Syquest: Can someone explain this to me?
Let's say that they sell 50K Sparq drives/quarter with a tie ratio of 3 discs.
That's 200K drives and 600K discs each year. Obviously, no VAR will sell these at cost or close to it like Iomega. So, let's say that the retailers make 25% on each drive and disc. That means that Syquest has revenue of $30MM/year on discs and $15MM/year on discs or $45MM in revenues/year.
Now, Iomega works on a 32% gross margin and after tax income rate of 7% or so. And, they are a highly efficient operation with economies of scale. But, I'll give Syquest the same numbers.
So, Syquest has a gross margin of $14.4MM and after tax income of $3.15MM. With 150MM shares outstanding, that's 2.1 cents/share. And, they've already said that they're spending $17MM in one quarter on advertising. That takes care of their entire gross margin FOR THE YEAR AND MORE.
Sure, you can add Syjet and EZFlyer revenues and profits to the mix. But, I doubt that would really add that much to the bottom line. They'd need to sell $200MM of these products each year, just to pay for the advertising expense in the fourth quarter.
I know that the net margin includes advertising expenses, so these numbers aren't entirely accurate, but who cares. What I can't understand is what these "professional" investors that bought warrants in the company were thinking. They'll never see their money again.
And, all this assumes that Syquest would achieve similar margins as does Iomega, which we all know is impossible.
So, what is it that these morons that are investing in Syquest are thinking?
Just goes to show you that anything is possible in the stock market. Tulips, anyone? |
