HRPand All, here is a transcription of the Scott Flaig presentation at theEmerald Research Ground Hog Day event (one day late... Feb. 3rd) that was posted over on the Motley Fool today. Nicely done. You can of course go over to vcall and listen to the whole presentation, which I did this am. but this covers most of the main points for those of you who don't have a sound card and a Real Player installed. Mel
Repost follows:
Subject: Scott Flaig transcript Date: 2/4/99 1:29 AM Author: VinOrdinaire <Picture: Add to My Favorite Fools> <Picture: Add to My Penalty Box> Number: of 17266 Here is a rough transcript of the Emerald Research conference call of Scott Flaig's presentation. Lots of data here, many of the quotes are rough but you'll get the gist of it.
Scott Flaig
9 time zones in fourteen days
Return to respectability in this business
Virtual enterprise model implemented at Dell in 1992 through 1995, takes culture change, system change, commitment to contemporary methodology and principles.
Iomega's most important thing is the customer. Jodie Glore I would characterize as fanatical about the customer, spent a good part of his first three months listening to the customer, sitting in the tech support centre, trying to understand what the customer is experiencing.
Things they're saying.
Dell 1 year ago was saying "I don't think we have an opportunity for you, you have a product which customers want but doesn't work." They had 24 enterprise partners and we were supposed to be one of the 24 but we were on the out. In one year at Dell we've moved from 24th to 8th place.
At Compaq we are now listed #1 satisfaction of all suppliers
Apple now contending for #1 position of 8 storage suppliers.
Customers are giving excellent feedback on satisfaction with our product and the way we are doing business with them.
Best engineers in our industry.
Quality Function Deployment (QFD). Disciplined structured Methodology for capturing focus group information on new product specifications, so we're not just bringing technology to the market based on enginerers but designing that around a customer specification with a disciplined methodology.
What Iomega is focused on: providing real world technology-based solutions that help people manage their stuff, anywhere.
25 million iomega drives shipped around the world, solid infrastructure, well-positioned to reach the next level.
Four distinct technology platforms. Our goal is to provide an affordable removable storage solutions allowing customers to get access to their important information anywhere.
Zip: Cost effectively share and store today's most popular information: Internet downloads, databases, music, and even photographs. Installed base of 21 million drives. Faster than CD-ROM faster than the 3 1/2 floppy; faster growth than any consumer electronic device that we are aware of. The success of Zip has created a market segment with huge growth potential. We intend to remain the market leader. To position zip as the industry standard we are extending partnerships and strategic relationships with licencing partnerships like NEC and Panasonic. The virtual enterprise manufacturing model is not about outsourcing, but about inclusion: integrating and connecting with the best companies in the world who design manufacture, and distribute PC products.
Robust porfolio of Zip solutions. . . .
Zip is a scalable platform, one whose architecture has been integrated to drive the cost reductions needed by OEM which are needed to get to consumer friendly prices. Reduced the convergent costs by 40% in one year. We have a very aggressive goal going into 1999.
Zip USB is the first high capacity USB drive to offer cross-platform compatibility between Mac and PC/Win98. Began shipping Nov. 13, there are no supply constraints on this product. None.
I'll talk more about supply constraints throughout discussion.
Zip250: 2.5 the capacity at 1.5 the speed. Natural migration path for current users of Zip100. Protecting our customers' investment in 100 MB disk. Shipped late Dec. at $199 SRP, with disks shipping at 16.45/disk in six packs. No parts shortages or constraints whatsoever on the drives. The media however has had a constraint. Spent a full day with the supplier of that media in Japan last week and have both written and handshake agreements their commitment not only to meet Q1 demand but to exceed it. I feel comfortable that we're on the right track on the ramp of the 250 MB drive and the media will begin to flow through just as the drive components are flowing through today.
Continued acceptance by PC manufacturers. In early 1996, sales to OEMs negligible. In 1998 approx. 1/2 Compaq Dell, Gateway and Apple our current top four OEM partners.
Websurfer, Roland, Microtek, Lexmark designing Zip into products like settop boxes, printers, music mixers that do not require a PC interface. Zip will become a more natural extension of our computing experience, positioning Zip to become the universal recording media for the information age.
Record Play initiative. Unique serial number on disks allows suppliers to distribute proprietary material over internet. Cannot subsequently be copied. Liquid Audio and Soundstone.com will offer individual tracks of today's popular music for sale over the internet. With a new program called Tunus Collectus (?) consumer can download up to 40 singles each month, bound in the Iomega media onto which they are recorded. Consumer can conveniently make a disk including only the tracks they desire. Content makers are assured the songs will not be subsequently copied or pirated. We will continue to develop applications that drive the consumption of Zip, Jaz, and Clik disks.
Jaz targets a large appetite of power users like video and audio producers: lets people use PCs for editing mixing and post-production. Jaz is positioned to create a powerful new market with the power-user segment. Jaz instantly extends their hard drives and makes even their largest files portable. Jaz has become the de-facto standard with Multimedia professionals, enabling the interchange of information like never before. Jaz quality, once a concern, now performing extremely well: warranty return rates down 75% over the last nine months. We delayed Jaz 2 introduction from 4Q97 to late 1Q98 entirely due to assuring we had a quality product with high satisfaction levels.
