<PAGE>   1
================================================================================

                                  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, 1998

                         Commission file number: 0-19512


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


               DELAWARE                                   94-2770690
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)


                345 LOS COCHES STREET, MILPITAS, CALIFORNIA 95035
              (Address of principal executive officers) (Zip code)

                                 (408) 262-6700
              (Registrant's telephone number, including area code)


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 31, 1998, 48,722,042 shares of the registrant's common stock were issued
and outstanding.

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


<PAGE>   2

                                      INDEX


<TABLE>
<CAPTION>
PART I.        FINANCIAL  INFORMATION                                        PAGE NO.
-------------  ---------------------------------------------------------     --------
<S>           <C>                                                           <C>  
Item 1.        Financial Statements

               Consolidated Condensed Statements of Operations -                2
                    Three Months and Nine Months Ended June 30, 1998
                    and 1997

               Consolidated Condensed Balance Sheets -                          3
                    June 30, 1998 and September 30, 1997

               Consolidated Condensed Statements of Cash Flows -                4
                    Nine Months Ended June 30, 1998 and 1997

               Notes to Consolidated Condensed Financial Statements             5

Item 2.        Management's Discussion and Analysis of Financial                9
                    Condition and Results of Operations


PART II.       OTHER INFORMATION
-------------  ---------------------------------------------------------

Item 1.        Legal Proceedings                                                20

Item 6.        Exhibits and Reports on Form 8-K                                 21

               Signature                                                        21

               Exhibit 27.1 - Financial Data Schedule                           22
</TABLE>





                                       1
<PAGE>   3

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED            NINE MONTHS ENDED
                                                        JUNE 30,                      JUNE 30,
                                                ------------------------     ------------------------
                                                  1998            1997          1998           1997
                                                ---------      ---------     ---------      ---------
                                                       (Unaudited)                 (Unaudited)
<S>                                             <C>            <C>           <C>            <C>      
Net sales                                       $ 184,247      $ 310,236     $ 632,690      $ 843,892
Cost of sales                                     198,996        238,146       763,620        673,608
                                                ---------      ---------     ---------      ---------
     GROSS MARGIN                                 (14,749)        72,090      (130,930)       170,284

Research and development                           23,353         15,994        68,990         46,623
Selling, general and administrative                 8,556         10,412        27,286         31,535
Restructuring costs                                93,728             --        93,728             --
                                                ---------      ---------     ---------      ---------
     Total operating expenses                     125,637         26,406       190,004         78,158
                                                ---------      ---------     ---------      ---------
     OPERATING (LOSS) INCOME                     (140,386)        45,684      (320,934)        92,126

Interest expense                                    7,301          3,569        22,266         10,631
Interest income and other, net                      2,795          1,768         4,501          6,766
                                                ---------      ---------     ---------      ---------
     (Loss) income before provision for
       income taxes and minority interest        (144,892)        43,883      (338,699)        88,261
Provision (benefit) for income taxes                   74         10,094       (24,645)        21,190
                                                ---------      ---------     ---------      ---------
     (Loss) income before minority interest      (144,966)        33,789      (314,054)        67,071
Minority interest in net (loss) income of
  consolidated subsidiary                          (7,816)         2,616       (23,804)         6,556
                                                ---------      ---------     ---------      ---------
     NET (LOSS) INCOME                          $(137,150)     $  31,173     $(290,250)     $  60,515
                                                =========      =========     =========      =========

(Loss) earnings per share:
     BASIC                                      $   (2.82)     $    0.65     $   (5.99)     $    1.28
     DILUTED                                    $   (2.82)     $    0.64     $   (5.99)     $    1.24

Shares used in per share computations:
     Basic                                         48,702         47,636        48,437         47,272
     Diluted                                       48,702         48,963        48,437         48,626
</TABLE>


   SEE ACCOMPANYING NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.



                                       2

<PAGE>   4

                      CONSOLIDATED CONDENSED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                       JUNE 30,      SEPTEMBER 30,
                                                                        1998            1997 (a)
                                                                    -----------      -----------
                                                                              (Unaudited)
<S>                                                                 <C>              <C>        
ASSETS
Cash and cash equivalents                                           $    68,675      $   118,589
Short-term investments                                                   80,995          179,508
Accounts receivable, net                                                 84,157          173,335
Inventories                                                              59,869           91,487
Prepaid expenses and other current assets                                23,290           20,375
                                                                    -----------      -----------
     Total current assets                                               316,986          583,294
Property, plant and equipment                                         1,231,113        1,091,442
Less: accumulated depreciation                                          645,936          418,629
                                                                    -----------      -----------
     Property, plant and equipment, net                                 585,177          672,813
Intangible and other assets                                              26,852           45,374
                                                                    -----------      -----------
     TOTAL ASSETS                                                   $   929,015      $ 1,301,481
                                                                    ===========      ===========

LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
   SUBSIDIARY AND STOCKHOLDERS' EQUITY
Accounts payable                                                    $    85,041      $   122,379
Accrued compensation and benefits                                        30,261           37,558
Income taxes payable                                                     21,386           26,071
Other accrued liabilities                                                59,201           41,499
Current portion of long-term debt and capital lease obligations          13,439           12,602
                                                                    -----------      -----------
     Total current liabilities                                          209,328          240,109
Convertible subordinated notes                                          345,000          345,000
Other long-term debt and capital lease obligations                       51,191           58,871
Other long-term liabilities                                              10,956           38,726
                                                                    -----------      -----------
     Total liabilities                                                  616,475          682,706

Minority interest in consolidated subsidiary                             49,318           73,122

Convertible preferred stock, $0.0001 par value                               --               --
Common Stock, $0.0001 par value                                               5                5
Additional paid-in capital                                              362,914          354,546
(Accumulated deficit) retained earnings                                 (99,697)         191,102
                                                                    -----------      -----------
     Total stockholders' equity                                         263,222          545,653
                                                                    -----------      -----------
     TOTAL LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
       SUBSIDIARY AND STOCKHOLDERS' EQUITY                          $   929,015      $ 1,301,481
                                                                    ===========      ===========
</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, 1997.

