3SOF

Needham Presentation:

http://www.komag.com/investors/presentations/Needham_Jan06.pdf

cheers
Oliver

Hmmmm according to Piper Jaffray Komag offers "investors better upside potential at current levels" than Seagate. I am not sure about that but I am sure that both stocks have a significant upside.

Seagate confirmed during their CC that: "Media will be constrained for the rest of 2006 especially for AlMag and they will rely on outside support to meet demand"

So Komag certainly has the wind in the back!

Back in September and October it seems for some that Komag was a great stock to short. After all it has increased 400%:



Boy were they wrong!



Today the share price is on 25% higher than when they started this ill faited short attack and it starts to really hurt. Especially as it seems like KOMG momentum is going to continue. I don't think that any short today expect to make money out of his position so it is only a matter of how to minimise the loss.

30% of all shares has been shorted so it is going to be interested to see how they are going to cover. It is not going to be easy. I am not sure if KOMG need this extra fuel but it never hurts

Mike

Komag's annual result is out and what a magnificent year for Komag! They beat the estimates and EPS grew from $1.71 to 3.55.

The CEO is upbeat about 2006:

QuoteEarly indications for 2006 are that overall demand continues to be very strong and our factories are continuing to run at full manufacturing capacity

IBD has an excellent write up on the HDD industry: http://biz.yahoo.com/ibd/060125/newamer.html?.v=1

Finally the short position for January is out. The covering continue at a very slow pace but there are still 7.96 million shares short. These poor souls has already lost at least 80,000,000.00 USD and with the excellent business conditions for Komag I am afraid that this figure is going to go up signiifcantly.

On another note I added to my Seagate position yesterday. Both these stocks has excellent potentials going forward. I am fully invested in Komag but had a little space for some more STX.

Mike

KOMAG REPORTS RECORD REVENUE, EPS FOR Q4 AND 2005 FISCAL YEAR
Wednesday, January 25, 2006 21:15 ET

Jan 25, 2006 (AsiaPulse via COMTEX) -- (Full text of this release can be found at http://www.asianetnews.net)

SAN JOSE, Calif., Jan. 25 /PRNewswire-AsiaNet/ - Komag, Incorporated (Nasdaq: KOMG), a leading independent supplier of thin-film media for disk drives, today announced record revenue for the fourth quarter and 2005 fiscal year of $192.9 million and $685.9 million, respectively. Diluted earnings per share for the fourth quarter and 2005 fiscal year were also a record level of $1.07 and $3.55, respectively.

For comparison, third quarter 2005 revenue, and diluted earnings per share were $180.0 million, and $0.97, respectively. Revenue, and diluted earnings per share in the fourth quarter of 2004 were $131.2 million and $0.51, respectively.

For the 2004 fiscal year ended January 2, 2005, revenue and diluted earnings per share were $458.4 million and $1.71, respectively.

T.H. Tan, Komag's Chief Executive Officer, stated, "We are very proud of our 2005 record level financial results. Overall demand for our products was very strong during 2005, our revenue increased 50 per cent in 2005 over the prior year primarily due to an increase in finished disk shipments. Net income was $115.6 million, a 125 per cent increase over the prior year and diluted earnings per share increased 108 per cent in 2005. I would like to thank all of our employees for their outstanding contributions to a record year."

Fourth Quarter Review

Sales to Maxtor, Western Digital, Hitachi Global Storage Technologies, and Seagate accounted for 31 per cent, 30 per cent, 20 per cent and 14 per cent of total revenue in the fourth quarter of 2005, respectively. Total finished disk shipments were 29.7 million in the fourth quarter of 2005. Finished disk shipments for desktop and consumer electronics applications together represented 94 per cent of Komag's fourth quarter 2005 unit shipment volume. Disks for high-end server drives represented 6 per cent of finished disk shipments in the fourth quarter of 2005.

High capacity 3.5-inch advanced disks at storage capacities of 100GB and greater represented approximately 36 per cent of Komag's total finished disk shipments in the fourth quarter. These disks are primarily targeted for multi-platter consumer applications. These rapidly growing applications include PVR, DVR, HDTV, external storage, gaming and other home entertainment devices.

