I have some time this morning, so I thought I would take it to summarize my take on Iomega, in one single post.
The following are my opinions, based on: my knowledge of the industry (past and future trends), and careful study of ZIP / JAZ revenue and unit rates. I will also note that I have had no position in Iomega in over a year.
JAZ LINE: (JAZ, JAZ2, etc..)
Product revenues have been steady to declining for 2 years now. I don't see anything that will reverse this trend. This is because this is a niche space with tons of competition. This is a high end 'luxury' peripheral, with many to choose from in this space: ORB, CDR/W, DVD, highend optical devices, and probably the largest trend: High Availability central mass storage. I just cannot see a business with every desktop having a Jaz!
The bulls 'hope' for a trend reversal, but ignore the data that contradicts their supposition.
CLIK!
DOA. period. This is the messiah of the bulls. They always point to this as having as much potential as the ZIP, but again, ignore all the data contradicting this. This is a clunky, fragile, power hog which no one in their right minds would dream of putting in a low-end consumer product. This would likely triple the part count! Including this device as standard kills the factory cost of any low end device. Simple... Why would an OEM double+ the factory cost of a PDA? Cell phone? Camera? This does NOT make one bit of sense.
If Iomega could change the CLIK! to plug into a standard Smart media or PCMCIA slot it MAY have some chance, but again, I've seen the consumer grade digital cameras with a flash card and interface of size of no bigger that a thumbnail.
Again, the bulls dream, but don't take into consideration the practical application of what they are dreaming of. Also, has anyone else looked at the projected digital camera market into 2005? Run the numbers.. You'll be surprised at how much of it Iomega has to get to make any impact on the bottom line.
Lastly, where is the marketing campaign? Iomega cannot afford it..
ZIP:
By definition, will NOT replace the floppy. In the 'old days' every PC REQUIRED a floppy for SW distribution. This is not the case today. The ZIP is mearly one of many, many mechanisms to transfer files between PCs and perform backups. It also hasn't proven better reliability than any of these methods. (one of my two ZIPS died, others at work have complained, don't forget CLIK! of death). It also is expensive when compared to the floppy.
Also, data has shown that the retail market is saturating (look at percentage unit sales OEM vs retail! This is undeniable proof). As are the early adopters. Also, ALL of the glory in the 'old days' was attributed to the ZIP DRIVES. Now, Iomega is switching to an unproven strategy of disk sales.
Don't forget the overall trend in PCs: Lower & lower costs. Prediction based on 2 years data: Total ZIP revenues per quarter will NEVER surpase the revenues of the largest past quarter (sorry Mike!).
OTHER:
The bulls always point to some 'dream product' that will come along and save their investment. There will always be one, so the bulls will always hold. They would rather lose all their money then sell, and have Iomega move up afterwards.
SUMMARY
Iomega is in a commodity business, with tons of competition. The environment is one of cutthroat pricing pressures, with Iomega totally at the whims of those whom they supply to. Their model now is not one of growth, but of survival. They have proven that increased advertising cannot stimulate demand. Also, the trends are against them: The business market is moving towards centralized mass storage, cutting off a large part of Iomega's potential market. Iomega's products do NOT have the reliability required to play in this space, or on the ultra-low end space. PC maker's days of high margins are over. The trickle down will (and has been!) killing component suppliers.
This is dead money for 2 (or more) years. I hope all of you have other investments!
kp |
