STOCKREPORTS		 Komag, Incorporated Nasdaq Symbol KMAG
In S&P SmallCap 600
19-JUL-97 Industry:
Computers (Peripherals)		 Summary: This company is the largest independent maker of sputtered thin-film media used in Winchester disk drives.

Recent Price 18.63
52 Wk Range 34.75 - 16.44		 Yield Nil
12-Mo. P/E 18.3

Quantitative Evaluation:
Outlook (1 Lowest - 5 Highest)
5-
Fair Value
27.90
Risk
HIGH
Earn/Div Rank
B
Technical Evaluation:
BEARISH since 12/96
Rel. Strength Rank (1 Lowest - 99 Highest)
3
Insider Activity
NA

Overview 26-JUN-97

Sales in the second quarter of 1997 should rise slightly from those of the first quarter, but less than previously anticipated, due to lower market demand for enterprise-class disk drives. Revenues should decline in the second half of the year, as the company's largest customer Seagate recently cut its orders sharply. Seagate accounted for 31% of the company's sales in the first quarter of 1997, but should only account for 15% in the second quarter. Due to underutilized capacity, margins should erode for the remainder of the year. KMAG also expects a loss in the second quarter from its Japanese joint venture, reflecting MR-based product transition problems. Earnings in the second half of the year should be lower than those in the first half.

Valuation 26-JUN-97

The shares of this leading vendor of magnetic media dropped sharply in late June, when the company announced that earnings will be significantly lower than expected for the balance of 1997. Seagate cut its orders sharply for the second half of the year, which will also adversely affect KMAG's margins. Komag has invested heavily over the years in increasing its production capacity and continuing to enhance the capabilities of its media offerings. The company is likely to reduce its spending plans for the remainder of 1997. While we remain optimistic on the long term growth in the disk drive market, earnings over the next few quarters will be hampered by short term demand problems. Still, the company remains the leading producer of high performance media. We are lowering our 1997 EPS estimate to $0.95, from $2.00, and our recommendation to hold, from accumulate.

Key Stock Statistics

S&P EPS Est. 1997 0.90
P/E on S&P Est. 1997 20.7
S&P EPS Est. 1998 1.50
Dividend Rate/Share Nil
Shs. outstg. (M) 51.9
Avg. daily vol. (M) 2.035
Tang. Bk. Value/Share 13.80
Beta 1.16
Shareholders 500
Market cap. (B) $0.967
Inst. holdings 72%
Value of $10,000 invested 5 years ago:$ 24,833

Fiscal Year Ending Dec. 31

Revenue (Million $)
1997 1996 1995 1994 1993 1992
Q1 167.2 152.8 105.1 97.70 93.56 71.10
Q2 175.1 152.2 120.8 97.77 103.2 76.50
Q3 NA 131.5 132.8 98.17 97.45 82.90
Q4 NA 141.2 153.5 98.74 91.19 96.27
Year NA 577.8 512.3 392.4 385.4 326.8

Earning Per Share ($)
1997 1996 1995 1994 1993 1992
Q1 0.33 0.80 0.31 0.34 0.17 0.07
Q2 0.22 0.80 0.48 0.31 0.19 0.08
Q3 E0.15 0.31 0.61 0.32 0.09 0.15
Q4 E0.20 0.16 0.72 0.30 -0.68 0.10
Year E0.90 2.07 2.14 1.27 -0.23 0.39

Dividend Data: No cash dividends have been paid.

Business Summary 26-JUN-97

Komag develops, manufactures and markets sputtered thin-film media for use in high-capacity, high-performance 5.25-inch, 3.5-inch and smaller disk drive storage devices. The company believes it is the largest supplier of sputtered thin-film media used in disk drives and makes the highest-density disks commercially available. Komag exited the thin-film recording head business in the third quarter of 1994.

Media products are the disks or platters within a disk drive onto which information is recorded and stored, and from which it is retrieved. High density media are essential to the performance of high-capacity hard disk drives, which are in strong demand owing to the ever-greater processing power of computers, more sophisticated operating systems and application software, higher resolution graphics and larger databases. The company's media products are primarily used in disk arrays, network file servers, high-end personal computers and engineering workstations.

Komag's production volume of media products depends on available capacity, utilization of capacity and production yield performance. In February 1997, the company had 10 thin-film media sputtering lines operating in California, and eight in Malaysia.

The company's 50%-owned Asahi Komag Co. joint venture is one of the three largest manufacturers of thin-film media in Japan and has five production lines in operation.

The company sells its products to independent OEM disk drive manufacturers for incorporation into rigid disk drives marketed under the manufacturers' own labels. It also sells media to computer system manufacturers that produce their own disk drives.