Other revenue, which includes sales of aluminum substrates, nickel-plated polished aluminum substrates and textured substrates, was 13 per cent of total revenue in the fourth quarter of 2005. Komag is the world's largest hard disk aluminum substrate manufacturer. Disk substrates are primarily produced for internal use in the manufacture of finished disks. In addition, the high quality of Komag's substrates has led to continuing market opportunities to sell substrates externally.

Business Outlook

"We exited 2005 with supply and demand for finished media and substrates tighter than when we entered the year. Early indications for 2006 are that overall demand continues to be very strong and our factories are continuing to run at full manufacturing capacity. With the completion of the installation and qualification of equipment from our first capacity expansion, we expect to have approximately 31 million units of finished disk capacity in the first quarter of 2006. Based on current demand, we expect total revenue in the first quarter of 2006 to increase 2 per cent to 4 per cent from the fourth quarter of 2005. Net margin in the first quarter is currently expected to be similar to the fourth quarter at approximately 17 per cent to 18 per cent.

Additionally, in an attempt to keep up with the growing demand for media in 2006, our second capacity expansion is in process at our existing manufacturing sites in Malaysia. This additional capacity is planned to start to become available beginning in the second half of 2006 with total capacity of approximately 40 million disks per quarter by the end of 2006.

Our current capacity expansion plans are based on strategic supply agreements with several of our customers. As part of these agreements, Komag has made certain commitments to increase capacity and our customers have agreed to purchase certain amounts of media. In addition, our customers have agreed to make certain pre-payments for media to help mitigate the cash impact of the capital spending required for Komag to increase capacity.

We believe that these arrangements with our customers are the right strategy to allow for prudent capacity increases to meet the continuing growing demand for media, as disk drives further expand penetration into multiple growing consumer applications. We expect to fund the capital spending for the capacity expansions of both our finished media, as well as substrates, from cash generated from operations and the pre-payment arrangements. Total capital spending for 2006 is currently expected to approximate $200 million to $250 million.

In December of 2005, Seagate and Maxtor announced that Seagate plans to acquire Maxtor. Both Seagate and Maxtor are customers of Komag and we have strategic supply agreements with both. Also in December of 2005, Seagate and Komag reaffirmed our strategic relationship. Upon the closing of the acquisition of Maxtor by Seagate, Seagate would be the successor to the strategic supply agreement between Maxtor and Komag. We anticipate that after the closing of the acquisition we will be supplying Seagate volumes of media that approximate the sum of both the Seagate and Maxtor agreements.

Komag is committed to continuing to support the growing demand for digital storage by maintaining our low cost manufacturing structure, providing advanced technology products and providing rational capacity increases, as appropriate with strategic supply arrangements with our customers, all with the goals of growing our business and providing financial returns to our stockholders," said Mr. Tan.

For more information about Komag, visit Komag's Internet home page at http://www.komag.com The Investors section of the website provides a variety of financial and investor information, including an investor presentation. To request an investor packet, call Komag's Investor Relations at 408-576-2901.

&

Investor's Business Daily:
Disk Maker Finds Growth In Store, Thanks To Changing Market
Wednesday January 25, 7:00 pm ET
By Steve Watkins

The world is quickly becoming a digital place, and Komag is storing much of that digital data.
The company makes disks that are used to store all kinds of digital data. They include data for computers, digital video recorders and game boxes, all the way up to big storage systems for businesses.

Desktop and consumer electronics uses make up the bulk of Komag's (NasdaqNM:KOMG - News) disk business. These end markets generated 92% of sales during last year's third quarter.

The disk industry used to be tied to personal computer sales. That started to change a year or so ago. Disk drives began to become a staple in video recorders, game boxes, stereos and home entertainment systems.

"The explosion of digital content is increasing digital storage requirements," said Peter Norris, Komag's executive vice president in charge of strategic business development. "The demand side of the equation has changed dramatically, and it's accelerating."

The number of drives sold in the U.S. grew about 20% last year, Norris says. Disk sales increased even more -- closer to 30% -- because the number of disks per drive is rising as storage demand surges.

