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Komag Gets Mixed Reviews

An AmTech analyst reiterates a sell.

Wall Street is of two minds about

Komag

(KOMG)

.

On Monday, Deutsche Bank upgraded the stock, citing a recent contract win with

Samsung

. But on Tuesday, American Technology Research reiterated a sell, saying that Komag, which makes substrates, a key component of hard drives, faces increasing competition from one of its best customers.

AmTech Shaw Wu wrote in a note Tuesday that hard-drive maker

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Seagate

(STX) - Get Seagate Technology PLC Report

already makes about 85% or 90% of its own media, but because its volume is so high, it remains a major Komag customer.

But Maxtor, which Seagate purchased earlier this year, only manufactured about half of its own media. Shaw says that as Seagate integrates the Maxtor acquisition it will shift those operations to a more Seagate-like business model, meaning it will manufacture more media and buy significantly less from Komag.

Wu also believes that Komag will have a difficult time entering the market for glass substrates, used in notebooks and handheld devices, and may have reduced its capacity too much and is at risk of losing market share.

Shaw, whose company does not have an investment banking business, urged his clients to take advantage of Komag's recent strength to lock in profits.

Deutsche Bank analyst Sherri Scibner, on the other hand, wrote Monday that "as Komag ramps new customers and products, and delivers on results, we expect the shares to move higher. We view Samsung as adding further stability to Komag's 95mm business and as buffering potential share losses at Seagate in 2008." Her company has an investment banking relationship with Seagate.

In recent trading, shares of Komag were up 4 cents to $38.25 while Seagate was off 15 cents to $22.53.