   SEE ACCOMPANYING NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.



                                        3

<PAGE>   5

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                        NINE MONTHS ENDED JUNE 30,
                                                                        ------------------------
                                                                           1998          1997
                                                                        ---------      ---------
                                                                              (Unaudited)
<S>                                                                     <C>            <C>      
OPERATING ACTIVITIES
Net (loss) income                                                       $(290,250)     $  60,515
Adjustments required to reconcile net (loss) income to cash
  provided by operations:
Depreciation and amortization                                             187,361        122,501
Restructuring cost                                                         93,728             --
Minority interest in net (loss) income of consolidated subsidiary         (23,804)         6,556
Other, net                                                                (22,031)         8,820
Changes in assets and liabilities:
     Accounts receivable                                                   89,178        (48,760)
     Inventories                                                           31,618        (23,054)
     Prepaid expenses and other current assets                              2,385            336
     Accounts payable, accrued liabilities and income taxes payable       (56,441)        38,408
                                                                        ---------      ---------
     NET CASH PROVIDED BY OPERATING ACTIVITIES                             11,744        165,322

INVESTING ACTIVITIES
Capital expenditures                                                     (156,216)      (192,572)
Maturities of available-for-sale investments                              418,426        398,131
Purchase of available-for-sale investments                               (319,913)      (369,051)
Other assets and liabilities, net                                          (2,901)        (6,053)
                                                                        ---------      ---------
     NET CASH USED IN INVESTING ACTIVITIES                                (60,604)      (169,545)

FINANCING ACTIVITIES
Payment of other long-term debt and capital lease                          (6,843)        (8,881)
Proceeds from issuance of common stock                                      5,789         11,370
                                                                        ---------      ---------
     NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                   (1,054)         2,489

Effect of foreign currency exchange rate changes on cash                       --            553
                                                                        ---------      ---------

Net decrease in cash and cash equivalents                                 (49,914)        (1,181)
Cash and cash equivalents at beginning of period                          118,589         82,291
                                                                        ---------      ---------
Cash and cash equivalents at end of period                              $  68,675      $  81,110
                                                                        =========      =========

Supplemental disclosures of non-cash activities:
     Issuance of common stock under 401(k) plan                         $   2,579      $   2,181
Supplemental disclosures of cash flow information:
     Interest paid during the period                                    $  15,649      $  11,007
     Income taxes paid during the period                                $     200      $  12,666
</TABLE>


   SEE ACCOMPANYING NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.



                                       4

<PAGE>   6

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1.  GENERAL

Read-Rite Corporation ("Read-Rite" or the "Company") maintains a
fifty-two/fifty-three week fiscal year cycle ending on the Sunday closest to
September 30. The third quarters of fiscal 1998 and 1997 ended on June 28, 1998
and June 29, 1997, respectively. To conform to the Company's fiscal year ends,
the Company must add a fifty-third week to every sixth or seventh fiscal year;
however, both fiscal 1998 and fiscal 1997 are 52-week years. For convenience,
the accompanying financial statements have been shown as ending on the last day
of the calendar month.

In the opinion of management, all adjustments (including all normal recurring
adjustments) considered necessary for a fair presentation of the interim periods
presented have been included. The three month period ended December 31, 1997
included a special charge to cost of sales of $114.8 million, primarily for the
write-off of equipment and inventory associated with the phase-out of advanced
inductive technologies. The three month period ended June 30, 1998 included
restructuring costs of $93.7 million associated with the Company's decision to
significantly reduce and ultimately cease its manufacturing operations
in Malaysia and charges taken for excess equipment at the Company's other
manufacturing locations. The interim results are not necessarily indicative of
the operating results expected for the full fiscal year ending September 30,
1998. The accompanying unaudited financial statements should be read in
conjunction with the Company's audited financial statements included in its 1997
Annual Report on Form 10-K.

NOTE 2.  INVENTORIES

Inventories consisted of the following at (in thousands):


<TABLE>
<CAPTION>
                                                      JUNE 30,         SEPTEMBER 30,
                                                        1998               1997
                                                      -------            -------
<S>                                                   <C>                <C>    
Raw material                                          $ 5,494            $13,097
Work-in-process                                        29,618             73,280
Finished goods                                         24,757              5,110
                                                      -------            -------
     Total inventories                                $59,869            $91,487
                                                      =======            =======
</TABLE>

NOTE 3.  CALCULATION OF (LOSS) EARNINGS PER SHARE

The Company has adopted Statement of Financial Accounting Standards No.128 (SFAS
128). This Statement requires the presentation of basic and diluted (loss)
earnings per share. Basic (loss) earnings per share is computed using the
weighted average number of common shares outstanding during the period. Diluted
(loss) earnings per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of employee stock options and
incremental common shares attributable to the conversion of the Company's
convertible subordinated debentures.

For the periods in which the Company had a net loss, the basic and diluted net
loss per share was computed using only the weighted average number of shares of
common stock outstanding during the period. The Company has restated all prior
period per share data presented as required by SFAS 128.



                                       5
<PAGE>   7

The following table presents the calculation of basic and diluted (loss)
earnings per share as required under SFAS 128 (in thousands, except per share
amounts):


<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED          NINE MONTHS ENDED
                                                      JUNE 30,                    JUNE 30,
                                             -----------------------     -----------------------
                                                1998          1997          1998           1997
                                             ----------      -------     ----------      -------
<S>                                          <C>             <C>         <C>             <C>    
Net (loss) income                            $ (137,150)     $31,173     $ (290,250)     $60,515
                                             ==========      =======     ==========      =======

Weighted average shares - Basic                  48,702       47,636         48,437       47,272
Effect of dilutive securities:
     Employee stock options                          --        1,327             --        1,354
     Convertible subordinated debentures             --           --             --           --
                                             ----------      -------     ----------      -------
Weighted average shares - Dilutive               48,702       48,963         48,437       48,626
                                             ==========      =======     ==========      =======

Basic (loss) earnings per share              $    (2.82)     $  0.65     $    (5.99)     $  1.28
                                             ==========      =======     ==========      =======
Diluted (loss) earnings per share            $    (2.82)     $  0.64     $    (5.99)     $  1.24
                                             ==========      =======     ==========      =======
</TABLE>


Incremental common shares attributable to the conversion of the Company's
convertible subordinated debentures of 8.6 million for the three and nine months
ended June 30, 1998 were not included in the diluted loss per share computation
because the effect would be antidilutive.

