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First Montauk Securities Corp. Announces Investment Opinion on Iomega.

Business Editors

NOTE TO EDITORS: The following is an investment opinion issued

by First Montauk Securities Corp.

RED BANK, N.J.--(BUSINESSS WIRE)--Sept. 11, 2000

First Montauk Securities Corp. Issues Research Update on Iomega

Corp. - Maintaining short and long term strong buy ratings (1) and

raising stock price targets

First Montauk Securities Corp., a wholly-owned subsidiary of First Montauk Financial Corp., (OTC: FMFK) today released updated research on Iomega Corp. (NYSE:IOM). The update reiterated the opinion of the initial research issued in February 1999, recommending Iomega as a strong buy (1) long term, strong buy (1) short term, for accounts capable of assuming the risks associated with a lower price speculative security. A full copy of the report can be found below:


Short term: Strong Buy (1)
Long term: Strong Buy (1)
Risk: Speculative

Shares outstanding: 270,543,000
Price as of 9/8/00: 4 3/8
Market Capitalization: $1.18 Billion
52-wk range: $2 7/8 to $6 3/8
Book Value: $1.53
Dividend: nil
Yield: nil

Earnings Q1 Q2 Q3 Q4 FY'00 FY'01

Projected .12a .07a .08e .12e .39e .51e

 '01e '00e '99 '98 '97 '96
Sales 1.71B 1.42B 1.53B 1.69B 1.74B 1.21B
EPS .51 .39 .13 (.17) .42 .21

Projected 5 year CAGR: 35%


Iomega is one of the major players in the removable storage industry. We believe that the company is in arguably the best position to capitalize on the personal storage trends in computing going forward. As stated in our February upgrade of the stock, we believe that Iomega has found the leader (Bruce Albertson) with the vision necessary to fully capture the opportunity ahead. The past six months have demonstrated our analysis correct, and while we may have been ahead of the rest of the street, we are very pleased with the progress and the results to date. Iomega is winding up the 'restructuring phase' needed to properly align the company to achieve its goals, and they are now entering in the next few months the dynamic growth phase that we predicted they were capable of. Armed with a cash hoard of $350 million, new products scheduled for release, new marketing initiatives, and most importantly lower costs, Iomega is set to 'once again' capture the attention of the investing community.

Restructuring Complete

For the last 18 months, Iomega has been balancing the needs of rightsizing their operations to handle their explosive growth over the previous 4 years ('95-'98) with the marketing push needed to fully leverage their dominant position in the removable storage category. They had to attack manufacturing deficiencies, pricing issues, new product development, and lack of marketing channel development. They needed management that was not only capable of addressing these issues, but also had the vision necessary to understand what their strengths and weaknesses were. As demonstrated in the past 6 quarters of increasing quarter over quarter earnings, Iomega has successfully put their financial house in order. They have built a very strong balance sheet and are generating cash at an almost unbelievable rate (up $142 million in the first half). In addition, they have refocused research and development on producing new products and upgrading existing products that are able to shift momentum back to their strength of the Zip technology and Zip brand name. We believe that this restructuring process is now complete, and by Q4 the realization of the improvements should be evident.

Growth Ahead

One of the biggest questions over the last 3 years was whether Iomega has seen its better days in terms of sales growth. While they had a tremendously successful product in Zip (smaller success with Jaz), many investors were cautious about whether Iomega could ever leverage that success into sustained growth again. Despite the facts that Zip now has almost 40 million drives installed and almost no direct competition, the revenue decline was real and many incorrectly assumed that this was a result of a dying product line. What they didn't realize though, was the drop in revenues was a due to a complicated combination of poor management, bad pricing models, inefficient marketing, lack of channel development, and misdirected R&D.

The 'New Iomega' under Albertson and his team have reversed the past missteps and transformed the company completely. While maintaining and strengthening the solidity of Zip as a 'platform', Iomega is now utilizing the 'branding' of Zip as a weapon. They have stormed into the CDRW arena with a ZipCD brand, and captured 2nd place in the retail market with their offerings in the last year. They have renamed Clik! to PocketZip (or PZ), and have successfully signed up 10 different brands for MP3 players utilizing this format. We believe that the successful recognition of Zip as a 'brand name' will add significantly to growth in the future, as Iomega correctly leverages its powerful brand into additional new avenues such as online storage and web-delivered music.

Another major growth driver starting in Q4 will be the re-engagement of Zip to the OEM market. Iomega intentionally pulled back from this market in the past year to correct pricing errors of the past. In a misguided effort to 'save' the company's growth through 1998, past management dramatically slashed prices to OEM partners to unsustainable levels that resulted in a large drain of profit margins. New management identified this pricing problem, and decided to stop this practice until cost reduction initiatives would allow them better control of profit margins. The good news is that we believe this pendulum is about to swing back in the other direction. Iomega has successfully brought their costs down and now they are ready to leverage Zip once again through the OEM channel. While we think this will positively impact revenues for Q4, we think it will be even more powerful for 2001.

