This pilfered from the IOM Fool thread:
Author: zik001 Date: 2/19/98 9:58:08 AM (ET)
TMF KEELER wrote:
<<Drive prices on old products are not lowered as quickly, new higher
margin (Zip+, Laptop Zip, Jaz 2) are introduced. This pushes Gross
Margin up. I believe in 4Q97, Iomega expected higher Gross Margin than
their record 33.4% (yes, GM rose in 4Q).>>
IOM expected higher GM in Q4 97 (and most IOM watchers expected beating
earnings) because they/we expected(???) J2, LT ZIP, and BUZZ to ship (in
volume) in Q4. This failure to get to market in time (or more accurately, as
projected) is what sank the ship on 1/22/98.
These delays due to design/production/component shortage problems used to be
conceived as blunders or missteps (due to tremendous growth, etc.). However,
the chronic nature of this ailment is becoming a serious crisis, IMO. I fully
understand that Murphy's Law is always operating in the background (especially
for tech. companies), but IM(Very)HO, IOM should never/ever publicize, hype,
or promise the release (dates) of any product unless they are absolutely dead
certain that they can deliver on time. Because, as most of you know, WS and
investors in general value a stock at any given time based on future
EXPECTATIONS. And if you can't back-up your words (IOM, not you
KEELER) with something tangible (i.e. actually see, touch, smell, and use), then
your stock will simply get trashed (there are no reprieves due to past
performance, potential growth, new products, etc.). No, you just get the s#*t
kicked out of you.
I believe that this expectation game to be very important (for shareholders
anyway, apparently not much of a concern for KE and the Boys), because like
the boy who cries wolf too many times, no one will take you seriously in the
future (as IOM is now experiencing). I am very much alarmed by this chronic
mislaunching/misrepresentation, because I have much at stake in IOM (as an
IOM long when IOM was called IOMG).
I am also somewhat leery of the CLIK! promotion underway (it was even
included in the 12-page mega-ad in Wired, which some have questioned the cost
of (BTW, mega-ads in WSJ also)). To promote so heavily a product which
does not even exit yet, seems to me either foolhardy, or exhibits tremendous
confidence on the part of IOM. I sincerely hope that the latter is true. Because
if IOM cannot deliver CLIK! before X'mas 98 (as promised), then..... I think
you know the rest.
<<It was a disappointing quarter of disk sales that torpedoed the plan for that
quarter (Q4 97). I think the disappointing disk sales were due to the summer
shortage of retail drives, but I digress.>>
I think so too. As I recalled, KE said in the CC something to the effect that the
strategy was/still is(?) to concentrate on the OEM side, at the expense of retail.
This, of course, not only translated into lower ZIP TIEs (as we all know NOW, I
swear I had no inkling: OEM TIEs < retail TIEs, Who would have known???
Except for KE and Purkis. I think they actually said this in the CC (knowing this
through their mkt. research, etc. Hmmm.... Keeping us in the dark, aye) and
lower disk sales in general (for the reason you stated above, i.e. shortages, etc.),
but also lower GM (OEM vs. retail), which was a monkey wrench thrown into
your new (and most elegant, I might add) projected GM model.
The conclusion I draw from this is that there is still a production capacity
question regarding ZIP. Apparently, with all the new capacity added in recent
quarters, IOM is still unable to match demand with supply (which is essential
from a micro-economic perspective; the alternative (in the face of supply
constraints) is to the raise price of supply until equilibrium is achieved (this is all
very theoretical of course, "your actual milage might differ.")). IOM should,
IMH(but Uninformed)O, really crank-up their ZIP production (if able) and flood
the market with these wondrous blue gizmos. First of all, this is the only way to
achieve the quest for the Holy Grail (i.e. ZIP as standard), and also, to deter Joe
Consumer from considering migrating to the SYQT/IMN/SNY camp due to
backlogs (Oooh... those evil blackdogs, I mean backlogs). The point is: Kill the
competition before they even gain a foothold. Makes perfect sense, Right?
Let's face it folks, with IOM holding a 90+% advantage in the removable storage
market, it is IOM choice to make it or break it. Let me use a simple analogy: If
Pete Sampras was IOM, and he's serving 40 - Love, What do you think Pistol
Pete's gonna' do? You're damn right! He'll serve an ace, right down the middle,
and send his opponent packing. The question is: Is KE up to the challenge??? I
must admit, I have my doubts.
