UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-Q


                   QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                                       OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                      For the Quarter Ended October 1, 2000
                         Commission File Number 0-16852

                               KOMAG, INCORPORATED
                                  (Registrant)

                      Incorporated in the State of Delaware
                I.R.S. Employer Identification Number 94-2914864
               1710 Automation Parkway, San Jose, California 95131
                            Telephone: (408) 576-2000

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  Registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.
                                     Yes    X                  No        .
                                        ---------                ---------

On October 1, 2000,  66,801,269 shares of the Registrant's  common stock,  $0.01
par value, were issued and outstanding.

<PAGE>

                                      INDEX

                               KOMAG, INCORPORATED

                                                                        Page No.

PART I.        FINANCIAL INFORMATION

Item 1.        Consolidated Financial Statements (Unaudited)

               Consolidated statements of operations--Three-and nine-
               months ended October 1, 2000 and October 3, 1999................3

               Consolidated balance sheets--October 1, 2000
               and January 2, 2000.............................................4

               Consolidated statements of cash flows--Nine-months
               ended October 1, 2000 and October 3, 1999.......................5

               Notes to consolidated financial statements--
               October  1, 2000.............................................6-15

Item 2.        Management's Discussion and Analysis of
               Financial Condition and Results of Operations...............16-37

PART II.       OTHER INFORMATION

Item 1.        Legal Proceedings..............................................38

Item 2.        Changes in Securities..........................................38

Item 3.        Defaults Upon Senior Securities................................38

Item 4.        Submission of Matters to a Vote of Security Holders............38

Item 5.        Other Information..............................................38

Item 6.        Exhibits and Reports on Form 8-K...............................39

SIGNATURES....................................................................40

                                      -2-

<PAGE>


PART I.   FINANCIAL INFORMATION

<TABLE>

                                                  KOMAG, INCORPORATED
                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                         (In thousands, except per share data)
                                                      (Unaudited)
<CAPTION>
                                                                       Three Months Ended        Nine Months Ended
                                                                       ------------------        -----------------
                                                                        Oct 1       Oct 3         Oct 1         Oct 3
                                                                         2000        1999          2000          1999
                                                                    ----------  ----------    ----------    ----------
<S>                                                                 <C>         <C>            <C>          <C>

Net sales to unrelated parties                                      $  39,684   $  13,402     $ 105,396     $ 127,328
Net sales to related parties                                           44,485      66,496       141,874       135,809
                                                                    ----------  ----------    ----------    ----------
          NET SALES                                                    84,169      79,898       247,270       263,137

Cost of sales                                                          74,396      97,504       214,725       284,627
                                                                    ----------  ----------    ----------    ----------
          GROSS PROFIT (LOSS)                                           9,773     (17,606)       32,545       (21,490)

Operating expenses:
     Research, development and engineering                              8,276      11,531        25,168        35,697
     Selling, general and administrative                                2,985       4,240        10,399        15,330
     Amortization of intangibles                                        2,555       7,174         7,665        14,533
     Restructuring charges                                                  -     183,644        (2,661)      187,965
                                                                    ----------  ----------    ----------    ----------
                                                                       13,816     206,589        40,571       253,525
                                                                    ----------  ----------    ----------    ----------
          OPERATING LOSS                                               (4,043)   (224,195)       (8,026)     (275,015)

Other income (expense):
     Interest income                                                      734       1,211         2,884         4,172
     Interest expense                                                  (8,906)     (6,199)      (22,814)      (17,138)
     Other, net                                                          (285)        169           286         1,699
                                                                    ----------  ----------    ----------    ----------
                                                                       (8,457)     (4,819)      (19,644)      (11,267)
                                                                    ----------  ----------    ----------    ----------
Loss before income taxes, minority interest,
   equity in joint venture loss and extraordinary gain                (12,500)   (229,014)      (27,670)     (286,282)
Provision for income taxes                                                366         350         1,192         1,100
                                                                    ----------  ----------    ----------    ----------
Loss before minority interest, equity in
   joint venture loss and extraordinary gain                          (12,866)   (229,364)      (28,862)     (287,382)
Minority interest in net income (loss) of consolidated subsidiary        (291)       (198)         (747)          142
Equity in net loss of unconsolidated joint venture                          -           -             -        (1,402)
                                                                    ----------  ----------    ----------    ----------
          LOSS BEFORE EXTRAORDINARY GAIN                              (12,575)  ($229,166)      (28,115)     (288,926)
Extraordinary gain                                                          -           -         3,772             -
                                                                    ----------  ----------    ----------    ----------

          NET LOSS                                                   ($12,575)  ($229,166)     ($24,343)    ($288,926)
                                                                    ==========  ==========    ==========    ==========

Basic and diluted loss before extraordinary gain per share             ($0.19)     ($3.50)       ($0.42)       ($4.72)
Basic and diluted extraordinary gain per share                      $       -   $       -     $    0.06     $       -
                                                                    ----------  ----------    ----------    ----------

Basic and diluted net loss per share                                   ($0.19)     ($3.50)       ($0.36)       ($4.72)
                                                                    ==========  ==========    ==========    ==========

Number of shares used in basic and diluted computations                66,792      65,449        66,236        61,204
                                                                    ==========  ==========    ==========    ==========

<FN>
                 See notes to consolidated financial statements.
</FN>
</TABLE>

                                      -3-

<PAGE>

<TABLE>
                               KOMAG, INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<CAPTION>
                                                               Oct 1        Jan 2
                                                                2000         2000
                                                           ---------    ---------
ASSETS                                                    (unaudited)       (note)
<S>                                                        <C>          <C>
Current Assets
       Cash and cash equivalents                           $  34,815    $  25,916
       Short-term investments                                 19,701       43,610
       Accounts receivable (including $17,827 and
         $25,971 due from related parties in 2000
         and 1999, respectively) less allowances
         of $2,741 in 2000 and $2,180 in 1999                 37,096       36,494
       Inventories:
           Raw materials                                       7,814        7,695
           Work-in-process                                     8,357        4,820
           Finished goods                                      6,573       10,503
                                                           ---------    ---------
                 Total inventories                            22,744       23,018
       Prepaid expenses and deposits                           7,490        3,254
       Income taxes receivable                                    87          815
       Deferred income taxes                                   3,767        3,767
                                                           ---------    ---------
                 Total current assets                        125,700      136,874
Property, Plant and Equipment
       Land                                                    7,785        7,785
       Buildings                                             135,947      134,471
       Equipment                                             474,787      630,221
       Furniture                                               7,517       10,980
       Leasehold improvements                                 31,724       36,656
                                                           ---------    ---------
                                                             657,760      820,113
       Less allowances for depreciation and amortization    (389,928)    (506,658)
                                                           ---------    ---------
                 Net property, plant and equipment           267,832      313,455
Net Intangible Assets                                         15,331       22,996
Deposits and Other Assets                                        953        2,546
                                                           ---------    ---------
                                                           $ 409,816    $ 475,871
                                                           ---------    ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
       Current portion of long-term debt                   $ 224,240    $ 260,000
       Trade accounts payable                                 26,033       21,474
       Accounts payable to related parties                     3,622        2,019
       Accrued compensation and benefits                      10,063       10,048
       Other liabilities                                      15,957       19,615
       Income taxes payable                                       10          109
       Restructuring Liability                                 8,369       25,490
                                                           ---------    ---------
                 Total current liabilities                   288,294      338,755
Note Payable to Related Party                                 21,186       21,186
8% Convertible Subordinated Debt                               9,281         --
Deferred Income Taxes                                         20,045       20,045
Other Long-term Liabilities                                    8,930       13,245
Minority Interest in Consolidated Subsidiary                   3,180        3,927

Stockholders' Equity
       Preferred stock                                          --           --
       Common stock                                              668          659
       Additional paid-in capital                            449,905      445,384
       Accumulated deficit                                  (392,252)    (367,909)
       Accumulated other comprehensive income                    579          579
                                                           ---------    ---------
                 Total stockholders' equity                   58,900       78,713
                                                           ---------    ---------
                                                           $ 409,816    $ 475,871
                                                           ---------    ---------
<FN>
       Note: The balance sheet at January 2, 2000 has been derived from the audited
             financial statements at that date.

                 See notes to consolidated financial statements.
</FN>
</TABLE>
                                       -4-

<PAGE>

<TABLE>
                               KOMAG, INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

<CAPTION>
                                                                                    Nine Months Ended
                                                                                 ----------------------
                                                                                     Oct 1        Oct 3
                                                                                      2000         1999
                                                                                 ---------    ---------
<S>                                                                              <C>          <C>
OPERATING ACTIVITIES
      Net loss                                                                   ($ 24,343)   ($288,926)
      Adjustments to reconcile net loss to net cash
          provided by operating activities:
            Depreciation and amortization                                           56,644       72,893
            Amortization of intangibles                                              7,665       14,533
            Extraordinary gain                                                      (3,772)        --
            Provision for losses on accounts receivable                                200         (334)
            Interest expense on note payable to related party                        3,190         --
            Amortized interest expense related to debt restructure                   1,448         --
            Amortization of warrants                                                   854         --
            Equity in net loss of unconsolidated joint venture                        --          1,402
           Loss on disposal of property, plant and equipment                           248          260
           Impairment of goodwill                                                     --         44,348
          Non-cash portion of restructuring charge
               related to write-off of property, plant, and equipment                 --         98,547
            Deferred rent                                                              147         (398)
            Minority interest in net income (loss) of consolidated subsidiary         (747)         142
            Changes in operating assets and liabilities:
                  Accounts receivable                                               (8,946)      37,134
                  Accounts receivable from related parties                           8,144      (30,008)
                  Inventories                                                          274        8,924
                  Prepaid expenses and deposits                                     (4,252)      (1,508)
                  Trade accounts payable                                             4,646       (2,120)
                  Accounts payable to related parties                                1,516         (113)
                  Accrued compensation and benefits                                     15       (2,975)
                  Other liabilities                                                (10,718)      (4,032)
                  Income taxes receivable/payable                                      629           84
                  Restructuring liability                                          (16,793)      33,782
                                                                                 ---------    ---------
                           Net cash provided by (used in) operating activities      16,049      (18,365)

INVESTING ACTIVITIES
      Acquisitions of property, plant and equipment                                (13,875)     (28,765)
      Purchases of short-term investments                                           (5,382)      (5,180)
      Proceeds from short-term investments at maturity                              29,291       12,715
      Proceeds from disposal of property, plant and equipment                        1,233          860
      Other assets                                                                   2,307           (3)
                                                                                 ---------    ---------
                         Net cash provided by (used in) investing activities        13,574      (20,373)

FINANCING ACTIVITIES
      Payment of debt                                                              (22,500)        --
      Sale of Common Stock, net of issuance costs                                    1,776        2,255
                                                                                 ---------    ---------
                         Net cash provided by (used in) financing activities       (20,724)       2,255

                      Increase (decrease) in cash and cash equivalents               8,899      (36,483)

      Cash and cash equivalents at beginning of period                              25,916       64,467
                                                                                 ---------    ---------

                      Cash and cash equivalents at end of period                 $  34,815    $  27,984
                                                                                 ---------    ---------

<FN>
                See notes to consolidated financial statements.
</FN>
</TABLE>

                                      -5-

<PAGE>

                              KOMAG, INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 OCTOBER 1, 2000

NOTE 1 - BASIS OF PRESENTATION

       The accompanying  unaudited  consolidated  financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements.  In the  opinion  of  management,  all  normal  recurring
adjustments,  and the recognition of an extraordinary  gain as discussed in Note
9,  considered  necessary for a fair  presentation  of the  financial  position,
operating  results and cash flows for the periods  presented have been included.
Operating  results for the three- and nine-month  periods ended October 1, 2000,
are not necessarily  indicative of the results that may be expected for the year
ending December 31, 2000.

       The financial statements have been prepared on a going-concern basis. The
Report of  Independent  Auditors on the Company's  financial  statements for the
year ended January 2, 2000 included in the Company's  Annual Report on Form 10-K
contained an explanatory  paragraph which indicated  substantial doubt about the
Company's ability to continue as a going concern because of cumulative operating
losses and lack of compliance with certain financial  covenants contained in its
then-existing senior unsecured bank credit facilities.

       At the time of the  covenant  defaults,  the Company had $260  million of
debt  outstanding.  In June, 2000, the Company replaced these credit  facilities
with a senior  unsecured  loan  restructure  agreement  with its  lenders  and a
separate subordinated unsecured convertible debt agreement with other creditors.
As a result,  the Company  currently has $224.2 million in bank debt outstanding
that matures in June,  2001,  and  approximately  $9.3 million of 8% convertible
subordinated debt that matures in 2005. As of October 1, 2000, the Company is in
compliance with the financial covenants of such agreements.

       The Company will need to further  restructure  its debt  obligations  and
raise  additional  funds to operate its business.  Inability to raise additional
funds may force the Company to reduce or possibly suspend its operations, and/or
sell  additional  securities  on terms  that  would be  highly  dilutive  to the
Company's  current  stockholders.  The  financial  statements do not include any
adjustments  to reflect the possible  future effects on the

                                      -6-

<PAGE>


recoverability and classification of assets or the amounts and classification of
assets and liabilities that may result from the outcome of this uncertainty.

       For further information,  refer to the consolidated  financial statements
and related  footnotes  included in the Company's Annual Report on Form 10-K for
the year ended January 2, 2000.

       The Company uses a 52-53 week fiscal year ending on the Sunday closest to
December 31. The three- and nine-month reporting periods included in this report
are comprised of thirteen and thirty-nine weeks, respectively.

NOTE 2 - INVESTMENT IN DEBT SECURITIES

       The Company invests its excess cash in high-quality,  short-term debt and
equity  instruments.  None of the Company's  investments in debt securities have
maturities  greater than one year.  The  following is a summary of the Company's
investments by major security type at amortized cost,  which  approximates  fair
value:

                                                  (in thousands)

                                                 Oct 1     Jan 2
                                                  2000      2000
                                                -------   -------
Municipal auction rate preferred stock          $17,000   $39,200
Corporate debt securities                         8,178     7,339
Mortgage-backed securities                       17,755    24,650
                                                -------   -------
                                                $42,933   $71,189
                                                -------   -------

Amounts included in cash and cash equivalents   $23,232   $27,579
Amounts included in short-term investments       19,701    43,610
                                                -------   -------
                                                $42,933   $71,189
                                                -------   -------

       The Company  utilizes  zero-balance  accounts  and other cash  management
tools to invest all available  funds  including  bank balances in excess of book
balances.

NOTE 3 - INCOME TAXES

       The Company's  income tax provisions of  approximately  $400,000 and $1.2
million  for  the   three-and   nine-month   periods   ended  October  1,  2000,
respectively,  and  $400,000  and $1.1  million  for the three-  and  nine-month
periods ended October 3, 1999, respectively, represent foreign withholding taxes
on royalty and interest  payments.  The Company's  wholly-owned  thin-film media
operation,  Komag USA (Malaysia) Sdn. ("KMS"), received a five-year extension of
its initial tax holiday  through June,  2003,  for

                                      -7-

<PAGE>


its first plant  site.  KMS has also been  granted an  additional  ten-year  tax
holiday for its second and third plant sites in Malaysia.  The  government  will
reassess the tax holiday  start date for the second and third plant sites by the
year 2001, based on achieving certain investment criteria.

NOTE 4 - COMPREHENSIVE LOSS

       Comprehensive loss for the three- and nine-month periods ended October 1,
2000,  and  October  3,  1999 in the  accompanying  Consolidated  Statements  of
Operations is the same as the Company's net loss.

       Accumulated other comprehensive income at October 1, 2000, and January 2,
2000, in the  accompanying  Consolidated  Balance  Sheets  consists  entirely of
accumulated foreign currency translation adjustments.

NOTE 5 - RESTRUCTURING CHARGES

       During the third quarter of 1997,  the Company  evaluated the size of its
production  capacity  relative to market demand and  implemented a restructuring
plan to close two older Milpitas,  California facilities. The Company recorded a
$52.2  million  restructuring  charge which  included $3.9 million for severance
costs associated with approximately 330 terminated  employees (all in the US and
predominately all from the manufacturing area), $33.0 million for the write-down
of the net book value of excess  equipment  that was  scrapped  and  disposed of
leasehold  improvements,  $10.1 million related to equipment order cancellations
and other equipment-related  costs, and $5.2 million for facility closure costs.
Non-cash items included in the restructuring charge totaled  approximately $33.0
million.

       In the second quarter of 1998,  several  customers reduced orders for the
Company's  products  in response  to  downward  adjustments  in their disk drive
production  build  schedules.  Due to the expectation  that the media industry's
supply/demand  imbalance  would  extend  into 1999,  the  Company  adjusted  its
expectations for the utilization of its installed production capacity.  Based on
this analysis of the Company's  production  capacity and its expectations of the
media market over the remaining life of the Company's fixed assets,  the Company
concluded  that it would not be able to recover  the book value of those  assets
based on projected undiscounted cash flows. As a result, the Company implemented
a restructuring  plan in June,  1998, that included a reduction in the Company's
US and  Malaysian  workforce  and the  cessation of operations at its oldest San
Jose,  California  plant. The Company recorded a restructuring  charge of $187.8
million  which  included  $4.1 million for severance  costs  (approximately  170
employees,  predominately in the US and  approximately  69%, 27% and 4% from the
manufacturing  area,  engineering  area, and sales,  general and  administrative
area,  respectively),  $5.9 million related to equipment order cancellations and
other equipment  related costs, and

                                      -8-

<PAGE>


$2.8 million for facility closure costs.  The asset impairment  component of the
charge was $175.0 million and  effectively  reduced asset  valuations to reflect
the  economic  effect of recent  industry  price  erosion for disk media and the
projected   under-utilization   of  the  Company's   production   equipment  and
facilities.  The fair  value of  these  assets  was  determined  based  upon the
estimated  future  cash flows to be  generated  by the assets,  discounted  at a
market rate of interest  (15.8%).  The cash  component  of the total  charge was
$12.8  million.  Non-cash items in the  restructuring/impairment  charge totaled
$175.0 million.

       The Company incurred lower facility closure costs than anticipated in the
restructuring  charges.  The  oldest  Milpitas  plant  was  sublet  sooner  than
anticipated  and the  Company  reached a lease  termination  agreement  with its
landlord on the second  Milpitas plant in the third quarter of 1998. The Company
thereby  avoided  expected  future rent payments and the cost of renovating  the
facility to its original lease condition.  Additionally,  the Company determined
that it would  not  close  its  oldest  San  Jose,  California  facility  at the
expiration of its lease. As a result, the Company did not incur costs to restore
the  facility  to  its  original  lease   condition  as   contemplated   in  the
restructuring   charge.   Higher  than  expected   costs  for  equipment   order
cancellations  offset the lower facility closure costs. A total of 515 employees
were terminated in the restructuring activities.

The following tables summarize the activity in the restructuring reserves during
the first nine months of 2000:

               1997 Restructuring Reserve
                                           Equipment Order
                                           Cancellations And
                                               Other
               (in millions)               Related Costs
                                           ---------------
               Balance at January 2, 2000            $1.8

               Adjustment to Reserve                 (0.2)
               Charged to Reserve                    (1.6)
                                           ---------------
               Balance at October 1, 2000            $0.0
                                           ---------------

                                      -9-

<PAGE>


               1998 Restructuring Reserve

                                          Equipment Order
                                          Cancellations And
               (in millions)              Other Related Costs
                                          -----------------
               Balance at January 2, 2000             $0.6

               Adjustment to Reserve                  (0.6)
               Charged to Reserve                      --
                                          -----------------
               Balance at October 1, 2000             $0.0
                                          -----------------

       The Company has made cash payments totaling  approximately  $31.0 million
primarily for severance,  equipment  order  cancellations  and facility  closure
costs under the 1997 and 1998 restructuring activities.

All restructuring  activity related to the 1997 and 1998 restructuring  reserves
was complete as of July 2, 2000.

       The Company recorded  restructuring charges of $4.3 million in the second
quarter of 1999. This restructuring charge related to severance costs associated
with 400  terminated  employees,  all in the US and  predominately  all from the
manufacturing area. The entire $4.3 million was paid out to the employees during
the second and third quarters of 1999.

       During the third quarter of 1999, the Company implemented a restructuring
plan based on an evaluation of the size and location of its existing  production
capacity  relative to the short-term and long-term market demand outlook.  Under
the 1999  restructuring  plan, the Company decided to close its US manufacturing
operations in San Jose,  California.  The  restructuring  actions  resulted in a
charge of $139.3 million and included  $98.5 million for leasehold  improvements
and  equipment   write-offs,   $17.7  million  for  future   liabilities   under
non-cancelable  equipment leases associated with equipment no longer being used,
$15.6 million for severance pay  associated  with  approximately  980 terminated
employees (all in the US and predominately all from the manufacturing area), and
$7.5  million  in  plant  closure   costs.   Non-cash   items  included  in  the
restructuring charge totaled approximately $98.5 million.

                                      -10-

<PAGE>

<TABLE>
       1999 Restructuring Reserve - Changes During First Nine Months of 2000

<CAPTION>
                                              Writedown Net Book     Liabilities Under
                                              Value of Equipment       Non-Cancelable    Facility
                                                and Leasehold            Equipment       Closure     Severance
       (in millions)                             Improvements              Leases         Costs        Costs        Total
                                           ------------------------- ------------------ ---------- ------------- ----------
<S>                                                 <C>                    <C>             <C>          <C>         <C>
       Balance at January 2, 2000                    $--                   $13.8           $4.5         $4.8        $23.1

       Adjustment to Reserve                         2.4                      --           (3.7)        (0.7)        (2.0)
       Charged to Reserve                           (2.4)                   (5.8)          (0.5)        (4.0)       (12.7)
                                           ------------------------- ------------------ ---------- ------------- ----------
       Balance at October 1, 2000                    $--                    $8.0           $0.3         $0.1         $8.4
                                           ------------------------- ------------------ ---------- ------------- ----------
</TABLE>

       At October  1,  2000,  $8.4  million  related  to the 1999  restructuring
activities  remained  in  current  liabilities.  During  1999 and the first nine
months of 2000, the Company made cash payments totaling $32.3 million, primarily
for severance costs,  payments for liabilities  under  non-cancelable  equipment
leases and facility closure costs.  Cash outflows of approximately  $0.4 million
associated with severance pay and closure costs will occur primarily  during the
fourth quarter of 2000.  Cash payments of  approximately  $8.0 million under the
equipment  leases will be made in monthly  installments  through  mid-2002.  The
facility  closure  liability  was reduced by  approximately  $3.7 million in the
first  nine  months  of 2000  due to  successfully  terminating  the  leases  on
manufacturing facilities and subleasing the administrative facility earlier than
originally expected.  The writedown of net book value of equipment and leasehold
improvements  was increased by $2.4 million during the first nine months of 2000
for additional  equipment that was determined  unusable due to the  restructure.
The  severance  costs  liability  was reduced by $0.7  million due to lower than
expected payments.

NOTE 6 - LOSS PER SHARE

       The net loss per share  was  computed  using  only the  weighted  average
number of shares of common stock  outstanding  during the period.  The following
table sets forth the computation of net loss per share:

                                      -11-

<PAGE>

<TABLE>
                                             (in thousands, except per share amounts)

<CAPTION>
                                                  Three Months Ended                  Nine Months Ended
                                             -----------------------------    ------------------------------
                                                      Oct 1          Oct 3             Oct 1          Oct 3
                                                       2000           1999              2000           1999
                                             --------------- --------------   --------------- --------------

<S>                                                <C>           <C>                <C>           <C>
Numerator:  Loss before extraordinary gain         ($12,575)     ($229,166)         ($28,115)     ($288,926)
                                             --------------- --------------   --------------- --------------

Denominator for basic and diluted -
       weighted-average shares                       66,792         65,449            66,236         61,204
                                             --------------- --------------   --------------- --------------

Basic and diluted loss before
       extraordinary gain per share                  ($0.19)        ($3.50)           ($0.42)        ($4.72)
                                             --------------- --------------   --------------- --------------
</TABLE>

         Incremental  common shares  attributable to the exercise of outstanding
options (assuming  proceeds would be used to purchase treasury stock) of 120,559
and 28,009 for the three months ended October 1, 2000,  and October 3, 1999, and
227,656 and 421,659 for the nine months  ended  October 1, 2000,  and October 3,
1999,  respectively,  were not  included  in the net loss per share  computation
because the effect would be antidilutive.

         Incremental  common shares  attributable to the exercise of outstanding
warrants (assuming proceeds would be used to purchase treasury stock) of 200,693
and zero for the three  months  ended  October 1, 2000 and October 3, 1999,  and
87,635 and zero for the nine months ended October 1, 2000,  and October 3, 1999,
respectively,  were not included in the net loss per share  computation  because
the effect would be antidilutive.

        Incremental common shares  attributable to convertible debt of 3,668,668
and zero for the three  months  ended  October  1,  2000 and  October  3,  1999,
respectively,  and 2,479,375 and zero for the nine months ended October 1, 2000,
and October 3, 1999,  respectively,  were not included in the net loss per share
computation because the effect would be antidilutive.

NOTE 7 - USE OF ESTIMATES

       The  preparation  of financial  statements in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

                                      -12-

<PAGE>


NOTE 8 - LIABILITIES ASSOCIATED WITH ASSET PURCHASE

       In April,  1999,  the  Company  purchased  the assets of Western  Digital
Corporation's ("WDC") media operation.  In conjunction with the purchase,  under
purchase  accounting rules, the Company recorded  liabilities that increased the
amount of goodwill  recognized.  These liabilities  included  estimated costs of
$5.6 million for the closure of the former WDC media  operation as well as costs
of $26.5 million related to the remaining lease  obligations for equipment taken
out of service due to the closure,  and $4.7 million of costs for purchase order
cancellations and other costs.

       During 1999 and the first nine months of 2000,  liabilities  arising from
this  transaction  were  reduced  by  approximately  $25.5  million,   including
equipment lease  obligations  ($15.8  million),  rent ($1.9 million),  and other
liabilities ($7.8 million).  Equipment lease obligations are expected to be paid
monthly  through  mid-2002.  At  October  1, 2000,  the  current  portion of the
equipment lease obligations was approximately $8.9 million.  The majority of the
facility closure costs,  purchase order cancellation costs and other liabilities
associated with the WDC transaction are expected to be paid by the end of fiscal
2000.

NOTE 9 - TERM DEBT AND 8% CONVERTIBLE SUBORDINATED DEBT

       The Company  previously  had borrowed  $260.0 million under its term debt
and line of credit facilities.  In June, 2000, the Company replaced these credit
facilities with a senior unsecured loan  restructure  agreement with its lenders
and a separate  subordinated  unsecured  convertible  debt  agreement with other
creditors.  The restructured  bank debt of $224.2 million matures in June, 2001,
and bears  interest  at prime  plus  1.25%.  The  Company  is  required  to make
principal  payments  under the  agreement  of $7.5  million  each  quarter.  The
agreement  requires the Company to meet certain  financial  covenants with which
the Company was in compliance as of October 1, 2000.

       In addition,  under the loan agreement,  Series A warrants were issued to
purchase  1,651,349  shares of the Company's  common stock and Series B warrants
were issued to purchase 660,539 shares of the Company's common stock. The Series
A warrants are currently exercisable until June, 2010, and the Series B warrants
become exercisable in June, 2001, for a ten-year period only if the related debt
balance  outstanding  at that point exceeds  $160.0  million.  Otherwise,  these
warrants become void.  Because of this  contingency,  the Series B warrants were
not valued. The exercise price of both series of warrants is $2.13.

       The Company  valued the Series A warrants using the  Black-Scholes  model
and  determined  the  value to be  approximately  $2.8  million,  which has been
capitalized  and is being charged to interest  expense over the life of the loan
restructure agreement.  The

                                      -13-

<PAGE>


following  assumptions were used in the Black-Scholes model:  risk-free interest
rate of 6.38%, a volatility factor of the expected market price of the Company's
Common  Stock of 74.7%,  and a life of ten years.  There was no  dividend  yield
included in the calculation as the Company does not pay dividends.

The Company currently has approximately $9.3 million of convertible subordinated
debt  that  matures  in 2005.  At the time the debt was  converted  from  senior
unsecured debt to convertible subordinated debt, the principal balance was $13.3
million.  The  conversion  from a  principal  balance  of $13.3  million to $9.3
million resulted in an extraordinary gain of $3.8 million, net of expenses.  The
lenders have the right to purchase additional  convertible notes in an aggregate
principal amount of up to $35.7 million.  The original $9.3 million in notes are
convertible  into shares of the Company's  common stock at a conversion price of
$2.53.  The notes have an interest  rate of 8% payable upon the maturity date of
the notes.  The notes are  convertible  into the Company's  common stock, at the
lenders' option,  at any time on or after the issuance date of the notes. At the
Company's  option,  the notes are convertible  into the Company's  common stock,
with no forced  conversion for two years,  on any date on which the closing sale
price of the common stock has been, for seven of ten  consecutive  trading days,
greater than 200% of the conversion  price in effect on the issuance date of the
applicable notes.

NOTE 10 - EQUITY

       In  March,   2000,  the  Company   entered  into  an  agreement  with  an
institutional  investor to sell up to $20 million of common stock. The shares of
common  stock will be sold  pursuant to a private  equity line of credit,  under
which the Company may exercise "put options" to sell shares for a price equal to
90%,  92% or 94% of market  price  depending on the level of the market price at
the time of exercise of the "put option." The shares may be sold periodically in
maximum increments of $1.5 million to $3.5 million over a period of up to thirty
months. On signing the agreement, the Company issued warrants to the investor to
acquire 80,000 shares of common stock at an exercise price of $4.6875 per share.
The warrants are exercisable  during a three-year period beginning in September,
2000.  The  Company  valued  the  warrants  using  the  Black-Scholes  model and
determined  the value to be  immaterial.  As of October 1, 2000,  no shares have
been sold under this agreement.

NOTE 11 - HMT MERGER

       In April,  2000, the Company entered into a definitive  merger  agreement
with HMT Technology Corporation (HMT). HMT designs,  develops,  manufactures and
markets   high-performance   thin-film   disks.   On  September  20,  2000,  the
stockholders  of the Company and HMT  approved the merger  transaction,  and the
merger  was  completed  on  October  2,  2000.  In  accordance  with the  merger
agreement,  each issued and  outstanding  share of HMT stock was converted  into
0.9094  shares of the Company's  common stock.

                                      -14-

<PAGE>


The merger will be accounted  for under  purchase  accounting  in the  Company's
fiscal fourth quarter of 2000.

NOTE 12 - NEW ACCOUNTING STANDARDS

         In  June,  1998,  the  Financial   Accounting  Standards  Board  issued
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Financial  Instruments  and Hedging  Activities"  ("SFAS 133") which  provides a
comprehensive  and consistent  standard for the  recognition  and measurement of
derivatives  and hedging  activities.  SFAS 133,  as amended,  is required to be
adopted by the Company  effective January 1, 2001 and is not anticipated to have
an impact on the  Company's  results of  operations  or financial  position when
adopted as the Company holds no derivative  financial  instruments  and does not
currently engage in hedging activities.

         In December,  1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial  Statements" ("SAB
101").  SAB 101  summarizes  the  SEC's  views in  applying  generally  accepted
accounting principles to revenue recognition.  SAB 101 is required to be adopted
by the Company in the fourth  quarter of 2000 and is not  anticipated  to have a
material  impact on the Company's  results of  operations or financial  position
when adopted.

         In March,  2000, the Financial  Accounting  Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock  Compensation - an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the  application  of APB Opinion No. 25 and,  among other issues,  clarifies the
following:  the  definition  of an employee for purposes of applying APB Opinion
No.  25;  the  criteria  for   determining   whether  a  plan   qualifies  as  a
noncompensatory plan; the accounting consequence of various modifications to the
terms of the  previously  fixed  stock  options  or  awards;  accounting  for an
exchange  of  stock  compensation  awards  in a  business  combination;  and the
accounting and separate-entity  reporting of awards granted between companies in
a consolidated  group. The adoption of this  interpretation had no impact on the
company's results of operations or financial condition.

NOTE 13 - LEGAL PROCEEDINGS

Asahi Glass  Company,  Ltd.  (Asahi) has asserted that an agreement  between the
Company   and   Asahi   gives   Asahi   exclusive   rights  to   certain   glass
substrate-related  intellectual  property developed by the Company.  The Company
has sent Asahi a notice of  termination of the agreement and has filed a lawsuit
for, among other things,  a declaration  that the agreement has been  terminated
and that  Asahi has no rights to the glass  substrate  technology.  This case is
currently pending.

