To: William T. Katz who wrote (10852 ) 12/9/1997 2:21:00 AM From: William T. Katz Read Replies (2) | Respond to
THE REVISED COLD HARD NUMBERS:Gross margins will really be hurt. In the previous qtr, APM had gross margins at 26.7% due in part to poor yields of their MR and 1.7 TFI. Another determing factor of gross margins is volume production. As I read in the June 97 10-Q, the great margins achieved that quarter was due to "higher inductive thin film disk head sales volumes, resulting in economies of scale, coupled with cost controls." With the reduction in orders together with the increasing shift to relatively immature MR lines, APM has neither economies of scale nor a large volume of mature (worked out) lines. Last qtr had high volumes but poor yields. This qtr might see better yields (perhaps offset by relatively more of the poorer yield MR line) but with lower volumes. As a result, I believe gross margins could be below last qtr, but in practically all cases would not be the higher 29% yields.R&D expenditures are likely to increase with MR transition. As stated in the June 10-Q: "The Company expects that total R&D expenditures in absolute dollars for fiscal 1997 will exceed fiscal 1996 as it increases its efforts on development of MR product technology and production processes." That said, I think R&D is one area where APM might try to better the bottom line. So I'll call R&D flat from last quarter.Revised BEST CASE estimates:
