Michael,
agree with your assessment on board/KE interaction.
I think most think that IOM will cut prices in near future at retail level to put it in equilibrium with OEM pricing levels. "Grey Market" (the oem drives selling to people like me) drives have cannabilized retail sales and this will cause retail support to decline.
On financial side, what will happen to margins, and what will be IOM's cost structure under a LOWER MARGIN/LOW COST model?
Here's a guess: short term (2 qtrs) unprofitable. in 3 qtrs and beyond, IOM will do well.
long term model: 25% gross margins : 10% GM on zip drives, 40% GM on zip disks. SGA is 9% of sales. R&D is 10% of sales. Income before tax is 6%. NI after tax is 3.6%.
So on $2 billion sales, they will see $72mm in NI or (/283) = $0.25 per share.
HOWEVER!!! if zip prices decline to $50 per unit, then the possibility that people will just buy a new zip with a new unit will increase substantially. This is not the case now, since I transfer my old zip to my new box because the dang thing was $100. But I went ahead and bought a 3.5" unit, becuase its essentially a free component of the system.
I think zip IS still the IOM story. and Penetration to 40% of computer sales (or 0.4 times 90 million = 36 million) is an attainable goal. (times $35 wholesale = $1.26 billion zip drives)
zip disks, hopefully at $4 retail (looking out to 1999), with tie ratios of 4:1 and wholesale prices of $3, will give $432million in sales.
So we have a model which will generate $1.69 billion in sales. a 10% GM on zip drives gives $126mm. a 40% GM on zip disks gives $172mm in gross profits. add up to $299mm. so its 17.6% GM, not 25%...
hmmm...
so..SGA plus R&D must be 11.6% of sales only or $196mm per year to achieve a 6% income before tax.
gee...
looks achievable...
this is before jaz/jaz2 sales and margins...
BL |