                                      -15-

<PAGE>

                               KOMAG, INCORPORATED

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

        The  following  discussion  contains  predictions,  estimates  and other
forward-looking  statements  that  involve a number of risks and  uncertainties.
These  statements  may be  identified  by the use of  words  such as  "expects,"
"anticipates,"  "intends,"  "plans,"  and  similar  expressions.  The  Company's
business  is  subject  to a  number  of  risks  and  uncertainties.  While  this
discussion  represents the Company's current judgment on the future direction of
its business,  such risks and uncertainties could cause actual results to differ
materially from any future performance suggested herein.

        The Company sells a single product into a market  characterized by rapid
technological change and sudden shifts in the balance between supply and demand.
Further, the Company is dependent on a limited number of customers, some of whom
also manufacture some or most of their own disks  internally.  Due to the volume
purchase  agreement  with Western  Digital  Corporation  ("WDC"),  the Company's
results  continue to remain highly  dependent on the relative  success of WDC in
the data storage market.

        Competition  in the market,  defined by both  technology  offerings  and
pricing,  can be fierce,  especially during times of excess available  capacity.
Such conditions have been prevalent since 1997.

        In  addition,  there are risks  relating  to the timing  and  successful
completion of technology  and product  development  efforts,  integration of the
technologies and businesses of Komag and HMT,  unanticipated  expenditures,  and
changing relationships with customers, suppliers and strategic partners.

        Other  factors  that could cause  actual  results to differ  include the
following:

         o        changes in the industry supply-demand relationship and related
                  pricing for enterprise and desktop disk products;

         o        timely  and  successful   qualification   of   next-generation
                  products;

         o        use of manufacturing facilities;

         o        changes in manufacturing  efficiencies,  in particular product
                  yields and material input costs;

         o        ability to extend  process  equipment  to meet more  stringent
                  future product requirements;

         o        structural  changes  within  the disk media  industry  such as
                  combinations, failures, and joint venture arrangements;

                                      -16-

<PAGE>


         o        vertical  integration and  consolidation  within the Company's
                  customer base;

         o        its dependence on a limited number of customers for sales;

         o        increased competition;

         o        timely and successful  deployment of new process  technologies
                  into manufacturing;

         o        the availability of certain sole-sourced raw material supplies
                  and retention of key employees.

        In addition, the Company's business requires substantial investments for
research and  development  activities and for physical  assets such as equipment
and facilities that depend on its access to financial resources.

        Furthermore,  in June, 2000, the Company replaced its credit  facilities
with a senior  unsecured  loan  restructure  agreement  with its  lenders  which
matures in June, 2001, and a separate  subordinated  unsecured  convertible debt
agreement with other creditors which matures in June 2005.

        The Company will need to further  restructure  its debt  obligations and
raise  additional  funds to  operate  it  business.  The  Company's  ability  to
restructure its debt and raise  additional  funding will depend on improving its
financial performance.

        Other risk factors that may affect the Company's  financial  performance
are listed in the Company's SEC filings,  including its Form 10-K for the fiscal
year ended January 2, 2000,  which was filed on March 31, 2000, and in the Other
Factors  section  beginning on page 26. The Company  undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

Overview

        Adverse market conditions,  which began in mid-1997, continued to impact
the thin-film  media market  throughout  1998,  1999, and 2000.  Demand for disk
drives grew  rapidly  during the  mid-1990s,  and  industry  forecasts  were for
continued  strong growth.  The Company and a majority of its  competitors  (both
independent  disk  manufacturers  and  captive  disk   manufacturers   owned  by
vertically  integrated disk drive customers)  committed to expansion programs in
1996, and substantially increased their media manufacturing capacity in 1997. In
1997,  the  rate  of  growth  in  demand  for  disk  drives  fell.   Disk  drive
manufacturers  abruptly reduced orders for media from independent  suppliers and
relied more heavily on internal  capacity to supply a larger proportion of their
media requirements.  The media industry's  capacity expansion,  coupled with the
decrease  in the rate of demand  growth,  resulted  in excess  media  production
capacity.

                                      -17-

<PAGE>


         In addition to adversities  caused by the excess supply of media,  1998
was a year of  transition  for  the  Company  and the  disk  drive  industry  to
advanced,  magnetoresistive  ("MR") media and recording heads. The transition to
MR disk drives led to unprecedented  increases in areal density and,  therefore,
the  amount  of data  that can be stored  on a single  disk  platter.  Increased
storage capacity per disk allows drive  manufacturers to offer lower-priced disk
drives through the incorporation of fewer components into their disk drives. The
rapid  advancement in storage  capacity per disk platter has further slowed disk
demand  throughout the industry.  According to industry  market  analysts,  this
resulting  reduction in the average number of disks per drive will likely result
in flat to  declining  disk demand in 2000.  The  significant  amount of captive
capacity employed by certain disk drive  manufacturers  also continues to reduce
the market  opportunities  for  independent  disk suppliers such as the Company.
Despite  the  difficult  market  conditions,   the  Company  believes  that  its
recently-completed  merger with HMT, its low Maylasian  manufacturing costs, and
technological advances such as 63 Gigabits per square inch recording density and
low-cost glass substrates, position the Company to be a successful competitor.

         In April,  1999,  the  Company  purchased  the  assets  of WDC's  media
operation.  Additionally, the Company and WDC signed a volume purchase agreement
under which the Company  agreed to supply a  substantial  portion of WDC's media
needs over the next three years. Under the volume purchase agreement,  WDC began
to purchase  most of its media  requirements  from the Company after the closing
date. Due to  assimilation  of the WDC media  operation,  the Company  initially
expected that second quarter 1999 unit sales from the combined  operations would
grow sequentially in the range of 20-35% compared to the Company's first quarter
of 1999 results.  However,  in response to  competitive  market  conditions  the
Company's  customers  reduced  the  number  of disks per  drive to  support  the
delivery of lower priced disk drives to the rapidly expanding,  low-cost segment
of the PC market. As a result, actual unit shipments for the second quarter fell
considerably short of these expectations as customer order reductions (including
those from WDC) and lower-than-expected  volumes on certain new product programs
restricted  sequential  unit sales growth to  approximately  10%. These customer
actions,  the  continuing  imbalance  between  the  supply  and  demand for disk
products,  and the lack of new data-intensive  applications  continue to depress
the Company's  financial  performance.  Due to this weak unit demand the Company
closed the former WDC media  operation at the end of June 1999,  nearly  fifteen
months ahead of the Company's original transition plan.

         Following the closing of the former WDC media operation in June,  1999,
the Company  announced in July,  1999,  that it would further reduce the size of
its US operations in response to the poor industry conditions.  In August, 1999,
the Company  indicated that it would stop volume production of finished disks in
the  US,  close  two  manufacturing  facilities  in San  Jose,  California,  and
institute staged  workforce  reductions that would affect 980 workers by the end
of 1999.  These  reductions,  combined  with the

                                      -18-

<PAGE>


June,  1999,  reduction  of 400  workers,  lowered  the  employment  base at the
Company's US operations from 1,950 in April, 1999 (subsequent to the acquisition
of WDC's media operation), to 529 by the end of the second quarter of 2000. As a
result of these actions, the Company began realizing significant cash savings in
US payroll costs.

        The Company  recorded a  restructuring  charge of $139.3  million in the
third quarter of 1999 for the write-off of equipment and leasehold  improvements
in the US, production  facilities  scheduled for closure,  and for severance pay
related to the reorganization of its US operations.

         After ceasing volume production, the Company's San Jose site is focused
solely on  activities  related to  research,  process  development,  and product
prototyping.  Selling,  general, and administrative functions also remain in San
Jose. The Company's highly- automated substrate  manufacturing facility in Santa
Rosa, California,  continues to produce low-cost aluminum substrates and perform
advanced  development  work for both aluminum and glass  substrates.  We believe
that  the  Company's  shift of high  volume  production  to its  cost-advantaged
Malaysian   manufacturing   plants  has  improved  the  Company's  overall  cost
structure,  resulted in lower unit production  costs, and improved the Company's
ability to respond to the continuing price pressures in the disk industry.

Revenue

        Net sales  increased to $84.2  million in the third  quarter of 2000, up
5.3% compared to $79.9  million in the third  quarter of 1999.  The increase was
primarily due to the net effect of a 26.3% increase in unit sales volume,  which
was offset by a 16.6% decline in the overall average selling price. Year-to-date
net sales decreased to $247.3  million,  a 6% decline from the $263.1 million in
the same period of 1999. Although finished units were up 12.8% over the year-ago
period,  the  overall  selling  price  declined  16.6%  during the same  period,
accounting for the year-over-year decline.

        Net sales of substrate and  single-sided  disks in the third quarters of
2000 and 1999 were $5.2 million and $1.8 million respectively.  Year-to-date net
sales of substrate  and  single-sided  disks in 2000 and 1999 were $16.5 million
and $7.9 million respectively.

        Third quarter 2000 finished  media unit sales  increased to 12.2 million
disks from 9.7 million  disks in the third  quarter of 1999,  a 26.3%  increase.
Year-to-date  finished media unit sales were 34.8 million, a 12.8% increase over
the same period in 1999.

        The severe pricing  pressures  generated by the continuing  imbalance in
supply and demand for thin-film  media in the first nine months of 2000 resulted
in the year-over-year decrease in the overall average selling price. The Company
expects the pricing pressures to continue through the remainder of 2000.

                                      -19-

<PAGE>


        In addition to sales of internally  produced disk products,  the Company
has periodically  resold products  manufactured by its 50%-owned  Japanese joint
venture,  Asahi Komag Co., Ltd.  (AKCL).  Distribution  sales of thin-film media
manufactured by AKCL were $3.5 million and $5.6 million in the third quarter and
first nine months of 2000 respectively,  and negligible in the third quarter and
first nine months of 1999.  Distribution  sales of AKCL product are not expected
to be material in the fourth quarter of 2000.

        During the third quarter of 2000,  sales to WDC, Maxtor  Corporation and
Seagate  Technology,  Inc.  accounted  for  approximately  53%,  28%,  and  15%,
respectively,  of  consolidated  net sales.  Net sales to each of the  Company's
other customers were less than 10% during the third quarter of 2000. The Company
expects that it will continue to derive a substantial  portion of its sales from
WDC and from a small number of other customers.  The distribution of sales among
customers  may vary from quarter to quarter  based on the match of the Company's
product capabilities with specific disk drive programs of customers.

Gross Margin

        Third quarter 2000 gross margin percentage  improved to 11.6%,  compared
to a gross loss  percentage of 22% in the third quarter of 1999. The improvement
was primarily due to a reduction of $19.3 million in fixed manufacturing  costs.
Depreciation  and  payroll-related  charges  in the third  quarter  of 2000 were
approximately 29% lower and 34% lower,  respectively,  than the third quarter of
1999 primarily due to the restructuring charge recorded in September, 1999.

