<PAGE>   1

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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
--------------------------------------------------------------------------------

                                    FORM 10-Q
--------------------------------------------------------------------------------

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
                         COMMISSION FILE NUMBER: 0-19512
--------------------------------------------------------------------------------

                              READ-RITE CORPORATION
             (Exact name of registrant as specified in its charter)

        DELAWARE                                          94-277090
(State of Incorporation)                    (I.R.S. Employer Identification No.)

      44100 OSGOOD ROAD, FREMONT, CA                        94539
(Address of Principal Executive  Officers)                (Zip Code)

        Registrant's telephone number including area code: (510) 683-6100

        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 July 26, 2001, 119,049,176 shares of the registrant's common stock were
issued and outstanding.


================================================================================



                                       1
<PAGE>   2

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                      CONSOLIDATED CONDENSED BALANCE SHEETS
                              READ-RITE CORPORATION
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                June 30,            September 30,
                                                                                  2001                  2000
                                                                                ---------           -------------
                                                                               (unaudited)               (a)
<S>                                                                             <C>                 <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                  $ 104,420             $  64,462
     Short-term investments                                                        31,496                    --
     Accounts receivable, net                                                      81,331                87,840
     Inventories                                                                   36,307                34,199
     Prepaid expenses and other current assets                                      6,268                 5,603
                                                                                ---------             ---------
            Total current assets                                                  259,822               192,104

Property, plant and equipment, net                                                273,990               285,053
Intangible and other assets                                                         8,939                16,191
                                                                                ---------             ---------
            TOTAL ASSETS                                                        $ 542,751             $ 493,348
                                                                                =========             =========

LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
     SUBSIDIARY AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                           $  77,980             $  72,995
     Accrued compensation and benefits                                             22,787                24,797
     Accrued interest payable                                                       1,096                31,671
     Other accrued liabilities                                                     25,453                26,950
     Short-term borrowings                                                         12,814                    --
     Current portion of long-term debt                                             14,742                39,849
                                                                                ---------             ---------
            Total current liabilities                                             154,872               196,262

Convertible subordinated notes                                                     19,801               207,312
Other long-term debt                                                               30,418                25,400
Other long-term liabilities                                                         4,759                 5,102
                                                                                ---------             ---------
            Total liabilities                                                     209,850               434,076

Minority interest in consolidated subsidiary-Read-Rite SMI                             --                19,341
Minority interest in consolidated subsidiary - Scion Photonics, Inc.               12,878                    --

Stockholders' equity:
     Preferred stock, $0.0001 par value                                                --                    --
     Common stock, $0.0001 par value                                                   12                     7
     Additional paid-in capital                                                   700,773               449,800
     Accumulated deficit                                                         (380,761)             (409,137)
     Accumulated other comprehensive loss                                              (1)                 (739)
                                                                                ---------             ---------
            Total stockholders' equity                                            320,023                39,931

TOTAL LIABILITIES, MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY AND
    STOCKHOLDERS' EQUITY                                                        $ 542,751             $ 493,348
                                                                                =========             =========
</TABLE>

(a)     The information in this column was derived from the Company's audited
        consolidated balance sheet included on Form 10-K as of September 30,
        2000.

   See accompanying notes to the consolidated condensed financial statements.



                                       2
<PAGE>   3

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                              READ-RITE CORPORATION
                (amounts in thousands, except per share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                  Three Months Ended June 30,          Nine Months Ended June 30,
                                                                  ---------------------------         ---------------------------
                                                                    2001              2000              2001              2000
                                                                  ---------         ---------         ---------         ---------
<S>                                                               <C>               <C>               <C>               <C>
Net sales                                                         $ 175,204         $ 140,904         $ 558,437         $ 409,883
Cost of sales - on net sales                                        150,594           152,628           461,609           470,978
Cost of sales - special charges                                          --             3,955             5,416             8,142
                                                                  ---------         ---------         ---------         ---------

      Gross margin (loss)                                            24,610           (15,679)           91,412           (69,237)

Operating expenses:
      Research and development                                       19,245            14,951            53,743            53,220
      Selling, general and administrative                             8,178             5,289            24,412            18,980
      Restructuring costs and other                                      --             8,033                --           130,119
                                                                  ---------         ---------         ---------         ---------

      Total operating expenses                                       27,423            28,273            78,155           202,319
                                                                  ---------         ---------         ---------         ---------

      Operating income (loss)                                        (2,813)          (43,952)           13,257          (271,556)

Interest income (expense) and other, net                              6,032            (6,594)            2,967           (17,678)
                                                                  ---------         ---------         ---------         ---------

      Income (loss) before  provision (benefit) for income
        taxes, minority interest and extraordinary item               3,219           (50,546)           16,224          (289,234)

Provision (benefit) for income taxes                                   (102)               --               324                --

Minority interest in net loss of consolidated
      subsidiaries                                                   (6,423)              (34)          (12,474)          (48,234)
                                                                  ---------         ---------         ---------         ---------

Income (loss) before extraordinary item                               9,744           (50,512)           28,374          (241,000)

Extraordinary item - conversion of debt                                  --                --                             158,720
                                                                  ---------         ---------         ---------         ---------

      Net income (loss)                                           $   9,744         $ (50,512)        $  28,374         $ (82,280)
                                                                  =========         =========         =========         =========

Earnings (loss) per share before extraordinary item
      Basic                                                       $    0.08         $   (0.88)        $    0.25         $   (4.60)
      Diluted                                                     $    0.08         $   (0.88)        $    0.24         $   (4.60)
                                                                  =========         =========         =========         =========

Earnings (loss) per share
      Basic                                                       $    0.08         $   (0.88)        $    0.25         $   (1.57)
      Diluted                                                     $    0.08         $   (0.88)        $    0.24         $   (1.57)
                                                                  =========         =========         =========         =========

Shares used in per share computations
      Basic                                                         118,928            57,081           115,024            52,326
      Diluted                                                       120,805            57,081           117,397            52,326
</TABLE>

   See accompanying notes to the consolidated condensed financial statements.



                                       3
<PAGE>   4

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                              READ-RITE CORPORATION
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                   Nine Months Ended June 30,
                                                                                -------------------------------
                                                                                  2001                  2000
                                                                                ---------             ---------
<S>                                                                             <C>                   <C>
Cash flows from operating activities:
Net income (loss)                                                               $  28,375             $ (82,280)
Adjustments to reconcile net income (loss) to cash
      provided by operations:
         Depreciation and amortization                                             92,234               125,182
         Gain on sale of Malaysian real estate                                     (4,852)                   --
         Extraordinary gain from debt conversion                                       --              (158,720)
         Interest expense paid in common stock                                         --                 9,033
         Non-cash portion of restructuring costs and special charges                   --               118,829
         Minority interest in net loss of consolidated subsidiary                 (12,474)              (48,234)
Changes in assets and liabilities
      Accounts receivable                                                           6,509               (16,718)
      Inventories (net of write-off related to restructuring)                      (2,108)               (9,375)
      Accounts payable and accrued liabilities                                      2,964                15,460
      Other assets and liabilities, net                                               154                (1,307)
                                                                                ---------             ---------

Net cash provided by (used in) operating activities                               110,802               (48,130)
                                                                                ---------             ---------

Cash flows from investing activities:
      Proceeds from sale of Malaysian real estate                                   4,852                    --
      Capital expenditures                                                        (79,795)              (76,428)
      Maturities of available-for-sale investments                                151,783               473,209
      Purchases of available -for-sale investments                               (183,279)             (361,431)
                                                                                ---------             ---------

Net cash provided by (used in) investing activities                              (106,439)               35,350
                                                                                ---------             ---------

