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News > Technology
Trouble ahead for Komag
June 2, 1998: 6:37 p.m. ET

Disk drive maker says it will cut 480 jobs, take 2Q earnings charge
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NEW YORK (CNNfn) - Disk drive maker Komag Inc. Tuesday warned it will take a substantial charge and cut 10 percent of its work force.
     The company blamed the actions on declining prices and an excess supply of disk drives, and said those problems would likely continue into 1999.
     Komag expects to record a one-time charge of between $135 million and $185 million in its second quarter which ends June 28. The one-time charge will cover costs to close a pant in San Jose, Calif. and for severance packages.
     Excluding the one-time charge, Komag expects to record a loss of approximately $58 million. Based on the 53 million shares outstanding at the end of last quarter, the operating loss would translate into about $1.09 a share. Prior to the announcement, analysts surveyed by First Call expected Komag to report a loss of 72 cents a share.
     The news was released after Tuesday's market close. Komag (KMAG) shares ended off 7/16 to 9-3/16.
     Komag did not detail exactly how many will be laid off, other than to say 10 percent of its 4,800 workers would be cut through a combination of attrition and layoffs.
     After the San Jose plant is closed, which will occur before its lease expires in July 1999, the company will operate five production facilities -- 75 percent of which will be in Southeast Asia.
     Stephen C. Johnson, Komag's president and chief executive officer, blamed the layoffs on a failure to increase sales from the $76.1 million recorded in the first quarter to between $100 million and $125 million in the second quarter, as the company had previously hoped.
     "Several customers recently lowered their orders for our hard disk products in response to downward adjustments in their hard disk drive production build schedules," he said.
     "Recent changes in customer demand and our belief that the media industry's supply/demand imbalance will extend into 1999 have caused us to adjust our expectations for the utilization of our installed production capacity," he said.
     Johnson said Komag will cut capital expenditures in 1998 by 20 percent to $100 million.
     Despite the bad news, Johnson said Komag is still on target to return to profitability in the first half of 1999 if prices stabilize in the disk drive market.
     "Our actions today, although painful, position us to emerge from this turbulent period as a stronger and more competitive company," Johnson said.
     Komag is one of several disk drive makers whose business has worsened due to a combination of price pressures and demand slowdowns.
     In mid-May, Western Digital Corp. said it will lay off 439 workers in Singapore. Seagate Technology Inc. in April reported a net loss of $128.5 million, or 53 cents a share, on revenue of $1.6 billion. The results included one-time charges of $141.9 million to restructure its operations.
     In January, Seagate said it would lay off about 10 percent of its global work force. Seagate also took another charge of $23.8 million to write off inventory and equipment.
     All of those actions were blamed on a slowdown in disk drive sales.Back to top

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