New products will also play a major role in growing the 'New Iomega'. Iomega plans to roll out several new products by the end of the year. The two most significant new products will be HipZip and FotoShow. HipZip is Iomega's initial entry into the fast growing MP3 or digital audio player market. Utilizing PocketZip 40-megabyte disks, HipZip offers a compelling alternative to flash-based players. We believe advance orders of the well-designed HipZip are exceeding Iomega's initial projections, and look for this product to have very positive contributions to the revenues starting in Q4. The other major product release is FotoShow, which is an enhanced 250-megabyte Zip drive designed to take digital photography away from the PC. With FotoShow, digital camera users will be able to download their pictures from expensive flash cards to inexpensive Zip disks, and then view the pictures immediately on their TV sets. While we don't expect FotoShow to be quite as big a revenue contributor as the HipZip, the disk sales added by it could be significant, and it also adds to further proliferation of the Zip platform. It also sets the stage for future Zip-based cameras, which would be a very important revenue driver.

Other new products and services recently announced by the company are:
- A sleek new external ZipCD featuring a smaller form factor

- An external USB drive for Neon Technology set-top boxes

- QuickSync 2 software for automatic backup

- An online storage partnership with SkyDesk for internet storage

While we think the company will be challenged to grow revenues year over year in Q3, we think they will grow sequentially from Q2 '00. However, we are confident that the new marketing focus, re-engagement of OEM drive makers, and new product rollouts will positively affect sales trends starting in Q4. The 'New Iomega' is real and credibility is returning, and we think the market may start to anticipate this fact before the actual numbers indicate it.

Financial Highlights

- Iomega's market capitalization at $4 3/8 is $1.18 Billion

- Iomega has $354 million in cash and is trading at just over 3.3

times cash

- Iomega just announced a buy back of $150 million

- Iomega also announced they were retiring the remaining $45.5

million in debt

- Iomega is projected to triple earnings from $0.13 to $0.39

Financial Outlook

Iomega handily beat our Q1 and Q2 earnings projection of $0.03 in each quarter with actual earnings of $0.12 in Q1 and $0.07 in Q2. In fact, it is noteworthy that they earned in the first 6 months what we had predicted for the year ($0.19). We are upgrading our projection for Q3, Q4, and FY2000 to $0.08, $0.12, and $0.39 from ($0.04, $0.09, and $0.19). We are projecting Q3 revenues of $328 million and Q4 revenues of $445 million. For FY2001, we are instituting a yearly forecast of $1.71 billion in revenues (+20%), and $0.51 in earnings (+30%).


By demonstrating the ability to control costs and increase margins, Iomega has put 'credibility' back into the plus category as it relates to valuation. However, due to the fact that they have not grown sales, the market is still seriously penalizing them with a low PE ratio. Currently, the market is giving IOM a paltry 11.2X PE on '00 earnings and an even lower 8.6X PE on '01. We believe this gives investors a rare chance to invest in an advantageous risk/reward situation at the inflection point of a turn-around, where the opportunity for impressive growth is just around the corner. We are maintaining our short-term opinion on the stock (1) Strong-Buy and are upping our short-term stock price target to $12 (from $10). We are also maintaining our long-term opinion of the stock (1) Strong-Buy and upping our valuation level to $22 (from $18). Both ratings are for speculative risk accounts.


As we mentioned in our February update, we believe that the management of Iomega under Albertson will deliver on the potential of the 'New Iomega'. They have cut costs, managed the balance sheet, made strategic changes to marketing efforts, and reinvigorated product lines. We have always believed in the market potential of their products and in their competitive position within the industry. They lacked vision to execute on this promise, but Albertson has re-shaped the company and driven them to the point where we believe that they will now re-emerge as a force in the upcoming digital world. Growth is coming to Iomega, and with it we think our long held belief that this stock is seriously undervalued will be evident again to the market. We are confident in Albertson's vision and abilities, and believe that investors will be amply rewarded.

This communication reflects our opinion as to the securities mentioned herein, but is neither an offer to sell them nor a solicitation of an offer to buy or sell them. Any recommendation contained in this report may not be suitable for all investors. Moreover, although the information contained herein has been obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. First Montauk Securities Corp. may make markets or have positions in the securities mentioned herein (or options with respect thereto) and may have performed investment banking services for the issuers of such securities. In addition, employees of First Montauk Securities Corp. may have positions and effect transactions in the securities or options of the issuers mentioned herein and may serve as directors of such issuers. Copyright 2000. All rights reserved by First Montauk Securities Corp. Member NASD/SIPC.
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Publication:Business Wire
Geographic Code:1USA
Date:Sep 11, 2000
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