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Non-Tech : Iomega Thread without Iomega
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To: Reseller who wrote (8994)4/13/1999 12:56:00 PM
From: HRP  Read Replies (1) of 10072
 
<< Dell ( the Premier computer maker ) announces the first to include Zip 250, that the Zip inclusion rate is over 40% of their most popular model ( the Dimension desktop series ) and somehow this is bad business, what a joke. >>

Reseller,

You'll recall about five (?) quarters ago when Iomega first preannounced. They blamed an unexpected sudden shift in the percentage of Zip drives that were sold to OEM's. This showed the effect of the price difference between after market and OEM sales upon per share earnings. It took Iomega 4 (?) quarters to return to profitability.

There exists a price payable by Dell to Iomega such that the present value of all future Iomega earnings at some agreeable interest rate is the same whether they make then 250 MB Zip deal with Dell or not! It is impossible to know what this "indifference price" is since we can't get real life to emulate the movie Groundhog Day (where a day was repeated over and over again). We also don't know what price Dell and Iomega agreed to.

If I were working for Iomega and had responsibility for determining an agreeable price, I would create a mathematical model for the "indifference price" and evaluate it under a range of assumptions using the 100 MB Zip sales data that Iomega has collected. I would then assign a probability to each of the assumptions and then derive my best estimate of the "indifference price."

Management could then take the "indifference price" into consideration when negotiating with Dell.

What actually did happen in the negotiations between Iomega and Dell? Was the agreed price above or below the "indifference price"? (That is, was the deal a good deal or bad deal for Iomega?)

I don't know. Would you think it a joke to consider the possibility that the agreed price is less than the "indifference price?" After all, if Iomega were so infallible would they have made the decisions that led to the first preannouncement?

Something to think about or something to dismiss?

Respectfully,

hrp
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