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Technology Stocks : Disk Drive Sector Discussion Forum -- Ignore unavailable to you. Want to Upgrade?

To: Z Analyzer who wrote (5527)	2/11/1999 12:39:00 AM
From: Wall Street Jr	Respond to of 9256

Gents: News for Komag. KMAG: Highlights from NMS 16th Annual Technology Conference NATIONSBANC MONTGOMERY*NATIONSBANC MONTGOMERYNATIONSBANC MONTGOMERY KOMAG RATING: BUY February 3, 1999 COMPUTER STORAGE NASDAQ: KMAG Paul G. Fox (415) 627-2012 First Call Tim Ariowitsch (415) 627-3818 Price: $9 5/8 FY Ends DecemberEPS P/E 52-Week Range: $16-2 1998 ($3.34) nm 1999E $0.25 38.5x 2000E $1.15 8.4x * NationsBanc Montgomery Securities LLC currently maintains a market in this security. * Highlights From NationsBanc Montgomery Securities 16th Annual Technology Conference Komag's presentation at the Technology Conference focused on the company's improved competitive position, renewed focus on growth, and the more favorable industry dynamics. Market Conditions. Demand from existing disk drive customers continues to be strong into the March quarter, and media price erosion has abated from 10% per quarter in 1Q98 to a more normal 4.5-5% in the most recent quarter. Management believes the captive share of the media market is approximately 50% today, and could decline to 35% over time, as the overall media demand grows and disk drive OEMs slowly reduce capacity. Komag also believes that additional industry consolidation is likely, and Komag would likely benefit as the largest merchant market supplier (two media suppliers shut down in 1998). Lower Cost Structure. Komag underwent a major technology transition in 1998, which has resulted in dramatic manufacturing yield improvements, and better technology execution beginning in the December quarter. In addition, KMAG lowered its cost structure by eliminating excess capacity and shifting production to the lower cost Malaysian facilities. Management expects yield/cost improvements to continue throughout FY 1999. New Customer Potential. Komag remains well positioned with key customers, Maxtor, Western Digital, and Quantum. Komag has qualified, or is in qualification, with multiple new customers, including Toshiba, Samsung, Iomega, and Hitachi. Capacity/Operating Leverage. KMAG produced 11.4 million disks in the December quarter, and management believes the current equipment infrastructure could produce 15 million units per quarter with no additional expenses, through yield improvements and better utilization. The resulting operating leverage would lead to a higher gross margin. Maintain BUY rating and $15-17 price target.