Hi Sheila,
I don't remember if I responded to your post. SYQT's problem is a misread of the market conditions and a misapplication of cost structure. Basically, too many smart people making too much money draining much needed cash out of a hurt company.
At no time did Syquest behave like a company on the brink. They bet the bank on the Sparq, but like investing, had crappy timing. They were not hedged on their market bet (the what if? we don't hit our sales target)
simple sales figures should have pointed out to SYQT that their Sparq was over capacity to what the market needed. The 1 Gig at $33/disk points to the possibility of Castlewood's Orb market failure. If Sparq can't sell millions of units of 1 gig units, then don't expect Orb to sell millions of 2 gig units.
This is why I don't believe that the jaz 1/jaz2 sales is a complete disaster. Its not optimal, but not horrible.
For example, if they sold 1 million sparq disks, and garner $22 per disk, wholesale, and $12 per disk GM profit, then thats only $12 million in free cash flow to pay for overhead. Their cost structure never allowed this "razor blade" strategy to work.
SYQT's cost structure is just an extreme example of IOM's cost structure problem. Yes, IOM mgmt got the message, but SYQT's failure should be the sledgehammer ... There but for Zip, go IOM
BL |