Cash flows from financing activities:
      Payment of long-term debt and capital lease obligations                     (34,903)             (103,658)
      Proceeds from long-term debt                                                 14,814                74,177
      Net proceeds from short-term borrowing                                       12,814                 2,546
      Proceeds from issuance of common stock, net                                  24,436                 5,638
      Proceeds from issuance of Scion preferred and common stock                   25,374                    --
      Payment to joint venture partner upon final dissolution
        of RRSMI                                                                   (6,940)                   --
                                                                                ---------             ---------

Net cash provided by (used in) financing activities                                35,595               (21,297)
                                                                                ---------             ---------

Net increase (decrease) in cash and cash equivalents                               39,958               (34,077)
Cash and cash equivalents
      Beginning of period                                                          64,462                80,547
                                                                                ---------             ---------

      End of period                                                             $ 104,420             $  46,470
                                                                                ---------             ---------

Supplemental disclosures of non-cash activities:
      Conversion of debt and accrued interest to common stock                     213,353                21,371
      Conversion of joint venture debt to minority interest                            --                18,304
</TABLE>

   See accompanying notes to the consolidated condensed financial statements.



                                       4
<PAGE>   5

         READ-RITE CORPORATION NOTES TO UNAUDITED CONSOLIDATED CONDENSED
                              FINANCIAL STATEMENTS


NOTE 1: BASIS OF PRESENTATION

Read-Rite Corporation ("Read-Rite" or the "Company") maintains a
fifty-two/fifty-three week fiscal year ending on the Sunday closest to September
30. The third quarters of fiscal 2001 and 2000 ended on July 1, 2001 and July 2,
2000, respectively. To conform to the Company's fiscal year end, the Company
must add a fifty-third week to every fifth or sixth fiscal year. Accordingly,
fiscal 2000 was a fifty-three week fiscal year, with an additional week added to
the second fiscal quarter ended on April 2, 2000. Fiscal 2001 is a fifty-two
week fiscal year. For convenience, the accompanying financial statements have
been shown as ending on the last day of the calendar month.

The unaudited consolidated condensed financial statements included herein have
been prepared in accordance with principles generally accepted in the United
States for interim financial information and with the instructions for Form 10-Q
and Article 10 of Regulation S-X. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, all adjustments including
all normal recurring adjustments necessary for a fair presentation of the
interim periods presented have been included. The interim results are not
necessarily indicative of the operating results expected for the full fiscal
year ending on September 30, 2001.

The consolidated financial statements include the accounts of Read-Rite
Corporation and its wholly owned and majority owned subsidiaries. Intercompany
accounts and transactions have been eliminated. Accounts denominated in foreign
currencies have been remeasured using the U.S. dollar as the functional
currency.

The balance sheet at September 30, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

The financial statements included herein should be read in conjunction with the
Company's audited financial statements included in its 2000 Annual Report on
Form 10-K.


NOTE 2. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Accounting Policy for Derivative Instruments: At the beginning of fiscal year
2001, the Company adopted SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities". This standard requires the Company to recognize all of its
derivative instruments as either assets or liabilities in the statement of
financial position at fair value. The accounting for changes in the fair value
(i.e., gains or losses) of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship and, further, on
the type of hedging relationship. Under the Company's hedging policy, certain
contracts may be designated as a cash flow hedge. For derivative instruments
that are designated and qualify as a cash flow hedge (i.e., hedging the exposure
to variability in expected future cash flows that is attributable to a
particular risk), the effective portion of the gain or loss on the derivative
instrument is reported as a component of other comprehensive income and
reclassified into earnings in the same period



                                       5
<PAGE>   6

or periods during which the hedged transaction affects earnings. The remaining
gain or loss on the derivative instrument in excess of the cumulative change in
the present value of future cash flows of the hedged item, if any, is recognized
in current earnings during the period of change. For derivative instruments not
designated as hedging instruments, the gain or loss is recognized in current
earnings during the period of change.

Cash Flow Hedging Strategy: To protect against the reduction in value of
forecasted foreign currency cash flows resulting from international
manufacturing expenses over the next quarter, the Company has a foreign currency
cash flow hedging program. The Company hedges portions of its forecasted
expenses denominated in foreign currencies with forward contracts. When the
dollar strengthens significantly against the foreign currencies, the decline in
value of future foreign currency expenses is offset by losses in the value of
the forward contracts designated as hedges. Conversely, when the dollar weakens,
the increase in the value of future foreign currency expenses is offset by gains
in the value of the forward contracts. During the three and nine-month periods
ended June 30, 2001, the Company recognized no material net gain or loss related
to the ineffective portion of its hedging instruments, and no material net gain
or loss related to the portion of the hedging instruments excluded from the
assessment of hedge effectiveness. The Company recognized no gains or losses
during the three and nine-month periods ended June 30, 2001 for cash flow hedges
that have been discontinued because the forecasted transaction did not occur.
All amounts have been included in other income and expense in the statement of
operations.


NOTE 3: INVENTORIES

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
                           June 30,         September 30,
                            2001               2000
                           -------          -------------
<S>                        <C>              <C>
Raw materials              $ 3,339            $ 2,803
Work-in process             23,427             26,659
Finished goods               9,541              4,737
                           -------            -------
                           $36,307            $34,199
                           =======            =======
</TABLE>



                                       6
<PAGE>   7

NOTE 4. EARNINGS PER SHARE

Basic earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted average number of common and dilutive common equivalent
shares outstanding during the period, calculated by applying the treasury stock
method. Dilutive common equivalent shares consist of employee stock options and
incremental common shares attributable to the assumed conversion of the
Company's convertible subordinated debentures and warrants, unless such assumed
conversion or exercise would be antidilutive.

The following table presents the calculation of basic and diluted earnings per
share (amounts in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                       Three months ended June 30,              Nine months ended June 30,
                                                      ----------------------------             ----------------------------
                                                        2001                2000                 2001                2000
                                                      --------            --------             --------            --------
<S>                                                   <C>                 <C>                  <C>                 <C>
BASIC NET INCOME (LOSS) PER SHARE
      COMPUTATION
Numerator
      Net income (loss)                               $  9,744            $(50,512)            $ 28,374            $(82,280)

Denominator
      Weighted average number of common
         shares outstanding during
          the period                                   118,928              57,081              115,024              52,326
                                                      --------            --------             --------            --------

Basic net income (loss) per share                     $   0.08            $  (0.88)                0.25            $  (1.57)

DILUTED NET INCOME (LOSS) PER SHARE
      COMPUTATION
Numerator
      Net income (loss)                               $  9,744            $(50,512)            $ 28,374            $(82,280)

Denominator
      Weighted average number of common
         shares outstanding during
         the period                                    118,928              57,081              115,024              52,326
      Incremental common shares issuable
         Warrants                                           --                  --                   63                  --
         Company stock option plans after
          applying treasury stock
          method, net of tax benefits                    1,877                  --                2,310                  --
                                                      --------            --------             --------            --------

Denominator for diluted earnings per share             120,805              57,081              117,397              52,326

Diluted net income (loss) per share                   $   0.08            $  (0.88)            $   0.24            $  (1.57)
</TABLE>

For the three-month and nine-month periods ended June 30, 2001, the weighted
average number of common shares attributable to the assumed conversion of the
Company's 6.5% convertible subordinated debentures, of 490 thousand shares, were
not included in the diluted earnings per share computation because the effect
would be antidilutive.


