Ken,
I thought Montauk's analysis was refreshing and insightful. It doesn't predict success...it only makes a stab at valuation based on the the value of that success at this point, along with Iomega's chances of success. He seems to give them a 1 in 5 chance.
>>1. The ZIP can never really replace the floppy because SW isn't distributed on it.<<
Software doesn't have to be distributed on Zip in order for it to replace the floppy. I guess we'll just have to agree to disagree on this fundamental point.
>>2. In order to replace the floppy, ZIP MUST match floppy's price to OEMs.<<
Not necessarily, Ken. Added value of higher capacity and higher performance of Zip allow it to be sold at a higher price than a 1.44MB floppy disk drive. I will concede, however that the cost of the Zip drive will need to come down...and who knows...maybe eventually the cost of OEM Zip will equal cost of OEM floppy drive now, but by then I think the floppy will have been long gone.
>>This will never happen without severly impacting Iomega's bottom line. PC makers are cutting costs like crazy.<<
Cutting prices always affects the bottom line, unless of course you reduce manufacturing costs more than you cut prices. Granted, whether Iomega can do this or not is debatable, but there is a chance that they might.
>>3. Makes a VERY big assumption about the elasticity of demand on the disks. There is no supporting data for this.<<
Preliminary indications are that there may indeed be a significant elasticity of demand on Zip disks. When Iomega dropped the price of a Gig-a-pack to $99 and were even available for $79, unit volumes seemed to increase dramatically, at least this is what Iomega said during its CC's.
>>4. Doesn't address the MAJOR drawback of CLIK!--> Cost for the OEM to include... What do you think the market is for $1000 cameras? Would a kid pay $200 more for a $20 gameboy? Who would pay $200 more for a $100 phone? The Clik! statements in the analysis are ludicrous, at best!<<
I seem to recall that millions of people purchased Zip drives at $200 a pop at one point. I also see many semi-pro digicams in the $1000 price range (Olympus D620L is one; Kodak DC-260 was another).
You seem to assume that OEM Clik! drives will be priced at $200 forever. I seem to remember a $100 figure....nevertheless, do you expect this price to be static? And won't early adopters be willing to pay a premium? Come on, Ken.
Your claim that Montauk's analysis is ludicrous is in itself ludicrous. Let's be objective. As was stated in the analysis, it is still too early to tell anything about Clik's success or failure.
>>5. Mentions how Iomega must increase R&D and Advertising to increase demand and keep cutting edge products, but doesn't discuss the impact this would have to the bottom line.<<
I would assume that this goes without saying. Additional expenses always go straight to the bottom line. It does mention that Iomega may have to have additional equity financing or an equity investment by a strategic partner in order to have enough cash to meet the demands required of additional R&D and ad spending. Increasing gross/net margins would help a lot as well.
>>6. Doesn't at all discuss the trends in the PC market to lower cost, less featured, internet 'appliances'.<<
i agree that this point was not discussed, but I'm not convinced that this is really an issue, since, regardless of the "internet appliance" there will always be the need for removable storage. And in any case, the computers I see for sale in the Circuit City flyers all seem to be fully featured (Zip drive included).
>>7. Doesn't discuss impacts to bottom line of the ever increasing OEM percentage vs. retail.<<
It did make this statement: "Dollar sales will continue to grow at a lesser pace than total units as IOM finishes their transition into OEM units on the drive side." My interpretation? Revenue growth will be negatively impacted by transition to OEM model - we know this.
>>After reading it, I get the idea (IMO) that the writer doesn't fully understand this market. The only way to understand the market is to make a living off understanding the market!<<
No one ever fully understands the market, Ken.
regards,
Lipo |