Important Developments

Jun. '97 The company announced that its earnings for the remainder of 1997 will be significantly lower than previously expected. Seagate, the company's largest customer, cut its order sharply for the second half of the year. KMAG is also suffering from weak demand for enterprise-class disk drives. Margins will be hurt by the underutilization of capacity, and earnings will thus be lower in the second half of the year than in the first.
Apr. '97 Sales and earnings improved in the first quarter of 1997, compared with the quarter ended December 31, 1996. Unit sales increased 16%, sequentially, to 13.6 million disks, aided by the addition of two production lines and increased manufacturing yields.

Capitalization

Long Term Debt: $145,000,000 (3/97).
Minority Interest: $3,341,000.

Per Share Data ($)
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Tangible Bk. Val. 13.50 11.33 7.23 5.86 5.90 4.93 3.92 2.92 2.58 2.24
Cash Flow 3.71 3.45 2.30 0.91 1.24 1.08 1.04 0.26 0.65 0.48
Earnings 2.07 2.14 1.27 -0.23 0.39 0.37 0.44 -0.23 0.29 0.25
Dividends Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil
Payout Ratio Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil
Prices - High 37 37 1/2 14 1/2 12 11 5/8 12 1/4 8 1/8 5 3/4 7 1/8 7 3/8
- Low 17 5/8 11 1/8 7 7/8 6 7/8 5 3/8 5 3/8 4 1/4 3 1/4 4 1/8 3
P/E Ratio - High 18 17 11 NM 29 33 18 NM 25 30
- Low 9 5 6 NM 14 15 10 NM 14 12

Income Statement Analysis (Million $)
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Revs. 578 512 392 385 327 279 150 85.0 84.0 47.0
Oper. Inc. 199 195 125 82.7 56.6 59.0 36.9 4.0 21.2 14.7
Depr. 86.9 65.5 47.6 49.0 36.3 29.4 18.2 13.0 9.0 5.1
Int. Exp. 0.6 1.9 2.9 5.5 3.8 5.6 3.0 3.0 2.0 1.5
Pretax Inc. 131 143 82.8 -2.5 25.8 30.7 19.2 -8.0 11.8 9.2
Eff. Tax Rate 16% 24% 28% NM 71% 48% 35% NM 37% 39%
Net Inc. 110 107 58.5 -9.9 16.9 15.1 13.4 -6.1 7.5 5.6

Balance Sheet & Other Fin. Data (Million $)
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Cash 93.2 214 93.9 91.6 89.3 91.0 45.2 37.8 22.2 34.6
Curr. Assets 251 323 172 178 153 149 82.0 64.0 54.0 49.0
Total Assets 938 686 424 382 356 277 163 122 100 74.0
Curr. Liab. 109 70.9 53.3 85.9 55.5 51.7 24.0 19.3 13.8 10.4
LT Debt 70.0 Nil 16.3 29.5 27.6 16.5 19.9 21.8 20.7 9.8
Common Eqty. 698 575 331 255 249 202 115 77.0 62.0 53.0
Total Cap. 829 615 370 296 300 225 138 102 86.0 63.0
Cap. Exp. 403 166 102 86.0 109 60.2 40.3 24.7 31.2 16.9
Cash Flow 197 172 106 39.1 53.2 44.5 31.6 7.0 16.5 10.7

Curr. Ratio 2.3 4.6 3.2 2.1 2.8 2.9 3.4 3.3 3.9 4.7
% LT Debt of Cap. 8.4 Nil 4.4 10.0 9.2 7.3 14.4 21.4 24.1 15.6
% Net Inc.of Revs. 19.0 20.9 14.9 NM 5.2 5.4 8.9 NM 9.0 11.8
% Ret. on Assets 13.5 19.3 14.2 NM 5.3 6.0 9.0 NM 8.5 5.6
% Ret. on Equity 17.3 23.6 19.5 NM 7.4 8.3 13.3 NM 12.9 NM

Data as orig. reptd.; bef. results of disc. opers. and/or spec. items. Per share data adj. for stk. divs. as of ex-div. date. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked.

Office--1704 Automation Parkway, San Jose, CA 95131-1873. Tel--(408) 576-2000. Website--http://www.komag.com Pres & CEO--S. C. Johnson. Chrmn--T. Chen. SVP-CFO & Secy--W. L. Potts, Jr. Investor Contact--David H. Allen. Dirs--C. R. Barrett, T. Chen, C. A. Eyre, I. Federman, S. C. Johnson, G. A. Neil, M. Palevsky, A. Sun, M. Takebayashi. Transfer Agent & Registrar--ChaseMellon Shareholder Services, SF. Incorporated--in Delaware in 1986. Empl-- 4,101. S&P Analyst: Brian Goodstadt


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