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Non-Tech : Iomega Thread without Iomega -- Ignore unavailable to you. Want to Upgrade?

To: Fred J. Ledo who wrote (3539)	11/6/1998 9:53:00 PM
From: HRP	Read Replies (1) \| Respond to of 10072

Where did you find the article written by Chris Buckley? Thanks. hrp

To: Fred J. Ledo who wrote (3539)	11/6/1998 10:20:00 PM
From: Cogito	Respond to of 10072

Fred - Thanks for posting that analysis. I think Mr. Bulkey gets a couple of important points wrong, however. Being that kind of guy, I thought I'd pull out some excerpts and refute some of the points he makes. "Revenue growth remains non-existent, as the top line fell 9% to $392.8 million. Even more disturbing is the fact that sales have fallen on a sequential basis for the past three consecutive quarters. Doesn't look like the company is building any sales momentum, does it? "Next, look at gross margins. For the third quarter, this key profitability measure continued its steady descent. Due to a larger mix of OEM sales and price cuts (a response to industry-wide price cuts), gross margins fell to 22.3% from 32.5% last year. A company can only cut costs for so long. Eventually it must reinvigorate the top line and expand margins if earnings are to grow, let alone turn positive." One can't actually argue that point. Clearly, if the top line doesn't improve, earnings can't grow. What Mr. Bulkey neglects to take into consideration is that the company has new products on the horizon. New products may contribute to renewed top line growth. "There are also several reasons to believe that revenue and margin trends will not reverse anytime soon. As mentioned earlier, Syquest said it was going out of business. The news, which caused Iomega shares to rise on Tuesday, is overrated. Syquest may be gone, but its products will be around for a while. Syquest has a lot of inventory to clear out, which it will likely sell at huge discounts. Even though purchasers of Syquest drives will not be able to get customer support, the prices will be so cheap it will be like buying a disposable product. That does not bode well for Iomega's fourth quarter, which management predicted will show a profit." A couple of things wrong here. First, I still don't see how anyone believes SyQuest has "a lot of inventory to clear out". Second, purchasers of storage products don't think of them as "disposable product". Most people put data on removable media for the purpose of either transporting it, or backing it up. In neither case is reliability a secondary concern. "Balance sheet and cash flow trends don't look good either. Cash is alarmingly low, down over 30% from last year's third quarter, to $45.6 million, or about $0.17 per share. That's a direct result of awful operating cash flows over the past few quarter. Although third quarter cash flow figures are not yet available, the two previous quarters consumed more than $250 million from operations." This is OK as far as it goes, but it ignores the fact that a good part of the cash burn was from a very expensive ad campaign begun by Kim Edwards. The campaign has been stopped. Also, due to both cost cutting and expected top-line improvements, management has said that the fourth quarter will be cash flow positive. At least Mr. Bulkey identifies Rocker Partners as big Iomega shorts when he uses them as an information source. "Mark Cohodes of Rocker Partners, a long-time Iomega short-seller, notes that the company violated its loan covenants twice this year. A credit crunch may be lurking if cash flows don't improve quickly, and current market conditions certainly do not make this a good time to be in need of raising capital." Again, there's every reason to be confident that cash flows are already improving. More importantly, the company is in compliance with loan covenants now, and that's what matters now. If they need the credit, the can get it. "Then there is the issue of competing technologies, of which there are several that offer greater capacity than Iomega's removable disk storage solutions. An example is DVD drives, which are more expensive but will likely fall in price over the next few years, as competition heats up and the products become commoditized. Analysts concur that serious threats from new technologies are at least a year away, but they cast more doubt over Iomega's outlook nonetheless." (Emphasis mine.) Right. I suppose Iomega is just going to sit still and let everyone else catch up. I guess I'll leave it at that. I don't agree with everything the analyst said, but it's great to see such substantive stuff here. Thanks again, Fred. - Allen

To: Fred J. Ledo who wrote (3539)	11/6/1998 11:00:00 PM
From: Cogito	Read Replies (2) \| Respond to of 10072

Fred, all - I had another thought about that article. Is the turnaround a false alarm? It could be. If there is a turnaround, it has really only begun in last couple of months. We won't be able to tell if this is the beginning of something real until at least two more quarters are on the books. The demise of SyQuest is, I'm sure, a good thing for Iomega, overall. But in less exuberant market conditions, this kind of news would not have caused this kind of reaction. What's really interesting is that the "pre-Comdex hype" hasn't really even begun yet. Next week should be fun, but I'll be watching from the sidelines. I sold today. After seeing that nasty downward spike in the morning, I figured that getting out just below 9 was good enough. Like I said, after almost selling at a substantial loss two weeks ago, I wasn't about to let a profit get away. BTW, re: Comdex Hype - It's pretty standard to issue promotional press releases just before a the biggest trade show of the year. Iomega is not unusual in this regard. - Allen