IOM

[David Randolph]

The following analysis was written on October 15th, 2007:

Hi David,

thank you for your great analysis: can you check IOM if you have time?

Thanks,

A.

1. Profile

Iomega Corporation (IOM) and its subsidiaries engage in the design and marketing of various portable data storage products in the United States and internationally. Its products enable customers to store, protect, secure, capture, and share their digital content and data. The company offers various consumer products, such as Zip drives and disks, external hard disk drives, CD-RW drives, DVD rewritable drives, micro mini USB flash drives, and external floppy disk drives. It also provides various business products, such as REV drives, REV-based autoloaders, network attached storage servers, and network hard disk drives. In addition, the company offers various services, including managing firewalls, virtual private networks, and secure remote access for small businesses. Iomega's customers include retailers, direct marketing resellers, distributors, original equipment manufacturers, online vendors, value-added resellers, system integrators, and end users. It also sells its products and services through its Web site, www.iomega.com. The company was founded in 1980 and is headquartered in San Diego, California.

2. Stock Price History



This is curious, IOM had a bubble, but it wasn't in 2000, the stratospheric rise you see on the chart happened in 1996. Back then IOM earned $1.05 per share and in May 1996 it was trading at 130 times forward earnings. The inevitable decline followed, but interestingly, it wasn't due to dilution, but to shrinking sales over the long term. Look in the link how sales went down from $1.7 B in 1997 to $229 M in 2006.

IOM's business has been shrinking dramatically over the years. I'm not sure if this is because of falling demand in the data storage industry or due to competitive pressures, but I think it is because people don't need the company's products all that much anymore, because the computer disk's space increased a lot and people send big files over the internet, they don't move data by saving it to an external data storage device and then carry it to another computer, as they used to do.

Analysts are optimistic about the immediate future, though:



They expect a return to revenue growth and profitability. I wonder why the shift ... anyway, with the stock trading at $5.07, it is valued at 34 times 2006 earnings and 17.5 times 2008 expected EPS, which isn't cheap, especially for a company with declining revenue on an historical basis and what seems to be an obsolete product offering.

3. Short Term Chart



Over the short term things look better, with the stock up about 100% from the lows in about 12 months, as there's some revenue growth and profitability:

«"I am pleased with our financial and operational results for the second quarter which is historically our seasonally weakest quarter," said Jonathan Huberman, Chief Executive Officer. "We posted our fourth consecutive quarter of net income and third consecutive quarter of year-over-year revenue growth; and we continued to execute on our 2007 goals."»

So, IOM is a turnaround play. But the turnaround appears to be losing momentum, as analysts have been lowering estimates:



4. Conclusion

My take is IOM was able to have a "fundamental and technical rebound", but I'm not a believer in storing data in external devices to our computers. I believe we'll save everything in the hard disk and if we want to transport it, we'll just send it over the internet, using GlobalScape's products, for example.

GlobalScape is the future, Iomega is the past. Iomega's products will continue to be used, but not widely. The company needs to restructure its product offering to grow over the long term.

I can be wrong though, or not seeing the whole picture, good luck

[David Randolph]

They expect a return to revenue growth and profitability. I wonder why the shift ... anyway, with the stock trading at $5.07, it is valued at 34 times 2006 earnings and 17.5 times 2008 expected EPS, which isn't cheap, especially for a company with declining revenue on an historical basis and what seems to be an obsolete product offering.

Right after this IOM fell more than 50% and it is being acquired for $3.75 per share:

• EMC boosts buyout offer for Iomega
at MarketWatch (Mon, Mar 17)