NOTE 5. FINANCING TRANSACTIONS


In February 2000, the Company filed a Registration Statement on Form S-4 to
offer to exchange $172.5 million of 10% convertible subordinated notes for its
outstanding $345 million of 6.5% convertible subordinated notes. The Company
also offered additional 10% convertible subordinated notes for cash. The
exchange offering was completed on March 15, 2000. Approximately $325.2 million
in aggregate



                                       7
<PAGE>   8

principal value of the Company's 6.5% convertible subordinated notes were
tendered in the exchange offer, and the Company received approximately $54.2
million in cash from the issuance of new 10% convertible subordinated notes. As
a result of this debt conversion, the Company recognized $158.7 million of
extraordinary gain, net of no taxes, in the fiscal quarter ended March 31, 2000.

In October 2000, the Company completed the automatic conversion of its 10%
subordinated convertible notes to common stock. As of September 30, 2000,
approximately $187.5 million of the Company's 10% convertible subordinated notes
were outstanding. The automatic conversion called for the face value of the
notes to be converted to common stock at $4.51 per share, and it also included a
"make whole" provision that guaranteed interest for a minimum of two years,
which was also paid in common stock. The fair value of the make whole interest
paid to bondholders was approximately $29.3 million. Approximately 45.3 million
shares of common stock were issued in October 2000 in conjunction with the
conversion and "make whole" provision.

In November 2000, the Company received a cash investment of $18.9 million in a
private placement of approximately 2.7 million shares of common stock to the
State of Wisconsin Investment Board. During the first quarter ended December 31,
2000, the Company repaid the remaining balance of $28.8 million under a secured
term loan.

In May 2001, the Company's subsidiary in Thailand entered into a three year $5
million loan with a financial institution at a variable interest rate of LIBOR
plus 2%. The loan, which has a corporate guarantee by Read-Rite Corporation, is
secured by land. Interest is payable quarterly, with semi-annual principal
payments. In June 2001, the Company entered into a five year loan, secured by
equipment, for up to $10.6 million, with a balance outstanding as of June 30,
2001 of $9.8 million which bears interest at a rate of LIBOR plus 3.5%, with
interest and principal payable monthly.

Short-term borrowings as of June 30, 2001 of $12.8 million consist primarily of
$8.8 million in two unsecured Thai baht denominated loans, both maturing in
December 2001, of approximately $4.4 million each, at an interest rate of 4.25%
and 4.5% respectively. An additional $2.8 million of short-term borrowings
represents the portion of $10 million in convertible notes issued by Scion
Photonics, Inc. to Tyco Ventures and Integral Capital Partners in May 2001, with
Read-Rite Corporation acquiring the balance of the notes.

NOTE 6. SPECIAL CHARGES

During the nine months ended June 30, 2001, the Company took a $5.4 million
charge primarily related to fixed assets for the obsolescence of equipment, and
the consolidation of its slider fabrication, head gimbal assembly ("HGA"), and
head stack assembly ("HSA") prototype and development operations from its
facilities in California to its operations in Thailand.

During the three and nine-months periods ended June 30, 2000, the Company wrote
off $4.0 million and $8.1 million of excess or obsolete inventory as part of the
restructuring plan to consolidate the Company's wafer fab in Japan to the U.S.
and the consolidation of its head stack assembly operations in Thailand.

NOTE 7. RESTRUCTURING COSTS

The Company incurred no restructuring costs in the nine-month period ended June
30, 2001.

During the three and nine-month periods ended June 30, 2000, the Company
incurred restructuring costs of $8.0 million and $130.1 million, respectively.
In the fourth quarter of fiscal year 2000, the Company revised the estimate for
restructuring costs to approximately $120.8 million. With continued productivity
improvements and more efficient capacity utilization at the Company's Fremont
wafer fab, combined with the Company's efforts to reduce fixed costs and to
better focus its technical resources in one wafer fab location, the Company
dissolved its joint venture, Read-Rite SMI ("RRSMI"), with Sumitomo Metals
Industries, Ltd. ("SMI") in Japan. The transition to the Fremont wafer fab of
the products previously designed and manufactured in Japan was completed in the
fourth quarter of fiscal 2000. In addition, the



                                       8
<PAGE>   9

Company closed its Philippine head stack operations and combined all head gimbal
assembly and head stack operations into the Company's Thailand facility. This
action has lowered the Company's fixed costs and provided a faster response to
customer changes by improving manufacturing cycle time. The Company's tape head
assembly operations remain in the Philippines.

The following table reflects the total restructuring charge (amounts in
thousands):

<TABLE>
<CAPTION>
                                     Facilities and                               Lease
                                        Equipment            Severance          Commitments           Other               Total
                                     --------------          ---------          -----------           -----             ---------
<S>                                  <C>                     <C>                <C>                   <C>               <C>
Restructuring charge                    $ 113,567             $ 8,511             $ 7,055             $ 987             $ 130,119
Write off and write downs                (106,481)                 --                  --              (120)             (106,601)
Cash charges/adjustments                     (950)             (6,185)             (7,055)              737               (13,453)
Change in estimate                         (6,136)             (2,326)                 --              (864)               (9,326)
                                        ---------             -------             -------             -----             ---------
Reserve balance, Sept. 30, 2000         $      --             $    --             $    --             $ 739             $     739
Write-off and write downs                                                                              (739)                 (739)
                                        ---------             -------             -------             -----             ---------
Reserve balance, Dec. 31, 2000          $      --             $    --             $    --             $  --             $      --
                                        =========             =======             =======             =====             =========
</TABLE>

The total restructuring charge of $120.8 million comprised $107.4 million for
the write-off and disposition of equipment utilized in Japan and the
Philippines, $7.1 million for future lease commitments in Japan, $6.2 million
for severance in Japan and the Philippines, and $0.1 million for other expenses
associated with the restructuring in Japan and the Philippines. The fair value
of the assets written down was determined based upon salvage value as no further
uses of the assets were identified. Approximately 3,700 employees and 100
contractors were terminated. The net effect, after minority interest, for the
total restructuring charge was $88.6 million, of which $32.2 million was related
to the dissolution of RRSMI.

NOTE 8. INTEREST INCOME AND OTHER

Interest income and other, net for the three and nine months ended June 30, 2001
includes a gain of $4.9 million related to the sale of real estate in Malaysia.

NOTE 9. COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss), net of related tax are as follows
(in thousands):

<TABLE>
<CAPTION>
                                                            Three months ended June 30,               Nine months ended June 30,
                                                           ----------------------------             -----------------------------
                                                            2001                 2000                 2001                 2000
                                                           -------             --------             --------             --------
<S>                                                        <C>                 <C>                  <C>                  <C>
Net income (loss)                                          $ 9,744             $(50,512)            $ 28,374             $(82,280)
Adjustment for recognition of accumulated
      translation loss of liquidated subsidiary                 --                   --                  739                   --
Change in unrealized gain/(loss) on
      available-for-sale investments                            (1)                 427                   (1)                 701
                                                           -------             --------             --------             --------

Comprehensive income/(loss):                               $ 9,743             $(50,085)            $ 29,112             $(81,579)
                                                           -------             --------             --------             --------
</TABLE>



                                       9
<PAGE>   10

NOTE 10. SEGMENT INFORMATION

The Company operates and tracks its results in three operating segments, the
hard disk drive or HDD segment, tape drive segment and fiber optic components
segment. The Company designs, develops, manufactures and markets head gimbal
assemblies, head stack assemblies and tape heads for the hard disk drive and
tape drive markets. For reporting purposes, the Company has aggregated the HDD
and tape drive segments into magnetic recording heads. The Company also is the
majority owner of Scion Photonics, Inc. which designs and manufactures high
performance optical components (see Note 11). The Chief Executive Officer
("CEO") has been identified as the Chief Operating Decision Maker as defined by
Statement of Financial Accounting Standard No. 131 (SFAS 131), "Disclosures
about Segments of an Enterprise and Related Information." The Chief Executive
Officer evaluates performance and allocates resources based on revenue and gross
profit from operations. The Company does not allocate assets or depreciation by
operating segment.