NOTE 4.  CUSTOMER CONCENTRATION

The Company's three largest customers accounted for 93% and 88% of net sales
during the three month and nine month periods ended June 30, 1998, respectively.
Given the small number of high performance disk drive and tape drive
manufacturers who require an independent source of recording 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 sales orders from one
or more large customers, has had and will continue to have a material adverse
effect on the Company's business, financial condition, and results of
operations.

NOTE 5.  SPECIAL CHARGE

During the three month period ended December 31, 1997, the Company responded to
the industry's rapid shift to magnetoresistive ("MR") technology, accelerating
its existing MR transition strategy and significantly reducing its production of
advanced inductive products. As a result, the Company incurred a special charge
to cost of sales of $114.8 million, primarily for the write-off of equipment and
inventory associated with the phase-out of advanced inductive technologies.

NOTE 6.  RESTRUCTURING COSTS

During the three month period ended June 30, 1998, the Company incurred
restructuring costs of $93.7 million. The restructuring costs reflect the
Company's strategy to align worldwide operations with market conditions and to
improve the productivity of the Company's manufacturing facilities. The
restructuring costs were primarily associated with the Company's decision to
significantly reduce and ultimately cease the Company's manufacturing operations
in Malaysia and the write-off of excess equipment at the Company's other
manufacturing locations.

The restructuring costs consisted of $70.0 million to write-off or write-down
facilities and equipment, $7.2 million to write-off goodwill associated with the
Company's original purchase of its Malaysia manufacturing operations, $10.0
million for severance and benefits for terminated employees, and $6.5 million
for other expenses associated with the restructuring plan. No employees had been
terminated as of June 30, 1998


                                       6
<PAGE>   8


and no cash payments were made related to the restructuring plan during the
three months ended June 30, 1998. However, the Company expects to make cash
payments of approximately $16.5 million primarily for employee severance and
benefits and other expenses associated with the restructuring plan. The Company
anticipates the implementation of the restructuring plan will be substantially
complete by the end of December 1998. In connection with the restructuring, the
Company reduced its workforce by approximately 4,500 manufacturing employees
effective during July 1998.

The following table summarizes the Company's restructuring activity for the
period ended June 30, 1998 (in thousands):


<TABLE>
<CAPTION>
                                  FACILITIES               SEVERANCE 
                                     AND                      AND        OTHER 
                                   EQUIPMENT   GOODWILL    BENEFITS     EXPENSES      TOTAL
                                    -------     ------     --------     --------     --------
<S>                                 <C>         <C>        <C>          <C>          <C>     
Restructuring provision             $69,955     $7,250     $  9,960     $  6,563     $ 93,728
Provision utilized (non-cash)       (69,955)    (7,250)          --           --      (77,205)
                                    -------     ------     --------     --------     --------
Restructuring provision balance
at June 30, 1998                    $--         $--        $  9,960     $  6,563     $ 16,523
                                    =======     ======     ========     ========     ========
</TABLE>

NOTE 7. CREDIT FACILITY

In October 1997, the Company entered into a $200 million credit facility
("Credit Facility") with a syndicate of financial institutions. The four-year
facility consists of a $50 million term loan and a $150 million revolving line
of credit, both unsecured. The term loan provides for quarterly principal
payments, beginning January 1999 and continuing through October 2001. The term
loan provides for interest payments that vary based on the London Interbank
Offered Rate ("LIBOR"), plus an applicable margin. Additionally, the terms of
the facility require the Company to maintain certain financial ratios, observe a
series of additional covenants, and prohibit the Company from paying dividends
without prior bank approval. As of June 30, 1998, the Company was not in
compliance with one of the covenants under the Credit Facility. On August 11,
1998, the Company obtained the necessary amendments from the financial
institutions to maintain compliance with the Credit Facility. Under these
amendments, the revolving line of credit will be reduced from $150 million to
$100 million and the Credit Facility will be converted to a secured facility.
The Company believes it will be in compliance with all covenants under the
Credit Facility for the upcoming three month period ended September 30, 1998.
However, if the Company experiences a material unexpected decrease in sales
orders or a material unexpected increase in expenses, as it did during the three
month period ended June 30, 1998, the Company may again need to seek amendments
to maintain compliance with the covenants of the Credit Facility. There can be
no assurance the Company will be successful in obtaining such amendments, if
required. As of June 30, 1998, the $50 million term loan was outstanding in
full, and no amounts were outstanding under the $150 million revolving line of
credit.

NOTE 8.  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"). The complaint in the Ferrari State
Action alleges that during a purported class period of April 19, 1995 - January
22, 1996, defendants made materially false and misleading statements concerning
the Company's business condition and prospects in violation of the California
Corporations Law, the California Civil Code (those sections prohibiting fraud)
and the California Business and Professions Code. The plaintiffs in the Ferrari
State Action seek damages of an unspecified amount. On May 20, 1997, the
Superior Court entered an order (1) sustaining the demurrers of certain
defendants to the California Corporations Code cause of action, and overruling
the demurrers of Read-Rite and certain other defendants to that same cause of
action; and (2) sustaining the demurrers of all defendants as to the remaining
causes of action.



                                       7
<PAGE>   9


On January 17, 1997, a purported class action complaint was filed in the United
States District Court for the Northern District of California by Ferrari and
Goldman against the Company and certain of its officers and directors (the
"Ferrari Federal Action"). The Ferrari Federal Action contains virtually
identical factual allegations as the Ferrari State Action, and alleges
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
and SEC Rule 10b-5. The plaintiffs in the Ferrari Federal Action also seek
damages of an unspecified amount.

On May 19, 1997, a purported class action complaint was filed in the United
States District Court for the Northern District of California by James C. Nevius
and William Molair against the Company and certain of its officers and directors
(the "Nevius Federal Action"). The Nevius Federal Action alleges that defendants
made false and misleading statements about the Company's business condition and
prospects during a purported class period of March 2, 1996 - June 19, 1996, and
alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and SEC Rule 10b-5. The plaintiffs in the Nevius Federal Action seek
damages of an unspecified amount.

The Ferrari Federal Action and the Nevius Federal Action were consolidated into
one action by the court, In re Read-Rite Corp. Securities Litigation (the
"Consolidated Action"). Plaintiffs in the Consolidated Action filed an amended
and consolidated complaint. On March 16, 1998, the Company and the individual
defendants filed a motion to dismiss the amended and consolidated complaint. On
August 4, 1998, the Federal court heard the motion to dismiss.

There has been no discovery to date in the Consolidated Action and no trial is
presently scheduled in any of these actions. The Company believes it has
meritorious defenses in all of these 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 each of
these actions vigorously. Failure by the Company to obtain a favorable
resolution of the claims set forth in any of these actions could, however, 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 material pending legal proceedings other than ordinary routine litigation
incidental 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.



                                       8
<PAGE>   10

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


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 it will be in compliance with the
covenants under the Credit Facility as of September 30, 1998; the Company's
expectation that the trend towards fewer recording heads in HSAs will continue
in the near term; the Company's expectation that the current unfavorable
industry conditions will continue for the remainder of fiscal 1998; the
Company's expectation that net sales and gross margin for fiscal 1998 will be
significantly below those reported for fiscal 1997; the Company's expectation
that it will report a substantial net loss for fiscal 1998; the Company's
expectation that selling, general and administrative expenses will not increase
significantly in the near term; the Company's plan to limit capital expenditures
in fiscal 1998 to approximately $180 million; the Company's belief that its
operational excellence program is accelerating productivity, cycle time and
asset utilization improvements; the Company's belief that its liquid assets,
credit facilities and cash expected to be generated from operations will be
sufficient to fund its operations for the next twelve months; and the Company's
belief that the Company and the individual defendants in the purported class
actions (collectively, the "Actions") described in Part II, Item 1 "Legal
Proceedings," have meritorious defenses in such Actions. Actual results for
future periods could differ materially from those projected in such
forward-looking statements.

Some factors which 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: the current unfavorable industry
environment could worsen and/or continue longer than expected; the Company may
fail to achieve its internal forecasts, resulting in potential noncompliance
with its covenants under the Credit Facility, and thereafter may be unable to
obtain necessary amendments of the Credit Facility to preserve compliance with
such covenants; reduced demand, failure to achieve design-in wins and/or efforts
to introduce new technologies into volume production may negatively impact the
Company's operational excellence program; failure to meet forecasted
expenditures; failure by the Company to timely, effectively and continuously
execute on MR product development; failure to obtain necessary customer
qualifications on new programs, failure to timely and cost effectively introduce
those programs into manufacturing, and failure to achieve and maintain
acceptable production yields on those programs; competitors may introduce
products more quickly or cost effectively than the Company; constraints on
supplies of raw materials or components limiting the Company's ability to
maintain or increase production; 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 increase the Company's capital expenditures and working capital
needs; the Company's inability to obtain or generate sufficient capital to fund
its research and development expenses and other 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." The Company
undertakes no obligation to update forward-looking statements to reflect events
or circumstances occurring after the date of such statements.




                                       9
<PAGE>   11


RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

NET SALES

Net sales were $184.2 million and $632.7 million for the three and nine month
periods ended June 30, 1998, respectively, a significant decrease from net sales
of $310.2 million and $843.9 million for the comparable periods in fiscal 1997.
Net sales for the current three and nine month periods were adversely impacted
by product over supply in the disk drive industry, intense competitive pressures
in the MR merchant market, the disk drive industry's trend towards fewer
suppliers of recording heads on each program, and an industry-wide trend towards
a reduction in the number of heads per disk drive. These factors reduced
customer demand, significantly increased pricing competition, and contributed to
the Company's failure to achieve design-in wins on certain customer programs.
Additional factors that adversely effected the current nine month period include
the rapid shift to MR technology and the abrupt phase-out of advanced inductive
recording head products during the first half of fiscal 1998.

During fiscal 1998, the Company implemented its strategy to transition the
substantial majority of its production to MR recording head technology. Net
sales generated from MR products increased to $163.9 million and $429.7 million
for the three and nine month periods ended June 30, 1998, respectively, from net
sales of $65.9 million and $192.5 million for the comparable periods in fiscal
1997. The Company's largest volume MR product platform for the three month
period ended June 30, 1998 consisted of recording heads for 2.1 Gigabyte ("GB")
per 3.5-inch disk applications. This increase in net sales of MR products was
more than offset, however, by the decrease in net sales of inductive products.
Net sales generated from inductive products decreased to $20.3 million and
$203.0 million for the three and nine month periods ended June 30, 1998,
respectively, from net sales of $244.3 million and $650.0 million for the
comparable periods in fiscal 1997.

Read-Rite shipped 15.2 million and 52.6 million recording heads (including
recording heads shipped in headstack assemblies), and 3.6 million and 11.0
million headstack assemblies ("HSAs"), for the three and nine month periods
ended June 30, 1998, respectively. In fiscal 1997, the Company shipped 28.2
million and 76.9 million recording heads, and 4.3 million and 11.2 million HSAs,
for the three and nine month periods ended June 30, 1997. The Company's product
mix continued to shift towards HSAs, as net sales of HSAs accounted for 90% and
86% of net sales for the three and nine month periods ended June 30, 1998,
respectively, compared to 69% and 64% of net sales for the comparable periods in
fiscal 1997. During the current three month period, the average number of
recording heads in HSAs sold by the Company decreased 9% compared to the prior
three month period ended March 31, 1998, primarily due to the impact of the
sub-$1,000 personal computer market. The Company expects the trend towards fewer
recording heads in HSAs to continue in the near-term.

