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Technology Stocks : Read-Rite -- Ignore unavailable to you. Want to Upgrade?

To: Bald Man from Mars who wrote (3198)	5/18/1998 6:25:00 PM
From: JBTFD	Read Replies (2) \| Respond to of 5058

S&P Lowers Corporate Credit&Bank Loan Ratings on Read-Rite to B+ NEW YORK, May 18 /PRNewswire/-- Standard & Poor's today lowered its corporate credit and bank loan ratings on Read-Rite Corp. to single-'B'-plus from double-'B'-minus. Standard & Poor's also lowered its rating on the company's subordinated notes to single-'B'-minus from single-'B'. The outlook is now negative. Read-Rite Corp.'s downgrade reflects recent poor operating performance, and the uncertainty surrounding future sales to its major customer. Read-Rite's good business position is tempered by substantial technology risk, intense competitive pressures, and limited customer diversity. Recent results reflect industry oversupply and significant price erosion. For the six months ending March 31, 1998, sales declined 16% to $534 million, and the company reported a net loss of $153 million versus $29 million of net income in the prior year period. Milpitas, Calif.-based Read-Rite is the largest independent supplier of magnetic recording heads in high-performance disk drives, with annual revenues of about $1 billion. The business is capital intensive, and characterized by rapid technological change within a cyclical and extremely volatile industry. Thus, design-in wins are critical, while profitability is reliant on constant product enhancement, manufacturing quality and process control. The company has positioned themselves to compete effectively, as the industry transitions to magneto-resistive (MR) technology which should displace traditional inductive thin-film heads over the next few years. However, sales are dependent on a limited customer set, with one client (Western Digital Corp.) representing over 40% of sales. The recent announcement that IBM would make its MR heads and other components available to Western Digital, could have a potentially negative impact on Read-Rite's future performance. Fixed asset investments will be significant in order to attract and support additional customers, and the company projects substantial on-going capital needs. However, much of the expenditures are discretionary, which has moderated the impact during this current industry downturn. Current financial flexibility is adequate with cash of $169 million (as of March 31, 1998), and availability under its $150 million revolving line of credit. OUTLOOK: NEGATIVE Given difficult market conditions, a lack of progress improving the operating performance and restoring profitability over the next few quarters could result in a further downgrade, Standard & Poor's said. -- CreditWire SOURCE Standard & Poor's CreditWire CO: Read-Rite Corp. ST: California IN: CPR SU: RTG 05/18/98 18:15 EDT prnewswire.com