Net sales to unaffiliated customers by operating segments were as follows
(amounts in thousands):

<TABLE>
<CAPTION>
                                     Three months ended June 30,             Nine months ended June 30,
                                    ----------------------------            ----------------------------
                                      2001                2000                2001                2000
                                    --------            --------            --------            --------
<S>                                 <C>                 <C>                 <C>                 <C>
Magnetic recording heads            $174,309            $140,904            $557,341            $409,883
Fiber optics                             895                  --               1,096                  --
                                    --------            --------            --------            --------
Total net sales                     $175,204            $140,904            $558,437            $409,883
                                    ========            ========            ========            ========
</TABLE>

For the three and nine-month periods ended June 30, 2001, the net sales for
Scion, the fiber optics segment of the Company, were $1.7 million and $2.0
million respectively, of which $0.8 million and $0.9 million represented sales
to the magnetic recording head segment of the Company.

Profit (loss) from unaffiliated customers by operating segments were as follows
(amounts in thousands):

<TABLE>
<CAPTION>
                                                Three months ended June 30,                Nine months ended June 30,
                                               ----------------------------             ------------------------------
                                                 2001                2000                 2001                  2000
                                               -------             --------             --------             ---------
<S>                                            <C>                 <C>                  <C>                  <C>
Magnetic recording heads                       $ 9,744             $(50,512)            $ 30,624             $(241,000)
Fiber optics                                    (6,423)                  --              (14,746)                   --
Minority interest - Scion Photonics              6,423                   --               12,496                    --
                                               -------             --------             --------             ---------

Total net income/(loss) before
  extraordinary item                           $ 9,744             $(50,512)            $ 28,374             $(241,000)
                                               =======             ========             ========             =========
</TABLE>

NOTE 11. SCION PHOTONICS, INC.

The Company announced the formation of Scion Photonics, Inc. ("Scion") in
September 2000. Scion's mission is to become the preeminent supplier of
application specific photonic components and subsystems. In December, Scion
acquired Optical Systems Corporation ("OSC") for cash and stock. OSC is a maker
of precision automated tooling equipment and is located in Valencia, California.

In October 2000, Scion received a $25 million cash investment from Tyco
Ventures, a subsidiary of Tyco International Ltd., and Integral Capital
Partners, in exchange for 25 million shares of preferred stock. During the third
fiscal quarter, Scion received $10 million from the issuance of convertible
notes purchased by Read-Rite, Tyco Ventures and Integral Capital Partners.



                                       10
<PAGE>   11
As of June 30, 2001, Scion had cash balances totaling $5.3 million that are
restricted for the operations and requirements of Scion.

Read-Rite contributed approximately $2.7 million in net tangible assets, granted
Scion a license to certain intellectual property rights, and assigned a building
lease to Scion for the construction of its fabrication facility, in exchange for
65 million shares of common stock. In addition, 35 million shares of common
stock were reserved for Scion's stock options plan. As a common shareholder,
Read-Rite has been allocated 100% of the losses incurred by Scion up to the
amount of tangible assets contributed. Tyco Ventures and Integral Capital
Partners, as preferred shareholders, have preferential liquidation rights such
that they will receive 100% of their $25 million contributed capital before any
distribution to common shareholders, and will assume the losses Scion incurs
beyond the tangible assets contributed by Read-Rite and any other common
shareholders. Since inception, Scion has incurred losses of $15.2 million. For
the three and nine-month periods ended June 30, 2001, Scion incurred losses of
$6.4 million and $14.7 million respectively, with $6.4 million and $12.5 million
respectively, of Scion's losses allocated to minority interest.

NOTE 12. CUSTOMER CONCENTRATION

The Company's three largest HDD customers, Maxtor, Samsung and Western Digital
accounted for 93% of net sales during the nine-month period ended June 30, 2001.
Quantum-HDD merged with Maxtor in April 2001 and as such will no longer be
separately reported. Given the small number of disk drive manufacturers, the
Company will continue to be dependent upon a limited number of customers. The
loss of any large customer, or a significant decrease in sales orders from one
or more large customers, will have a material adverse effect on the Company's
business, financial condition, and results of operations.


NOTE 13. LEGAL PROCEEDINGS

On December 11, 1996, a purported class action complaint was filed in the
Superior Court of the State of California, Santa Clara County, by Joan D.
Ferrari and Mark S. Goldman against the Company and certain of its officers and
directors (the "Ferrari State Action"), alleging that the defendants made false
and misleading statements concerning the Company's business condition and
prospects and seeking an unspecified amount of damages. On May 16, 1997, the
court sustained the demurrer of certain defendants to the entire complaint, and
sustained the demurrer of the remaining defendants to certain causes of action.
The remaining causes of action in the Ferrari State Action allege violation of
the California Corporations Code. On July 7, 1997, the remaining defendants
answered the complaint. On November 14, 2000, the remaining defendants filed a
motion for judgment on the pleadings seeking to use the federal action's final
judgment (see below) to extinguish the state claims under the doctrine of res
judicata. A hearing on that motion occurred on January 22, 2001 and on April 20,
2001, the court entered an order granting that motion. Plaintiffs served a
notice of appeal on July 20, 2001.

On January 16, 1997 and May 19, 1997, two supposed class action complaints were
filed in the United States District Court for the Northern District of
California against the Company and certain of its officers and directors by
Ferrari and Goldman (the "Ferrari Federal Action") and by James C. Nevius and
William Molair (the "Nevius Federal Action"), respectively. Both complaints
alleged that the defendants made false and misleading statements concerning the
Company's business condition and prospects and alleged violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 and
sought an unspecified amount of damages. On December 22, 1997, the Court
consolidated the Ferrari Federal Action and the Nevius Federal Action (the
"Consolidated Federal Action"). On October 13, 2000, the court ordered that the
Ferrari Plaintiffs' and Nevius Plaintiffs' complaints be dismissed without leave
to amend and that both actions be dismissed with prejudice. The Nevius
Plaintiffs and Ferrari Plaintiffs filed notices of appeal on October 27, 2000
and November 9, 2000, respectively. No briefs have been filed and no hearings
have been scheduled in either action.

The Company believes that the Company and the individual defendants have
meritorious defenses in the above-described actions. Accordingly, both on its
own behalf and pursuant to indemnification agreements between the Company and
the named individual defendants, the Company intends to continue to defend



                                       11
<PAGE>   12

each of these actions vigorously, and believes the final disposition of the
claims set forth in these actions will not have a material adverse effect on the
Company's business, results of operations and financial condition.

Except as so noted, the Company is not a party, nor is its property subject, to
any pending legal proceedings other than ordinary routine litigation incidental
and not material to the Company's business. The Company does not believe such
routine litigation, taken individually or in the aggregate, will have a material
adverse effect on the Company's business, financial condition or results of
operations.


ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This information should be read in conjunction with the unaudited consolidated
condensed financial statements and the notes thereto included in Part I, Item 1
of this Quarterly Report; and Item 1, Business, Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, and Item 8,
Financial Statements and Supplementary Data and notes thereto, in the Annual
Report for the fiscal year 2000 as filed on Form 10-K.

