FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

HMT Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMTT)") else Response.Write("(Nasdaq: HMTT)") end if %>
1055 Page Avenue
Fremont, CA 94538
(510) 490-3100
http://www.hmtt.com

UNION CITY, CA. (February 2, 1997)/FOOLWIRE/ --- HMT Technology released results for the third fiscal quarter of 1997 on January 22nd. HMT's net sales for the third quarter were $61.2 million, up 8.7% from the $56.3 million reported in the same quarter last year and $62.1 million reported in the second quarter this year. Net income was $13.1 million or $0.30 per share on 44.2 million shares. This compares with income of $19.5 million or $0.56 per share on 34.8 million shares reported for the same period a year ago and $16.6 million or $0.38 per share on 44.2 million for the second quarter 1997.

GROSS MARGINS. Gross margins were 40.6%, down from the 43% they reported last quarter and down from 41.8% a year ago. This is in the middle of the expected range and they don't see any significant changes to that going forward and even continue to provide a larger percentage of the MR products. HMT's process of manufacturing either the proximity technology or the MR technology is basically consistent. Their cost of manufacturing either product is roughly the same. Looking into the future in terms of improving costs, they have ongoing cost improvements and obviously the yields have the biggest impact. HMT is working continuously on improving their yields and looking for other areas of raw materials and even backward integration to help reduce their costs. More importantly they improve their quality and improve their technology for the next generation of products.

EXPENSES. Total operating expenses for the quarter were $4.5 million, up from $4 million last quarter and up from $3.2 million last year. R&D expenses were $1.5 million or 2.5% of revenue compared to 2.3% last quarter and 1.6% in the third quarter last year. SG&A was $3 million or 4.9% of revenue, compared with 4.2% last quarter and 4.2% in the same quarter last year. Net interest reported in the quarter was $350,000 compared with $1.4 million last quarter and $2.1 million a year ago. This is primarily due to the capitalization of the portion of their interest expenses that are attributable to the facility expansion. Looking into the March quarter, they believe net interest will be in the $700,000 range. Income before taxes was $20 million compared with $21.3 million in the second quarter and $13.9 million in the third quarter a year ago. The tax rate for the quarter was 30%.

FINANCING. In the past two weeks they completed a private convertible financing of $230 million. The terms are a 5.75% coupon with a conversion price of $23.75. The proceeds from this offering will be used for repayment of the $47 million subordinated notes, $59 million of preferred stock, and $31 million of outstanding bank debt, as well as financing their current expansion program.

CAPITAL EXPENSES. Depreciation for the quarter was $5.3 million compared with $5 million last quarter. Capital spending for the quarter was $66.1 million compared with $38.2 million last quarter. Their cash position at the end of December was $4.2 million.

UNIT SHIPMENTS. As they had previously indicated, their shipments in the quarter were impacted by a single customer. Because of this, units were up only modestly at 5.4 million disks versus 5.2 million disks in the September quarter. As has been the case for several quarters now, 100% of HMT's shipments were used with proximity and MR head recording technologies. During the quarter they filled their last 1900 Oersted disks. In fact, 2000 Oersted and greater accounted for 98% of their units shipped in the quarter with the 2200 Oersted representing over 20% of the products shipped. They expected their 2200 Oersted products for both MR and proximity which generally go into disk drives with per platter capacity points of 1 gigabyte or more to grow significantly this quarter. They are working with multiple customers on drive programs that have per platter capacity points ranging from 1.3 gigabytes to over 2 gigabytes. Within the quarter HMT's cumulative shipments of proximity and MR media have now surpassed the 25 million disk mark. Their MR products have grown as a percent of sales and they expect them to continue to grow as their customers migrate to new MR drive applications. For the last quarter as a percent of total, the MR was about 15%.

LASER TEXTURE. Currently they are providing some laser texture products to some customers in terms of qualification of products into some new drives. Their new facility as they bring that on board will have laser texture capabilities and they are making progress utilizing the laser texture techniques and developing the processes for those. They continue to lead the industry in quality, technology, and cost and their customers are seeing the benefits their media can provide.