The rise of digital video means more disks are needed for each hard drive to store all that extra data.

"A new era is dawning," said Rich Kugele, an analyst and principal at Needham & Co. "The drive industry fundamentally is the healthiest it's been in the five or six years I've been covering it. It's become a ubiquitous form of storage."

To meet rising demand, Komag has been boosting its capacity. The company makes disks in Malaysia, a low-cost region. It plans to notch its capacity up to 31 million disks a quarter by the end of the first quarter and to 40 million by year-end. It sold 27.5 million in the third quarter.

Demand is such that Komag already has customer commitments to buy some of the extra products it can make. Some customers even prepaid for the added supply. Komag is using that upfront cash to help pay for the expansion.

"That's a first in the history of the industry, as far as we can tell," Norris said of the upfront payments.

Customers such as Seagate Technology (NYSE:STX - News) and Western Digital (NYSE:WDC - News) want to make sure Komag can keep the disks coming. That shows how powerful demand is.

"The industry is scrambling to keep up," Kugele said.

Favorable Shift

The new sources of demand signal a long-term change in the hard-disk drive market, Norris says. It used to be seen as cyclical, linked to the whims of personal computer sales. No more.

"This demand-side shift is still in its infancy," Norris said.

The trend is reflected in Komag's results. The company turned a profit 11 straight quarters after it emerged from bankruptcy in 2002.
Third-quarter earnings nearly tripled from the prior year to 97 cents a share. Sales rose 76% to $180 million.
Analysts polled by First Call expect full-year 2005 earnings to come in at $3.45 a share, a 94% increase from the prior year. They see 2006 earnings climbing 10% to $3.81 a share.
Demand is such that even one of the industry's usual concerns -- pricing -- is not a big issue right now. Prices typically dip 5% a quarter, says analyst Andrew Golomb of Morningstar. That hasn't taken place in recent quarters.
"There's such insatiable demand for storage that it hasn't been a negative pricing environment for Komag," Golomb said.
He figures Komag will run at 100% capacity the next few quarters, though he does expect prices to start falling again in the long term.
Customer concentration is another issue. Komag's top four customers make up 95% of sales. That list will shrink to three when one of the customers, Seagate, completes its acquisition of another customer, Maxtor (NYSE:MXO - News). The deal is expected to close in the third quarter.
The merged company will honor long-term deals with Komag that each has signed separately.
"That will give Komag over 50% of its revenue coming from one customer (Seagate)," Golomb said. "Without a doubt, it's a pretty big concern."
Some observers downplay the problem. Norris points out that the four customers, which also include Western Digital and Hitachi Global Storage Technologies, make up 80% of the hard-disk drive market.
"The (Seagate-Maxtor) merger doesn't change the total demand for disk drives," he said.

Out One Door, In Another

Norris says that if Seagate loses some customers after the merger, the rivals most likely to pick up that business are also Komag's customers.
Komag primarily competes with its own clients. Seagate and Maxtor make their own disks. They just use Komag for more capacity.
There's no sign of that changing anytime soon.
About half of the industry's sales come from outside disk makers such as Komag, Norris says.
"In the near term, they'll be OK," Golomb said. "But in the long term, they're competing with their own customers, so they lack pricing power."
Komag's added capacity also could set it up for trouble in a market downturn.
"If you ramp up too much capacity too quickly, you get a glut in the marketplace," Golomb said.



just awesome 

thanks Michael for geting this stock on my radar
Oliver

KOMG: Bear Stearns Ups to Outperform from Peer Perform; Sets Tgt @ $61; Analyst Notes
Thursday , January 26, 2006 07:51 ET

Issuer: Komag Inc (NasdaqNM: KOMG)
Analyst Firm:  Bear Stearns Cos.
Ratings Action: UPGRADE
Current Rating: Outperform (from Peer Perform)
Target Price: $61.00
Analyst Comments: The firm has upgraded shares of KOMG following strong results, stronger outlook, and healthier near-term trends.
This rating information was reported by TheFlyOnTheWall.