FORWARD LOOKING INFORMATION

Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations include forward-looking information within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are subject
to the "safe harbor" created by those sections. These statements include but are
not limited to: the Company's belief that its restructuring efforts will provide
a faster response to customer changes through improvement in manufacturing cycle
time; that the Company expects continued productivity improvements and better
capacity utilization at its Fremont wafer fab; that the Company believes that
they and the individual defendants have meritorious defenses in the purported
class actions (collectively, the "Actions") described in Note 13 "Legal
Proceedings"; that the Company expects capital expenditures for its head gimbal
assembly, head stack assembly and tape head operations will be approximately $85
- 90 million during the fiscal year and expects that capital expenditures for
Scion Photonics, Inc. will be approximately $20 million during the fiscal year.

Some factors that could cause future actual results to materially differ from
the Company's recent results or those projected in the forward-looking
statements include, but are not limited to: failure by the Company to timely,
effectively and continuously execute on current and future GMR products; failure
to obtain necessary customer qualifications on new programs; failure to timely
and cost-effectively introduce those programs into volume manufacturing; failure
to achieve and maintain acceptable production yields on those programs;
introduction of competitors' new products more quickly or cost effectively than
the Company's; constraints on supplies of raw materials or components limiting
the Company's ability to maintain or increase production; Scion's inability to
obtain financing or to obtain the sufficient financing required; Scion's ability
to quickly and successfully develop, design, manufacture, ramp production and
sustain volume production of its optical products; Scion's ability to achieve
anticipated acquisition related operational efficiencies; Scion's ability to
effectively manage and distribute products and compete in the highly competitive
and rapidly changing marketplace; significant increases or decreases in demand
for the Company's products, cancellation or rescheduling of customer orders,
changes to the Company's product mix, and changes in business conditions
affecting the Company's financial position or results of operations which
significantly increases the Company's working capital needs; or failure by the
Company to obtain favorable resolution of the claims set forth in the Actions.
For a more detailed discussion of certain risks associated with the Company's
business, see "Certain Additional Business Risks" and other risk factors
described in the Company's filings with the Securities and Exchange Commission,
in particular its Annual Report on Form 10-K for fiscal year 2000.



                                       12
<PAGE>   13

All forward-looking statements included in this document are made as of the date
hereof, based on the information available to the Company as of the date hereof,
and the Company assumes no obligation to update any forward-looking statement,
whether as a result of new information relating to existing conditions, future
events or otherwise.


RESULTS OF OPERATIONS

NET SALES

Net sales were $175.2 million and $558.4 million for the three and nine-month
periods ended June 30, 2001, respectively, compared to net sales of $140.9
million and $409.9 million for the comparable periods in fiscal 2000. The
increase is attributable to higher unit shipments, as the Company shipped head
gimbal assemblies and head stack assemblies supporting its customers' 20 and 30
gigabyte per platter disk drive programs during the nine-month period ended June
30, 2001. During the nine-month period ended June 30, 2000, the Company
primarily shipped recording heads supporting its customers 9.1 and 10.2 gigabyte
per platter disk drive programs.

The Company shipped 22.5 million and 68.5 million recording heads for the hard
disk drive and tape drive markets, including head gimbal assemblies shipped in
the form of head stack assemblies, for the three and nine-month periods ended
June 30, 2001 compared to 17.8 million and 46.2 million head gimbal assemblies
shipped during the three and nine-month periods ended June 30, 2000. The
increase in shipments during the three and nine-month periods ended June 30,
2001 compared to the same periods last year is the result of the Company's
participation during 2001 on its customers' 20 gigabyte per platter programs and
the Company's shipment on customers' 30 gigabyte per platter programs during the
second and third quarters of fiscal 2001 compared to the Company's limited
participation on its customers' first generation GMR products during the first
nine months of fiscal 2000.

Head gimbal assemblies accounted for 52% and 51% of net sales during the three
and nine-month periods ended June 30, 2001 versus 51% and 31% for the comparable
periods last year. Head stack assemblies accounted for 40% and 43% of net sales
during the three and nine-month periods ended June 30, 2001 versus 42% and 62%
during the same periods last year.

The Company's average selling prices for head gimbal assemblies for the third
fiscal quarter of 2001 decreased slightly compared to the third fiscal quarter
of 2000. Average selling prices for head stack assemblies for the three-month
period ended June 30, 2001 decreased by 7% compared to the same period last year
and the average number of heads per head stack shipped during the quarter ended
June 30, 2001 decreased to 2.8 heads per stack from 3.1 heads per stack during
quarter ended June 30, 2000. Head stack shipments decreased from 3.2 million
units in the second quarter of fiscal year 2001 to 2.6 million units in the
third quarter of fiscal year 2001 as the result of customer mix shift and one
customer's utilization of its own internal capacity and other outside head
stacking partners.

The Company's customer base remains highly concentrated as its three HDD
customers, Maxtor, Samsung and Western Digital accounted for over 91% and 93% of
net sales for the three and nine-month periods ended June 30, 2001, compared to
90% and 89% for the comparable periods last year. Quantum-HDD merged with Maxtor
in April 2001 and as such will no longer be separately reported.

GROSS MARGIN

The Company's gross margins are primarily influenced by the level of unit sales
in relation to fixed costs, average selling prices, manufacturing yields and
product mix. The relative impact of these factors fluctuates from time to time.
Head stack assemblies typically have a lower gross margin, as a percentage of
sales, than head gimbal assemblies. Head stack assemblies typically consists of
one or more head gimbal assemblies and a variety of purchased components, which
the Company assembles into a single unit. The cost of the purchased components
comprises a significant percentage of the total cost of the head stack assembly
and the gross margin on such purchased components is substantially lower than
the gross margin on head gimbal assemblies produced by the Company.



                                       13
<PAGE>   14

The gross margin was 14.0% and 16.4% for the three and nine-month periods ended
June 30, 2001, as compared to a gross margin loss of 11.1% and 16.9% for the
same periods last year. The improvement in gross margin during the first three
quarters of fiscal year 2001 is attributed to higher unit volumes, improved
manufacturing yields and cost savings realized from the restructuring efforts
initiated during the second half of fiscal year 2000.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT: Research and development expenses were $19.2 million
and $53.7 million for the three and nine-month periods ended June 30, 2001 as
compared to $15.0 million and $53.2 million for the same periods last year. The
increase in research and development expenses during fiscal 2001 is the result
of expenses incurred by Scion Photonics, Inc., of $6.0 million and $13.1 million
during the three and nine-months periods ended June 30, 2001, offset by the
reduction in research and development expenses in the hard disk drive segment of
the business during fiscal 2001 of $1.8 million and $12.6 million during the
three and nine-month periods ended June 30, 2001 compared to the previous
periods in fiscal 2000 as the result of the Company's decision to terminate its
wafer fabrication operations in Japan during the later half of fiscal 2000 along
with continued cost containment efforts.

SELLING, GENERAL & ADMINISTRATIVE: Selling, general and administrative ("SG&A")
expenses were $8.2 million and $24.4 million for the three and nine-month
periods ended June 30, 2001 compared to $5.3 million and $19.0 million for the
same periods last year. The increase in expense for the three and nine-month
periods ended June 30, 2001, was the result of increased recruiting and
staffing, reclassification of certain personnel into SG&A and the establishment
of Read-Rite Japan as well as $1.5 million and $3.0 million in SG&A expenses
incurred by Scion Photonics during the three and nine-month periods ended June
30, 2001.

