Iomega Overview

March 7, 2005 - Copyright by Morris Rosenthal - - contact info

Trading Notes

DELL
HPQ (Hewlett Packard)
INTC (Intel)
AMD (Advanced Micro Devices)
MU (Micron)
NVDA (Nvidia)
ATYT (ATI Technologies)
WDC (Western Digital)
IOM (Iomega)

Notes on trading IOM stock for investing in my SEP

Iomega occupies a somewhat unique niche in the PC sector. Everybody is familiar with their proprietary ZIP drives from the 1990's (which are getting rapidly wiped out by recordable CD's, DVD's, and Jump Drives (Flash). Their sales have been falling as Zip drives disappear, but I've heard a lot of good things about their Rev drives, which are gaining momentum. They been the leader in removable magnetic disk technology for as long as I can remember, they had their big peak around 1997 when the stock was over $100 (split adjusted) and it looked like everybody was going to use their drives, at least, everybody with a Mac. Their stock was actually higher in 1986 than it is today, if I read the BigCharts.com charts correctly. They have a book value of $100 million dollars, almost $2 per share or 40% of the share price. The book value was $20 million higher nine months ago. The 40% may sound high but it's nothing next to Micron's book value of $9.43 per share, nearly 90% of the share price! WIth negative income, IOM doesn't have a P/E ratio.

Iomega lost $0.71 per share in 2004 on $328.7 million in sales, about double what they lost in 2003. Comparing the last quarter filed to the corresponding previous year quarter, inventory was basically unchanged at around $23 million, though it was almost all in finished products last quarter, while $3 million more of it was raw materials the previous year. Rev product sales were around a third of Zip product sales in the last quarter, and were non-existent in the previous year quarter. The real question is whether or not the company can sustain cash flow from the old Zip line long enough to give the REV product (a 35GB removable disk) a chance to start making money. The company spent just under $24.5 million on R&D in 2004, vs a little less than $89 million on sales and overhead.

IOM was the first stock I lost my shirt on. I got into IOM at around $4 if I recall, today it's almost $5. Only problem is they did a 5:1 reverse spilt sometime between then and now, meaning I paid the equivalent of $20 for something that costs around $5 today. Fortunately, it was in a regular brokerage account, not my IRA, and I was able to use the loss against a gain in the year I sold it, maybe my winner that years was Barnes&Noble. Oddly enough, Iomega had so much cash on the balance sheet in 2003 (one of the reasons I bought them around 2001) that they paid a one-time cash dividend of $5.00/share. Might have been great tax planning for somebody.

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