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Filed by Komag, Incorporated
Pursuant to Rule 425 under the
Securities Act of 1933, and
deemed filed Pursuant to Rule
14a-12 under the Securities
and Exchange Act of 1934.
Subject Company:
HMT Technology Corp.
Commission File No. 000-27586
[KOMAG LOGO]
Chase H&Q Technology Conference May 2000
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FORWARD-LOOKING STATEMENTS
This presentation includes forward-looking statements that involve risks
and uncertainties. While these statements represent our current judgment
regarding the future direction of our business, the associated risks and
uncertainties can cause actual results to differ materially from our forecasts.
Important factors relating to our business are described in our SEC filed
documents.
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KOMAG'S LEADERSHIP POSITION
World's Largest Independent Disk Producer
- Over 450 Million Disks Produced
Leading Technology / Superior Disk Product
- 79% of 1Q 2000 Shipments at 10 GB or greater
- Recently Demonstrated 70 GB Media
- Low-Cost Glass Substrates in Development
Strategically Well Positioned For The Long Term
- 100% of Production in Low-Cost Area (Malaysia)
- Access to Global Customer Base
- State-of-the-Art Equipment Set
- Signed Definitive Agreement to Merge with HMT
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PRESENTATION OUTLINE
1. Q1 2000 Results
2. Industry / Market Overview
Why New Business Model Required
3. Komag's New Business Model
The New Komag
4. Komag -HMT Merger
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FINANCIAL RESULTS SUMMARY
(In Millions)
<TABLE>
<CAPTION>
Q1 99 Q2 99 Q3 99 Q4 99 Q1 00
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Sales $ 90 $ 93 $ 80 $ 65 $ 80
Gross Margin ($) $ 1 ($ 5) ($ 18) ($ 1) $ 13
Gross Margin (%) 1% (5%) (23%) (2%) 16%
EBITDA w/o Restructuring $ 7 $ 2 ($ 9) $ 6 $ 21
Net Loss ($ 22) ($ 38) ($229) $ 6 ($ 5)
Net Loss w/o Restructuring ($ 22) ($ 33) ($ 46) $ 6 ($ 5)
Capital Expenditures $ 9 $ 9 $ 11 $ 3 $ 2
Net Cash Flow ($ 2) ($ 31) ($ 11) ($ 14) $ 2
Net Cash Flow w/o Restructuring ($ 2) ($ 27) ($ 4) ($ 2) $ 9
Cash Balance $ 126 $ 94 $ 84 $ 70 $ 72
Units Sold 10.1 11.1 9.7 8.9 10.8
Overall ASP $8.90 $8.43 $8.25 $7.69 $7.40
EPS ($0.40) ($0.60) ($3.50) $0.09 ($0.08)
EPS w/o Restructuring ($0.40) ($0.53) ($0.70) $0.09 ($0.08)
</TABLE>
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MEDIA SUPPLIERS
Q1 2000 Unit Shipments
[GRAPH]
[Bar graph presentation of total media shipments in the disk drive industry,
including presentation of Komag and AKCL shipments compared with those of
industry competitors.]
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SUPPLY-DEMAND IMBALANCE IN MERCHANT MARKET
Reasons For Imbalance:
- Advancement in Areal Densities
- Capacity Additions (1995-1996)
- Market Share Gains by Captive Suppliers
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AREAL DENSITY AND CAPACITY INCREASES
- - Unprecedented areal density advancements led to flat unit growth
Future
CAGR 1990-1996 1997 1998-1999 (Long-Term)
Bits Stored 100%+ 100% 90-100% [IMAGE]
Areal Density 30-40% 60-70% 90-100% [IMAGE]
Media Unit Shipments 40-50% 20-25% 0% [IMAGE]
Source: IDC, TrendFocus and Company
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KOMAG'S RAPIDLY CHANGING PRODUCT LIFE CYCLES
- There have been tremendous advancements in areal density
due to the exploitation of MR and GMR technology
[Bar graph depiction of the short product life cycle of
successive generations of disks.]
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AREAL DENSITY AND CAPACITY INCREASES
- - Historical growth and media shortages forced capacity additions by captive
manufacturers
- Capacity additions came online during the 1997-1998 time period
- Vertically integrated drive makers (SEG, IBM, Fujitsu) increased
% of disks made internally
- Price competition increased as independent media suppliers attempted to
avoid losing market share in the shrinking merchant market
[GRAPH]
[Bar graph presentation of the relative size of independent and captive
media sales.]
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Q1 2000 MEDIA CONSUMPTION
Unit Shipments
[GRAPH]
[Bar graph presentation of media consumption by customer, showing consumption
of Komag and AKCL media by customer.]
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DEMAND WILL INCREASE IN THE FUTURE
Desktop Disk Drives
[GRAPH]
[Line graph depicting Komag's estimate of the future market for disks in desktop
disk drives.]
