Dueling Fools
Iomegadeth?
The Bear Rebuttal
By
While Rick is absolutely correct in pointing out that I was part of the Foolish posse that discovered Iomega and the Zip drive very early, I haven't owned a position in Iomega for over three years. Although, I do wish I had put my money where my mouth was and shorted the stock!
That said, I believe that staying away from Iomega altogether is a better proposition than owning this obviously troubled company. In short, I think Rick's portrait of the company is far rosier than the reality of the situation.
Let's first take the point that there are 30 million Zip drives in circulation right now. While an impressive feat, I'll point out that the company has yet to make a meaningful profit selling those 30 million drives and 180 million disks. Since the beginning of 1995, Iomega's cumulative profit has been a mere $2 million on over $6 billion in sales. Think about that one for a moment.
30 million drives out there also mean 30 million drives that can potentially end up being auctioned off at eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %> or Amazon <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %>. I sold my Zip drive years ago, but my disks found a new home earlier this year thanks to eBay. This secondary market can't help Iomega in trying to peddle relatively expensive new drives and disks, especially as the product matures.
I'd also like to point out the possibility that ZipCD will cannibalize sales of the traditional Zip drive. So which is it, Iomega? Should I be buying proprietary and costly Zip disks or should I be burning inexpensive CDs?
I knew Rick would bring Clik! into the argument since it's the product that many have the highest hopes for. But at $199 for a 40 Mb drive and $10 a pop for the disks, one doesn't exactly get the bang for the buck unless one is transporting a zillion little disks around. For comparison's sake, one can get a 96 Mb flash memory card (with no moving parts to break) for around $220, and the flash cards are the same size and have just as much utility as the Clik! drives and disks. More importantly, I think the dozens of companies creating memory will be able to reduce costs faster than the sole Iomega.
Nevertheless, like the two lonely analysts that are still stuck covering Iomega, I also think that the company will be profitable next year. Iomega has closed enough plants, laid off enough employees, and scrimped on enough research and development that its bottom line should be black over the short term. Longer term, I think Iomega is going to have a tough time maintaining profitability and perhaps even viability.
Don't shoot the messenger.
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