TRANSCRIPT OF LIVE EVENT
01/29/97

Iomega Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>
1821 W. Iomega Way
Roy, UT 84067
(801) 778-1000
http://www.iomega.com

MF Czar: Hiya, Fools, welcome to the Iomega earnings event! Let's take our first question, from S2Wind: " So, how do you explain the poor stock reaction to IOM's earnings report?"

MF ETurkey: My guess is that it is a reflection of flat US sales. The improvement in Europe was the reason for the jump in revs. I also think, due to the drop in OEM sales, folks are going to wait and see how enthusiastic Joe Sixpack is.

MF Ben: One day is not really a reaction. This quarter showed some great bottom line growth, decent top line growth -- though top line was below our (high) expectations and that WILL affect the company's valuation. Maybe not today or tomorrow. At least we can be comfortable that analysts won't lower estimates! <G> We need, as I see it, 3 things to move the stock: new coverage, upward revisions, fund ownership. None of these happened yesterday. They will.

MF Assets: We need the analysts to update their '97 estimates higher!!! :) How much new coverage Ben?

MF Ben: Assets, I'd love to see a major house NOT getting a fee from Iomega initiate coverage, though I bet Montgomery won't be first in line (call it a hunch) :-)

MF ETurkey: To add to what Ben said about coverage, I think some folks will be hesitant to jump into a stock with so much written about it in cyberspace. I think the stock has gotten a bad rep due to some of the stuff that has been written about us.

MF Assets: There are 8 firms covering now, but 3 I don't recognize

MF Ben: Assets: major house coverage is H&Q and JPMorgan. Everything else is, well, everything else.

MF Czar: IamErgoSum (great screen name, by the way) asks: "I loved that MCI was shipping and that Philippines is still needed, but where is the OEM growth? It's still at 10% or less. Please comment."

MF ETurkey: I think that IamErgoSum has hit on a good point. Folks are waiting to see what will happen with the new SKUs and their popularity with the consumer.

MF Ben: I was surprised to see OEM Zips flat as both units and, essentially, as a %. Perhaps the second source (MCI) will help that situation out.

MF ETurkey: The fact that OEM sales did not go up and, in fact, dropped some, may be a factor in this stock not going anywhere.

MF Assets: This is not a situation of a big shift to OEM away from retail. We want more retail PLUS ramp up of OEMs -- 20-25% would be great.

MF Czar: AHocherman asks another OEM related question, along the lines of Assets's comment: "What % level OEM penetration should we look for in the first half of 97?"

MF Assets: How many domestic (US) computers will be sold?

MF Ben: I'd be happy if Iomega (and/or) MCI sells 2 million internals. I ordered one today, so 1.999 million to go.

MF ETurkey: I would love to see 10-15% by year end.

MF Assets: 10-15% of market or 10-15% of production?

MF ETurkey: I'd like to see 10-15% of all new computers sold go out with a Zip.

MF Ben: The real question is what is MCI's capacity. We know Iomega can do 8 million Zips.

MF Czar: WileEDog has another OEM question: "Hey guys! KE has stated repeatedly that 'getting in the boxes' was his biggest priority, yet despite several new and important OEM's (COMPAQ!), OEM sales for two quarters have stayed below 10% of total sales. Any idea what's going on?"

MF Ben: Yeah, it's harder than it looks. No one said it would be easy. They also now have 4 product lines (Iomega/Jaz/Ditto/n.hand) to manage.

MF ETurkey: Remember that much of the OEM business is new stuff coming online now, and that 1996 was a year of experimentation.

MF Ben: Robert!

MF Robert: Hi there. Benjamin bought a PC?

MF Ben: I think KE's comment about tagging along with MMX is solid.

MF Assets: OEM's are feeling their way, seeing how much demand there is.

MF ETurkey: Edwards did indicate reluctance at OEM level, so it is a very consumer driven thing.

MF Czar: Speaking of product lines, Lew35281 asks: "When (how long) before we can expect a new product actually on the market. Seems like it will be quite a while."

MF ETurkey: A new product? I would be delighted to see the first n-hand items on the shelves by Christmas.

MF Ben: It looks like the 200 meg Zip is waiting for a lull, but next new product I want is the laptop Zip. My Toshiba laptop has a spot all picked out. I wanted it on Q1, but Q2 is OK, too.

MF ETurkey: I don't see the 200 meg (or 250) coming out soon, because there's no need to do it -- yet.

MF Czar: Hoigard asks: "Any estimates on the % of PC owners that have zip drives? How about that % vs. the percentage who own CD roms?"

MF Ben: The numbers I saw last were 80% of new PCs with CD-Roms, but obviously, Zip doesn't really blip on that meter.

MF ETurkey: I would assume roughly 4.5M Zips out there, now. So divide that into total computers out there -- and I haven't a clue as to how many there are. For laptop and n-hand ramp-ups? Branching out toward S. America?

MF Ben: Eric, LOL!

MF ETurkey: Maybe someone has some good guesses to drop into the folder when we are done here.

