Wednesday, February 07, 2007

Calls of Note Part 4

- Goldman Sahcs is negative on Komag (NASDAQ:KOMG) saying Intevac's strong 2007 outlook for its hard drive media capital equipment business reaffirms their thesis that HGST (Hitachi Global Storage Technologies) is accelerating the build out of its internal media capacity to the detriment of Komag. We're already seeing evidence that HGST - Komag's third largest customer at 22% of revenue - is declining in dollars for Komag. In a year when firm's checks point to HGST pulling more business in-house as part of its ramp of perpendicular technology, the risk to Komag estimates remains downward. Given the utilization-driven leverage in Komag's model, this would mean that the impact on the bottom-line could be $0.05-$0.10 for even a small move away from Komag by HGST.

Even though Komag's P/E multiple remains low on an absolute basis at 7.8x GS 2007 EPS estimate of $4.40, contracting margins, earnings that may have peaked in 2006, and the real possibility of further estimate cuts take away much of the valuation support and will keep the stock moving downward. With less confidence in their out-quarter estimates, they are lowering their price target for Komag to $31 from $37. Maintains Sell.

Notablecalls: I suspect these comments will generate some selling pressure in KOMG today and over the s-t.

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