Our newest product platform and one we're very excited about is Clik! Clik drives, disks, and accessories designed to unleash the potential of digital cameras, PDAs, toys and games, smart cell phones, making them more powerful, affordable and user friendly. Clik disks are tiny avalable 9.95 in ten-pack. Iomega Entering this market because of considerable growth in each of our target market segments over the next five years. A single picture can require a meg or more. Clik is a product family. small durable 40 MB disk, lighweight battery powered portable drive, dock to provide connectivity to PC. Miniature OEM versions of the Clik! drives size of a Type II pc card designed to be designed into digital cameras and HPCs. exciting accessories allow customers to leave their laptops behind when on vacation or on the road with their digital cameras or HPCs.
On the Clik we do have a couple of constraints: Clik! is a brand new product and we are in the learning curve on many of the components of this product. Two constraints, both fixes have been designed in, and we are currently on the ramp rate to build that product volume up, but will have some limited constraints in the 1Q99 time period.
All of this is based on a simple philosophy of providing customer what they want when they want it at a reasonable price. Maintaining this focus, we are building IOM into the undisputed leader in removable storage. Now shipped well in excess of 25 million storage solutions, recently shipped 21 million zip drives, continue to see strong unit growth in our Zip business: almost half of all the drives sold in the last 12 months. I would add that our virtual enterprise model, close to the customer for quick response: began shipping out of our Roy Utah plant in December. I expect we will be shipping from a European location by end of this year, location yet to be determined.
Shipped 2 millionth Jaz drive in October. Percentage of revenue for disk side of the business show a positive trend. We are approaching the point where disk sales to installed base will exceed disk sales to new drives sold in the quarter. Effectively leveraging one of our most valuable assets, our installed base of over 25 million drives, an annuity if you will. In the fourth quarter both Zip and Jaz disk showed a 47% year over year increase in unit shipments. We have shipped over 125 million zip disks, roughly the equivalent of 8.5 billion floppy disks.
Unit growth strong, but with the OEM model revenue growth flattened. Clearly, the organization changes recently announced by Jodie Glore are intended to leverage process excellence to drive both growth and costs. We will grow the top line in 1999 with several new products recently began shipping and several other new products yet to be announced.
Announced several specific goals to Wall street and OEM model in early 1998. Proud to say we delivered on every one of those goals.
Return to profitability: $19 million, 7 cents/share.
Infrastructure can produce sustained profitability in 1999, however, seasonality of 1Q99 and ramp contraints, break even +- couple cents.
Working diligently on the few constraints we have. We expect our operating model to hold in 1999, from quarter to quarter may be below or above our model due to seasonality and constraints.
Continue progress in inventory reduction and further increase inventory turns. Increased turns to 8.8 times, more than doubled our inventory turns, targetting similar gains in 1999.
In March april 1998 we peaked out at 3 months of channel inventory, 350 million and 101 days Iomega inventory 380 milion: we had lots and lots of stuff.
Channel inventory now in the 6-8 week range, and Iomega inventory down to the mid 40 millions so our enterprise inventory down from over 700 million to 165 million. When he had the 700 million inventory, delivery performance was sub 50% and to OEMs sub 75%. Compare that to our Q4 inventory of 165 million and delivery performance 85% to retail and 98% to OEMs.
Inventory management key drivers generating positive cash flow, generating $106 million positive cash flow, paid our bank line down to zero and put an additional $50 million cash on balance sheet: it's stronger today than it has been in several quarters, due to implementation of virtual enterprise. We're 12 months into the 24 process.
Virtual enterprise model
1) Focus on customer: moving to regional locations for manufacturing and web site technical support at much lower cost on line 24 hours per day. Free zip tech support, real time online diagnostics, and telephone diagnostics. 90% of calls are satisfied on first call. QFD no just being arrogant technologists but bringing products customers want. Closed loop feedback back to manufacturing.
2) Strategic plan and operating plan and business process and our demand supply process. One integrated plan rather than four. One supplier conference call every week for two or three hours.
3) Continuous materials and manufacturing flow. Eliminating any places where stock rooms and inventory lead to depreciating assets. Point of sales data gathering process to drive our build to order process. Went into effect in April and may inventory levels and delivery success reflects its success.
4) Product testing prior to release, ISO standards for the past year. By Q2 qand Q3 we'll have engineering ISO as well.
5) Inclusion of business partner. It's not about disk aggregating not about outsourcing, its about inclusion of key suppliers, connecting them together under one methodology, communicating design info, product marketing info, manufacturing information, a virtual team as one company.
6) Total quality: our buyers professionally certified. Our quality engineers certified. Quality in the process, open systems information architecture. Launched a class A program for information integrity. Information quality not just product and process quality. Beginning in Q1 we will see some outstanding results from six sigma. Ambitious goal of further 50% reduction in defects. Went on about the training of black belts and green belts and so on and it went right over my head, but the idea is specialists in quality control.
140 million to 1.7 billion growth in the last five years etc. etc. summarizing statement.
We are confident about 1999 and I hope this overview explains why.
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So, what do you think?
Vin |