        Year-to-date  2000 gross  margin  was 13.2 % versus a negative  8.2% for
year-to-date  1999.  Reductions  in fixed  manufacturing  costs and higher  unit
production  volumes  favorably  impacted  the  Company's  gross  margin in 2000.
Year-to-date 2000 depreciation and  payroll-related  charges were  approximately
38% lower and 51% lower,  respectively,  than in the first nine  months of 1999,
primarily due to the restructuring charge recorded in September, 1999.

        The Company  produced  11.4 million  units in the third  quarter of 2000
compared to 9.1 million units in the third quarter of 1999.  This 25.3% increase
primarily  corresponds  with the 26.3 %  increase  in units  sold  over the same
periods.

        The Company produced 33.7 million units in the first nine months of 2000
compared to 30.5 million units in the  corresponding  period of 1999. This 10.3%
increase  primarily  corresponds with the 12.8 % increase in units sold over the
same periods.

                                      -20-

<PAGE>

Operating Expenses

        Research and development  ("R&D") expenses  decreased to $8.3 million in
the third quarter of 2000 from $11.5  million in the third quarter of 1999.  For
the first nine months of the year,  R&D expenses  decreased to $25.2  million in
2000 from $35.7 million in 1999.  Decreased R&D staffing and lower  facility and
equipment costs (primarily due to the 1999 restructuring  activities)  accounted
for most of the  decrease  in R&D  expenses  in both the three-  and  nine-month
periods of 2000 compared to the same periods in 1999.

        Selling,  general and administrative ("SG&A") expenses decreased to $3.0
million in the third  quarter of 2000 from $4.2 million in the third  quarter of
1999.  Year-to-date SG&A expenses  decreased to $10.4 million from $15.3 million
in the first nine months of 1999.  The  decrease  for the three- and  nine-month
periods of 2000 relative to the comparable  periods of 1999 was primarily due to
lower payroll and related  employee  costs,  partially  offset by an increase in
bonus expense implemented for general retention purposes.

Restructuring Activities

        The Company recorded restructuring charges of $4.3 million in the second
quarter of 1999. This  restructuring  charge primarily  related to severance pay
associated with 400 terminated  employees (all in the U.S. and predominately all
from the  manufacturing  area).  The  entire  $4.3  million  was paid out to the
employees during the second and third quarters of 1999.

        During  the  third   quarter  of  1999,   the  Company   implemented   a
restructuring  plan  based on an  evaluation  of the size  and  location  of its
existing  production  capacity  relative to the short-term and long-term  market
demand outlook.  Under the 1999 restructuring plan, the Company decided to close
its U.S.  manufacturing  operations in San Jose,  California.  The restructuring
actions  resulted in a charge of $139.3  million and included  $98.5 million for
leasehold  improvements  and  equipment  write-offs,  $17.7  million  for future
liabilities under  non-cancelable  equipment leases associated with equipment no
longer being used, $15.6 million for severance pay associated with approximately
980  terminated  employees  (all in the  U.S.  and  predominately  all  from the
manufacturing  area),  and $7.5 million in plant closure  costs.  Non-cash items
included in the restructuring charge totaled approximately $98.5 million.

                                      -21-

<PAGE>

<TABLE>
       1999 Restructuring Reserve - Changes During First Nine Months of 2000

<CAPTION>
                                              Writedown Net Book     Liabilities Under
                                              Value of Equipment       Non-Cancelable    Facility
                                                and Leasehold            Equipment       Closure     Severance
       (in millions)                             Improvements              Leases         Costs        Costs        Total
                                           ------------------------- ------------------- ---------  ------------- ----------
<S>                                                  <C>                   <C>             <C>          <C>         <C>
       Balance at January 2, 2000                     $--                  $13.8           $4.5         $4.8        $23.1

       Adjustment to Reserve                          2.4                    --            (3.7)        (0.7)        (2.0)
       Charged to Reserve                            (2.4)                  (5.8)          (0.5)        (4.0)       (12.7)
                                           ------------------------- ------------------- ---------  ------------- ----------
       Balance at October 1, 2000                     $--                   $8.0           $0.3         $0.1         $8.4
                                           ------------------------- ------------------- ---------  ------------- ----------
</TABLE>

        At October  1,  2000,  $8.4  million  related to the 1999  restructuring
activities  remained  in  current  liabilities.  During  1999 and the first nine
months of 2000, the Company made cash payments totaling $32.3 million, primarily
for severance costs,  payments for liabilities  under  non-cancelable  equipment
leases and facility closure costs.  Cash outflows of approximately  $0.4 million
associated   with  severance  pay  and  closure  costs   associated  with  these
restructuring activities will occur primarily during the fourth quarter of 2000.
Monthly cash payments under the equipment leases will be made through  mid-2002.
These equipment lease payments, in total, approximate $8 million.

        The facility closure liability was reduced by approximately $3.7 million
in the first nine months of 2000 due to  successfully  terminating the leases on
manufacturing facilities and subleasing the administrative facility earlier than
originally expected.  The writedown of net book value of equipment and leasehold
improvements  was increased by $2.4 million during the first nine months of 2000
for additional  equipment that was determined  unusable due to the  restructure.
The  severance  costs  liability  was reduced by $0.7  million due to lower than
expected payments.

Interest and Other Income/Expense

        Interest  income  decreased  $500,00 and $1.3  million in the three- and
nine-month  periods  ended  October 1, 2000  relative to the same periods  ended
October 3, 1999 due to lower average cash and short-term  investment balances in
the current year period.

        Interest  expense  increased $2.7 million and $5.7 million in the three-
and nine-month periods ended October 1, 2000, relative to the same periods ended
October 3, 1999. The  year-to-date  increase in interest expense compared to the
same  period  in 1999 was  primarily  due to  higher  bank  prime  rates and the
amortization of loan fees and warrant expense  associated with the completion of
the loan restructure agreement with the Company's senior lenders.

        Other income  decreased  $500,000 and $1.4 million in the third  quarter
and  first  nine  months  of 2000  compared  to the same  periods  of 1999,  due
primarily to a reduction in royalty income.

                                      -22-

<PAGE>


Income Taxes

        The Company's income tax provision was  approximately  $400,000 and $1.2
million  for the  three-month  and  nine-month  periods  of 2000,  respectively,
compared to $400,000 and $1.1 million for the three-month and nine-month periods
of 1999, respectively.

       The income tax  provisions  for both the 2000 and 1999 periods  represent
foreign  withholding  taxes on royalty  and  interest  payments.  The  Company's
wholly-owned  thin-film  media  operation,  Komag USA (Malaysia)  Sdn.  ("KMS"),
received a five-year  extension of its initial tax holiday through June 2003 for
its first plant site. KMS was granted an additional ten-year tax holiday for its
second and third plant sites in Malaysia.  The government  will reassess the tax
holiday start date for the second and third plant sites by the year 2001,  based
on achieving certain investment criteria.

Minority Interest in KMT/Equity in Net Income (Loss) of AKCL

        The  minority   interest  in  the  net  income  (loss)  of  consolidated
subsidiary  represented Kobe Steel USA Holdings Inc.'s ("Kobe USA") 20% share of
Komag Material Technology,  Inc.'s ("KMT") net income (loss). KMT recorded a net
loss of $1.5  million  and a net loss of $3.7  million in the third  quarter and
first nine months of 2000, respectively,  compared to a net loss of $1.0 million
and net income of $.7  million  in the third  quarter  and first nine  months of
1999, respectively.

        The Company  owns a 50% interest in Asahi Komag Co.,  Ltd.  ("AKCL") and
records its share of AKCL's net income  (loss) as equity in net income (loss) of
unconsolidated joint venture. The Company recorded a loss of $1.4 million as its
equity in AKCL's  net loss in the  first  quarter  of 1999,  which  reduced  the
Company's investment in AKCL down to zero. During 1999 and the first nine months
of 2000 the  Company did not record  $2.6  million and $16.2  million in losses,
respectively,  as it would have reduced the net book value of its  investment in
AKCL below zero.  To the extent that AKCL reports net income in future  periods,
the Company will record its share of such income only to the extent by which the
income  exceeds  the  losses  incurred  subsequent  to the  date  on  which  the
investment balance became zero.

Extraordinary Gain

         The Company  previously had borrowed $260.0 million under its term debt
and line of credit facilities.  In June, 2000, the Company replaced these credit
facilities with a senior unsecured loan  restructure  agreement with its lenders
and a separate  subordinated  unsecured  convertible  debt  agreement with other
creditors.  As a result,  the Company  currently has $224.2 million in bank debt
and $9.3 million of convertible  subordinated  debt. At the time the convertible
subordinated  debt was  converted  from senior  unsecured

                                      -23-

<PAGE>


debt, the principal  balance was $13.3 million.  The conversion from a principal
balance of $13.3 million to $9.3 million  resulted in an  extraordinary  gain of
$3.8 million, net of expenses.

HMT Merger

       In April,  2000, the Company entered into a definitive  merger  agreement
with HMT Technology Corporation (HMT). HMT designs,  develops,  manufactures and
markets   high-performance   thin-film   disks.   On  September  20,  2000,  the
stockholders  of the Company and HMT  approved the merger  transaction,  and the
merger  was  completed  on  October  2,  2000.  In  accordance  with the  merger
agreement,  each issued and  outstanding  share of HMT stock was converted  into
0.9094  shares of the Company's  common stock.  The merger will be accounted for
under purchase accounting in the Company's fiscal fourth quarter of 2000.

Liquidity and Capital Resources

        Cash and short-term investments of $54.5 million at the end of the third
quarter of 2000  decreased  $15.0 million from the end of the prior fiscal year.
Working  capital  improved by $39.3 million  compared to the end of the previous
fiscal year.

        Year-to-date 2000 consolidated operating activities provided $16 million
in cash. The primary components of this change include the following:

        o         The  year-to-date  net loss of $24.3  million (net of non-cash
                  depreciation  and  amortization  of $64.3  million  and  other
                  non-cash  charges of $1.6 million)  provided  $41.6 million in
                  cash.

        o         Accounts receivable and inventories were generally flat during
                  the  nine-month  period,  using $.8 million and generating $.3
                  million in cash, respectively.

        o         Prepaid  expenses  used  $4.3  million  in  cash,   reflecting
                  primarily the increase in prepaid loan fees and bank warrants.

        o         Accounts  payable  generated $6.2 million in cash,  reflecting
                  increases in production  activity and capital  expenditures at
                  the end of the third  quarter of 2000,  compared to the fourth
                  quarter of 1999.

        o         Income tax activity  generated $.6 million in cash,  primarily
                  due to an income tax refund, during the nine-month period.

        o         Other liabilities used $27.5 in cash,  primarily for equipment
                  leases, building exit costs, and severance payments associated
                  with the 1999  Western  Digital  asset  purchase  and the 1999
                  restructuring activity.

