Ditto and Revenue
As if Iomega's current Revenue Woes weren't bad enough, now they are going to kiss more than $80 Million of annual Ditto Revenue Good-bye forever.
How can a supposedly "Growing" company justify the label with steadily Shrinking Revenues?
***To Michael Coley and others: Awhile ago you stated that you would "re-evaluate IOM as an investment if the fundamentals change."
Well, the fundamentals have changed. For the worse.
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What's new....another dumb-assed attempt to scare everyone into selling their shares by someone who is obsessed with and hates Iomega and obviously all of Iomega's shareholders. For all new readers here, make no mistake about it, this guy is not here to help you! I challenged him openly to predict Iomega's revenues and earnings for 1999 and 2000 and, of course, he didn't even respond. Instead, he comes up with these new "hit and run" pearls of wisdom. C'mon fruitball, answer the challenge and tell us, once and for all, your predictions of revenues and net earnings, by quarter, for all of 1999 and 2000.
Since you obviously fancy yourself as some kind of $%#*@ genius, this shouldn't even make you break a sweat. Meanwhile, until you do, as far as I'm concerned, you have no credibility whatsoever, never will and should be regarded by all here as a nuisance somewhat akin to a gnat......which perfectly describes the little creature that you appear to be.
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Meanwhile, for those actually interested in Iomega's future, here is another opinion on the Ditto sale from the Motley Fool AOL board.... in stark contrast to the usual BS scare tactics above:
RE: sale of Ditto line
It's like this. Tecmar pays $3mil right now for intellectual property manufacturing equipment, etc. In a few months, Tecmar pays some more to buy the rest of IOM's finished goods inventory. Beyond that, IOM still sells the high margin media, probably indefinitely, but also probably only for Ditto lines that IOM developed, ie, if Tecmar comes out with a new Ditto drive, they may not share the cartridge intellectual property with IOM.
Ditto sales were declining in a hurry for IOM, down to a run rate of $64 million as of Q498. Say IOM were to do $60 million in Ditto sales in 99 at 7% net, that's still only $4.2 million. That's making the dubious assumptions that they could do $60MM in sales, that they would take 7% net, that the rest of IOM wouldn't be distracted by marketing/selling Ditto, and that the Ditto engineers couldn't be used better elsewhere. Furthermore, because IOM has already been selling Ditto for nearly 3 months this year and will continue to do so for 3 more, they are really losing perhaps only $35MM of sales this year. 7% of that is only $2.45MM.
IOM is retaining all employees and plants from the Ditto line, as well as the Ditto trademark "outside of tape products" (choose your own meaning to that item). If I remember correctly, the Iomega facilities in Colorado and/or San Diego house both clik! and Ditto employees (manufacturing/R&D/sales? I have no idea). It seems perfectly logical to guess that rather than hire, train, and relocate new people to work on developing clik! further, they would shed a dying product line and send its workers off to a line still in its infancy. Ditto must have some pretty smart people- wasn't the concept of a "drawer" on the Ditto Max considered a remarkable innovation when the product came out? I recall someone from Iomega being quoted as saying that they caught all the competitors by surprise and that "we own tape".
After the warranties on drives IOM sold expire, they won't need to even spend money on support. That will be Tecmar's job.
All in all, this is not a very significant announcement. Glore decided (accurately) that Ditto was not essential to IOM's future, that the line was not a source for growth (remember the man supposedly is all about PROFITABLE GROWTH), and that it really didn't even target the same market as their primary products. It was a distraction. It was sold for a sum of about a penny a share and now some other company can make use of a still nice, though niche, product. IOM keeps its people.
Just like buying SYQT for $9MM is not likely to make a huge difference in IOM's fortunes (other than keeping a competitor from bringing SparQ to market again), and the Nomai acquisition for $40MM was basically buying an easier entrance to the European markets in terms of brand and some manufacturing/distribution facilities (no I don't believe that IOM acquired any secret technology from Nomai that is going to generate hundreds of millions in sales. Their CDR drive is a joke and I doubt that anything related to MR/GMR that they have come up with, IOM couldn't have come up with just as easily), the sale of Ditto is not really a big deal. A few incremental benefits, possibly, but I really don't think that getting $3 million or getting $15 million for a dying product makes a difference in the long run. The type of profits I expect eventually from IOM that make me keep holding the stock, well, kind of make the difference between $3 and $15 million look silly.
And no, we're not getting bought out by Sony, either. The fellow who was concerned does not need to learn Japanese unless he so wishes. I've heard it's a beautiful language, though...
Rob
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To me, this is a far more realistic "take" on the sale of the Ditto product line. I've got to believe that Jodie Glore is no fool and knows how grow a company.....he sure did so at Rockwell Automation.
Remember, the bottom of the news release states that Iomega will still market the Ditto tape media, where the big margins are anyway for a period of time.
Dave
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