All , Re:>>a few snips from Iomega's 10 K
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OEMs As of March 1998, the following PC and consumer electronics companies incorporate, or have announced plans to incorporate, Zip drives in selected models of their lines of personal computers as a standard or optional feature: Acer, Apple, APS Technologies, Chicony, Cisco, Clevo, Compal, Compaq, Dell, Digital, Gateway, Glyph, Hitachi - Japan, Hewlett-Packard, IBM, Micron Electronics, NEC - U.S., NEC - Japan, Packard Bell, Packard Bell - Europe, Sharp, Sony, Umax and Unisys.
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Sales of Zip drives to OEM customers increased to approximately 32% of total Zip drive unit sales in 1997, as compared to approximately 5% in 1996.
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addition, in order to help offset the expenses associated with the additional advertising, the Company is currently planning to delay certain price decreases that may have otherwise been effected earlier in 1998.
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During the year ended December 31, 1997, sales to Ingram Micro, Inc., a distributor, accounted for 14% of sales. During the year ended December 31, 1996, sales to Ingram Micro, Inc., accounted for 15% of sales. No other single customer accounted for more than 10% of the Company's sales in 1997 or 1996
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In March 1998, the Company announced, based on review of its preliminary first quarter results, that it anticipates first quarter 1998 revenue to be relatively flat with first quarter 1997 revenues and anticipates incurring a loss for the first quarter 1998 in the range of $10 million to $25 million. Revenues and growth rates for any prior quarter are not necessarily indicative of revenues or growth rates to be expected in any future quarter
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Due to the rapid growth of the Company's manufacturing output and due to certain design changes and supplier quality issues, combined with the shift of production to Penang, during 1997 the Company experienced manufacturing quality problems, including higher than desired manufacturing defect rates. The Company is undertaking a number of programs designed to improve quality and reduce manufacturing defect rates and intends to apply greater focus during 1998 on continuing to improve its manufacturing processes.
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The Company currently has third-party manufacturing relationships with Electronics Assembly, Inc. (which currently produces external Zip drives), MegaMedia Corporation and Sentinel N.V. (which produce a significant majority of all Zip disks) and Sony, Imation and Verbatim (each of which produces one or more of the proprietary format tapes used with the Company's Ditto products.
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In March 1998, the Company granted a non-exclusive worldwide license to Citizen Watch Co., Ltd. of Japan (Citizen), to manufacture and sell Clik! drives for use in its own portable electronic products, to other OEMs and consumers worldwide. These agreements increase competition faced by the Company, including price competition, since the Company does not control the price at which NEC, MCI or Citizen sells products for its own account. The Company receives (or will receive) royalties on units sold to third parties by NEC, MCI and Citizen.
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Combined Zip and Jaz sales totaled $1.6 billion, or 93% of total sales, in 1997, as compared to $1.1 billion, or 87% of total sales, in 1996. Sales of Zip drives to OEM customers increased to approximately 32% of total Zip drive unit sales in 1997,
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The gross margin associated with deferral of revenue for returns and estimated excess channel inventory totaled $42.4 million, $15.7 million and $3.2 million at December 31, 1997, 1996 and 1995, respectively, and is included in deferred revenue in the accompanying consolidated balance sheets. Price Protection and Volume Rebates The Company has agreements with certain of its customers which, in the event of a price decrease, allow those customers (subject to certain limitations) credit equal to the difference between the price originally paid and the reduced price on units in the customers' inventories at the date of the price decrease. When a price decrease is anticipated, the Company establishes reserves against gross accounts receivable for amounts estimated to be reimbursed to the qualifying customers. In addition, the Company records reserves at the time of shipment for estimated volume rebates. These reserves for volume rebates and price protection credits totaled $28.5 million, $17.0 million and $1.6 million at December 31, 1997, 1996 and 1995, respectively, and are netted against accounts receivable in the accompanying consolidated balance sheets. Inventories Inventories include direct materials, direct labor and manufacturing overhead costs and are recorded at the lower of cost (first-in, first-out) or market and consist of the following (in thousands):
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