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Non-Tech : Any info about Iomega (IOM)? -- Ignore unavailable to you. Want to Upgrade?

To: Dr. Bob who wrote (45390)	1/24/1998 5:03:00 PM
From: Mike M	Respond to of 58324

Thanks, Dr Bob, didn't feel badly enough...before. Mike

To: Dr. Bob who wrote (45390)	1/24/1998 7:00:00 PM
From: jeffrey roberts	Read Replies (1) \| Respond to of 58324

My speculation is that Iomega had no idea what the numbers would show until two weeks ago. That would account for alot of what has happened with their stock split, earnings announcement, etc. Do all companies know what their performance is on a daily or weekly basis?

To: Dr. Bob who wrote (45390)	1/24/1998 9:01:00 PM
From: Zakrosian	Respond to of 58324

I hope you're wrong too, But you have done a great job in articulating the potential negatives for IOM for the next year. One point with which I'd take issue: Incremental advertising will add to already high levels of SG&A. If 1.3m per 30-sec spot for the super bowl is correct, for 4 spots that would mean $5m pre-tax off the bottom line (or about .01 per share after tax) right here and that's only the beginning. Only one of the spots is during the Super Bowl; the other three are during the pre- and post-game shows, which I am sure are far, far less expensive.

To: Dr. Bob who wrote (45390)	1/24/1998 11:42:00 PM
From: Michael Coley	Read Replies (1) \| Respond to of 58324

RE: Analysis of the Bear Argument. Dr. Bob, >> I HOPE I'M JUST PLAIN WRONG. << No need to hope. You are. ;) >> IOM missed its number by 8c (40% earnings shortfall)! << Your explanation just doesn't jive with the numbers. Iomega actually increased reserves in Q4 over Q3, which leads to conservative numbers. >> The consensus (bulls') estimate on this thread was that IOM would have realized about 0.19 in Q4 << Nope, out of 21 estimates, the average, median, and most common guess were all between 0.16 and 0.17, which was about a penny higher than analyst numbers. See my summary: Message 3226515 >> What disturbs me is the underlying trend that seems to move in the wrong direction. << The trend is definitely still up. OEM Zip Unit sales, up 55% sequentially. Revenues, up 35% sequentially. Earnings, up 20% sequentially. >> 1. Accounting seems to be less conservative. << Already addressed--actually apperas more conservative to me. >> 2. Inventory built-up. << This is mostly due to the delayed products (your point #3). >> 5. Decling growth rates. << Surely you don't expect Iomega to be able to maintain the 130% annualized revenue growth rate that they've maintained over the past three years indefinitely. No company can do that. It's mathematically impossible. Do the calculations and see how many years of that it would take until the revenues exceeded the GNP of the entire world. I'll give you a clue: It wouldn't take long. >> 6. Future earnings more 'risky' (i.e., less predictable) << No argument there, with the stipulation that you're talking about earnings growth and not just earnings. >> 7. Where's all the R&D spending going? << Recently Released Products: Zip Plus, Notebook Zip, Ditto Max, Ditto Max Pro, RecordIt. Announced Products: Clik!, Jaz2, Zip2, Buz. Potential New Products: Iomega is very closed-mouthed. From their job listings, I think a MR product is in the works. >> While I like to see the gross margin improve over time << Which it has. But to fund growth, we may see that dip again. I like KE's commitment that they "have a unique strategy [which is] to make money in this [removable storage] market". >> 1. I am concerned that it's attributable less to operational improvements and more to (arbitrary and non-controllable) currency fluctuations. (This might reverse when we need it the least.) << I don't believe that Iomega saw any benefit from currency fluctuations. They pay for most things with US$, and hedge any other currencies to remove that fluctuation. Margin improvements are coming from cost reductions, increased integration, and economies of scale. >> 2. The drop of COGS seems to be partly bought by increasing SG&A spending. << Yes, and they plan on increasing that even further with the $100 million advertising campaign. >> As it stands, I am really concerned that IOM might show a LOSS this quarter if the advertising drive is not showing major effects quickly (now I am really getting flamed): << No flames. It's a valid concern to be addressed. Iomega plans on spending $15 to $20 million extra on advertising in Q1. That's somewhere around 0.06 or 0.07. Current estimates (which don't include the advertising) are 0.13. Even if we whack the whole 0.07 off (assuming the ads have no effect on Q1 sales) and take off another 0.02 for good measure, we're still at 0.04 for the quarter worst case. Not good, but still not a loss. >> 1. Q1 traditionally slow on the revenue side. << Yes, usually slightly lower sequentially from Q4 (which is usually up considerable from Q3). I think this seasonality will start to diminish as our OEM percent increases. Add-on's are much more seasonal than boxes. >> 2. 1/3 of the quarter is over and no BUZ and no JAZ2 on the shelves (i.e., very little help from incremental revenues from new products). << You're certainly right there. Ditto Max and Ditto Max Pro are shipping now, but they're not a bit factor. Buz shouldn't be a big factor either. Jaz2 could hurt, just like it did in Q4. That gives more support towards knocking 0.02 off of the current Q1 estimates. >> 3. Share of OEM drives will increase (lower margin, lower tie ratio). << Yes, they will increase. In fact, I predict that OEM units will be just shy of 50% in Q1. Another factor is that many of the disks for Q4 Christmas sales won't take place until Q1. I think we had an increased tie ratio in Q1 97 (vs. Q4 96) and wouldn't be surprised to see it again. But you're right--it will likely have an effect. >> 4. Fixed costs will remain at their high levels (I consider R&D and SG&A as mostly fixed costs). << And will probably even increase slightly... >> I am not saying that overall 1998 will be a bad year for IOM, I am just arguing that Q1 will be 'challenging' (haven't we heard that word before?). << Although some of your argument is (IMHO) flawed, you do have some very good points. (One on top of your head, as my best friend would say. <G>) I hope to put together a spreadsheet with my projections for 1998 sometime in the next week or two. I'll definitely be using some of your comments to form my estimates. - Michael Coley - wwol.com

