>><< Huge increase in advertising costs between 1997 and 1998 >
Nope. Advertising actually went WAY down. In fact, earnings would look a lot worse if this stayed constant year over year.<<
Ken -
Where do you get the information that advertising was way down in '98, vs. '97? The Statements of Operations show that for 1997, SG&A was 292 million, roughly, on sales of roughly 1.74 billion. This compares with 386 million in SG&A for sales of 1.69 billion in 1998. Do you have information that shows that while SG&A was up significantly, advertising was down?
One of the biggest reasons for Kim Edwards' departure was that he had "bet the company" with a hundred million dollar incremental increase in (mostly) television advertising. This ad spending was curtailed after KE left, but my understanding was that they company had already spent a lot of the money buying spots that were aired through the second quarter.
I think it's quite clear that the reason Iomega lost money in 1998 was simply because sales stayed virtually flat while expenses increased dramatically, including a 25% increase in R&D for the year. In fact, sales for '98 were 35 million below '97, but both cost of sales and operating expenses were higher.
Like you, I'm still waiting to see if this support at 5 holds. I wouldn't want to add to my position at this level. I am convinced that the big losses are over, but not that earnings growth is assured. On the other hand, I think you may be underestimating demand elasticity.
- Allen |
