STOCKREPORTS

Read-Rite Corporation

Nasdaq Symbol RDRT In S&P SmallCap 600

Recent Price 24.06 52 Wk Range 33.00 - 10.13

Yield Nil 12-Mo. P/E NM

Quantitative Evaluation: Outlook (1 Lowest - 5 Highest) 5- Fair Value 54.20 Risk HIGH Earn/Div Rank NR
Technical Evaluation: BULLISH since 08/96 Rel. Strength Rank (1 Lowest - 99 Highest) 34 Insider Activity Neutral

Overview 20-MAY-97

Revenues in the first half of FY 97 (Sep.) declined slightly, year to year, on a product transition away from metal-in-gap products, but results in both the first and second quarters advanced strongly from weak fourth quarter FY 96 revenues, reflecting stronger demand and higher manufacturing yields for new products, namely advanced inductive and magnetoresistive (MR) heads. Revenues should continue to increase through FY 97. Margins are expected to widen sequentially for the remainder of FY 97, on higher manufacturing yields, a more favorable product mix and cost reduction initiatives. The company's tax rate is expected to increase from FY 96's 25%, owing to higher taxes on Far Eastern profits. Earnings comparisons in FY 97 should benefit from the higher volume, wider margins and the absence of charges totaling $0.32 a share in the second quarter of FY 96, $0.21 a share in the third quarter and $0.58 a share in the fourth quarter. Per-share results should benefit from a stock repurchase program.

Valuation 20-MAY-97

The stock of this leading vendor of disk drive recording heads and head stack assemblies bottomed last summer, and has rebounded strongly since then on a strengthening of demand, together with progress on volume manufacturing and competitive wins for new products which resulted in a sales and profit recovery in the first quarter of FY 97. Earnings improved in the second quarter, and are expected to benefit further, owing to continued strong demand and ongoing progress in improving the manufacturing yields of new products. We do not consider the company a takeover target, as Applied Magnetics has withdrawn its acquisition offer. However, in light of the improved operating performance and profit outlook, we expect the shares will outperform the market in the months ahead.

Key Stock Statistics

Fiscal Year Ending Sep. 30

Dividend Data: No cash dividends have been paid.

Business Summary 20-MAY-97

Read-Rite Corporation is the leading independent supplier of magnetic recording heads for rigid disk drives. It supplies magnetic recording heads as head gimbal assemblies (HGAs), and for certain customers incorporates multiple HGAs into headstack assemblies (HSAs). Products are sold primarily to independent manufacturers of small form factor rigid disk drives. Read-Rite believes that it supplies heads for a broader range of disk drive products than any other independent supplier.

The principal components of rigid disk drives are HGAs, disks, an actuator for positioning HGAs, a motor/spindle assembly to rotate the disk, control electronics and software. An HGA consists of a magnetic recording head attached to a flexure, or suspension arm, and a wire/tubing assembly. Several HGAs can be combined with other components to form an HSA. One or more rigid disks coated with a thin layer of magnetic material are attached to the motor/spindle assembly, which rotates the disks at high speed within a sealed enclosure. The heads record or retrieve data from tracks pre-formatted in the magnetic layer of each disk.

In August 1994, the company acquired Sunward Technologies, Inc., a leading supplier of ferrite metal-in-gap (MIG) and double MIG recording heads and HSAs for rigid disk drives.

R&D spending totaled $52,221,000 (5.3% of total sales) in FY 96 (Sep.), up from $41,788,000 (4.2%) in FY 95 and $25,524,000 (4.0%) in FY 94.

In the first quarter of FY 97, Western Digital, Quantum and Maxtor accounted for 53%, 22% and 8% of net sales, respectively.

In the fourth quarter of FY 96 (Sep.), RDRT recorded charges totaling $27 million ($0.58 a share), primarily related to a writeoff of fixed assets supporting older recording head technologies, as well as the restructuring of certain operations including a workforce reduction and consolidation of facilities. In the third quarter of FY 96, the company recorded $10 million ($0.21 a share) in charges for the writeoff of inventory and fixed assets associated with end-of-life products. In the FY 96 second quarter, RDRT recorded $15 million ($0.32 a share) in charges. In the fourth quarter of FY 95, the company recorded charges totaling $6.9 million ($0.14 a share).

Important Developments

Apr. '97 In the second quarter of FY 97, the company shipped 25.9 million recording heads, an increase of 14% compared to the first quarter of FY 97.
Mar. '97 Applied Magnetics (NYSE; APM) withdrew its offer to acquire Read-Rite for stock, following rejection of that offer by RDRT's board of directors.

Capitalization

Long Term Debt: $166,096,000 (3/97).
Minority Interest: $71,165,000.

Curr. Ratio	1.6	2.5	2.0	2.7	2.0	2.0	0.8	NA	NA	NA
% LT Debt of Cap.	24.7	20.3	10.5	10.8	11.1	25.7	41.4	NA	NA	NA
% Net Inc.of Revs.	NM	12.3	3.1	0.2	12.1	13.0	8.9	NA	NA	NA
% Ret. on Assets	NM	15.7	3.0	0.2	7.8	24.9	21.3	NA	NA	NA
% Ret. on Equity	NM	26.4	4.6	0.3	35.4	NM	NM	NA	NA	NA

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--345 Los Coches St., Milpitas, CA 95035. Tel--(408) 262-6700. Fax--(408) 956-3205. Website--http://www.readrite.com Chrmn & CEO--C. J. Yansouni. Pres & COO--A. S. Lowe. VP-Fin & CFO--J. T. Kurtzweil. VP & Secy--R. S. Jackson. Dirs--W. J. Almon, H. V. Blaxter III, M. L. Hackworth, J. G. Linvill, M. J. O'Rourke, F. Schwettman, C. J. Yansouni. Transfer Agent & Registrar--ChaseMellon Shareholder Services, San Francisco, CA. Incorporated--in California in 1981; reincorporated in Delaware in 1985. Empl-- 24,000. S&P Analyst: Peter C. Wood, CFA

This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither S&P nor any other party guarantee its accuracy or make warranties regarding results from its usage. Redistribution is prohibited without written permission. Copyright © 1997