http://www.knobias.com/individual/public/news.htm?eid=3.1.d4e95f4323a8b010191243cca8952c8990da108aaadf069e91decf5b0752d3c3
&
Komag    KOMG    Piper Jaffray    Outperform    $50 » $55
&
Komag    KOMG    Kaufman Bros    Buy    $45 » $50
&
Komag    KOMG    Needham & Co    Strong Buy    $48 » $54

http://www.briefing.com/Investor/Public/MarketAnalysis/Calendars/UpgradesDowngrades.htm
cheers
Oliver

On January 31, 2006, Komag, Incorporated ("Komag" or the "Company") entered into a third amendment to its strategic supply agreement with Western Digital Technologies, Inc., a wholly owned subsidiary of Western Digital Corporation ("WDC") for increased media supply in 2006 and early 2007 in connection with a related increase in production capacity. This agreement calls for certain purchase commitments and pre-payments by WDC and certain supply commitments by Komag for finished media.

In order to meet the increased customer commitments for finished disks, the Company will purchase additional production equipment and accelerate delivery of some equipment for both finished media, as well as aluminum substrates included in the capacity expansion currently in process for the second half of 2006. As a result, total finished disk capacity is now expected to approximate 43 million disks by the end of 2006. Due to the purchase of additional equipment and the acceleration of delivery and installation of some previously scheduled equipment, the Company currently expects 2006 capital spending related to finished media and substrates to range from $250 million to $300 million, compared to prior estimates of $200 million to $250 million.

This report contains forward-looking statements relating to levels of incremental new media capacity expected to be added by the Company in 2006, and the Company’s expected capital expenditures for 2006. These statements involve known and unknown risks and uncertainties that may cause the Company’s or its industry's results, level of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. These risks and uncertainties include, without limitation, the Company’s ability to achieve its operating yield, cost and profitability targets, changes in the currency exchange rate for the Malaysian ringgit as a result of the managed float system, continued customer demand and the impact of demand variation on factory utilization, the performance by the Company and its customers of their obligations under the respective increased capacity arrangements, changes in demand as a result of the proposed Seagate/Maxtor merger or otherwise, the Company’s ability to increase its capacity, variability in demand and associated impact on average selling price of disks, the Company’s ability to satisfy customer qualification requirements and meet shipping demands, the Company’s expectation that industry unit demand will continue to grow and not decline and, the Company’s ability to produce new generation disks in volume and the other factors described in the Company’s reports filed with the Securities and Exchange Commission, including, but not limited to, its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Hi Oliver and the rest of the 3SOF community,

I guess we are a few business people around here. I am not sure what businesses you guys are in but try to imagine a business like this:

• You are running at 100% capacity
• Your customers are begging for more of your products
• Your customers are willing to finance the expansion of your capacity by prepaying for your product
• Your customers are committing to orders one year out in the future
• Your largest customer issued a press release just hours after he had taken over your second largest customer that he would continue to buy your products

Well if you guys are working in a company like this. Stop investing in the stock market and start investing in your own company. If not then KOMG might be a good investment.

This is a fantastic opportunity. I have never seen a company being traded at these PE levels with this kind of visibility on earnings and such a huge short position.

Mike

KOMG UPDATE 

Hoefer & Arnett Raises Komag's Earnings Estimate & Target Price
Friday , February 03, 2006 11:34 ET

SAN FRANCISCO, Feb 03, 2006 /PRNewswire via COMTEX/ -- Last night, Komag signed an amendment to an agreement with Western Digital which will increase its manufacturing capacity to 43 million disks per quarter by the end of this year. As such, we are increasing our fiscal year 2006 estimates for Komag from our previous forecast of $4.27 per diluted share on revenues of $790 million to our new forecast of $4.77 per diluted share in net income on revenues of $850 million. We are also increasing our one year target price from $51 to $58.
Hoefer & Arnett Incorporated is a member of the National Association of Securities Dealers, CRD number 10883.

&

30 SLIDES KOMG FEBRUARY IR PRESENTATION:
http://www.komag.com/investors/presentations/KOMG4Q05_Feb06.pdf

please review the updated KOMG informations carefully!

cheers
Oliver

Hi Oliver,

Didn't you forget to raise your target?