                                      -24-

<PAGE>


        The Company  spent $13.9  million on fixed assets  during the first nine
months of 2000. Net  short-term  investment  activity  provided $23.9 million in
cash. Other net investing activities provided $3.5 million in cash.

        Repayment of debt used $22.5 million in cash,  and sales of common stock
under the Company's stock programs generated $1.8 million in cash.

        Current  noncancellable  capital  commitments  as of  October  1,  2000,
totaled  approximately  $21.2 million.  Year-to-date  capital  expenditures were
approximately $13.9 million,  and primarily included costs for projects designed
to improve  yield and  productivity,  as well as costs for the  installation  of
certain production equipment  transferred from the closed US manufacturing plant
to  Malaysia.  In  addition,  during  the third  quarter  of 2000,  the  Company
purchased a sputter  machine and other  production  equipment from HMT and began
installation of the equipment in the Company's Penang,  Malaysia,  manufacturing
plant.  The  Company  expects to incur  approximately  $30 million to modify its
Penang factory and transfer equipment from the HMT site in Fremont,  California,
to Malaysia over the next three quarters.

        In June, 2000, the Company replaced its credit  facilities with a senior
unsecured  loan  restructure   agreement  with  its  lenders,   and  a  separate
subordinated  unsecured  convertible debt agreement with other  creditors.  As a
result,  the Company  currently has $224.2 million in senior unsecured bank debt
outstanding  that  matures in June,  2001,  and  approximately  $9.3  million of
convertible  debt that  matures in 2005.  In  addition,  the  Company has a note
payable to WDC with a principal  balance of $21.2  million,  and which is due in
April, 2002, unless WDC realizes a return on its Komag equity holdings in excess
of a targeted amount by April,  2002. In the event the excess is realized,  then
the excess  amount will reduce the balance due under the note.  The Company will
likely need to further  restructure its debt  obligations  and raise  additional
funds to operate its business.

        In  March,   2000,  the  Company  entered  into  an  agreement  with  an
institutional  investor to sell up to $20.0 million of common stock.  The shares
of common stock may be sold pursuant to a private  equity line of credit,  under
which the Company may exercise "put options" to sell shares for a price equal to
90%, 92%, or 94% of market  depending on the level of the actual market price at
the time of exercise of the "put option." The shares may be sold periodically in
maximum increments of $1.5 million to $3.5 million over a period of up to thirty
months. Upon signing the agreement,  the Company issued warrants to the investor
to acquire  80,000  shares of common  stock at an exercise  price of $4.6875 per
share.  The warrants are  exercisable  during a three-year  period  beginning in
September,  2000. The Company valued the warrants using the Black-Scholes  model
and determined the value to be immaterial.

                                      -25-

<PAGE>


        The  Company  believes  that in order to achieve  its  long-term  growth
objectives and maintain and enhance its competitive  position,  additional funds
will need to be raised for capital  expenditures,  working capital, and research
and development.  Further,  the Company most likely will need to restructure its
bank credit facilities again before June, 2001.

        There can be no assurance  that the Company will be able to  restructure
its debt again, or secure other financial  resources on commercially  reasonable
terms.  If the  Company  is  unable to obtain  adequate  financing,  it could be
required to significantly reduce or possibly suspend its operations, and/or sell
additional  securities  on  terms  that  would be  highly  dilutive  to  current
stockholders.

Other Factors that May Affect Future Operating Results

         You should  carefully  consider the risks described below before making
an investment decision. The risks and uncertainties  described below are not the
only ones facing Komag.  Additional risks and  uncertainties not presently known
to us or that we currently deem immaterial may also impair our business options.

         To the extent  the  following  risks  negatively  impact our  business,
results of operations  and/or cash flows could be adversely  affected.  In those
cases, the trading price of our common stock could decline, and you may lose all
or part of your investment.

If we do not successfully integrate the technologies and businesses of Komag and
HMT, our business,  financial  condition and operating  results will suffer,  we
will  lose key  personnel  and as a  result  will not  achieve  the  anticipated
benefits from the merger.

         We completed  the merger of HMT  Technology  Corporation,  or HMT, with
Komag on October 2, 2000.  We need to  overcome  significant  issues in order to
fully integrate the two companies and realize any benefits or synergies from the
merger,  including the timely, efficient and successful execution of a number of
post-merger  events. Key events include:

o    integrating the operations of the two companies;

o    retaining and assimilating the key personnel of each company;

o    integrating  HMT's  process  and  equipment  into  our  existing  Malaysian
     factories;

o    retaining the existing  customers  and strategic  partners of each company;
     and

o    maintaining uniform standards, controls, procedures and policies.

         The  successful  execution  of these  post-merger  events will  involve
considerable  risk  and  may  not be  successful.  These  risks  include:

o    the potential  disruption of the combined  company's  ongoing  business and
     distraction  of  its  management;

o    unanticipated expenses related to technology integration;

o    unanticipated expenses related to relocating HMT manufacturing equipment;

o    the impairment of relationships  with employees,  customers,  suppliers and
     strategic  partners  as a  result  of any  integration  of  new  management
     personnel; and

o    potential unknown liabilities.

         We may not  succeed in  addressing  these  risks or any other  problems
encountered in connection with the merger. As a result, our business,  financial
condition and operating results could suffer, we would lose key personnel and we
would not achieve the anticipated benefits from the merger.




                                      -26-
<PAGE>


The Merger could adversely affect combined financial results.

         The merger will be treated as a purchase for accounting purposes.  This
may potentially  result in a greater net loss for us for the forseeable  future,
which  could have a material  adverse  effect on the market  price of our common
stock.  We incurred  direct  transaction  costs of  approximately  $8 million in
connection  with the  merger.  Under  purchase  accounting,  we will  record and
amortize intangible assets related to deferred compensation,  patents,  existing
technology, assembled workforce and goodwill in connection with the merger. This
amortization over a number of years will reduce future earnings.

         We also expect interest accretion on convertible  subordinated notes of
approximately  $13 million per year will reduce future earnings  through January
2004.  In  addition,   we  expect  to  expense  HMT's  in-process  research  and
development  in the fourth quarter of 2000. If the benefits of the merger do not
exceed the costs  associated  with the  merger,  including  any  dilution to our
stockholders  resulting  from the  issuance  of  shares in  connection  with the
merger, our financial results,  including earnings per share, could be adversely
affected.

Customers have demanding product requirements.

         Our thin-film  disk products  primarily  serve the 3 1/2-inch hard disk
drive  market,  where  product  performance,   consistent  quality,  price,  and
availability are of great competitive importance.  Short program life-cycles and
product customization increase the risk of inventory obsolescence. To succeed in
an  industry  characterized  by  rapid  technological   developments,   we  must
continuously  advance our  thin-film  technology  at a pace  consistent  with or
faster than our competitors.  If we are unable to keep pace with rapid advances,
we may lose  market  share  and face  increased  price  competition  from  other
manufacturers. Such competition could materially adversely affect our results of
operations.

The thin film media industry is very competitive.

         The  market  for our  products  is  highly  competitive,  and we expect
competition  to  continue  in the  future.  Compteitors  in the  thin-film  disk
industry,  subsequent to our merger with HMT, fall into two groups:  Asian-based
manufacturers  and  U.S.  captive  manufacturers.  Our  Asian-based  competitors
include Fuji,  Mitsubishi,  Trace  (currently  acquiring MMC Technology,  Inc.),
Showa  Denko and Hoya.  The U.S.  captive  manufacturers  include the disk media
operations of Seagate and IBM.




                                      -27-
<PAGE>


         In 2000, as in 1999, media supply exceeds media demand.  As independent
suppliers struggle to utilize their capacity,  the result of excess media supply
has been declining average selling prices for disk products. Pricing pressure on
component suppliers is further compounded by high consumer demand for sub-$1,000
personal  computers.  Further,  structural  change in the disk  media  industry,
including combinations, failures and joint venture arrangements, may be required
before media supply and demand balances.

         In response to high historical and projected  growth rates for the disk
drive market at the time, a majority of our competitors  (both  independent disk
and  captive  disk  manufacturers)  and  Komag   substantially   increased  disk
manufacturing  capacity  in 1997 to  satisfy  the  anticipated  demand  for disk
products. These significant investments in capable new disk production capacity,
combined  with the  slowdown  in  demand,  have  resulted  in excess  disk media
capacity in the merchant market as drive  manufacturers  source a higher portion
of their disk requirements from their captive media operations.

         Low-cost  manufacturing  has become more important as pricing pressures
have  increased.  During the third quarter of 1999, we announced  that all media
production would be consolidated into our Malaysian factories.  While we believe
that our  manufacturing  operations in Malaysia can provide a  competitive  cost
advantage  relative to most other  thin-film  disk  manufacturers  that  operate
exclusively or primarily in the U.S. or Japan,  our media  manufacturing  is now
concentrated in one foreign country (see "Our Foreign  Operations  Subject Us to
Additional Risks" below).

         In general,  the life cycles of recent  disk drive  programs  have been
shortening.  Additionally,  media  must be more  customized  to each disk  drive
program. Supply chain management,  including just-in-time delivery, has become a
standard industry practice.  Timely development of new products and technologies
that  assist  customers  in  reducing  their   time-to-market   performance  and
operational  excellence that supports high-volume  manufacturing ramps and tight
inventory  management  throughout  the supply chain will  continue to be keys to
both  the   maintenance  of   constructive   customer   relationships   and  our
profitability.  We cannot  assure  you that we will be able to  respond  to this
rapidly changing  environment in a manner that will maximize  utilization of our
production facilities and minimize our inventory losses. Furthermore,  there are
a relatively large number of capable  competitors,  some with greater  financial
resources than us.

We have a significant amount of debt that may need restructuring,  and inability
to raise additional financing will adversely affect our business.

         The size of our second quarter 1998 net loss resulted in defaults under
certain financial covenants contained in our then-existing senior unsecured bank
credit  facilities.  At the time of the covenant defaults we had $260 million of
debt  outstanding  against these lines. In June,  2000, we replaced these credit
facilities with a senior unsecured loan  restructure  agreement with our lenders
and a separate  subordinated  unsecured  convertible  debt  agreement with other
creditors.  As a result,  as of October 1, 2000 we have $224.2




                                      -28-
<PAGE>


million in senior debt outstanding,  that matures in June 2001 and approximately
$9.3 million of  convertible  debt that matures in 2005. In connection  with the
restructure agreement, we issued warrants to purchase up to 3 1/2% of our common
stock.  Upon  completion  of  the  HMT  merger,  our  debt  increased  with  the
consolidation of HMT's  convertible notes due January 2004. The principal amount
of these  notes is $230  million.  For the long  term,  we will  likely  need to
further  restructure our debt  obligations and raise additional funds to operate
our business.

         In  addition,  the disk media  business  is capital  intensive,  and we
believe that in order to remain  competitive,  we will likely require additional
financing  resources  over the next  several  years  for  capital  expenditures,
working  capital and research  and  development.  Inability to raise  additional
funds may force us to reduce or suspend operations.  Raising additional funds or
another  significant  debt  restructuring  may require  significant  dilution to
stockholders.

