This Feature |
|
Related Items |
|
Friday, April 3, 1998
Iomega Corp.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>
Phone: 801-778-1000
Website:
http://www.iomega.com
Price (4/2/98): $7
HOW DID IT FIND TROUBLE?
Where do we start? Things have been going badly for the most popular stock
in Fooldom. The PC storage company in which the Fool Portfolio
acquired a stake
for a split-adjusted $1.26 a share two-and-a-half years ago, was once primed
for an industrial revolution. It has apparently won the war, but is now running
low on ammo.
Iomega closed out 1997 with improving gross margins and yet another of its
perpetual stock split announcements. Stock splits, while offering no tangible
value, often lead many to believe that a company is optimistic enough about
its future that it is willing to increase the shares outstanding by slashing
the share price to a sustainable price point.
But in Iomega's case, soft revenues, due in large part to new product delays
as well as turmoil in Asia and a shrinking order backlog, have lead to a
different kind of stock split over the past few months -- the type that Peter
Lynch often refers to as a split in which the stock price falls in half,
but investors don't get any new shares.
The fourth quarter clearly was more famine than feast. While the Zip drive
had continued to sell well, delays in shipping out the Zip Plus and Jaz2
lines cost the company about $70 million in worldwide revenues. While Asian
Pacific sales made up less than 10% of total revenues, the currency crisis
had a definite impact. The order backlog, often the starry-eyed result of
channel checks that found demand far outstripping supply in Zip's early days,
shrank from $379 million at the end of September to just $263 million at
the end of fourth quarter.
This all planted the seeds for the eventual March pre-announcement that first
quarter sales would be sequentially flat and that Iomega would report a loss
on negative cash flow. Investors didn't wait for the harvest to make their
move -- they took to their hoes and trashed the garden. CEO Kim Edwards,
the once visionary gardener, left as well last month.
BUSINESS DESCRIPTION
Iomega provides personal computer information storage solutions that help
people manage their digital stuff. In 1995 the company evolved from its
award-winning Bernoulli line of removable drives and Ditto tape-backup line
to debut its Zip product line.
Holding 70 times more data than a standard 3.5" floppy disk, Zip drives and
disks were soon flying off the shelves. Iomega followed the Zip with the
gigabyte workhorse, Jaz. Recently both lines were upgraded with the release
of the Zip Plus and Jaz2. The company enamored with three-letter names,
naturally, is led by an executive named Len, and until last month Kim, and
hails from a city in Utah called Roy.
FINANCIAL FACTS
Income Statement
12-month sales: $1740 million
12-month income: $115.4 million
12-month EPS: $0.42
Profit Margin: 6.6%
Market Cap: $1814.4 million
Balance Sheet
Cash: $196.2 million
Current Assets: $782.8 million
Current Liabilities: $444.6 million
Long-term Debt: $59.0 million
Ratios
Price-to-earnings: 16.7
Price-to-sales: 1.04
HOW COULD YOU HAVE SEEN THIS COMING?
While the stock had cratered long before Edwards announced his departure,
a historical sound check is in order. Edwards joined Iomega in 1994 after
years of toiling at consumer giant General Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %>. In
merging his experience of servicing the masses at GE with the sleepy industry
of data storage he helped engineer a product breakthrough with Zip.
With more than 12 million Zip Drives sold since inception, the cobalt blue
data houses have managed to succeed on brand. While SyQuest <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYQT)") else Response.Write("(Nasdaq: SYQT)") end if %> has come back, despite financial peril, to beat Iomega on price, it
has not toppled the market leader. While Imation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IMN)") else Response.Write("(NYSE: IMN)") end if %> has beaten
the Zip on practicality, with the LS-120 being backward compatible with the
floppy, it too has failed to dethrone Iomega.
But these discounting rivals with advertising budgets, along with the majority
of new computers continuing to be shipped without updating the floppy to
a Zip standard, have lead to stagnant Zip sales growth for the first time
ever.
Even when the news was good the stock was hard-pressed to regain its upward
momentum. Now with two bad quarters, what will it take to stop the downward
momentum?
WHERE TO FROM HERE?
Iomega followers have probably already decided to sleep in on the morning
of April 16 when Iomega will announce its first quarter deficit. The company
pre-announced that it will report a loss of $10-$25 million on sequentially
flat revenue growth. That will mark the first red ink the company has seen
since June of 1995. Just as dreadful will be the negative cash flow, which
itself snaps a streak of five consecutive quarters of positive cash flow.
The loss is partially explained by the portly marketing costs the company
is incurring as it sets to canvas the media with Iomega advertising. This
advertising push was highlighted by a few costly ads that ran during the
Super Bowl.
All eyes seem to be focused now on who will take over for Edwards. He was
a leader with a definite and accurate vision, and now Iomega's hopes lie
in landing an operational guru that can excel at implementation.
With earnings estimates expected to now tumble to $0.23 a share this year,
the new hire at the top better work at the bottom -- bottom line that is.
-Rick Aristotle Munarriz
([email protected])
Check out the Daily Trouble Message Board!
|
|||||||||
<% if request.querystring("source") = "yhoolnk" then referer = Request.ServerVariables("HTTP_REFERER") if referer = "" then referer = "http://finance.yahoo.com/" response.write " " end if %> <% function YahooWelcome if gsCookieUsername = "" and request.querystring("source") = "yhoolnk" then %> |
Welcome, Fool! |
|
Be a Fool and get free, unlimited access to our site.
What we offer: |
© Copyright 1995-2000, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. The Motley Fool is a registered trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us |