EXPANSION. Their capacity expansion is coming along on schedule and on budget. The first two lines are already installed and running in their new facility with two more expected to be installed and running before the end of the quarter. When they say the lines are running, they are not exactly producing product for revenue yet, although it is expected that all 4 systems will be producing for revenue by the end of the current quarter. They are encouraged by the progress they have made and by the indications they are hearing from their customers as well. They wish all four machines were running right now because they would be a lot better just going through the remainder of this quarter. The demand is very strong, in particular on those disk drives that require in excess of 1 gigabyte per platter type and up in the 1.3-1.5 gigabyte per platter type. Those are the products that are going to be growing very strongly this quarter and into next quarter. If you drive by the new building, the glass isn't in on the outside of the building yet but they are sputtering disks today on the inside of the building.

CUSTOMER PERCENTAGES AND OUTLOOK. The breakout by customers is as follows: Maxtor is approximately 50% in this quarter, Samsung is 20%, Micropolis is 14%, and no other customer was over 10% in the quarter. They are currently in new programs at both Quantum and Western Digital and think both will come on stream this current quarter as a significantly stronger percentage of HMT's business. Western Digital's business as a percentage of HMT's total sales from this quarter to last quarter were about the same. That primarily was made up of the enterprise product division of Western Digital. HMT is making progress in terms of re-establishing their relationship with the desktop portion of Western Digital and believe that by the time they report this quarter's results, we will see that the percentage with Western Digital will grow substantially. They indicated in their pre-announcement that they would have some growth from Quantum. HMT is currently in a very large ramp up of a very large program with Quantum and we will see Quantum grow as a percentage of sales and it will be high enough to report as a percent of sales above 10%.

MANUFACTURING AT CAPACITY. The company has been for the last two quarters and is currently at capacity. They brought the facilities they have in Fremont up to the level of maximum capacity with 15 sputter lines. They had been building their new facility which will give them additional capacity. They will have all four lines currently installed at the new facility running at the end of this quarter. Every quarter thereafter, they have an expansion plan of adding two lines per quarter until the complete facility has 16 lines total. By the end of the calendar year, if demand stays strong as they expect it to, their revenues should increase more than 50% from where they are now.

SEAGATE AND OTHER PROSPECTS. When they have that capacity available, their intentions are and their tactics in terms of Seagate and other potential customers would be to work with them, become a designed-in on advanced products and advanced technology products. As that capacity comes on board, they will have an opportunity to bring on companies such as Seagate and other potential customers.

IOMEGA. They gave some guidance to the analysts relative to the Iomega business or, as they refer to it, the "non-traditional" business. That non-traditional business did, in fact, impact and it is coming back. The guidance they gave the analysts early on was during the uncertainty period of Iomega's manufacturing decisions, which they have now announced. HMT believes the decisions will strengthen the company Iomega in terms of bringing the manufacturing under their own wings and HMT will be a part of Iomega's growth on the Jaz cartridge units. HMT is currently shipping to Iomega on a weekly or every other week schedule, so Iomega will be coming back and will be a part of HMT's ongoing business.

LOW-COST PRODUCER & DISCUSSION ABOUT ASP. HMT has always worked closely with its customers to continually reduce their costs, helping them to be more competitive in the marketplace. They see no need to raise prices at this time as their yields and costs are well within their desired ranges. They hope to continue to be able to pass their cost savings along to their customers. They think they have established themselves as the "cost control company" in their industry. From a pricing standpoint, there was obviously some pricing issues that took place in the marketplace in the September quarter which dropped the ASPs of all the media manufacturers. HMT responded to that and were able to respond to it and, as a result of having the low costs, were able to maintain their margins. That has not necessarily been the case with the rest of the competition.

AVERAGE SELLING PRICES. Regarding average selling prices, they believe that the average selling price of their traditional products should be fairly stable over time, moving up slightly with new product introductions and ramps and declining slightly as volume production reaches some maturity. Non-traditional products generally have a lower average selling price than their traditional products do. As they receive orders and ship into the non-traditional applications, they could see a reduction in blended average selling price even though the net result is incremental revenue and profit improvements. Bottom line, the ASPs in any given quarter are a result of the product mix that HMT will have.

PATENT RECEIVED. HMT received a patent for a blended lubricant that has been considered proprietary technology to HMT for the past two years or so. As with all intellectual property, they evaluate its pertinence to the company and what it might be used for in terms of dealing with others in terms of cross-licensing or looking for royalty payments. They are evaluating that patent at this time.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.