The Company's three largest customers accounted for 93% and 88% of net sales for
the three and nine month periods ended June 30, 1998, respectively, compared to
82% and 81% of net sales for the comparable periods in fiscal 1997. For a
discussion of certain risks associated with the Company's business, see "Certain
Additional Business Risks."

GROSS MARGIN

The Company's gross margin is primarily influenced by average unit sales prices,
the level of unit sales in relation to fixed costs, manufacturing yields,
product mix (newer products and HGAs typically generate a higher gross margin
than older products and HSAs) and material costs. The relative impact of these
factors fluctuates from time to time. Periodically, the Company's gross margins
also reflect charges for inventory and fixed asset obsolescence related to
products or technologies that have reached their end of life. For example, the
Company incurred a special charge to cost of sales of $114.8 million during the
three month period ended December 31, 1997, primarily for the write-off of
equipment and inventory associated with the phase-out of advanced inductive
technologies.



                                       10
<PAGE>   12


HSAs typically have a lower gross margin than HGAs. HSAs typically consist of
two or more HGAs and a variety of purchased components the Company assembles
into a single unit. The cost of the purchased components is a significant
percentage of the total cost of the HSA. The gross margin on such purchased
components is substantially lower than the gross margin on HGAs produced by the
Company. The combination of the respective gross margin on HGAs and non-HGA
components and associated labor and overhead included in HSAs typically produces
a lower aggregate gross margin on HSA net sales compared to HGA net sales.

The Company's gross margin was (8.0%) and (20.7%) of net sales for the three and
nine month periods ended June 30, 1998, respectively, compared to a gross margin
of 23.2% and 20.2% of net sales, respectively, for the comparable periods in
fiscal 1997. The significant decrease in gross margin during the three month
period ended June 30, 1998 compared to the comparable period in fiscal 1997 was
primarily attributable to a decrease in total unit sales in relation to fixed
costs, significant price competition, and a product mix heavily weighted towards
HSAs. The Company's significant decrease in gross margin during the nine month
period ended June 30, 1998 compared to the comparable period in fiscal 1997 was
primarily attributable to a special charge of $114.8 million to cost of sales
for the write-off of equipment and inventory associated with the phase-out of
advanced inductive technologies, a decrease in total unit sales in relation to
fixed costs, significant price competition, and a product mix heavily weighted
towards HSAs.

To address current adverse business conditions, the Company continues to
implement its strategy to align worldwide operations with such conditions and to
improve the productivity of its manufacturing facilities. The Company has
significantly reduced and will ultimately cease its manufacturing operations in
Malaysia and has substantially reduced worldwide manufacturing headcount through
layoffs and attrition during the fiscal year. The Company's operational
excellence program is currently accelerating improvements in productivity, cycle
times and asset utilization in its wafer fabrication facilities and HGA and HSA
manufacturing operations. Despite these improvements, however, the Company
expects the current unfavorable industry conditions will continue at least for
the remainder of fiscal 1998. Accordingly, the Company expects that its net
sales and gross margin for fiscal 1998 will be significantly below those
reported for fiscal 1997, and that the Company will report a substantial net
loss for fiscal 1998. For a discussion of certain risks associated with the
Company's business, see "Certain Additional Business Risks."

OPERATING EXPENSES

Research and development ("R&D") expenses were $23.4 million and $69.0 million
for the three and nine month periods ended June 30, 1998, respectively, a
substantial increase over R&D expenses of $16.0 million and $46.6 million for
the comparable periods in fiscal 1997. The increase in R&D expenses in absolute
dollars for the current periods was attributable to increased development
efforts in MR, Giant MR ("GMR") and emerging technologies to address the disk
drive industry's rapidly advancing technology requirements. From time to time,
the Company has engaged in fully or partially funded R&D for certain existing or
potential customers. R&D funding under such projects is offset as expenses are
incurred. During the three and nine month periods ended June 30, 1998,
approximately $2.3 million and $6.9 million, respectively, of development
funding was offset against R&D expenses. Funded R&D for the comparable periods
in fiscal 1997 was $1.8 million and $2.3 million, respectively.

Selling, general & administrative ("SG&A") expenses were $8.6 million and $27.3
million for the three and nine month periods ended June 30, 1998, respectively,
a decrease from SG&A expenses of $10.4 million and $31.5 million for the
comparable periods in fiscal 1997. The decrease in SG&A expenses for the current
periods was due to continued cost containment efforts. The Company plans to
continue its SG&A cost containment efforts, and thus does not expect SG&A
expenses to increase significantly in absolute dollars in the near term compared
to SG&A expenses for the current periods ended June 30, 1998.




                                       11
<PAGE>   13


RESTRUCTURING COSTS

During the three month period ended June 30, 1998, the Company incurred
restructuring costs of $93.7 million. The restructuring costs reflect the
Company's strategy to align worldwide operations with market conditions and to
improve the productivity of the Company's manufacturing facilities. The
restructuring costs were primarily associated with the Company's decision to
significantly reduce and ultimately cease its manufacturing operations
in Malaysia and the write-off of excess equipment at the Company's other
manufacturing locations.

The restructuring costs consisted of $70.0 million to write-off or write-down
facilities and equipment, $7.2 million to write-off goodwill associated with the
Company's original purchase of its Malaysia manufacturing operations, $10.0
million for severance and benefits for terminated employees, and $6.5 million
for other expenses associated with the restructuring plan. No employees had been
terminated as of June 30, 1998 and no cash payments were made related to the
restructuring plan during the three months ended June 30, 1998. However, the
Company expects to make cash payments of approximately $16.5 million primarily
for employee severance and benefits and other expenses associated with the
restructuring plan. The Company anticipates the implementation of the
restructuring plan will be substantially complete by the end of December 1998.
In connection with the restructuring, the Company reduced its workforce by
approximately 4,500 manufacturing employees effective July 1998.

