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

To: David Colvin who wrote (8889)	4/10/1999 11:35:00 AM
From: David Colvin	Read Replies (1) \| Respond to of 10072

More from the AOL Motley Fool board...an interesting short term opinion on Iomega, along with a response WITHOUT THE ATTITUDES! Subject: Look out 2-3 months Date: 4/10/99 1:50 AM Central Daylight Time From: Maaad 2 Currently this stock is overpriced in terms of basic fundamental stock valuation standards. No earnings, high price to book at 3+, declining demand for core product(Zip), reduced margin on core product(Zip), and increased earnings expectations on accessories for the core product(Zip DISKS). I went long based on the fact that Iomega was the leader in the removable storage industry. I have closed my position because I now realize that it is a dying one. Their next best product Jaz like the Zip just doesn't have the market to be profitable and this product has had problems with defects and recalls. Their Savior product Clik! is not established in the industry and is competing against a much more convenient type of memory product. In my opinion the only way for this product to gain market share is for the competitors to regress in their research and development and that still wouldn't support current valuations. I encourage opposing opinions but would be surprised to get anything but BS. I would love to hear some responses like.. NO! Zip has potential sales of ( ) in China, Brazil, Russia based on (reason). Clik can gain market share over flash memory for ( ) reasons. Even though Jaz has had problems ( ) is encouraging! etc. etc. Are there any message boards where posters actually talk about the business fundamentals of a company? Editorial comment: It looks like this guy is struggling to find a reason to buy back in to Iomega. Subject: Re: Look out 2-3 months Date: 4/10/99 5:47 AM Central Daylight Time From: HMAletter Are there any message boards where posters actually talk about the business fundamentals of a company? Sure there are, but with the issues at hand for this company, the most important fundamentals revolve around the current financial health and the success of marketing. Not many will debate your argument regarding share price, since it's a moving target. I fully agree that price entry point is very important. On a price to sales basis, Iomega is very cheap for the leader in their category, but not based on book value or earnings. While it is convenient to point out declining Revs and margins, it would also be prudent to highlight the increasing unit sales and rising disk sales. The disks are the margin boosters, and last quarter was promising. I don't believe Clik! is the company's savior at all. This company is all about Zip and removable disks. As the OEM sales become a much higher percentage of units, the Revs naturally fall and drive margins along with them. This was a summary of my own thoughts in March: At a current share price of around $5 in March, these markets have indeed included mostly negative news into the price. The current market capitalization of about $1.4 billion is almost half of my own (good year) estimates for 1999 revenues. Currently Iomega is selling for a PE multiple of about 15 times estimated 1999 earnings, and slightly less for 2000 earnings estimates. Analysts have no faith in Iomega's ability to grow earnings and produce results, and therefore have produced estimates calling for only 12% earnings growth in the year 2000. Wall Street believes that Iomega exists in a commodity market and will never derive strong margins from the business. I disagree. Iomega's future growth is solely dependent upon their ability to compound the growth in disk sales. That part of this business model hasn't changed. What has changed is the strength of management. Iomega's management now consists of seasoned executives with strong operational backgrounds, a change from the largely marketing-based executives they replaced. My own opinion is that there remains compelling value in this stock at current levels. Long-term investors should attempt to build positions by averaging into the stock at low levels. With a price range this year from the current $5 range to as high as $10, proper entry point is very important. I am always interested in a dominant, growing franchise that can be purchased for less than one-times sales. With a PC penetration rate of less than 8% last year, there is ample room for growth in this business for several years. If need be, Iomega might have to continually lower their prices in order to continually build the installed base of drives. While this may be painful for shareholders this year, it could produce tremendous dividends for long-term holders that would reap the benefits of future disk profits, not to mention the payoffs from any new hot products that will further drive future sales. In this market segment, choosing investments is more about reducing risk and picking dominant business models. I remain confident that Iomega's product lineup will remain dominant in their respective product categories, and much of the risk has already been factored into the share price.