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WHY A NEW BUSINESS MODEL IS REQUIRED
- Storage Industry is in a Period of Change
- End user market places a higher emphasis on price reduction as
opposed to more absolute storage
- All drive manufacturers execute on product deliveries at the
same time in contrast to historical performance
- Lower drive prices (cost per GB) promote new applications
in the consumer market
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KOMAG'S NEW BUSINESS MODEL
"Under my leadership we will manage company resources tightly, actively
pursue new customer partnerships and evaluate opportunities to effect changes
in the structure of the media industry"
--T.H. Tan, August 5, 1999
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KOMAG'S NEW BUSINESS MODEL
- - Eliminated finished disk production in U.S.
- Transitioned entire production to Malaysia
- Lowest manufacturing cost structure in the industry
- - Focus process design on performance and cost
- - Leverage technology and low cost capacity to change customer
relationships
- - Forged agreement to merge with HMT
- - Increased scale will enable greater investment in:
- R&D
- Growth
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STEPS TAKEN TOWARDS NEW BUSINESS MODEL
Actions result in savings of $34 million per quarter
- Annualized, $136 million in savings
- Of this, over $120 million is cash savings
Specific Actions
- Closed San Jose factories
- $9 million per quarter in cash savings
- $3 million per quarter in lower depreciation charges
- Reduced the workforce by 1,400 U.S. employees
- $17 million per quarter in cash savings
- Operating expenses reduced from Q2 1999 levels
- R&D spending reduced by $3 million per quarter
- S,G&A spending reduced by $2 million per quarter
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BENEFITS OF MANUFACTURING IN MALAYSIA
- - Seven years of operating experience in Malaysia
- December 1999 production 100% from 55% in July 1999
- Yields equivalent to former U.S. factories
- - Allows "full" utilization of Malaysian installed capacity
- Current: 12-13 million disks/quarter
- Short-term: 14 million disks/quarter
- Long-term: Excess equipment available to extend capacity
without significant new cash outlays
- Facilities: 20 million disks/quarter.
- - Cost structure advantages
- Labor costs 80% lower than U.S. and Japanese costs
- "Fixed" costs 20% to 30% lower
- - Proximity to customers
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TECHNOLOGY STRATEGY
- - Leverage technology to change customer relationships
- Low-cost glass (LCG) substrates
- Shipped samples during 1Q 2000
- 50% of standard glass substrate cost
- Use LCG to increase media sales to vertically integrated customers
- Opportunities at Seagate, IBM, Maxtor, Fujitsu and Hitachi
- Joint Development -Joint Venture
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BENEFIT OF NEW BUSINESS MODEL
- - Returned company to positive net cash flow in 1Q 00
- - EBITDA = $21 million in 1Q 2000
- - Improves likelihood of interim bank restructuring deal which would
o Cure covenant default
o Extend debt maturities
o Opens financing opportunities for permanent restructuring of bank debt
- - Positioned Company to take advantage of strategic transactions
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KOMAG -HMT MERGER
- Komag & HMT signed definitive agreement to merge
- HMT shareholders will receive 0.9094 shares of Komag stock for each share of
HMT stock
- Tax-free transaction to be accounted for under purchase accounting
- Merger subject to approval from governmental regulators, shareholders and
Komag lenders
- Merger expected to close during third quarter of 2000
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KOMAG -HMT MERGER
This Strategic Transaction:
- Strengthens Research & Development Leadership
R&D is the "Admission Ticket"
- Leverages Low Cost Manufacturing Model
Low Cost Ensures Sustainability
- Increases Scale
- Expands Customer Base
- Alleviates Capacity Constraints
- Strengthens Management
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WHAT OUR LARGEST CUSTOMER THINKS
"Komag and HMT have announced their intention to merge, creating the
world's largest supplier of thin-film disks for hard drives. For Western
Digital, this is an important and positive development.
The combination of these two companies will create widespread
efficiencies that will ensure us the lowest possible cost for the media that
we buy. . . .
The Komag/HMT merger will bring together two outstanding technology
groups into an industry-leading creative force. . . .
Over the last year Komag has demonstrated itself to be a very strategic
partner, providing a strong foundation as we move forward working with
the new combined entity."
--Matt Massingill, Western Digital CEO, in a letter to WD
employees on April 26, 2000
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MEDIA SUPPLIERS (PRO FORMA)
Q1 2000 Media Shipments
[Bar graph presentation of total media shipments in the disk drive industry,
including a pro forma presentation of Komag, AKCL and HMT shipments compared
with those of industry competitors.]
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MEDIA CONSUMPTION (PRO FORMA)
Q1 2000 Media Shipments
[Bar graph presentation of media consumption by customer, showing pro forma
consumption of Komag, AKCL and HMT media by customer.]
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SUMMARY
- - Market Conditions have Changed Dramatically and Permanently
- - Price Erosion will Place Further Stress on Media Suppliers with
High-Cost Structures
- - R&D Capabilities will be Leveraged for Unique Solutions and
Product Differentiation
- - Komag has Instituted Aggressive Restructuring Actions to Size and
Focus its Resources
- - Komag is the Best Positioned company in the Industry
