Conference call: some non-financial thoughts.
Personally, I thought the CC was very negative. As usual, KE avoided giving away any information that could help the analysts make an informed decision. This can only hurt Iomega's rapport with the Street.
IMO, KE is going to gamble the future fortunes of the company this year. Incremental advertising expenses to be $100MM in order to create demand for Zips. He will not lower the price to $99 until the volume warrants it.
He said that if the advertising doesn't result in significant increases in Zip sales, that the cost will directly hit the bottom line. And, if ineffective, he'll pull as much as he can for the latter part of the year (as you know, advertising must be scheduled far in advance and paid for at the time of ordering). At this point, this would be a capitulation that he cannot turn the company around.
KE avoided every question from the analysts as to why he would not lower the price of the drives. He stated that creating demand was the key; not lowering prices to meet competition. In fact, he doesn't seem to think there's any competition.
Sorry folks, but I just can't be upbeat about this CC. IMO, it was a watershed for the company. I see analyst downgrades coming real soon on Iomega.
The good news for you long term investors: my prediction is the company will be bought out sometime in the middle of this year in order to bail out KE. At this time, the most likely purchase price will be $17.50 per share, the price of the last stock offering.
There's no way KE will go down with the ship. Should advertising be ineffective, he'll have to shop the company before he gets sued.
BTW, I am now officially a long term investor. :<)
My prediction: tomorrow will be quite interesting . . . |