RESTRUCTURING COSTS: During the quarter ended March 31, 2000, the Company
incurred restructuring costs of $122.1 million. The Company incurred an
additional restructuring charge during the third quarter of $8.0 million, and in
the fourth quarter of fiscal year 2000 the Company revised the estimate for
restructuring costs to approximately $120.8 million. With continued productivity
improvements and more efficient capacity utilization at the Company's Fremont
wafer fab, combined with the Company's efforts to reduce fixed costs and to
better focus its technical resources in one wafer fab location, the Company
dissolved its joint venture, Read-Rite SMI ("RRSMI"), with Sumitomo Metals
Industries, Ltd. ("SMI") in Japan. The Company established a product
engineering, sales and procurement office in Japan to continue to support its
customers and suppliers in that area. The transition to the Fremont wafer fab of
the products previously designed and manufactured in Japan was completed in the
fourth quarter of fiscal 2000. In addition, the Company closed its Philippine
head stack operations and brought all head gimbal assembly and head stack
operations into the Company's Thailand facility. This action has lowered the
Company's fixed costs and provided a faster response to customer changes by
improving manufacturing cycle time. The Company's tape head assembly operations
remain in the Philippines.

The total restructuring charge of $120.8 million comprised $107.4 million for
the write-off and disposition of equipment utilized in Japan and the
Philippines, $7.1 million for future lease commitments in Japan, $6.2 million
for severance in Japan and the Philippines, and $0.1 million for other expenses
associated with the restructuring in Japan and the Philippines. The fair value
of the assets written down was determined based upon salvage value as no further
uses of the assets were identified. Of the 3,800 terminations, approximately 200
and 3,400 were engaged in manufacturing activities in Japan and the Philippines,
respectively. The net effect, after minority interest, for the total
restructuring charge was $88.6 million, of which $32.2 million was related to
the dissolution of RRSMI.

NON-OPERATING EXPENSES

INTEREST EXPENSE: Interest expense for the quarter ended June 30, 2001 was $1.1
million compared to $8.6 million for the same period last year. Interest expense
for the first nine months of fiscal 2001 was $5.0 million compared to $25.2
million for the same period last year. The decrease in interest expense was due
to the significantly lower debt balance for the three and nine-month periods
ended June 30, 2001. Debt



                                       14
<PAGE>   15

balances as of June 30, 2001 totaled $77.8 million, a decrease of $194.8 million
over the balance as of June 30, 2000 of $272.6 million.

INTEREST INCOME AND OTHER, NET: Interest income and other, net for the three and
nine-month periods ended June 30, 2001 was $7.1 million and $8.0 million
respectively, compared to income of $2.0 million and $7.5 million for the same
periods last year. The increase in income for the three-month period ended June
30, 2001 compared to the same period last year is primarily related to a gain of
$4.9 million recognized in the third quarter of fiscal year 2001 on the sale of
real estate in Malaysia.

EXTRAORDINARY ITEM: In February 2000, the Company filed a Registration Statement
on Form S-4 to offer to exchange $172.5 million of 10% convertible subordinated
notes for its outstanding $345 million of 6.5% convertible subordinated notes.
The Company also offered additional 10% convertible subordinated notes for cash.
The exchange offering was completed on March 15, 2000. Approximately $325.2
million in aggregate principal value of the Company's 6.5% convertible
subordinated notes were tendered in the exchange offer, and the Company received
approximately $54.2 million in cash from the issuance of new 10% convertible
subordinated notes. As a result of this debt conversion, the Company recognized
$158.7 million of extraordinary gain, net of no taxes, in the fiscal quarter
ended March 31, 2000.

INCOME TAXES: The effective tax rates for the quarters ended June 30, 2001 and
2000 were (1%) and zero. The effective tax rates for the nine months ended June
30, 2001 and 2000 were 1% and zero. The higher rate this year is attributable to
US alternative minimum taxes and foreign taxes.

MINORITY INTEREST: During the three and nine-month period ended June 30, 2001,
Scion incurred losses of $6.4 million and $14.7 million respectively. Read-Rite
contributed approximately $2.7 million in tangible assets to the joint venture.
As a common shareholder, Read-Rite is allocated 100% of the losses incurred by
Scion up to the amount of tangible assets contributed. Tyco Ventures and
Integral Capital Partners, as preferred shareholders, have preferential
liquidation rights such that they will receive 100% of their $25 million
contributed capital before any distribution to common shareholders, and will
assume the losses Scion incurs beyond the tangible assets contributed by
Read-Rite and any other common shareholders. For the three and nine-month
periods ended June 30, 2001, $6.4 million and $12.5 million, respectively, of
Scion's loss was allocated to minority interest.


LIQUIDITY AND CAPITAL RESOURCES

As of the end of the first nine months of fiscal 2001, the Company had cash and
investments of $135.9 million, total assets of $542.8 million and total
liabilities of $209.8 million.

Cash provided by operating activities for the nine-month period ending June 30,
2001 was $110.8 million. The positive cash flow from operating activities was
primarily attributed to net income from operations of $28.4 million,
depreciation and amortization of $92.2 million and a decrease in inventory
balances of $2.1 million offset by the gain on the sale of Malaysian real estate
of $4.9 million, a decrease in accounts payable and accrued liabilities of $3.0
million and an increase in accounts receivable balances of $6.5 million.

The Company's business is highly capital intensive. During the nine-month period
ended June 30, 2001, the Company incurred capital expenditures of $79.8 million.
The Company's plan for capital equipment purchases during fiscal 2001 for its
head gimbal assembly, head stack assembly and tape head business is
approximately $85 - 90 million. During fiscal 2001, the Company estimates that
capital expenditures for its majority owned subsidiary, Scion Photonics, Inc.,
will be approximately $20 million. As of June 30, 2001, total commitments for
construction or purchase of capital equipment for the Company, including
commitments of $4.0 million for Scion, totaled approximately $52.4 million.

Cash provided by financing activities totaled $35.6 million, the result of
several financing transactions occurring during the first nine months of fiscal
year 2001. During the first quarter of fiscal 2001, the Company completed the
automatic conversion of its 10% subordinated convertible notes to common stock,
with the face value of the notes converted to common stock at a price of $4.51
per share. The automatic



                                       15
<PAGE>   16

conversion included a "make whole" provision that guaranteed interest for two
years, the fair value of which was approximately $29.3 million and which was
also paid in stock. Approximately 45.3 million shares of common stock were
issued in October in conjunction with the conversion and the "make whole"
provision. During the first quarter the Company also received a cash investment
of $18.9 million in a private placement of approximately 2.7 million shares of
common stock to the State of Wisconsin Investment Board. Also during the first
quarter the Company repaid the remaining balance of $28.8 million under the
secured term loan. During the third fiscal quarter of 2001, the Company
completed a five year equipment based loan at a rate of LIBOR plus 3.5%. Total
borrowings under the loan totaled $9.8 million, with interest and principal
payable monthly. In addition, the Company's subsidiary in Thailand completed a
$5 million three year loan, secured by land and a corporate guarantee, with a
Thai financial institution. Short-term borrowings as of June 30, 2001 of $12.8
million consisted primarily of two six-month unsecured Thai baht denominated
loans, each at approximately $4.4 million, at an interest rate of 4.25% and 4.5%
respectively. An additional $2.8 million from short-term borrowings represents
the portion of $10 million in convertible notes issued by Scion Photonics, Inc.
and purchased by Tyco Ventures and Integral Capital Partners in May 2001, with
Read-Rite Corporation acquiring the balance of the notes.

The debt balances of the Company were reduced from $272.6 million as of
September 30, 2000 to $77.8 million as of June 30, 2001.

