Applied Magnetics Corp. Announces Unaudited Fourth Quarter and Fiscal Year 1998 Results.

GOLETA, Calif.--(BUSINESS WIRE)--Oct. 27, 1998--Applied Magnetics Corp. (NYSE:APM) today reported a net loss of $47.8 million or a $2.00 basic net loss per share for the fourth quarter of fiscal 1998 on sales of $16.8 million compared to net income of $12.1 million, or $.46 per share fully diluted on sales of $122.8 million for the same period last year.

Net income for the fiscal year ended Oct. 3, 1998, was a loss of $155.4 million or $6.49 basic net loss per share on sales of $183.6 million, compared to net income of $96.1 million or $3.37 per share fully diluted on sales of $494.8 million in fiscal 1997.

Net sales for the fourth quarter of fiscal 1998 declined 86% compared to the fourth quarter of fiscal 1997 and decreased 50% from net sales of $33.6 million in the third quarter of fiscal 1998. Gross margins in the fourth quarter of fiscal 1998 were a negative 58.8%, a decrease from 26.7% for the same period last year, and a decrease compared to gross margins of a negative 5.8% in the third quarter of fiscal 1998. The company's fourth quarter of fiscal 1998 operating expenses, excluding depreciation, decreased by 32% as compared to the same period of last year, during which time the total number of employees reduced from 8,500 to 5,200.

Industry conditions remain difficult with shorter product life cycles, increased competition, an accelerating transition to MR and GMR technology products and continued price erosion. The environment entering the seasonally strong fourth calendar quarter show signs of improvement as excess disk drive inventory that has been present in the channel for most of the year appears to have been reduced to normal levels.

As a result, many disk drive manufacturers have generally indicated a firming in demand for their products that should more closely parallel the forecasted growth in PC unit shipments.

As previously announced the company shipped MR heads for qualification at the 3.4 gigabyte per 3.5-inch disk capacity point to several customers during the past quarter. The company was late to market with qualification units and the life cycle of this product class is now expected to be shorter than originally anticipated. As a result, the company no longer anticipates receipt of orders for products at the 3.4 gigabyte per disk capacity point.

The company continues to ship MR product qualification units to several customers at the 4.3 gigabyte per 3.5-inch disk capacity point and, upon receipt of orders, the company could realize significant revenue from these products starting in the second fiscal quarter of 1999.

Current market projections for the 4.3 gigabyte per disk drive class continue to be favorable and as a result, customers have expressed significant interest in completing qualification of our 4.3 gigabyte per disk head.

The company does not expect significant revenue from MR or GMR products in the first fiscal quarter of 1999, and overall revenue is anticipated to be approximately equal to that of the fourth fiscal quarter of 1998 based on continued shipments of inductive thin film products.

The company believes that its MR products at both the 3.4 and 4.3 gigabyte per disk capacity points compare favorably in performance to those of other head suppliers; however, the company must continue to improve on its "time to market" execution. Failure to qualify on advanced MR products on a timely basis could have a material adverse affect on the company's operations.

Research and development ("R&D") expenses of $32.4 million in the fourth quarter of fiscal 1998 increased from $14.8 million in the same period last year and from $30.5 million in the third quarter of fiscal 1998. The company continues to focus its technical resources on new production program qualifications utilizing MR technology and on development of GMR technology and products. As a result, there continued to be significant growth in R&D expenses during fiscal 1998.

The company has made initial deliveries of GMR evaluation units to customers that are targeted for products at the 6.4 gigabyte per 3.5-inch disk capacity point.

Cash and equivalents at Oct. 3, 1998, were $71.7 million, a decrease of $33.2 million from the $104.9 million at July 4, 1998. The company entered into $1.9 million of operating leases for manufacturing equipment during the quarter ended Oct. 3, 1998.

Additional credit available under the company's existing credit facilities was $4.8 million. Assuming qualification of the 4.3 gigabyte per disk MR product, the company believes it will have sufficient cash flows from existing cash reserves and available credit facilities to support the company's transition to MR and GMR production.

Forward-looking statements included in this release are based on estimates and assumptions made by management of the company, which, although believed to be reasonable, are inherently uncertain and difficult to predict. Therefore, undue reliance should not be placed upon such estimates. Such statements are subject to certain risks and uncertainties inherent in the company's business that could cause actual results to differ materially from those projected. These factors include, but are not limited to: successful transition to volume production of MR and GMR disk head products with profitable yields; the limited number of customers and customer changes in short range and long range plans; dependence on continued customer demand for the company's inductive thin film products for the remainder of 1998; competitive pricing pressures; changes in business conditions affecting the company's financial position or results of operations which significantly increase the company's working capital needs; the company's inability to generate or obtain sufficient capital to fund its working capital needs; the company's ability to control inventory levels; domestic and international competition in the company's product areas; risks related to international transactions; and general economic risks and uncertainties.

Applied Magnetics Corp. is an independent manufacturer of magnetic recording heads, head-gimbal assemblies ("HGAs") and headstack assemblies ("HSAs") for computer hard disk drives. Founded in 1957, Applied Magnetics is the oldest independent U.S. based supplier of disk heads to the merchant market.