NON-OPERATING EXPENSES

Interest expense was $7.3 million and $22.3 million for the three and nine month
periods ended June 30, 1998, respectively, an increase over interest expense of
$3.6 million and $10.6 million for the comparable periods in fiscal 1997. The
increase in interest expense for the current periods was primarily due to the
significant increase in the average debt outstanding due to the Company's
issuance of $345 million in convertible subordinated debentures in
August 1997.

Interest income and other, net was $2.8 million and $4.5 million for the three
and nine month periods ended June 30, 1998, respectively, compared to $1.8
million and $6.8 million, respectively, for the comparable periods in fiscal
1997. The increase in interest income and other, net in the current three month
period was primarily due to foreign exchange gains, compared to foreign exchange
losses during the comparable period in fiscal 1997, and by higher interest
income on higher average cash, cash equivalent and short-term investment
balances. The decrease in interest income and other, net in the current nine
month period was primarily due to foreign exchange losses, compared to foreign
exchange gains during the comparable period in fiscal 1997, partially offset by
higher interest income on higher average cash, cash equivalent and short-term
investment balances.

The Company's effective tax benefit rate of 7.3% for the nine month period ended
June 30, 1998 was based upon the expected annual effective tax rate. The
Company's effective tax provision rate was 24% for the nine month period ended
June 30, 1997. The decrease in the effective tax rate for fiscal 1998 compared
to fiscal 1997 was due to a different jurisdictional mix of profits and losses
as well as an increase in the valuation allowance related to the tax benefit of
certain foreign losses.

LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------

As of June 30, 1998, the Company had cash, cash equivalents and short-term
investments of $149.7 million, total assets of $929.0 million and total
long-term debt and capital leases, including the current portion, of $409.6
million. The Company's cash generated by operating activities was $11.7 million
during the nine months ended June 30, 1998, including non-cash charges of $187.4
million from depreciation, amortization and special charges and $93.7 million
from restructuring costs.



                                       12
<PAGE>   14


The Company's business is highly capital intensive. During the nine months ended
June 30, 1998, the Company incurred capital expenditures of $156.2 million.
Capital expenditures have primarily been made to support production capacity in
Thailand and the Philippines, wafer production in the United States and Japan,
and new manufacturing processes and new technologies, such as MR and GMR. In
response to changing industry conditions, the Company reduced its plan for
capital equipment purchases during fiscal 1998 from up to $300 million to
approximately $180 million. However, to the extent yields for the Company's
products are lower than expected, demand for products exceeds Company
expectations, or the Company's manufacturing process requirements change
significantly, such expenditures may increase. Conversely, if demand is less
than anticipated, or if the Company is unable to obtain adequate financing for
such capital equipment purchases, the planned capital equipment purchases may
decrease. As of June 30, 1998, total commitments for construction or purchase of
capital equipment were approximately $52 million. The Company expects to fund
such commitments from available cash and cash equivalents, cash flows from
operations and, if necessary, from available credit facilities.

In October 1997, the Company entered into a $200 million credit facility
("Credit Facility") with a syndicate of financial institutions. The four-year
facility consists of a $50 million term loan and a $150 million revolving line
of credit, both unsecured. The term loan provides for quarterly principal
payments, beginning January 1999 and continuing through October 2001. The term
loan provides for interest payments that vary based on the London Interbank
Offered Rate ("LIBOR"), plus an applicable margin. Additionally, the terms of
the facility require the Company to maintain certain financial ratios, observe a
series of additional covenants, and prohibit the Company from paying dividends
without prior bank approval. As of June 30, 1998, the Company was not in
compliance with one of the covenants under the Credit Facility. On August 11,
1998, the Company obtained the necessary amendments from the financial
institutions to maintain compliance with the Credit Facility. Under these
amendments, the revolving line of credit will be reduced from $150 million to
$100 million and the Credit Facility will be converted to a secured facility.
The Company believes it will be in compliance with all covenants under the
Credit Facility for the upcoming three month period ended September 30, 1998.
However, if the Company experiences a material unexpected decrease in sales
orders or a material unexpected increase in expenses, as it did during the three
month period ended June 30, 1998, the Company may again need to seek amendments
to maintain compliance with the covenants of the Credit Facility. There can be
no assurance the Company will be successful in obtaining such amendments, if
required. As of June 30, 1998, the $50 million term loan was outstanding in
full, and no amounts were outstanding under the $150 million revolving line of
credit.

The Company believes that its current level of liquid assets, credit facilities,
and cash expected to be generated from operations will be sufficient to fund its
operations for the next twelve months. However, if industry conditions worsen
further or current industry conditions continue longer than anticipated, the
Company does not consistently achieve timely customer qualifications on new
product programs, or the Company is unsuccessful at ramping up volume production
on new products at acceptable yields, the Company's working capital and other
capital needs will increase. Conversely, if industry demand increases
significantly such that the Company's capital requirements exceed management's
current estimates, the Company may again need to raise additional capital. The
Company may seek such capital through additional bank facilities, debt or equity
offerings, or other sources. Further, the Company may elect from time to time to
seek additional financing to the extent available. There can be no assurance,
however, that any such required financing will be available when needed on terms
and conditions acceptable or favorable to the Company, if at all.

The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain any earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future. The Credit Facility
currently prohibits payment of cash dividends.






                                       13
<PAGE>   15

CERTAIN ADDITIONAL BUSINESS RISKS
--------------------------------------------------------------------------------

The Company's business, financial condition and operating results can be
impacted 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.

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 of the
Company's products; low product manufacturing yields; 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; and
disruptions in foreign operations.

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, during the nine months ended June 30, 1998, in the second half of
fiscal 1996, and in calendar 1993, the Company experienced delays and
cancellation of orders, reduced average selling prices, inventory and equipment
write-offs, increased unit costs due to under-utilization of production
capacity, and as a consequence, experienced a significant reduction in net sales
and gross margin and incurred significant losses. Further, the Company believes
that the current difficult industry conditions will continue at least for the
remainder of fiscal year 1998, and in the near term, net sales and gross margin
for fiscal 1998 will be substantially lower than those reported in fiscal 1997.
Additionally, the Company expects to report a substantial net loss for fiscal
1998.

