Stitch
Comments from Value Line
Large losses will probably continue for Applied Magnetics as sales levels remain low and RandD expenses climb. Shipments are still well below their historical levels, as APM is caught between winding down volume production of older thin-film products and the ramp up of its newer magnetoresistive (MR) line (an advanced hard-disk head technology). MR volumes will not likely reach significant levels until later in the current quarter, due to long lead time requirements for the qualifications. We expect the March period will represent a low-point for sales.
A return to profitability seems unlikely anytime soon and will depend on progress in the MR area. There is strong potential in the DAS Devices-APM merger. The combination of DAS's advanced wafer technology and Applied's high-volume production capabilities should make the company more competitive. This move should also improve its time-to-market performance and enhance the production readiness of giant magnetoresistive (GMR) technology, which is now in high demand. DAS should benefit Applied the most in the higher performance areas, such as those targeted for the 8.5 gigabyte disk, an area where Applied is particularly weak. But the bottom line, in our opinion, is that success in MR hinges on whether APM's engineering and production teams can meet new deadlines, needed for timely execution of production ramps of forthcoming products. We are still not certain that this will be achieved. Cash is flowing out, putting additional stress on the balance sheet. APM has $35 million in cash, with another $20 million (through a private placement) expected. Still, at the rate it is losing money (about $30 million a quarter), this will only carry it through September.
Applied stock is risky, but it could generate large returns by 2002Â2004 if the company can overcome the obstacles. The storage device market should enjoy strong long-term growth, due to expansion of networking and the Internet. Warren Thorpe April 23, 1999
Alain Dubreuil |