In October 2000, Scion Photonics, Inc., a subsidiary of Read-Rite, received a
$25 million cash investment from Tyco Ventures, a subsidiary of Tyco
International, Ltd. and Integral Capital Partners, in exchange for 25 million
shares of preferred stock. In May 2001, Read-Rite, Tyco Ventures and Integral
Capital Partners purchased convertible notes issued by Scion. These funds are
restricted for the operations and capital requirements of Scion and as of June
30, 2001, Scion had cash balances totaling $5.3 million.

The Company does not pay cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future.

CERTAIN ADDITIONAL BUSINESS RISKS

The Company's business, financial condition and operating results can be
affected by a number of factors, including but not limited to those set forth
below, any one of which could cause the Company's actual results to vary
materially from recent results or from the Company's anticipated future results.

RAPID TECHNOLOGICAL CHANGE

Technology changes rapidly in the Company's industry. These rapid changes
require the Company both to address obsolescence of old technologies and to
anticipate new technologies. Failure to smoothly transition from old
technologies or to anticipate and execute on new technologies can have a
material adverse effect on the Company's business, financial condition and
results of operations. For example, in the third quarter of fiscal year 1999,
the Company incurred a restructuring charge of $37.7 million for the write-off
of equipment associated with the Company's transition from magnetoresistive
("MR") to GMR technology.

During fiscal 2000, the Company shipped 60.6 million GMR heads (including heads
in head stack assemblies) for 22 disk drive programs to five customers,
accounting for approximately 87% of net sales during the period. Therefore, the
Company expects to continue investing significant resources in GMR and in other
thin film magnetic product development and manufacturing equipment. There can be
no assurance, however, that the Company will be successful in timely and cost
effectively developing and manufacturing new GMR heads at acceptable
manufacturing yields as is needed to achieve consistent design-in wins on
customers' new product programs.



                                       16
<PAGE>   17

DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS; RISK OF REDUCED ORDERS

The Company is a component supplier dependent upon a limited number of customers
in a volatile industry characterized by rapid technological change, short
product life cycles, intense competition, frequent delivery schedule changes and
steady price erosion. In addition, demand for the Company's products is highly
variable and thus difficult to predict accurately. This variability was
demonstrated in the last three quarters of fiscal 1999, when the industry made a
faster transition to giant magnetoresistive ("GMR") than anticipated and the
Company had limited "design-in wins" for its early GMR products with its
customers. Demand variations such as these and those of the current weakening
consumer demand for PCs, as noted by the major PC manufacturers recently, can
materially and adversely affect the Company's business, financial condition and
results of operations.

The Company's largest customers are Maxtor, Western Digital and Samsung and
Quantum-HDD, representing 40%, 20%, 19% and 12%, respectively, of the Company's
net sales during fiscal 2000. In October 2000, Quantum announced the merger of
its HDD unit into Maxtor. The merger was completed in April 2001. Quantum
Corporation currently purchases tape head products from the Company. The Company
produced head gimbal assemblies in volume for six customers, head stack
assemblies in volume for four customers and tape drive products in volume for
three customers during fiscal 2000. Given the small number of high performance
disk drive and tape drive manufacturers who require an independent source of
head gimbal assemblies, head stack assemblies or tape head supply, the Company
will continue to be dependent upon a limited number of customers. The loss of
any large customer, or a significant decrease in orders from one or more large
customers, will have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, this dependence upon
a limited number of customers means that acquisitions, consolidations or other
material agreements affecting such customers could also have a material adverse
effect on the Company's business, financial condition and operating results.
Acquisitions or significant transactions by the Company's customers leading to
further consolidation, vertical integration or other material agreements could
also materially and adversely affect the Company's business, financial condition
and results of operations.

DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS

As a high technology company in a narrowly defined industry, the Company is
often dependent upon a limited number of suppliers and subcontractors, and in
some cases on single sources, for critical components or supplies. Limitation on
or interruption in the supply of certain components or supplies can severely and
adversely affect the Company's production and results of operations. The Company
has limited alternative sources of certain key materials such as wafer
substrates, photo resist and suspensions and frequently must rely on a single
equipment supplier for a given equipment type due to lack of viable alternatives
or to insure process consistency. Furthermore, in some cases, the Company's
customers generally determine the suppliers in advance. Accordingly, capacity
constraints, production failures or restricted allocations by the Company's
suppliers could have a material adverse effect on the Company's own production,
and its business, financial condition and results of operations.

In addition, California, the state in which the Company maintains its wafer
facility, is currently experiencing demands for electricity and gas creating a
significant increase in the costs and a reduction in the surplus of power
available to California customers. The State of California has implemented, and
may in the future implement, rolling blackouts. Read-Rite has been impacted by
rolling blackouts during fiscal year 2001, and may in the future be impacted by
rolling blackouts. Interruptions in power at its wafer fabrication facility may
have a negative impact on its manufacturing yields and output. Pacific Gas and
Electric, the utility company for the Company's U.S. facilities, has recently
filed for bankruptcy. Prices for electricity and gas have increased in 2001 and
there may be further increases in electricity and gas prices. Increases in the
electricity and gas prices may have an impact on the Company's operating
expenses and cost of goods sold.

DEPENDENCE ON SINGLE MANUFACTURING AND ASSEMBLY FACILITIES

The Company has one wafer fabrication facility in Fremont, California for its
HDD wafers and operates in one location in Thailand for its head gimbal and head
stack assembly operations. In addition, the Company also uses one facility in
Milpitas, California for its tape head wafer fabrication and operations of
Scion, and one location



                                       17
<PAGE>   18

in the Philippines for its tape head assembly operations. A fire, flood,
earthquake or other disaster to these locations may have an adverse effect on
the Company's business, financial condition and results of operations.


COMPLEX MANUFACTURING PROCESSES

The Company's manufacturing processes involve numerous complex steps. Minor
deviations can cause substantial manufacturing yield loss and, in some cases,
cause production to be suspended. Manufacturing yields for new products
initially tend to be lower as the Company completes product development and
commences volume manufacturing, and thereafter yields typically increase as the
Company ramps to full production. The Company's forward product pricing reflects
this assumption of improving manufacturing yields and, as a result, material
variances between projected and actual manufacturing yields have a direct effect
on the Company's gross margin and profitability. The difficulty of forecasting
manufacturing yields accurately and maintaining cost competitiveness through
improving manufacturing yields will continue to be magnified by the
ever-increasing process complexity of manufacturing GMR products. Further, the
shortening of product life cycles requires the Company to produce new products
at higher volume and acceptable manufacturing yields without, in many cases,
reaching the longer-term, higher volume manufacturing cycle, which is conducive
to higher manufacturing yields and declining costs.


INTERNATIONAL OPERATIONS

The Company's production process is also labor intensive. As a result, the
Company conducts substantially all of its head gimbal assembly machining,
assembly and test operations, head stack assembly and tape head assembly
operations offshore, and is thus subject to the many risks associated with
contracting with foreign vendors and suppliers and with the ownership and
operation of foreign manufacturing facilities, including obtaining requisite
governmental permits and approvals, currency exchange fluctuations and
restrictions, variable or higher tax rates, expiration of tax holidays,
political instability, changes in government policies relating to foreign
investment and operations, cultural issues, labor problems, trade restrictions,
transportation delays and interruptions, and changes in tariff and freight
rates. The Company has from time to time experienced labor organization
activities at certain of its foreign operations. At this time, none of the
Company's employees are represented by a union. There can be no assurance,
however, that the Company will continue to be successful in avoiding work
stoppages or other labor issues in the future.

In addition, several Asian countries, including Thailand and the Philippines,
experience fluctuations in the value of their currencies relative to the U.S.
dollar. The Company is unable to predict what effect, if any, these factors will
have on its ability to manufacture products in these markets. The Company enters
into foreign currency forward and option contracts in an effort to manage
exposure related to certain foreign currency commitments, certain foreign
currency denominated balance sheet positions and anticipated foreign currency
denominated expenditures.