We depend on a limited number of customers.

Our sales are concentrated in a small number of customers. This concentration is
due to the high-volume requirements of the dominant disk drive manufacturers and
their tendency to rely on a few suppliers because of the close interrelationship
between  media  performance  and disk drive  performance  and the  complexity of
integrating  components from a variety of suppliers.  Also influencing  customer
concentration  are the increases in areal densities that led to decreases in the
platter  count  per  drive.  With  lower  platter  counts,  captive  disk  drive
manufacturers  have  excess  internal  media  capacity  and  they  rely  less on
independent  sources of media.  In the third  quarter of 2000,  53% of our sales
were to  Western  Digital,  28% to  Maxtor,  and 15% to  Seagate.  The  proforma
combined  sales of Komag and HMT  during  the third  quarter of 2000 were 45% to
Western Digital, 35% to Maxtor and 12% to Seagate.

         During the third  quarter of 2000,  IBM and Seagate  produced more than
90%  of  their  media  demand  internally  and  MMC  Technology,  Inc.  supplied
approximately  half of  Maxtor's  requirement  for  media.  Hyundai  Electronics
America  owns  MMC   Technology,   Inc.  and  is  also  one  of  Maxtor's  major
stockholders.  Hyundai has entered into an agreement  with Trace,  another media
supplier,  to sell MMC Technology,  Inc. To date, MMC  Technology,  Inc. and the
captive  media  operations  of IBM and Seagate have sold minimal  quantities  of
disks in the merchant market.

         Given the  relatively  small  number of disk  drive  manufacturers,  we
expect  that we will  continue  to  depend on a  limited  number  of  customers.
However, we can not assure you that our current and potential customers will not
acquire or develop capacity to produce thin-film disks for internal use, and any
such changes could have a material  adverse  effect on our  business,  operating
results and financial condition. In addition, our customers are headquartered in
the United  States.  Should U.S.  based  drive  companies  lose market  share to
foreign competitors, it could have a negative impact on our sales.



                                      -29-
<PAGE>


         Our sales are  generally  made  pursuant  to  purchase  orders that are
subject  to  cancellation,  modification  or  rescheduling  without  significant
penalties.  We cannot  assure you that our current  customers  will  continue to
place  orders with us, that orders by  existing  customers  will  recover to the
levels of  earlier  periods  or that we will be able to obtain  orders  from new
customers.

         Our sales are significantly connected to Western Digital's performance.
In April of 1999, we purchased Western Digital's media operation. As part of the
purchase,  we entered into a volume  purchase  agreement  with  Western  Digital
whereby  Western  Digital  is  obligated,  over the three  years  following  the
acquisition date, to purchase a significant  majority of its media  requirements
from us. We also acquired  building and equipment  leases with  remaining  lease
commitments.  As of  October  1,  2000,  the  majority  of  the  building  lease
commitments  have been  settled  with limited  ongoing  obligations.  The leased
assets have continuing payment obligations  totaling  approximately $18 million.
The leased  assets are  substantially  unused  and thus,  to the extent  that we
cannot terminate our obligations under the leases, we will suffer a cash drain.

         Qualifying  thin-film  disks for  incorporation  into a new disk  drive
product  requires us to work  extensively  with the customer and the  customer's
other  suppliers  to meet product  specifications.  Therefore,  customers  often
require a significant  number of product  presentations and  demonstrations,  as
well as  substantial  interaction  with our senior  management,  before making a
purchasing  decision.  Accordingly,  our products typically have a lengthy sales
cycle,  which  can  range  from six to 12  months,  during  which we may  expend
substantial financial resources and management time and effort with no assurance
that a sale will result.




Our sole product is sold to hard disk drive manufacturers.

         Our sole product,  thin-film media, is used in hard disk drives. Demand
for our high-performance,  thin-film disks depends upon the demand for hard disk
drives and our ability to provide high quality, technically superior products at
competitive prices.

         The hard disk drive  industry is very  competitive.  With short product
life cycles and rapid  technological  change,  new  products  must be  qualified
frequently and high volume production must be achieved rapidly.  Hard disk drive
programs  have  increasingly  become  "bimodal"  in  that  a  few  programs  are
high-volume and the remaining programs are small in terms of volume.  Supply and
demand  balance can change  quickly  from  customer  to customer  and program to
program.  Further, we make substantial investments in qualifying on new programs
whether  or not the  customer  program  or our share of the  program  ultimately
results in high volume production.




                                      -30-
<PAGE>


If we do not keep pace with rapid  technological  change, we will not be able to
compete.

         We believe that our future success  depends,  in large measure,  on our
ability to develop and implement new process technologies in a timely manner and
to continually improve these technologies. New process technologies must support
cost-effective,   high-volume  production  of  thin-film  disks  that  meet  the
ever-advancing   customer   requirements   for   enhanced   magnetic   recording
performance.

         Advances in hard disk drive technology  demand  continually lower glide
heights and higher areal densities.  These advances require substantial on-going
process and  technology  development.  Although we have a  significant,  ongoing
research  and  development  effort to advance our process  technologies  and the
resulting  products,  we cannot  assure you that we will be able to develop  and
implement such  technologies in a timely manner in order to compete  effectively
against  competitors'  products and/or  entirely new data storage  technologies.
Technology must be transferred  overseas from our U.S.  research and development
center to our  Malaysian  manufacturing  operations.  Our results of  operations
would be  materially  adversely  affected  if our efforts to advance our process
technologies  or  implement   those  advanced   technologies  in  our  Malaysian
operations are not successful or if the technologies  that we have chosen not to
develop proved to be viable competitive alternatives.

         Asahi Glass Company, Ltd. has asserted that an agreement between us and
Asahi gives Asahi exclusive rights, even as to Komag, to certain glass substrate
related  intellectual  property  developed by us. We have sent Asahi a notice of
termination of the agreement and have filed a lawsuit for, among other things, a
declaration  that the agreement has been terminated and that Asahi has no rights
to the glass  substrate  technology  developed  by us. While we intend to pursue
vigorously  our  lawsuit  against  Asahi,  due to the  inherent  uncertainty  of
litigation,  we cannot assure you that we will  prevail.  In the event we do not
prevail, we may be prevented or substantially impaired from exploiting our glass
substrate  manufacturing  process, which may have a materially adverse effect on
our results.

Our operating results are subject to quarterly fluctuations.

         Our operating  results  historically  have been subject to  significant
quarterly and annual  fluctuations.  As a result,  our operating  results in any
quarter may not be  indicative  of its future  performance.  We believe that our
future  operating  results will  continue to be subject to quarterly  variations
based upon a wide variety of factors, including:




                                      -31-
<PAGE>


o    timing  of  significant  orders;  order  cancellations,  modifications  and
     quantity adjustments and shipment reschedulings;

o    availability of media versus demand;

o    the  cyclical  nature of the hard disk  drive  industry;

o    our   ability  to  develop  and   implement   new   manufacturing   process
     technologies;

o    increases in our production and engineering  costs  associated with initial
     design and production of new product  programs;  the  extensibility  of our
     process equipment to meet more stringent future product requirements;

o    our  ability  to  introduce  new  products  that  achieve   cost-effective,
     high-volume production in a timely manner, timing of product announcements,
     and market acceptance of new products;

o    changes in our product mix and average selling prices;

o    the availability and the extent of utilization of our production capacity;

o    changes in our manufacturing efficiencies, in particular product yields and
     input costs for direct  materials,  operating  supplies  and other  running
     costs;

o    prolonged  disruptions  of  operations  at any of our  facilities  for  any
     reason;

o    changes in the cost of or limitations on availability of labor; and

o    structural changes within the disk media industry,  including combinations,
     failures, and joint venture arrangements.

         The impact of these and other  factors on our  revenues  and  operating
results in any future period cannot be forecasted  with  certainty.  Our expense
levels are based, in part, on its expectations as to future revenues. If revenue
levels are below  expectations,  operating  results are likely to be  materially
adversely affected.  Because thin-film disk manufacturing  requires a high level
of fixed costs, our gross margins are extremely  sensitive to changes in volume.
At constant average selling prices,  reductions in our manufacturing  efficiency
cause declines in our gross margins. Additionally,  decreasing market demand for
our products  generally  results in reduced  average  selling  prices and/or low
capacity utilization that, in turn, adversely affect gross margins and operating
results.



We are dependent on our Malaysian factories.

         During  the  third  quarter  of  1999,  we  announced  that  all  media
production would be consolidated into our Malaysian factories. While we continue
to  manufacture  aluminum  substrates at our factory in Santa Rosa,  California,
substantially all our media production occurred in Malaysia in the first quarter
of 2000.  In addition,  we are in the process of  transferring  the  manufacture
capacity of HMT's  Fremont,  California  facility to Malaysia.  While we believe
that our  manufacturing  operations in Malaysia can provide a  competitive  cost
advantage  relative to most other  thin-film  disk  manufacturers  that  operate
exclusively  or  primarily in the U.S. or Japan,  the closure of the U.S.  media
manufacturing  operations  leaves  us fully  dependent  on our  Malaysian  media
operations.





                                      -32-
<PAGE>


         Technology  developed at our U.S. research and development  center must
now be first  implemented  at our  Malaysian  facilities  without the benefit of
initial implementation at a U.S. factory.

         Recent   fluctuations  in  the  electrical  voltage  available  to  our
Malaysian factories resulted in substantial down time.  Prolonged  disruption of
operations  in Malaysia  for any reason  would cause  delays in shipments of our
products, thus materially adversely affecting our results of operations.

         The  ability to transfer  funds from our  Malaysian  operations  to the
United States is subject to local rules and regulations.  In 1999, the Malaysian
government  repealed a regulation that restricted the amount of dividends that a
Malaysian  company  may pay to its  stockholders.  This  regulation  would  have
potentially  limited our ability to transfer funds to the United States from our
Malaysian operations.  While the political and economic issues in Southeast Asia
have not had a material  adverse affect on our Malaysian  operations,  we cannot
assure you that future events would not cause a disruption in our operations.

Our foreign operations subject us to additional risks.

         We are subject to a number of risks of conducting  business  outside of
the  United  States.  Our sales to  customers  in Asia,  including  the  foreign
subsidiaries of domestic disk drive companies,  account for substantially all of
our net sales from our U.S. and Malaysian  facilities.  Our customers assemble a
substantial  portion of their disk drives in the Far East and subsequently  sell
these products  throughout the world.  Therefore,  our high concentration of Far
East sales does not accurately  reflect the eventual point of consumption of the
assembled disk drives. We anticipate that  international  sales will continue to
represent the majority of our net sales.

         We are subject to these risks to a greater  extent than most  companies
because,  in addition to selling our  products  outside the United  States,  our
Malaysian  operations  will  account for a large  majority of our net sales this
year.

