Troy, if I sold my stock and had the money in my grubby little hands,
then, I would buy a couple ten packs at a time.
CNBC Transcript
>>Note: I decided to put the transcript in the body of this email instead of as an attachment, since I realized that not all of you have PCs so Wordperfect or Word may not be compatible. At any rate, I cut out the beginning when Mark Haines was blasting the board for calling him a short, and I also cut the announcements of the commercial breaks and also most of the "uh" and "um"s (except for a few of Faber's since he deserves it). There were also segments of the discussion where the speaker laughed or snickered, but I did not indicate it.
Transcript of Kim Edwards on CNBC Squawk Box, Friday, April 26, 1996
KIM EDWARDS:
Hi, good morning Mark, thanks for including us in your show this
morning.
MARK HAINES:
Well, we're glad to have you here.
KIM EDWARDS:
I'm hopeful that we can put that positive spin that you just mentioned, so we'll give it a try
here (laughs).
MARK HAINES:
That's your job. OK? (snickers) That's not my job. My job is to give you stuff that's hard to spin positive and see what you do with it. And let's talk about your earnings report, OK? The skeptics will say, "Why did your gross margins decline in the most recent quarter, they went down from 29 to 27 percent, shouldn't that number be going the other way?
KIM EDWARDS:
The biggest issue that we faced in the first quarter was the start up
of our new Jaz drive. This is the new high performance one gigabyte
cartridge drives, and in any startup you incur alot of startup costs.
Even if you look back a year ago, we had a dip in margins as we
started up the Zip drive, but as we said on the conference call,
we expect to overcome alot of this, cause we put automation in
starting in the latter part of the first quarter.
MARK HAINES:
OK, so these are ramp-up costs are behind you and the margins will fatten from here.
KIM EDWARDS:
We expect the cost to improve on the drive which will impact the
margins positively, yes.
MARK HAINES:
What about order backlog, you know, one theory has it that you can't meet demand, and yet your order backlog fell. What's going on there, because that would seem to be counter-intuitive.
KIM EDWARDS:
Well, in fact, the fact of what we are doing now is doing a better
job of managing orders with the channel. We are better at predicting
the amount of drives that we can actually produce, and pretty much
monitoring the orders accordingly, as opposed to just taking a glut
of 'em in, which was happening in the second half of 1995.
MARK HAINES:
David Faber wants in.
DAVID FABER:
Uh, Mr. Edwards, I'd like to focus for a minute on the financing side of the equation. There was a potential stock offering that was put off, you did sell some debentures. I'm curious if you can give us a sense of your current financing plan. I know when the debentures were placed, you said you might still need to raise more additional funds by the end of the second quarter. Can you tell us in fact whether that will be the case and how you will go about doing that if you do need more money?
KIM EDWARDS:
What we DID say was that the bonds will cover us at least through the second quarter. And, it's really contingent on the degree of growth as to when we may need more financing, and we're continuing to look at all alternatives for financing as we go forward.
DAVID FABER:
Montgomery Securities which was your underwriter or going to be for the stock offering, is a fairly aggressive firm and yet they decided not to pursue it, at that time. Why did
Montgomery walk away from that?
KIM EDWARDS:
The fact of the matter is was it was actually the three of us, H&Q, Montgomery and ourselves, that made that decision to put the offering on hold, and then later switch to convertibles, and the simple reason was all the noise that was on the street, relative to our fourth quarter earnings.
MARK HAINES:
David, we have lost your microphone.. no you're back now. Go ahead.
DAVID FABER:
Mr. Edwards, I'd just like to ask you a bit about valuation, obviously. We saw a graph of
your stock price, it's certainly been incredible. There's a three billion dollar capitalization
right now. You have about a third of the margins of a competitor such as Seagate, they sell about nine times earnings, you sell about seventy times. They have a billion dollars in cash, you have more DEBT than cash. Why do you deserve to sell at such a high multiple versus a great company like Seagate?
KIM EDWARDS:
Well, I don't know, I'm a CEO of a storage company, not a stock analyst. The only thing I can say is I know with our growth in the fourth quarter of 50% over the.. excuse me, first
quarter over the fourth of 50%, and then the annuity known as cartridges.. this is what's gathered the interest in the company itself. The 199 dollar drive plus the $14.95 cartridges is where the interest is coming. Now, the larger we build the installed base of the drives, the larger the annuity steam of the cartridges, which is where we make the money going forward. I state that in contrasting to a normal hard drive company who really doesn't have an annuity going forward.