SUBSTANTIAL CAPITAL EXPENDITURES

The Company's business is highly capital intensive. To maintain its market
position, the Company must anticipate demand for its products and the path of
new technologies so that production capacity, both in terms of amount and the
proper technologies, will be in place to meet customers' needs. Accurate
capacity planning is complicated by the pace of technological change,
unpredictable demand variations, the effects of variable manufacturing yields,
and the fact that most of the Company's plant and equipment expenditures have
long lead times, requiring major commitments well in advance of actual
requirements. The Company's underestimation or overestimation of its capacity
requirements, or failure to successfully and timely put in place the proper
technologies, would have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company has made substantial capital expenditures and installed significant
production capacity to support new technologies and increased demand for its
products. The Company made capital expenditures during fiscal 2000 of $93.6
million, compared to $101.0 million during fiscal 1999. The Company expects
capital expenditures of $85 - 90 million during fiscal 2001 for its head gimbal
assembly, head stack



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<PAGE>   19

assembly and tape head operations, and Scion plans to spend an additional $20
million in capital expenditures during fiscal 2001.


INVENTORY RISKS

Due to the cyclical nature of and rapid technological change in the hard disk
drive industry, the Company's inventory is subject to substantial risk. To
address these risks, the Company monitors its inventories on a periodic basis
and provides inventory write-downs intended to cover inventory risks. However,
given the Company's dependence on a few customers and a limited number of
product programs for each customer, the magnitude of the commitments the Company
must make to support its customers' programs and the Company's limited remedies
in the event of program cancellations, if a customer cancels or materially
reduces one or more product programs, or experiences financial difficulties, the
Company may be required to take significant inventory charges, which, in turn,
could materially and adversely affect the Company's business, financial
condition and results of operations. While the Company in the past has taken
certain charges and provided inventory write-downs, there can be no assurance
that the Company will not be required to take additional inventory write-downs
in the future due to the Company's inability to obtain necessary product
qualifications, or due to further cancellations by customers.

The Company manufactures custom products for a limited number of customers.
Because its products are custom-built, the Company typically cannot shift raw
materials, work-in-process or finished goods from customer to customer, or from
one product program to another for a particular customer. However, to enable its
customers to get products to market quickly and to address its customers' demand
requirements, the Company must invest substantial resources and make significant
materials commitments, often before obtaining formal customer qualifications and
generally before the market prospects for its customers' products are clear.
Moreover, given the rapid pace of technology advancement in the disk drive
industry, the disk drive products that do succeed typically have very short life
cycles. Finally, in response to rapidly shifting business conditions, the
Company's customers have generally sought to limit purchase order commitments to
the Company, and have done so by employing what is known in the industry as JIT
(Just-in-Time) hubs. If the customer does not have demand from their end
customer, they will not pull the inventory from the JIT hub and thus the Company
may be left with excess and or obsolete inventory, which increases inventory
risk.


DEPENDENCE ON KEY PERSONNEL

The Company's future performance depends on the continued service of key members
of management, and its highly skilled research and development and manufacturing
personnel. If the Company is unable to retain the existing employees or hire and
integrate new employees, it may have an adverse effect on the Company's
business, financial condition and results of operations.


SCION'S ABILITY TO DEVELOP, DESIGN, MANUFACTURE, RAMP, ACHIEVE AND SUSTAIN
VOLUME PRODUCTION OF OPTICAL COMPONENTS

Scion Photonics, Inc., is incurring expenses for the design, development and
future manufacturing of high-performance optical components. There can be no
guarantee that Scion will successfully develop, design, manufacture, or achieve
acceptable yields on the products currently under development, or be successful
in the highly competitive and rapidly changing optical marketplace, There can be
no guarantee Read-Rite will recover its investment in Scion. Scion may also, in
the future, require additional funding. There can be no guarantee that Scion
will receive additional funding necessary to allow it to complete the design,
development and manufacturing of high-performance optical components. In
addition, as Scion develops the products and processes, it may be subject to
claims that it is impairing the intellectual property rights of others which
could cause Scion to have to redesign products or processes that use the
disputed intellectual property, cease to develop the products or processes that
use the disputed intellectual property or obtain, if available, third party
licenses to use the disputed intellectual property which may have an adverse
impact on its ability to develop, design and manufacture high-performance
optical components.



                                       19
<PAGE>   20

LOCATION OF FACILITIES IS SUBJECTS TO THE RISK OF EARTHQUAKES

The Company's wafer fabrication facilities, and a majority of its administration
and data processing function are located in a seismically active area that has
experienced major earthquakes in the past. In the event of a major earthquake or
other disaster affecting the Company's facilities, operations and operating
results could be adversely affected.


FLUCTUATIONS IN OPERATING RESULTS

The Company has experienced substantial fluctuations in its quarterly and annual
operating results in the past, and the Company's future operating results could
vary substantially from quarter to quarter. The Company's operating results for
a particular quarter or longer periods can be materially and adversely affected
by numerous factors, such as increased competition or execution issues leading
to a failure by the Company to obtain "design-in wins" on one or more customer
programs; delayed product introductions or capacity constraints on certain
technologies; decreased demand for or decreased average selling prices for the
Company's products; low product manufacturing yields; increased returns or
rework; changes in product mix and increased operating costs associated with the
ramp-up of production as capacity is added or under-utilization of capacity if
demand is less than anticipated; increased material costs or material or
equipment unavailability; disruptions in domestic or foreign operations; and
general economic conditions.

The Company's net sales are generally made pursuant to individual purchase
orders that may be changed or canceled by customers on short notice, often
without material penalties. Changes or cancellations of product orders could
result in under-utilization of production capacity and inventory write-offs. For
example, in the last three quarters of fiscal 1999, the Company experienced
delays and cancellation of orders, reduced average selling prices, inventory and
equipment write-offs, and increased unit costs due to under-utilization of
production capacity. As a consequence, the Company experienced a significant
reduction in net sales, negative gross margin and incurred significant losses.

VOLATILITY OF STOCK PRICE

The trading price of the Company's common stock is expected to continue to be
subject to wide fluctuations in response to quarter-to-quarter variations in
operating results, announcements of technological innovations or new products by
the Company or its competitors, qualifications on volume shipment programs from
major customers, general conditions in the disk drive and computer industries,
and other events or factors. In addition, stock markets have experienced extreme
price volatility in recent years. This volatility has had a substantial effect
on the market price of securities issued by many high technology companies, in
many cases for reasons unrelated to the operating performance of the specific
companies, and the Company's common stock has experienced volatility not
necessarily related to announcements of Company performance. Broad market
fluctuations may adversely affect the market price of the Company's common
stock.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's market risk has not changed significantly from the risks disclosed
in Part II, Item 7A of the Company's Annual Report on Form 10-K for fiscal year
2000 under the heading "Quantitative and Qualitative Disclosures About Market
Risk".


PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For information on Legal Proceedings please see Note 13 to the Company's
Consolidated Condensed Financial Statements in Part I of this report on Form
10-Q, which information is incorporated herein by reference.



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<PAGE>   21

Item 6. Exhibits and Reports on Form 8-K

        (a) Exhibits
            None

        (b) Reports on Form 8-K
            There were no Reports on Form 8-K filed during the third quarter of
            fiscal 2001.



                                    SIGNATURE

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


Date:   August 6, 2001                 /s/   John T. Kurtzweil
                                       -----------------------------------------
                                       Sr. Vice President, Finance and Chief
                                       Financial Officer



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