         Accordingly,  our operating  results are subject to the risks  inherent
with international operations,  including, but not limited to:

o    compliance  with  changing  legal and  regulatory  requirements  of foreign
     jurisdictions;

o    fluctuations in exchange rates, tariffs or other trade barriers;

o    foreign  currency rate  fluctuations  because  certain costs of our foreign
     manufacturing  and marketing  operations  are incurred in foreign  currency
     including purchase of certain operating  supplies and production  equipment
     from Japanese suppliers in yen-denominated transactions;

o    difficulties in staffing and managing foreign operations;




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<PAGE>


o    political, social and economic instability;

o    exposure to taxes in multiple jurisdictions; and

o    transportation delays and interruptions.

We may not be able to attract and retain key personnel.

         Our future  success  depends on the continued  service of our executive
officers,  our  highly  skilled  research,  development  and  engineering  team,
manufacturing team and other key administrative, sales and marketing and support
personnel.  Competition for skilled personnel is intense, and we may not be able
to attract, assimilate or retain highly qualified personnel in the future.

We rely on a limited number of suppliers for materials and equipment used in our
manufacturing processes.

         We rely on a limited  number  of  suppliers,  and in some  cases a sole
supplier,  for some of the  materials and  equipment  used in our  manufacturing
processes including aluminum substrates, nickel plating solutions, polishing and
texturing supplies, and sputtering target materials. As a result, our production
capacity  would be  limited  if one or more of these  materials  were to  become
unavailable  or  available  in  reduced  quantities.   If  such  materials  were
unavailable for a significant period of time, our results of operations would be
adversely  affected.  The supplier base has been weakened by the poor  financial
condition of the industry and some  suppliers have either exited the business or
failed.

The manufacture of our products is subject to process quality control risks.

         The  manufacture  of our  high-performance  thin-film  disks requires a
tightly controlled  multi-stage  process and the use of high-quality  materials.
Efficient   production  of  our  products   requires   utilization  of  advanced
manufacturing techniques and clean room facilities. Disk fabrication occurs in a
highly  controlled,  clean  environment  to minimize  dust and other  yield- and
quality-limiting   contaminants.   Despite  stringent   manufacturing  controls,
weaknesses  in process  control or minute  impurities  in materials  may cause a
substantial percentage of the disks in a lot to be defective. The success of our
manufacturing  operation  depends  in part on our  ability to  maintain  process
control  and  minimize  such  impurities  in  order  to  maximize  its  yield of
acceptable  high-quality disks. Minor variations from HMT's specifications could
have a disproportionately adverse impact on manufacturing yields.

Our  business  depends  upon our ability to protect our patents and  information
rights.

         Protection   of   technology   through   patents  and  other  forms  of
intellectual property rights in technically sophisticated fields is commonplace.
In the disk drive industry,  it is not uncommon for companies and individuals to




                                      -34-
<PAGE>


initiate actions against others in the industry to enforce intellectual property
rights.  Although we attempt to protect our intellectual property rights through
patents, copyrights, trade secrets and other measures, we cannot assure you that
we will be able to protect our technology  adequately or that  competitors  will
not be able to develop similar  technology  independently,  have or will perfect
intellectual  property  rights and enforce those rights to prevent us from using
such  technologies  or demand royalty  payments from us in return for using such
technologies.  Either of these actions may have a material adverse affect on our
results  of  operations.  As a  measure  of  protection,  we have  entered  into
cross-license agreements with certain customers.

         We  have  occasionally   received,  and  may  receive  in  the  future,
communications  from third parties  asserting  violation of intellectual  rights
alleged  to  cover  certain  of  our  products  or  manufacturing  processes  or
equipment.  In such cases,  we evaluate  whether it would be necessary to defend
against  the  claims  or to seek  licenses  to the  rights  referred  to in such
communications.  No  assurance  can be given  that we will be able to  negotiate
necessary  licenses on terms that would not have a material adverse effect on us
or that any  litigation  resulting  from such  claims  would not have a material
adverse effect on our business and financial results.

         We cannot  assure you that we will  anticipate  claims that we infringe
the technology of others or successfully  defend ourselves  against such claims.
For instance, we currently have a dispute with Asahi Glass Company Ltd. over the
use of certain glass substrate  related  intellectual  property.  Similarly,  we
cannot  assure  you  that  we will  discover  significant  infringements  of our
technology or  successfully  enforce our rights to our technology if we discover
infringing uses.




Earthquakes or other natural or man-made disasters could disrupt our operations.

         Our California  facilities located in San Jose, Fremont and Santa Rosa,
AKCL,  Kobe,  other  Japanese  suppliers of key  manufacturing  supplies and our
Japanese supplier of sputtering  machines are each located in areas with seismic
activity.  Our Malaysian  operations  have been subject to temporary  production
interruptions  due  to  localized  flooding,  disruptions  in  the  delivery  of
electrical  power,  and, on one occasion in 1997,  by smoke  generated by large,
widespread  fires in  Indonesia.  We cannot  assure you that natural or man-made
disasters will not result in a prolonged disruption of production in the future.
If any  natural  or  man-made  disasters  do occur,  they  could have a material
adverse effect on our results of operations.




                                      -35-
<PAGE>


Our operations are subject to environmental laws and regulations.

         Our  operations  and  manufacturing  processes  are  subject to certain
environmental  laws and regulations,  which govern the use,  handling,  storage,
transportation,  disposal,  emission and  discharge of hazardous  materials  and
wastes,  the treatment and discharge of process waste waters and the emission of
air pollutants.  From time to time we have been notified of minor  violations of
environmental laws and regulations.  These violations have been corrected in all
material  respects  without undue expense.  Environmental  laws and regulations,
however, may become more stringent over time, and there can be no assurance that
failure to comply with either present or future laws or  regulations,  which may
become more stringent,  would not subject us to significant compliance expenses,
production suspension or delay,  restrictions on expansion or the acquisition of
costly equipment.

The market price of our stock has been depressed.

         The market price of our common stock has been  depressed in response to
actual and anticipated quarterly variations in:

o    our operating results;

o    perceptions of the disk drive industry's relative strength or weakness;

o    developments in our relationships with our customers and/or suppliers;

o    announcements  of alliances,  mergers or other  relationships by or between
     our competitors and/or customers;

o    announcements  of  technological  innovations  or new products by us or our
     competitors;

o    the success or failure of new product qualifications;

o    developments related to patents or other intellectual property rights; and

o    other events or factors.

         We expect this volatility to continue in the future.  In addition,  any
shortfall or changes in our revenue, gross margins,  earnings or other financial
results from analysts' expectations could cause the price of our common stock to
fluctuate  significantly.  In recent  years,  the stock  market in  general  has
experienced  extreme  price and  volume  fluctuations  which  have  particularly
affected the market price of many technology companies and which have often been
unrelated to the operating  performance of those  companies.  These broad market
fluctuations  may  adversely  affect  the  market  price  of our  common  stock.
Volatility  in the price of stocks of companies in the hard disk drive  industry
has been particularly  high,  especially since 1997. During the third quarter of
2000, the price of our stock fell to a low of $1.16 from a high of $35.13 during
the second quarter of 1997.




                                      -36-
<PAGE>

The market price of our common stock may decline as a result of the merger.

         The  market  price of our common  stock may  decline as a result of the
merger for a number of reasons, including if:

o    the integration of Komag and HMT is unsuccessful;

o    We do not achieve the perceived benefits of the merger as rapidly or to the
     extent anticipated by financial or industry analysts; or

o    the effect of the merger on our financial  results is not  consistent  with
     the expectations of financial or industry analysts.

         Recovery  of the stock price is  contingent  upon a  correction  in the
industry  supply  and  demand  imbalance  as well as on  internal  execution  on
industry-mandated  technology, cost and yields targets. The timing of the supply
and demand correction may be influenced by structural changes including mergers,
acquisitions and failures.






                                      -37-
<PAGE>


PART II. OTHER INFORMATION

         ITEM 1. Legal Proceedings

                  Asahi  Glass  Company,  Ltd.  (Asahi)  has  asserted  that  an
         agreement between Komag and Asahi gives Asahi exclusive rights, even as
         to Komag,  to certain glass  substrate  related  intellectual  property
         developed by Komag. Komag has sent Asahi a notice of termination of the
         agreement and has filed a lawsuit in the Superior Court of Santa Clara,
         California,  for, among other things,  a declaration that the agreement
         has been terminated and that Asahi has no rights to the glass substrate
         technology  developed  by  Komag.  Asahi  has  removed  the case to the
         Federal  District Court for the District Court of Northern  California.
         Asahi's motion to stay pending  arbitration has been granted in part. A
         case management conference is scheduled for February 13, 2001.

         ITEM 2. Changes in Securities

                 Not Applicable.

         ITEM 3. Defaults Upon Senior Securities

                 Not Applicable

         ITEM 4. Submission of Matters to a Vote of Security Holders

                  A special  meeting of  stockholders  was held on September 20,
         2000.  The  purpose  of the  meeting  was to  approve  Proposal  1, the
         issuance of 42,775,315 shares of Komag common stock to the shareholders
         of HMT Technology  Corporation,  in accordance with the  aforementioned
         merger  agreement  in Note 10  above,  and to  approve  Proposal  2, an
         amendment   to  the  Komag   amended  and   restated   certificate   of
         incorporation  to increase  the  authorized  number of shares of common
         stock by 100,000,000 shares to a total of 250,000,000 shares.

                  Shares of common stock voted on Proposal 1 were as follows:

                           For           Against      Abstain    Broker Non-Vote
                           ---           -------      -------    ---------------
                           37,194,893    518,948      76,019     24,497,114

                  Shares of common stock voted on Proposal 2 were as follows:

                           For           Against      Abstain    Broker Non-Vote
                           ---           -------      -------    ---------------
                           61,158,686    1,018,742    108,546    0

         ITEM 5. Other Information

                  Not Applicable.




                                      -38-
<PAGE>

         ITEM 6. Exhibits and Reports on Form 8-K

                  a) Exhibits

                  Exhibit 27 Financial Data Schedule

                  b) Reports on Form 8-K

                  The  Company  filed a report  on Form  8-K/A on July 6,  2000,
                  relating to its Form 8-K filed on June 2, 2000.

                  On October 10, 2000,  the Company  filed Form 8-K,  announcing
                  the  October  2,  2000,  completion  of its  merger  with  HMT
                  Technology Corporation.





                                      -39-
<PAGE>


                                   SIGNATURES

                Pursuant to the  requirements of the Securities  Exchange Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

                               KOMAG, INCORPORATED
                                  (Registrant)

DATE:  November 13  , 2000                  BY:  /s/ Thian Hoo Tan
     -----------------------                   ---------------------

                                            Thian Hoo Tan
                                            President and
                                            Chief Executive Officer

DATE:  November 13  , 2000                  BY:  /s/ Edward H. Siegler
       ---------------------                   ----------------------
                                            Edward H. Siegler
                                            Vice President,
                                            Chief Financial Officer

DATE:  November 13  , 2000                  BY:  /s/ Kathleen A. Bayless
       ---------------------                   ------------------------
                                            Kathleen A. Bayless
                                            Vice President,
                                            Corporate Controller



                                      -40-