Michael, It appears from your post that both the Motley Fools and H&Q have the same opinion as the majority of Iomega followers: a weak 3rd quarter sequentially down and the expectation that the 4th quarter will be their strongest.
IMO, this is a dangerous scenario. If KE gives the slightest indication that the 4th quarter is anything but their best ever, the reaction could be quite negative. If he simply confirms these high expectations, then the reaction might simply be neutral.
Assuming there is no hint of concern associated with the 4th qtr, the "old news" 3rd quarter earnings numbers could then end up being a little more important than some had previously thought. If earnings come in at $0.02 or under, there is the question of future margin generation, even if Christmas sales top $300+ million. If 3rd qtr sales come in any lower than $260 million, this would indicate more than just weak European sales and the summer slowdown.
I believe that Iomega is fully capable of coming in with very poor 3rd qtr results. I find this a more likley possibility than an earnings surprise. I base my opinion on a combination of the following: the recent change in analysts' estimates, the 2nd qtr earnings presentation comments, the 4 months between announcing 2 million and 3 million ZIPS sold, the drop in price on the JAZ, low margin OEM sales, and the ZIP rebates. I am also concerned about an increase in operating, marketing and R&D expenses along with the initial costs associated with the Malaysian plant purchase.
I'm hoping for a surprise, but I've protected my position with some November 17-1/2 puts.
Regards - Dale |
