Mark & ALL...WHY DID IOM DROP TODAY?...READ THIS ARTICLE FROM REUTERS (DATED JAN. 23):
The following are excerpts from the article:
"The outlook has changed," said Glenn Hanus of Needham & Co. "It (the price drop) is more related to the outlook than the quarterly performance, which...wasn't all that bad."
But the results were not as disconcerting as comments made by company officials in a conference call. Analysts said the officials" remarks indicated Iomega may be adopting a strategy that will hurt its bottom line.
"The've announced a $100 million advertising campaign, which if not successful in boosting demand could have a negative impact on earnings for a couple of quarters, Hanus said.
In the conderence call, Kim Edwards, Iomega's president and chief executive, said the company will in 1998 spend more than $100 mllion on print and television ads, in an aggressive attempt to expand the market for its high capacity removable drives.
He warned that if the campaign and other efforts failed to grow sales volume, "the increased funding will most likely have a negative effect on net income in the near term."
Hanus said he has downgraded his rating of the stock to hold from buy, and cut his earnings outlook for 1998 to $0.48 a share from $0.56 a share.
Joseph Besecker of Emerald Research, echoed the sentiment.
"They plan on spending $100 million on advertising this year," he said. "That's a lot of the cash that they have on hand. I'm am trying to figure out if this is an investment they should be making."
Desecker also noted that while in 1997 it sharply increased its shipments of its core products, namely its Zip and Jaz drives, the yield form those sales were proportionately lower.
That is because the company sharply increased the number of OEM drives, or drives built directly into personal computers, which have a much lower selling price than drives that are sold separately.
Iomega's Edwards, in the call, said the single biggest factor affecting performance in the quarter was the delay in shipment of new products.
"The Jaz 2, Buz and Ditto Max Pro did not ship in the quarter as planned," he said. "That accounted for about $70 million in missed revenue for the quarter."
He added that problems in Asia markets cost the company about $49 million in revenues.
(End of Article)
Well, I for one think KE needs to attend charm school. His comments sunk the companies stock. Give the new estimate of 48 cents I guess we could expect the stock's price to be in the area of $9.60 (20 x earnings) to $14.40 (30 x earnings).
Comments are appreciated...including those that focus on the likely effects of the ad program...will the 100 million produce a favorable return on investment (ROI)?
Stock Bull |