MF Assets: 4million zips divided by total PC's equals XXX percent.

MF Robert: I have a question. IOM currently has a 100m credit facility with Wells Fargo, and 35m with Heller Bank. So what do they do with the 200m with Citibank?

MF Assets: The Wells line will be replaced by the new revolver. Wells is not a "corporate" bank. Morgan and Citi are big time.

MF Czar: Huibs pht asks: "Does anyone feel there is any possibility of an oem concurrently offering the Zip and LS-120 ?"

MF Ben: In one model? OK, who let huibs in?

MF ETurkey: No, and I will tell you why. At PC Expo I spoke to a product guy with NEC. He told me there was no way they would give consumers a choice of drives because that would only confuse things. So they were going to pick one thing and run with it -- which is why CPQ was so surprising.

MF Ben: Kind of like Compaq, eh, Eric? :-)

MF ETurkey: Beat you to it, Ben. :)

MF Czar: Golfwig asks: "Doesn't the lack of retail traffic in q4 which we knew was lacking, only add to the possible upside in revenue in q1 97?"

MF Ben: Only if retail traffic is expected to be heavier in Q1 than in the holiday Q4, which could be for PCs with MMX and Office '97.

MF ETurkey: Adds to upside and adds to worries about downside, too. Cuts both ways to me.

MF Assets: OEM's will be back in for $30-40 million plus retail and could equal Q4.

MF ETurkey: Next Question, Fool!

MF Czar: Easy on the orders, Turkey. ;D

MF ETurkey: Sorry bout that, Chief!

MF Mints: Thanks, MF ETurkey. See you later!

MF Czar: SKIJJK asks: "We all know that IOM is a great company, but what needs to be done to change market perception and make IOM a great stock???? We've been patient while the market runs up."

MF Assets: Need Morgan to jump in soon with a good review, followed by others.

MF Ben: Compare top and bottom line growth in the past 18 months to the stock's performance and you'll see it isn't too far off. It's not like the market ignored Iomega at all. It's up, WAY up. It appears that much of the growth was anticipated and factored in. The downward revisions never help anything, either. Hard to go up when the analysts revise down.

MF Assets: Look at the forward PEG -- maybe .25????

MF Ben: Assets, that assumes that the current numbers are believed, and the track record counters that. What good is pegging with analyst numbers, if the past 3 quarters were all revised down? They need to beat original numbers to ensure faith and confidence in the estimates.

MF Assets: Ah, that's my point. We need new updated numbers for '97 from big houses that will be believed.

MF Ben: (Assets, from your keyboard to Goldman's ears.) I don't think they'll revise up. I hope they don't revise down!

MF Assets: No reason to revise down. Revenue growth is a reason to revise up -- margin growth, too.

MF Mints: Welcome, MF Cayuga! MF Ben, see ya around and thanks for showing up!

MF Cayuga: Good to be here. I think there are many investors that want IOM to prove they are not a one hit wonder.

MF Czar: BernBarb asks: "Can IOM make it to two billion in sales in the near term or will it stall into slow growth?"

MF Robert: I think that if KE keeps to his target of getting into the boxes, $2B is possible. I think H&Q is looking for 1.7-1.8B for 1997.

MF Cayuga: The BIOS that will allow Zip to be bootable will help boost sales. Look for that in Q2.

MF Assets: HQ is calling for .77 in '97 as of October, but is due for update. October was right after 3rd qtr stuff. And, H&Q is the lowest of all the others.

MF Czar: PAUL F2 asks the eternal question of valuation: "What is a fair valuation for this company if we use `97 consensus estimates?"

MF Cayuga: Is there a consensus estimate? :->

MF DTurkey: Sure. For today it's 18 1/2 :)

MF Assets: We don't have consensus '97 numbers. Need them.

MF Czar: Ok, moving right along then. ;)

MF Czar: Rich, MF Jeanie asks: "For Assets: I understand H&Q issued a new report today and did not change their '97 target or estimates for IOM."

MF Assets: What we have is Zacks, IBES, Nelson and First Call all in a range about 80-85 cents. Have not seen H&Q's update, if there is one. Anyone know for sure? How can H&Q get .77 from revenue of 1.6 billion or higher, nah. The more recent estimates, i.e., Emerald in December at .92 for '97.

MF Czar: Guess that's one for the folder. ;)

MF Czar: Huibs asks: "MF Ben had concerns over a rise in finished goods. Seems to me there were empty shelves, with some stores sold out at times during Q4. Comments?"

MF DTurkey: A rise in finished goods could be for shipments for the new OEM's just announced. A ready supply of Zips could have been a condition of the OEM agreements.

MF Mints: MF Jeanie comments: "A Synopsis of today's H&Q update has been posted to the IOM board."

MF Cayuga: Jeanie does a great job doesn't she?

MF Mints: Cayuga, that she does and she's too shy to come up on stage :)

MF Czar: Thanks, Jeanie. :) MF KarenK asks: "IOM has shown sequential quarter over quarter growth for the last 3 quarters. It's almost ridiculous to think that no analyst would cover at this point. How many more quarters do they need?"

