Here's why 3rd quarter earnings could be $0.02 or less:
ZIP Drives
- The total number of ZIPs sold is estimated to have dropped 25% to 750,000.
- The percentage of low margin OEM ZIPs sold should now be significant.
JAZ Drives
- The price of the JAZ was cut by $100 per unit.
- The number of low margin JAZ drives sold should have increased significantly.
ZIP Disks
- The tie rate should have decreased due to the larger percentage of OEM drives sold.
- The tie rate should have decreased due to the availability of the JAZ.
- The number of disks sold should have decreased because of fewer 1st time buyers.
Total Sales for the 3rd quarter are estimated to have dropped $25 million from last quarter and lower margin products have replaced higher margin products in the breakdown of sales. Hopefully Iomega will have been able to reduce their manufacturing costs enough to compensate for these reductions in profits . This does not yet take the rebates into account.
Rebates
- Last quarter Iomega held back $4 million to help offset some of the rebates in the 3rd quarter. I believe they determined this amount because it represented rebatable inventory held by their distributors in the pipeline. This would follow standard accounting practices. Since the rebates were extended, I would expect that they would use the same accounting method this quarter. This would mean that the $4 million would probably be a wash because another $4 million or so would be held back again.
- For every 100,000 rebatable ZIPs that Iomega accounts for, earnings per share will be reduced by slightly less than $0.04.
Summary
- If we use analyst's forecasts for $257 million in 3rd quarter sales, figure Iomega can reduce costs and keep margins at 27%, figure the holdback is a wash, and add $2 million in interest income, then we could estimate earnings before rebates to be about $0.10. Now we can subtract the rebates:
If 100,000 rebatable drives, then earnings are $0.06
If 200,000 rebatable drives, then earnings are $0.03
If 300,000 rebatable drives, then earnings are ($0.01)
If 400,000 rebatable drives, then earnings are ($0.05)
If 500,000 rebatable drives, then earnings are ($0.09)
I'd love a surprise, but I think I'll have to wait until next quarter.
Regards - Dale. |
