have both.
As far as the 4th qtr is concerned, I'm expecting great things.(FWIW, my second buy limit finally hit on Friday and IOM is now my largest single holding. I'm going for it big time with an average cost basis now at $27 a share). Expounding on the some key points from the factors listed above:
1) Sales last quarter were impacted by the line shutdowns which cost Iomega somewhere betweed $50 and $100 million in revenues. This is not likely to repeat. For discussion purposes, I'll estimate 3rd quarter sales should have been $500 million. It should be pointed out that the shutdowns were due to component qualtiy problems which have been resolved and not due to availablity problems.
2) Chip availability was a problem. Transition of OEMs to ATAPI (now in volume manufacturing) will minimize chip requirements because ATAPI does not use the "problem" chip. In addition, Iomega has two suppliers for the chip.
3) The removal of MAP pricing has allowed retailers to finally sell Zips at the $99 price point. This by itself could generate huge sales as this was the sweet spot that marketing had targeted for the past two years. Also, the reduction in retail prices was not the result of changes to what Iomega sells the drives for which is great for margins in a quarter where manufacturing costs are dropping due to volume efficiencies.
4) The Holiday quarter is normally the best quarter of the year with new products and accessories are readily available.
5) Both sales and production during the last month of last quarter (Sept) were at record levels and were continuing into the 4th quarter. Because of Iomega's revenue recognition policy, much of these sales will be reported during the 4th quarter.
6) Competition at this time is virtually non-existent. The only really new product out there is the SparQ and with a maximum total of only 50K units being made available by Syquest this quarter, few will be able to find one even if they wanted one. (BTW, it's interesting to me how some are excited about the SparQ being "sold out" when retail outlets are only receiving a handfull to sell in the first place.)
While these points have been discussed before, I thought they were worth reviewing as we approach the earnings release date. IMO, never before have we had the potential for such a huge quarter.
Regards - Dale |