MF Cayuga: IOM's growth has been so dramatic, perhaps they were caught off guard?

MF Assets: Back to needing more coverage folks

MF Cayuga: we'll see more this Q

MF DTurkey: The lack of analysts could have something to do with Iomega's close association with us. Just a guess, but perhaps some just don't want to be in on what many still think of as an online "hyped stock."

MF Czar: MF 2Aruba asks: "KE seemed to make it a point to state that growth for the period surpassed that of MSFT, AOL, etc. To me, he's never sounded so positive. Could there be an implication that he feels secure this kind of growth will continue? Any opinions on that?"

MF Cayuga: I think there's something up his sleeve. That's just a guess, but he can also be proud of the accomplishments.

MF Assets: I fail to see the hype everyone talks about -- except in the folder. We actually need more coverage without calling it hype.

MF DTurkey: It's certainly been covered enough in the mainstream press, to the point where some folks think of Iomega and The Fool together. Yes, we need more coverage without calling it hype. Trouble is, we're not getting it.

MF Assets: That's management job, too. . . getting more coverage. It will come!

MF Mints: MF PKeeler - Welcome!

MF PKeeler: Thanks, Mints!

MF Czar: RIFER asks: "If margins improved to 29%, why would estimates remain the same for Q1, especially w/oem's and zip production up?"

MF PKeeler: I think 1Q is perceived as a let down from 4Q. Estimates remaining the same is optimistic.

MF Cayuga: I think they will be revised, but analysts need to digest the results first, especially with the lack of guidance from IOM.

MF PKeeler: KE gave no warning this year of post-Christmas retail letdown, though.

MF Assets: IF Morgan comes through with an upgrade, i.e., higher numbers, others will follow.

MF PKeeler: OEM sales hopefully will be up, but tend to produce lower revenue and lower gross margin than external sales.

MF Czar: SSorr4430 asks: "Has anyone factored out European and Asian sales to see what the qtr. over qtr. growth from q3 to q4 was?"

MF PKeeler: Haven't gotten around to it. . .yet.

MF Cayuga: I thought it was great that Europe sales were more than the entire 95 revenue.

MF Assets: How many disc's packaged with an internal zip? My brother bought 10 extras. The point being that you need to add the disc margins to the OEM margins.

MF PKeeler: I don't know if Iomega counts disks sold through OEMs as OEM sales.

MF Assets: Probably get one free? Maybe not?

MF Mints: MF ETurkey wants to add this from the audience: "The answer to the European question is in the conf call. Sales increased by a factor of 2.5."

MF PKeeler: European sales increased 250%; Ssorr wants US sales.

MF Czar: MF Nico asks: "It seems the 'Zip replaces floppy' scenario requires that the cost and perceived value of blank Zip disks approach 'next to nothing,' and become as disposable as floppies and razor blades, now are. What are the best time estimates for this?"

MF DTurkey: That isn't going to happen.

MF PKeeler: I don't necessarily agree with that.

MF Cayuga: Nor do I.

MF PKeeler: The first 3.5" floppy disks were far from throwaway items. It's their uselessness in today's environment that makes them so valueless.

MF Cayuga: I remember 3.5" floppies at $140 a box of ten.

MF DTurkey: I asked Mr. Edwards that very question at PC Expo. He said there was no need to compete with floppies on price, since they do different things and serve different purposes. He didn't feel they had to drop to the point where you just give them away like floppies.

MF Mints: MF Jeanie is hard at work again, looking for that H&Q info and sends this: "From the board: <<latest H&Q report. Here are the highlights. -Solid FQ4 Results with EPS Above Expectations; No change to 1997 EPS estimate>>"

MF Mints: Oh, she tells me that they also say: "We are maintaining our BUY rating." Thanks Jeanie! The H&Q post is located in folder #168 -- which was just closed. I think that's what is causing the confusion with finding the post.

MF Assets: WOW. No change in H&Q's estimate -- that's really conservative -- was their report meant to be a real update???

MF PKeeler: H&Q is not one to venture forth ;-) Look for JPM to lead the pack higher. They have been out front since coming aboard. Also, I think its funny we discussed Iomega for 50 minutes and didn't mention Jaz, at all. Jaz has become a very poor second cousin, but is still a significant part of IOM's business. The increase in Jaz gross margins was probably very large this quarter, due to Penang.

MF Cayuga: I wanted to add to an earlier comment about when 200MB Zip will be out. I think, as someone mentioned, they can hold off because they don't need to upgrade. In addition, I think they're waiting for the final design of n.hand to be completed, so they can engineer compatibility into it.

MF Assets: Night all, thanks for having me :)

MF Czar: Night, Assets. Thanks for joining us. :)

MF PKeeler: I done also. ;-)

MF Czar: That's about all the time we have for tonight. Say goodnight, Gracie. ;)

MF Mints: Goodnight Czar! :)

MF Czar: Sorry we couldn't get to all the questions, please drop by the IOM folder to continue the discussion. :) Keyword: FOOL.

Conference Call Synopses

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