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July 8, 1997updated 05 Sep 2016 12:39pm

KOMAG WARNS OF LOWER PROFITS; SEAGATE CUTS ORDERS

By CBR Staff Writer

Komag Inc, the San Jose, California supplier of thin film media for computer disk drives, has warned that profits for the current three months will be below the previous quarter – and trading conditions are likely to get worse in the rest of the year. While the company boasts it is the world’s largest independent supplier the consequence of this elevated status is that when trading conditions get tough, it gets clobbered harder than smaller competitors. The first quarter saw a 58% fall in profits to $17.8m and while revenue is likely to be higher, investors are told to expect a further slide in profits when the second-quarter figures are released on July 17. They have little to look forward to for the rest of the year as Komag said that Seagate Technology Inc have just told it that orders will be cut sharply in the second half of the year. This is a huge blow as Seagate accounted for 31% of first quarter sales and has already cut back so sharply that it is only expected to account for 15% of second quarter sales. Chief executive Stephen Johnson said: The replacement of lost Seagate orders is critical to our second half financial performance. Unfortunately, the currently anticipated level of order replacement will be insufficient to fully utilize our expanded second half production capacity. He warns that profits margins and earnings per share in the final two quarters will drop below the levels in the first six months. Komag are now caught in a position where it has expanded capacity at a time when the market has turned down, which has pushed up unit costs and made the position even worse. Inevitably, the company is now looking at its $290m capital expenditure program for the current year and is likely to postpone anything likely to expand production further. Wisely, the company has rushed round to its bankers and increased the amount of money it can borrow by $175m to a total of $345m.

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