MARK HAINES:
What is the status..uh, please bring us up to date on status of any agreements you have with original equipment manufactures, so called OEMs, about your Zip and now your Jaz drive, and whether these OEMs are going to be offering your product as part of the package, or simply as an option.
KIM EDWARDS:
First of all, on the Zip drive itself, we have now both Power Computing and Hewlett Packard with preconfigured SCUs (sp?), in other words, the Zip drive is built right in to the computer, they're both offering those as well as Micron is offering Zip as an option. Escom, which is the number one private brander in Europe, is also offering Zip as an option. On the Jaz side, recently we announced the addition of Sony to our partners. Sony will be offering Jaz in the high end, digital post production area for doing editing of auditing work. We also again sell Jaz through Micron and Power Computing already today.
MARK HAINES:
Alright...Jaz costs about six hundred bucks, doesn't it?
KIM EDWARDS:
Yes, to give you some sense, this Zip cartridge holds about seventy floppies, versus a Jaz cartridge can hold about seven hundred floppies. In this case, you can play PC quality video (holding up Zip cartridge). In this case on the Jaz drive, you can play full motion, full TV video.
MARK HAINES:
Alright, is that one of the reasons you have emphasized in the past the speed of your drive, because of course many critics say speed doesn't matter, what people want is price and size, when it comes to a mass storage device. You obviously are thinking "No", eventually the market's gonna want the speed too.
KIM EDWARDS:
Well, the fact is what we did is separated the market into the mass market, which is Zip, very, very price sensitive. That's why we introduced Zip at $199.95, and cartridges as low as $14.95. On the Jaz side you're dealing with the power user. These people are looking for what they call the speeds and feeds end of it, here you can buy the cartridge for a hundred dollars a piece in five packs, but again, that's a hundred versus $14.95. So again, we're covering both ends of the market.
MARK HAINES:
David Faber?
DAVID FABER:
Mr. Edwards, what do you say to those who say you're ultimately really in only a commodity business, and despite the fact that a number of these OEMs have options to include your products, you haven't signed any that are going to for sure. What do you say to that?
KIM EDWARDS:
Well, first of all, we HAVE signed some. In fact, as I've said already, HP's got a SCU out
there at retail. You can go right down to Circuit City today, and buy an HP computer with a Zip drive in it. In terms of being in a commodity market, I guess the definition of commodity is very, very high volume, into the consumer business, and that's what we targeted to do with Zip. So, if that's what people are granting us today, we're quite pleased that they're acknowledging we've accomplished that.
DAVID FABER:
But there are very low margins on a commodity business I would assume, so you do need fairly wide penetration rates. I mean, some people say to justify your current valuation, and these are skeptics obviously, you need to sell four hundred million of your razor blades, for the razors, obviously, out into the future, is that a doable kind of a number?
KIM EDWARDS:
Is four hundred million doable on..?
DAVID FABER:
On the diskettes.
KIM EDWARDS:
Well I suspect some time in the future that is conceivable if you've got Zip to be the floppy for the multimedia age. Then that is conceivable. To give you some idea, there's somewhere around sixty-five to seventy-five million floppy drives sold a year, and last year the estimates where eighty to ninety million hard drives sold a year.
DAVID FABER:
But you've got competitors out there obviously, who are also trying to do the same thing. I know Compaq came out in March, and is offering a similar type of product as well. It's not as though you're out there alone... Is it?
KIM EDWARDS:
When you think about it, Compaq really isn't a competitor. What they are is a supplier of PCs. I don't think that Eckard Pifer (sp?) cares much what's in them in terms of the storage media, as long as it meets the consumers' needs. So we don't consider Compaq a competitor, we consider them a potential customer, and are working with them to look at Zip drives going forward.
MARK HAINES:
Joe Kernan has finally ripped the masking tape we put on his mouth off, and can now ask a question. Joe?
JOE KERNAN: My only question, about thirty or forty points ago, people told me something from Panasonic called PD was going to put you guys out of business is what people told me. Obviously, it hasn't. Do you consider that a threat to Zip, and if not why not?
KIM EDWARDS: Well, I think that any storage technology is a potential threat, but the key point is that you've got to hit the right consumer price points. We did a lot of research on the mass market, you had to be two hundred dollars a drive, and at least this point in time, there is no indication that PD can get there. Secondly, that's a two-technology business, in terms of its CD and MO.. magneto-optical, which is a complication, which the consumer is just not going to want to deal with.
MARK HAINES: David?
DAVID FABER: Mr. Edwards, I'm curious.. uh, I've heard some reports, and I was just wondering whether you could tell me a yes or no here, have insiders such as yourself
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