COMPETITION

The disk drive industry is intensely competitive, both at the drive level and
the component level, and is characterized by short product life cycles and
substantial price declines over the useful life of a product. Accordingly, the
Company believes that the most important competitive factors in its industry are
timely delivery of new technologies and price for a given technology. Other
significant factors are customer support, product quality and the ability to
reach volume production rapidly. Failure to execute with respect to any of these
factors would likely have a material adverse effect on the Company's net sales
and gross margin.

Japanese competitors such as TDK, Yamaha and Alps have been aggressively
competing for business in the United States and in Japan, targeting the MR
marketplace in particular. The Company's primary domestic competitors are IBM,
Applied Magnetics ("AMC") and Headway Technologies. IBM, Seagate, Quantum,
Fujitsu and other disk drive manufacturers with "captive" or internal recording
head manufacturing capability generally have significantly greater financial,
technical and marketing resources than the Company, and have made or may make
their products available in the merchant market. For example, the Company's
largest customer, Western Digital Corporation ("WD") recently announced an
agreement with IBM under which IBM would supply WD with GMR heads and other
components for WD's manufacture of desktop hard disk drives, and presently
purchase a material percentage of its MR head requirements from IBM. The
Company's competitive position could be materially and adversely affected if one
or more of its competitors is successful in marketing advanced MR and/or GMR
products in the merchant market in volume quantities at competitive pricing.



                                       14
<PAGE>   16
 In its HSA business, the Company must compete against certain of its customers'
internal HSA capacity, as well as against other merchant HSA manufacturers such
as TDK/SAE, AMC, Tandon, Kabool and Kaifa. Further, the HSA business is less
capital intensive than the thin film HGA business; entry into the HSA
manufacturing business thus requires less capital than entry into the thin film
HGA business. There can be no assurance that the Company will be able to compete
successfully with its customers' own HSA capacity, or with existing or new HSA
manufacturers.

Finally, new technologies such as pico sliders or GMR heads, which the Company
is currently developing, may compete in the future with the Company's current
head technologies and may support areal density capabilities significantly
greater than the Company's MR heads now in commercial production. Additionally,
other manufacturers may already have or may develop more advanced MR technology
or MR production capability than the Company. For example, IBM, TDK, Yamaha and
Alps have begun expanding their manufacturing operations to make GMR heads.
Also, certain companies are developing alternative data storage technologies,
such as solid-state (flash or ferroelectric) memory, optical disk drives or
extensions of MIG technologies that do not utilize the Company's products. The
Company's competitive position will likely be materially and adversely affected
if a competitor precedes the Company in the successful introduction of improved
or new technologies or products.

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 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 by strong demand in the
first half of fiscal 1993 and the significant industry contraction in the latter
half of fiscal 1993, in the second half of fiscal 1996 when significant orders
were canceled and/or rescheduled by certain customers with little or no advanced
warning, late in the first quarter of fiscal 1998 as the Company significantly
reduced its build plan for its advanced inductive thin film 1.3GB per 3.5 inch
disk recording head product due to a significant and abrupt reduction in demand
for this product, and in fiscal 1998 generally due to industry conditions. In
each case, these demand variations materially and adversely affected the
Company's business, financial condition and results of operations. Further,
during the three month period ended June 30, 1998, the Company incurred
restructuring costs of $93.7 million, principally reflecting the Company's
strategy to align worldwide operations with current industry conditions and to
improve the productivity of the Company's manufacturing facilities. The
restructuring costs were primarily associated with the decision to significantly
reduce and ultimately cease the Company's manufacturing operations in Malaysia
and the write-off of excess equipment at its other manufacturing locations.


The Company's three largest customers, WD, Samsung and Maxtor, accounted for 93%
of net sales during the three month period ended June 30, 1998, during which the
Company produced HGAs in volume for 5 customers, HSAs in volume for 4 customers
and tape drive products in volume for 4 customers. Given the small number of
high performance disk drive and tape drive manufacturers who require an
independent source of HGA, HSA or tape head supply, the Company will continue to
be dependent upon a limited number of customers. As demonstrated by the
significant reduction in the level of the Company's business in the second and
third quarters of fiscal 1998, late in fiscal 1996 and in the second half of
fiscal 1993, as well as the reduction in orders for advanced inductive products
and the bankruptcy filing by Micropolis in the first quarter of fiscal 1998, 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.

Given the Company's dependence upon a limited number of customers, 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. For example, Seagate, a competitor of the 



                                       15
<PAGE>   17
Company, acquired the tape head operations of AMC in fiscal 1995, completed the
acquisition of Conner Peripherals, Inc. (then a major customer of the Company)
in fiscal 1996, and completed the acquisition of Quinta Corporation, the
Company's partner and sole customer for its magneto-optical head development
effort, in August 1997. Seagate has significant internal disk and tape head
manufacturing capacity and does not presently account for a material percentage
of the Company's net sales. Further, Hyundai completed its acquisition of Maxtor
during fiscal 1996. While the Company has remained a supplier to Maxtor
notwithstanding this change in ownership, there can be no assurance that Maxtor
will continue purchasing a significant quantity of its head requirements from
the Company. Vertical integration by the Company's customers, through which a
customer acquires or increases internal HGA or HSA production capability, could
also materially and adversely affect the Company's business, financial condition
and results of operations. In 1994, Quantum, a principal customer of the Company
with no previous magnetic recording head capacity, acquired Digital Equipment
Corporation's recording head and disk drive operations. In May 1997, Quantum
further announced the formation of a joint venture with its primary
manufacturing partner in Japan, MKE, to manufacture MR recording heads for rigid
disk drives. According to the announcement, this new venture took over Quantum's
existing recording head operations and is owned 51% by MKE. Though the Company
believes the primary reason for its loss of Quantum's business is external
competition, it believes the Quantum/MKE joint venture will make it more
difficult for the Company to regain market share at Quantum in the near future.