According to my math 15 x $4.77 is $71.55 

Hoefer and Arnett is for KOMG what Piper Jaffray is for VPHM. They have covered KOMG with buy recommendations since it traded around 8 and do regularly raise their target. Their target now is based on a PE of 12.

I think 12 is very low based on the revenue and EPS growth:



It all comes down to the risk/reward ratio. According to the presentation you linked to there will still be a shortage of media at the end of 2006 based on a 15% HDD growth. Based on some very simple math that means that we automatically will have an increase in Revenue and EPS in 2007 (as the new capacity will be phased in during this year but will contribute 100% during 2007). There are only very few companies that has that kind of earning visibility so the operational risk is very low. In addition their cash balance is growing very rapidly (now standing at $205 million). By the end of 2006 they will have around $340 million in cash I would expect that they soon either will pay dividend or more likely buy back shares at these low prices.

Now combine all this with a short position of almost 8 million shares or 23% of fully diluted shares outstanding. These poor souls have lost at least $100 million till now. I honestly don't think they have a clue about how to cover.

They shorted KOMG based on a number of analysts predicting that HDD would fast go out of fashion. Now the same analysts think that the HDD industry is the hottest sector around and the shorts are left in the dust.

With the earning visibility it is very unlikely that we will get negative earning surprises. There is no litigation that can negatively influence the price. They can obviously influence one or two analysts to downgrade the stock but I really don't see investors paying much attention to downgrades at these levels.

So what are the shorts going to do?  Somehow they have to buy 8 million shares and I can only see that driving the share price up probably higher than the different targets we are talking about now 

Mike

I will just hold all my KOMG shares enjoying the stock movement in 2006 

Definetly one of my long term stocks.....

cheers
Oliver

Thomas Weisel conference presentation:
http://www.komag.com/investors/presentations/TWeisel_Feb06.pdf

HI Oliver,

It seems this thread has become our private corner! I am really surprised that the rest of the team can't see the value in KOMG. Good the market can!

You were a bit skeptical about my $90 target so I was happy when I stumbled over Smartmoney's pricecheck and they calculated a target of $91: http://www.smartmoney.com/pricecheck/index.cfm?story=worksheet&symbol=komg&nav=pc%20_snaps

Now I really don't recommend using the pricecheck as an investment tool but it is always nice to have some confirmation.

It seems like HDD is getting into more and more households goods. LG just announced that they have added Hard disks to their flat TV range. This could drive demand for disks even higher in the years to come. (Combined with MP3 players, playstations, mobile phones, HDTV etc. (ups - I almost forgot Laptops and PC's   )

KOMG has formed a nice base the last couple of weeks and I think we are ready to continue our journey to the north.

Mike

KOMG: Short Interest DN 24.0% to 6.0M in Feb 2006

Tuesday , February 28, 2006 06:00 ET

According to new short interest data from NASDAQ, short interest for Komag Inc (NasdaqNM: KOMG) DECREASED 24.0% to 6,046,773 shares for the month ended mid-February, 2006.

SYMBOL       JANUARY        FEBRUARY          CHANGE       %CHANGE     DAYS/COVER
--------   -------------   -------------   -------------  ------------  ----------
KOMG           7,955,726       6,046,773      -1,908,953       -23.99%           6
Based on KOMG's 20-day average daily share volume of 1,054,590, it would require approximately 6 day(s) of buying to cover this short interest.

Hi Oliver,

So the shorts are getting tired of loosing money on Komg. Can't blame them - it is a hell of a lot more funny to earn money on KOMG 

We are trading in a range between 46 and 50. We will break 50 that is only a matter of time. Without being a technical trader I would expect to see a sharp move up from there.

Mike

Hi Oliver,

So 50 is cleared and we are on the way to 90 

Forward PE is below 11 and we still have more than 20% of the float short. With the earnings visibility I have no clue how they are going to cover with out forcing the price up!

I am wondering if you and I are the only 3SOF's that are holding KOMG.

Mike