[Nautilus-list] Why So Much Smart Money Is So High on Read-Rite !!

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Commentary: Herb on TheStreet.com
Why So Much Smart Money Is So High on Read-Rite
By Herb Greenberg 
Senior Columnist
9/26/00 6:30 AM ET 

Read-Rite(symbol= RDRT)

Feeling benevolent, so let's get bullish: 

Reading right: As I've written in RealMoney.com's Columnist Conversation, the 
one stock quite a few of my smartest sources are yapping about is Read-Rite 
(RDRT:Nasdaq - news - boards), the (until very recently) long-forgotten maker of 
heads for disk drives. The only reason I take it seriously is because of the variety of 
investors in the stock (from seasoned and savvy traders to some of the 
most-dogged researchers I know). 

Most of the sizzle surrounding the company in recent weeks has been tied to the 
launch of a new division called Scion Photonics, which is developing optical 
wafers for use in the fiber-optic networks, and which was initially funded with $25 
mil from Tyco Ventures and Roger McNamee's Integral Capital, which got a 
quarter of the company in return. 

But that's only part of the story: 

According to Scott Turkel of TCM Partners, who has had his share of hits and 
misses in this column, and who also happens to be the only on-the-record holder 
among my sources, the company without Scion is worth about where it trades 
today, $10.50, or around 1 times sales. "They're completely sold out in their core 
business in the fourth quarter," he says, "and for the first time, they have pricing 
power." (One reason is that disk drives are no longer sold mostly for PCs; they've 
become a staple in storage networks.) 

Scion, meanwhile, is currently valued at around $100 million (based on 
Tyco/Integral's 25% stake). "Chump change," says Turkel. That's because the 
valuation is without even having a marketable product; the first wafer isn't expected 
to hit the market until next year (which, I should point out, is why some skeptics 
are, uh, skeptical). 

But another very sharp manager I know, who is often short stocks, said he saw 
Read-Rite at several recent conferences, and "I thought the story got better 
between Salomon Smith Barney and Banc of America, both on the optics side 
and on their base business. They actually showed a slide of the optical wafer 
prototype they had made; they said they are sampling product with several 
customers. They said, Our customers have said, 'If you can make them, we'll buy 
them.' In other words, the move to optical is less theoretical than it was a month 

What's more, according to this money manger, who is great at spotting nuances, 
"They went from saying, 'We'll be break-even cash flow in Q-4 from core 
businesses,' to saying, 'We are on allocation and we may actually make money in 
Q4' from the core business.' " 

Based on that, Turkel (who first bought the stock when it was $4 not long ago) 
thinks he now owns a $10 stock that is worth $25. 

P.S.: Read-Rite recently paid the first installment of interest on a convertible bond 
with cash, rather than stock, which was an alternative. (The cash came from the 
State of Wisconsin Investment Board, already a large Read-Rite investor.) 
Translation to some investors: The only reason the state paid with cash is because 
it thinks the stock is going higher. Or, put another way, Wisconsin, which already 
owns a 20% stake, wouldn't have sunk in even more cash if it didn't think it would 
make a decent return. (Did I really write something that glowing? Must be some 
kind of a market top!) 

(Voluntary Disclosure: Position- Long)

Read-Rite CEO gets into growth
By Janet Haney, CBS.MarketWatch.com
Last Update: [Timestamp]NewsWatch
Latest headlines
SAN FRANCISCO (CBS.MW) -- Read-Rite Chief Executive Officer Alan Lowe waxed positive about the future growth prospects for the magnetic-recording-head supplier.

Lowe told a crowd of investors and analysts during a presentation at the Banc of America Securities Investment Conference in San Francisco on Thursday that he expects huge unit growth potential for Read-Rite's (RDRT: news, msgs) December quarter, as well as the possibility of profitability.
Lowe added that the company is hiring people as fast as it can for its wafer fabrication facility.
For the September quarter, the CEO said Read-Rite has a "lot of product to ship in the last 10 days of the quarter."
Additionally, Lowe talked about Read-Rite's recent formation of an independent fiber optic company called Scion Photonics which he said hopes to go public.
Scion received funding from Tyco, which will make a presentation at the conference later Thursday.  
Janet Haney is a reporter for CBS.MarketWatch.com.

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