Conference Call Impressions
Well, I just finished listening. Others have given more detailed notes but I'd like to touch on a few points that stood out for me.
First, as others have noted, 4Q97 revenues were light by around $70 million due to the delays in shipping Jaz2, Buz, and Ditto Max Pro. Specifically on Jaz2 I found it interesting that when questioned about pricing vs. competing products KE noted that IOM's strategy was to make money, implying that some other competitors were not. I guess we'll know more when SYQT reports. Also, on the Nomai front, KE reported that Nomai admits that their disks are rejected by notebook Zip drives. Sounds like the early Zips didn't have much in the way of anti-counterfeit detection capabilities but the newer drives have been beefed up in this regard.
Regarding upcoming products, Clik! will be sampling to OEMs in 1Q98 and the 12mm notebook Zip will ship for OEM qualification in 2Q98. Sounds like we won't be seeing 12mm notebook Zips until the OEM fall rollout. Jaz2, Buz, and Ditto Max Pro should all ship this quarter.
There were really two major items discussed in the call which I think will shape the course of 1998 progress. The first is personnel. KE mentioned that they've recently hired some big guns, including a former VP of Worldwide operations from DELL. It's clear that IOM realizes they need to gear up for massively larger volumes and it's good to see that they are drawing on top industry talent. 1997 OEM Zip volume was 11 times that of 1996 and represented 34% of 4Q97 shipments. This is the key number to watch.
The second concerns consumer advertizing. I've long maintained that IOM was really creating a consumer brand and judging by KE's outline of the upcoming advertizing blitz it seems that this stage of IOM's strategy is about to unfold. They will spend an additional $100 million this year on North American consumer advertizing, a 15-fold increase over 1997 levels. The advertizing increase will be funded via deferred price reductions, slower hiring, and accelerated cost improvements but may still have some near-term earnings impact. However, my view is that such investments will allow IOM to rapidly distance itself from all others and begin to move IOM into the mass-market mainstream. IOM is fundamentally a marketing company and over the next couple of quarters it appears we'll start seeing the IOM marketing machine coming to the forefront.
In general, I thought the tone of the call was upbeat but showed some of the frustrations of IOM management in managing the torrid growth they've experienced over the past two years. All in all IOM has executed very well and is well positioned for continued growth in 1998 and beyond. My guess is we'll open somewhat down but should recover quickly. If we do somehow open below 10 I'll be buying. |
