WSJ Article: (Thanks Teddy)
Here we go.....
Seems that the only thing that IOM hasn't done is cause shareholder's a rash. I'm sure that Sheila can help us out with that. This should shake up a few people.....
<The Wall Street Journal -- February 26, 1998
Shareholder Scoreboard
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Best- and Worst-Performing Companies:
Best 3-Year Performer:
Iomega Corp.
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By Lee Gomes
Staff Reporter of The Wall Street Journal
Turning a $1,000 investment into nearly $46,000 in only three years would ordinarily qualify a corporation for some hall of fame. Why, then, is Iomega Corp. in the doghouse?
Shares of the Roy, Utah, maker of computer disk drives, the
three-year-return winner in this year's Shareholder Scoreboard, generated a 258% average compound annual total return between the end of 1994 and the end of last year. Yet the stock's performance since mid-1996 has been little short of catastrophic. Investors who bought Iomega then -- and many did, in a strange stock-market saga -- have seen the value of their investments plummet by nearly 70%.
The reason for the wild gyrations is that Iomega has morphed through three different stages of existence.
First it was a virtual unknown with a niche product and an untested
marketing strategy. Its stock traded in the low single digits.
A second phase began in 1996, when it came to the attention of a circle of on-line investors, many of them fans of the Motley Fool bulletin board. Their near-manic enthusiasm for the stock helped drive its price in just six months to above $27 from $4, adjusted for subsequent splits.
The Himalayan valuations were comparable to those afforded Internet
companies in the early days of the World Wide Web. Today, many people
remember Iomega only for that brief period of hype. "There has always
been an aura of illegitimacy over the company because of the perrformance of the stock," says Daniel Kunstler, an analyst at J.P. Morgan & Co.
That aura is undeserved, Mr. Kunstler contends. These days, Iomega
seems to be in Phase Three of its existence, as a real business that is clearly in it for the long haul. Yet that is the source of its current woes.
Iomega makes data-storage products for personal computers. Roughly
65% of its $1.73 billion in sales last year came from its Zip drive, which stores 100 megabytes of data on a removable disk a bit larger than a standard floppy. The Zip was designed for making backup copies of valuable information, although many people now use it as regular storage for big Internet and graphics files. Iomega makes most of its money not on the drives themselves but on the removable disks -- a high-tech version of the old relationship between razors and blades.
But the company has really made its mark in marketing. With advertising more common to MTV than trade publications, Iomega turned data backup into a consumer concept. "They are like Sony with the Walkman," says Glenn Hanus, an analyst with Needham & Co. in New York. "They created this category. They are masters of consumer brand advertising."
As on-line zealots fled the stock, institutional investors started to take notice of the company's considerable name recognition, dominance of its market and solid record of earnings and revenue growth. The stock began to recover, moving to around $17 near year end from roughly $7.50 early last year.
Then, in January, the other shoe dropped. In its quarterly earnings
statement, Iomega said it had made 13 cents a share, missing the Wall
Street consensus by a few pennies. The slight shortfall alone would have been enough to send momentum-oriented institutional shareholders out of the stock. But there was more bad news: Iomega also announced a 10-fold increase in its advertising budget, to $100 million, and said that inventory levels were rising. That ominous combination of information caused its shares to fall nearly 35% overnight.
So what now? First, the potential negatives:
-- Nomai SA, a French company, is trying to sell a Zip-compatible disk
drive at 30% less than the price of Iomega's, forcing Iomega to pay stiff legal bills in its effort to keep the product off the market. It could see revenue plunge should those legal efforts fail.
-- Iomega has held back an alternative high-end disk drive called the
LS-120, outselling it by a ratio of 7 to 1, according to Fara Yale, an analyst at Dataquest Corp. But backers of the LS-120 are gearing up for a new run at the market, this time targeting notebook computers. New competition is expected this year in the form of a collaboration between Sony Corp. and Fujitsu Ltd. of Japan.
-- Overall growth in the data-storage market appears to be slowing, Ms. Yale says. Also, those now buying computers containing Iomega's drives aren't the enthusiastic "early adopters"; these newer customers, says Mr. Kunstler, tend to buy fewer of the replacement cartridges that are the company's main profit source.
Reasons like these explain why Mr. Hanus, a onetime bull on Iomega, has it on his "hold" list for now, even as he remains positive about it for the long term. Mr. Hanus says he didn't expect much movement in the stock's $9 price of mid-February until investors had some assurances that Iomega's expensive ad campaign was working to spur growth.
Mr. Kunstler, though, lists Iomega as a "buy" and gives the stock a greater than 50% chance of shooting to $18 within 12 months. It's not that he doesn't think the company has some steep challenges ahead of it; he just thinks management can pull it off.
But Mr. Kunstler agrees that the stock will be badly punished again if it fails, and that a major misstep might be the company's last. "These markets," he says, "are blunt and unforgiving instruments." >
Linda
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