Latest from H. Greenberg at The Street.com
Iomega (IOM:NYSE) isn't a case study -- yet. But its history certainly holds plenty of lessons, and it's the longest-running saga ever to run in this column, if not any financial column. The stock now hovers around 5. Even at that price, however, many short-sellers haven't covered, believing it's as compelling a short here as it was when it was twice or even triple that.
So, once again, we check in with Marc Cohodes of Rocker Partners, one of this column's longtime regulars. His latest obsession with Iomega was prompted by the culmination of several events, including:
The slowdown in PC sales, which are critical to Iomega's fortunes.
The pronounced slowdown at big distributors like Ingram Micro (IM:NYSE); not good considering that in the most recent quarter Iomega had around 10 weeks of inventory with distributors.
Iomega announced on Friday that it cut the price of its staple Zip drive to $99.95 -- half of where it was a year ago. Not what you want to see at a company whose earnings are rapidly falling. One of the only reasons it posted a profit in the last quarter -- its first profit in four quarters -- was that it cut marketing expenses. That becomes a chicken-and-egg type thing, Cohodes says. If the company doesn't spend heavily on marketing, its products won't sell. And if it spends heavily, its profits will fall.
The recall last week of 60,000 Jaz drives because of a power supply problem. This was just the latest in a series of Jaz-related problems, which were detailed by this column while it was running in the San Francisco Chronicle.
Iomega's failure to roll out any significant new products in recent years. The only exception is the long-delayed Clik! data-storage drive for devices like the digital camera. But so far, Clik! sales haven't set the company on fire. The Zip and Jaz, meanwhile, are becoming outdated by the megastorage of today's PCs, as well as by devices like readable and writable CDs and DVDs. "Iomega will be the Daisy Systems of 12 or 13 years ago," Cohodes says. Daisy's brief hot streak, driven by a PC printer that used a daisy wheel, was dashed by Hewlett-Packard's (HWP:NYSE) introduction of the laser jet printer.
Last July entities run by Iomega Chairman David Dunn loaned the company $40 million with a teaser rate of 8.7%. On Jan. 1, that rate rose to 12.7%. (Higher interest expenses aren't good if sales are falling.)
The company hasn't yet replaced its old CFO, who has been gone nearly a year.
Last but not least: Even with the stock's decline, Iomega still has a market value of $1.4 billion. That's almost twice the size of Maxtor (MXTR:Nasdaq) and Western Digital (WDC:NYSE) combined. It trades at roughly 4 times book. When disk-drive companies go bad, they tend to trade at book value; book on Iomega is $1.28.
What's more, Iomega trades at 18 times next year's estimate of 30 cents per share. Seagate (SEG:NYSE), the industry leader, trades at a mere 14 times next year's estimate.
For Iomega to earn 30 cents per share, Cohodes figures it would have to do around $60 million in earnings. "If it earns $60 million in any year from operations," he says, "I will wear a dress and serve all of the executives at that company lunch in Roy, Utah," where it's based.
Hey, IO, does he have a deal?
An Iomega spokeswoman did not return a phone call. (If and when anybody from Iomega does call, I'll be glad to run a point-by-point counterpoint.)
OUCH....
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