To: Dr. Bob who wrote (45390)	1/24/1998 11:48:00 PM
From: Steve Wiz	Read Replies (1) \| Respond to of 58324

Doc Absolutely. I quess in my youth I should admit my own fallibility. But I quess this is the beginning of wisdom. Your post is unbiased and couldn't be more right. Another young analyst said something to me that struck me or you could say enlightened me. I am sure with the way the street and other market participants view IOM that KE new the consequences of coming in light. This anlayst asked me, "Why didn't IOM just pick a penny or two off the ground to meet their numbers worry about the hard stuff later". An unbiased market participant would think that noticing a slowdown in operations KE would cut back SG & A, R&D, ect to come in line. But upon further inflection, I realized that IOM did indeed put the brakes on mid stream but still could not make the numbers. In other words, IOM stretched the bottom line to get .13 hence taking away from Q1. This is why KE sounded the bells about ad spending may impact earinings. What he should have said is we took some bottom line out of Q1 for Q4. Hence, your assumption of IOM coming in at .11 is right on. Let's rewind a little to uncover some sort of distortion in KE's quidance to the street. IOM's third quarter CC took place on what October 22. During the CC KE was confident about sales, earnings, zip growth, he even mentioned the retail backlog as being a "black hole". No sign of Zips hitting a brick wall at retail, no Southeast Asian effects, no Jaz2 delays, no dramatic increase in SG & A, etc. Let me remind the participants that this is already into the Q4. KE sells $10,000,000 worth of Stock in this same time period. Still no pre-announcements, no warnings, no downward quidance. Now it's the Q4 CC and I've never seen such a dramatic reversal in perception in such a short time from a CEO ever. So, I am supposed to beleive that all of these problems Zip slowdown, SE Asia, Product delays etc all came to frution in about 6 weeks time frame. If the majority of participants truly believe this could happen, I have just quantified the evolution of a boom bust sequence and how it can materialize! As I brought up in a previous post, if KE and management can not bring these products out in a timely fashion, their credibilty would be in question. Well, it's now in question. Let's be unbias and ask how a teetering tech like Syquest can offer a product (SparQ) in relative short time, with capacity and price being matched perfectly, and a billion dollar Co. like IOM that can even quantify to us whether their notebook drives are shipping in quantities, to retail?, who controls production? why aren't you pushing the notebooks? IOM spent hundreds of millions of dollars on R & D where is it all going? These are questions that savy market participants want to hear answers to (Soros, Fidelity etc) With R & D spending like this we should see a holographic removable storage drive with capacity of 10GB. I can't stress enough how bad KE and management handled this. If it wasn't for retail buying this stock would be at $4. You have to wonder if KE is way over his head trying to manage a billion dollor CO. He needs to learn that in a large organization you have to hire smart savy people and give them their own businesses to run. Lastly, He stuffed $10 million in his own pocket and took a $1 billion from ours Steve

To: Dr. Bob who wrote (45390)	1/25/1998 3:21:00 AM
From: Cogito	Respond to of 58324

Dr. Bob - One thing I thought I should point out regarding the statement that SyQuest is eating Iomega's lunch: Syquest's sales in the last quarter were less than a tenth of Iomega's. Therefore, if they increase sales by 25%, and we assume no growth in the market and no growth in Iomega's sales, then SyQuest will have eaten around 2.5% of Iomega's lunch. Remember, SyQuest boasted of planning to ship 50,000 SparQ drives last quarter. Three million Zips were sold. A meager lunch for SyQuest. - Allen