<<Operating Margins are the same in both models. 4-5% extra in SG&A would
translate to $100 MM on $2,000-2,500 MM in Revenues. 4% doesn't seem like
a lot huh? Not like one hundred million dollars does.>>
The 4 - 5% or $100MM in the A of SG&A will sound like peanuts if it works
and brings in Gee.... I'm not sure.... how 'bout $3,000MM to 3,500MM in
total revenue!!! Now, that would be nice, wouldn't it? Perhaps it can be
accomplished , *IF* IOM can crank out enough drives and NO MORE
DELAYS ('cause, don't know about you, but my tolerance for backorders is
wearing extremely thin, especially when IOM is spending major bucks on
advertising to create demand, RIGHT??? Does this make ANY sense to any of
you out there?????). Forgive me for retreading this point, because to me, this is
one of THE most critical issues facing IOM today. IOM will never attain the
respect it deserves from WS and become a real player in the technology world if
it CANNOT DELIVER.
<<There is a danger, in my mind, that this present quarter (*Q1 98*) maybe
won't get there. I think KE knew this and that is why he talked down estimates
(he did a brilliant job of that (*He sure did... and made everyone real feel cushy
about owning IOM @ 9.00*)). Very similar to 3Q96.>>
I think that you're right about not getting there in Q1 98. It will take time for
advertising (or "turning up the volume") to manifest into increase revenue, and
J2 and BUZZ are just beginning to trickle through the channels (IMO, won't
make much of a dent in Q1).
But there's nothing wrong with the "talking down" technique (Emperor Gates
does it all the time, and it has worked wonders for His Lordship), but this tactic
should be only used by "professionals" with great care. The reason why it works
for MSFT is because they not only beat estimates every time, they pound the
estimates to smithereens every time. Who knows what will happen to IOM
(given its current status on everyone's dog list) if they beat it next time by only
one cent, or just meet it, or (I can be a masochist at times) miss it by a peeenny.
I am hoping that IOM will beat it by 100% (yeah... that should do the trick).
One caveat regarding "talking down": One can talk down estimates all he wants,
but on WS there's this little thing called the "Whisper Numbers." The name of
the game is to beat those darn enigmatic whisper numbers. Ohh... Just one
more thing. If KE knew that he will be unable to deliver the numbers in Q1 and
therefore talked it down, then I would say that this was a prudent move on KE's
part. I don't think he needs another shareholders' lawsuit on his hands in April
98. I guess he's not as daring, or is it as st_p_d as I thought (fill in the blanks
yourselves, for I do not wish to receive any hate mail on this).
<<Long term I believe the new model is easily attainable.>>
I hope you're right, Patrick. I'm sort of banking on it: I would just like to air a
note of caution here. Correct me if I'm mistaken, but your new projection of
35% GM assumes that the prices of ZIP, J1, DITTO1 will not be lowered as fast
as the new products kicks in, and therefore, the higher GM. Just keep in mind
that, as we ponder this thought at this moment, the "new" higher margin
products are not shipping in volume yet to make up this 5% difference (for
atleast 1.5 quarters, I might guess), if indeed they can make up the difference.
Also that, IOM is(?)/will be lowering the price on the highly profitable blade side
of their business (i.e. ZIP disks) due to competition and piracy. And that they
have already lowered the price of J1 (upon the introduction of J2).
This lowering of prices is the inevitable fate of any technology subject to
competition (sans MSFT of course, which enjoys a comfortable situation known
as monopoly). This is why a new blood infusion for a tech. company is so
crucial (i.e. CLIK!), and that's why the handling of CLIK! is ABSOLUTELY
CRITICAL for IOM. Because people are weary of technologies which do not
materialize as promised, and then are left to draw their own conclusions (e.g.
quality problems, lack of interest (oem or retail), all hype but no substance, etc.)
Therefore, I shall reserve my judgment of the viability of CLIK! for now; until I
actually see it displayed and for sale in my local CompUSA, and see it work (as
it make sense to me) in person. And I might respectfully suggest that all of y'all
do the same by reserving your opinions on this un-proven gizmo for the time
being. Because only then, can you CLIK! aficionados project/speculate/hype to
your hearts content. I'm not being a pessimist on CLIK! Just a realist.
In summary, I would just like to apologize to those with short attention spans
who can't follow the logic contained in such long posts (I feel for you man, I
really do), but I feel that a thoughtful post by KEELER deserves an adequate
response. Besides, I am a passionate follower of IOM (I've got mucho Dineros
(I don't like Liras, too many 000's) riding on this puppy), and I just like to air-out
my opinions once in a while (hope you don't mind, RONJON. Just pretend that
I'm one of those students who ask too many questions and can't get our thoughts
together. Or better yet, just ignore me (I just hope that you don't ignore your
students, RONJON, 'cause a mind, good or bad, is a terrible thing to waste. As
a teacher, you should know that. Try to be patient with those of us whose first
coherent babbles were, "Why is the sky blue?")). And KEELER, always value
your opinions and "Fabu" numbers (where do you get these?). Come back and
visit us more often now... yea hear.
El Nino (a.k.a. ZIK001)
Don't JU be parteen'n with MY money now... KEELER ya' fool. |