With headquarters in Goleta, Calif., the company employs over 5,200 around the world, with facilities in Malaysia, Korea, Singapore and China. The company's worldwide Web site can be found at www.appmag.com.

               Applied Magnetics Corp. And Subsidiaries
        Condensed Consolidated Summary of Operations-Unaudited
           (in thousands, except share and per share data)

                            Three Months Ended      Fiscal Year Ended
                               Oct. 3, 1998           Sept. 27, 1998
                             1998         1997       1998         1997


Net Sales                   $16,763    $122,828    $183,597   $494,839
Gross profit (loss)          (9,853)     32,819    (15,145)    167,849
Research and development
expenses                     32,396      14,920    114,659      52,532
Selling, general and
administrative expenses
(note 1)                      1,435       6,288      6,514      12,530
Restructuring charge
(note 2)                         --          --      8,400          --
Terminated merger costs
(note 3)                         --          --         --       2,906
Total operating expenses     33,831      21,108    129,473      67,968
Income (loss) from
operations                  (43,684)     11,711   (144,718)     99,881
Interest expense, net        (1,925)       (705)    (5,750)     (4,030)
Other income (expense)         (349)      1,642     (1,495)      2,384
Income (loss) before
taxes                       (45,958)     12,648   (152,963)     98,235
Provision for income
taxes                         1,888         523      2,405       2,119
Net income (loss)          ($47,846)    $12,125  ($155,368)    $96,116

Net income (loss) per
share (note 4)

Net income (loss) per
common share                 ($2.00)       $0.51    ($6.49)      $4.08
Net income (loss) per
common share-assuming
dilution                     ($2.00)       $0.46    ($6.49)      $3.37

Weighted average number
of common and common
equivalents shares
outstanding:

Common shares                23,973       23,903    23,931      23,567
Common shares-assuming
dilution                     23,973       31,100    23,931      31,011

     Note 1: On Nov. 10, 1997, Singapore Technologies announced plans
to close its subsidiary, Micropolis (S) Pte. Ltd. ("Micropolis"),
after review of the company's financial position and the market
condition. For the periods ended Sept. 27, 1997, a $4.2 million charge
was recorded related to uncollectable accounts receivable from
Micropolis.

     Note 2: For the year ended Oct. 3, 1998, a pre-tax restructuring
charge of approximately $8.4 million is related to the shut down of
the company's production facility in Ireland and writedown of certain
tooling and equipment.

     Note 3: Terminated merger costs for the year ended Sept. 27,
1997, include legal and accounting fees, financial advisory fees and
miscellaneous other expenses related to the February 1997 proposed
business combination between the company and Read-Rite Corp. that was
subsequently withdrawn on Mar. 14, 1997.

     Note 4: Earnings per common share is computed by dividing net
income by the weighted average number of shares of common stock
outstanding during the period. Earnings per common share -- assuming
dilution is computed based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the
period and as if the company's Convertible Subordinated Debentures
("Convertible Debentures") were converted into common stock at the
beginning of the period after giving retroactive effect to the
elimination of interest expense, net income tax effect, applicable to
the Convertible Debentures. During a loss period, the assumed exercise
of in-the-money stock options and conversion of Convertible Debentures
have an antidilutive effect. As a result, these shares are not
included in the weighted average shares outstanding of 23,973,234 used
in the calculation of basic and fully diluted loss per common share as
of Oct. 3, 1998.


               APPLIED MAGNETICS CORP. AND SUBSIDIARIES
           Condensed Consolidated Balance Sheets - Unaudited
                 (In thousands, except per share data)


                                   Oct. 3,               Sept. 27,
                                    1998                   1997

Current assets:

  Cash and equivalents             $71,674               $162,302
  Accounts receivable, net           7,291                 52,924
  Inventories                       13,054                 51,438
  Prepaid expenses and other        15,590                 11,420

Total current assets               107,609                278,084

Property, plant and equipment,
at cost                            365,469                371,224
Less: accumulated depreciation    (188,022)              (181,732)


Property, plant and equipment,
net                                177,447                189,492

Other assets                        14,462                 10,412


Total assets                      $299,518               $477,988


LIABILITIES AND SHAREHOLDERS'
INVESTMENT

Current liabilities:
  Current portion of long-term
  debt                               $1,610                   $513
  Bank and notes payable             58,468                 50,188
  Accounts payable                   16,409                 49,103
  Accrued payroll and benefits        8,070                 11,287
  Other current liabilities           9,653                  5,829


Total current liabilities            94,210                116,920

Long-term debt, net                 116,767                116,030
Other liabilities                     2,581                  4,257

Shareholders' investment:
  Common stock, $.10 par value,
  authorized 80,000,000 shares,       2,410                  2,398
  issued 24,103,294 shares
  at Oct. 3, 1998 and 23,976,711
  shares at Sept. 27, 1997
  Paid-in capital                   191,225                191,185
  Retained earnings (deficit)      (106,065)                49,303
  Treasury stock, at cost
 (130,233 shares as of
  Oct. 3, 1998 and 128,384
  shares at Sept. 27, 1997)         (1,577)                (1,554)
  Unearned restricted stock
  compensation                         (33)                  (551)

Total shareholders' investment      85,960                240,781


Total liabilities and
shareholders' investment          $299,518               $477,988