Finally, WD and IBM recently announced a hard disk drive component supply and
technology licensing agreement. The Company cannot presently assess accurately
the effect this agreement will have on the Company's net sales to WD, but
anticipates that this agreement will contribute significantly to IBM's ability
to sustain or increase its market share at WD, which would make it more
difficult for the Company to sustain its own market share with this key
customer. Other 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.

RAPID TECHNOLOGICAL CHANGE; TRANSITION TO MR TECHNOLOGY

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 November 1997, the Company responded to
the disk drive industry's continuing rapid shift to MR technology by
accelerating implementation of its existing strategies to transition fully to MR
production while reducing its build plan for its advanced inductive thin film
1.3GB per 3.5 inch disk recording head product due to a significant reduction in
demand for this product. As a result, the Company incurred a special charge
during the first quarter of fiscal 1998 of $114.8 million, primarily for the
write-off of equipment and inventory associated with the phase-out of advanced
inductive technologies. The Company's 1.3GB per 3.5 inch advanced inductive head
products were Read-Rite's last generation inductive products.

Due to the ever increasing performance requirements for recording heads, all of
the customer programs using the Company's MIG products reached end of life
during the third quarter of fiscal 1996, materially and adversely impacting the
Company's financial results for several subsequent quarters. In addition, during
the second quarter of fiscal 1996, the Company learned that to participate in
certain customer programs, the Company's products would have to incorporate a
technical feature that the Company called "undershoot reduction." Though the
Company began development of necessary processes for undershoot reduction in the
second quarter of fiscal 1996 and successfully reached volume production during
the fourth quarter of fiscal 1996, the significant start-up costs and delays in
new product introductions materially and adversely impacted both the Company's
net sales and gross margin in the second half of fiscal 1996.



                                       16
<PAGE>   18




During fiscal 1997, the Company's primary net sales were derived from thin film
inductive and MR products, which required substantial investments in product
development and manufacturing equipment and facilities to effectively extend the
performance of these products to compete with new products supporting higher
areal densities. To maintain its market position, the Company must continually
and timely improve its wafer fabrication, slider fabrication, HGA and HSA
technologies and facilities to meet industry demands, at competitive costs. As
the Company's customers continue to move towards fewer, larger programs, and as
competition for this increasingly limited number of large volume programs
continues to increase, the failure by the Company to execute on technologies
necessary to consistently obtain qualification on any of such volume programs
will have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company shipped 12.9 million MR heads (including heads in HSAs), accounting
for 89% of net sales for the three month period ended June 30, 1998. The Company
intends to continue investing significant resources in MR and GMR 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 MR heads at acceptable manufacturing yields and as necessary
to achieve consistent design-in wins on new product programs.

SUBSTANTIAL CAPITAL EXPENDITURES AND WORKING CAPITAL NEEDS

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, thus 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 in fiscal 1997 of $272.8
million, compared to $265.8 million in fiscal 1996, and plans to spend
approximately $180 million in fiscal 1998. As of June 30, 1998, total
commitments for construction or purchase of capital equipment were approximately
$52 million. There can be no assurance that the Company's net sales will
increase sufficiently to absorb such additional costs, and that there will not
be periods, such as during the latter half of fiscal 1993, in fiscal 1996, and
during the first three quarters of fiscal 1998, when net sales declined quarter
to quarter.

INTERNATIONAL OPERATIONS

The Company's production process is also labor intensive. As a result, the
Company conducts substantially all of its HGA machining, assembly and test
operations, HSA 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,
most recently during the first quarter of fiscal 1997, but none of the Company's
employees are currently 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.



                                       17
<PAGE>   19




In addition, several Asian countries, including Japan, Malaysia, Thailand and
the Philippines, have recently experienced significant economic downturns and
significant declines in the value of their currencies relative to the U.S.
dollar. The Company believes the worldwide decrease in demand for disk drives
during fiscal 1998 is, in part, impacted by the economic downturn in these
markets, and thus has negatively impacted the Company's net sales during the
past two quarters. 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 and substantially all of the Company's foreign
sales are denominated in U.S. dollars.

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 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 ever increasing
process complexity, and by the compression of product life cycles which requires
the Company to bring new products on line faster and for shorter periods while
maintaining acceptable manufacturing yields and quality, without, in many cases,
reaching the longer-term, high volume manufacturing conducive to higher
manufacturing yields and declining costs.

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 of 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, photoresist, wires 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. 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.

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 should a customer experience 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 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 to further cancellations by customers.



                                       18
<PAGE>   20




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 their 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 have
unpredictable, and typically very short, life cycles. Finally, in response to
rapidly shifting business conditions, the Company's customers have generally
sought to limit their purchase order commitments to the Company, and certain
customers have on occasion canceled or materially modified outstanding purchase
orders with the Company without significant penalties. For example, the Company
experienced significant cancellations during the third quarter of fiscal 1993,
during the second half of fiscal 1996 and during the first three quarter of
fiscal 1998, as a result of which the Company incurred significant charges for
inventory obsolescence, which materially and adversely affected the Company's
operating results.

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, 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.




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<PAGE>   21



PART II.  OTHER INFORMATION
ITEM 1.  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"). The complaint in the Ferrari State
Action alleges that during a purported class period of April 19, 1995 - January
22, 1996, defendants made materially false and misleading statements concerning
the Company's business condition and prospects in violation of the California
Corporations Law, the California Civil Code (those sections prohibiting fraud)
and the California Business and Professions Code. The plaintiffs in the Ferrari
State Action seek damages of an unspecified amount. On May 20, 1997, the
Superior Court entered an order (1) sustaining the demurrers of certain
defendants to the California Corporations Code cause of action, and overruling
the demurrers of Read-Rite and certain other defendants to that same cause of
action; and (2) sustaining the demurrers of all defendants as to the remaining
causes of action.

On January 17, 1997, a purported class action complaint was filed in the United
States District Court for the Northern District of California by Ferrari and
Goldman against the Company and certain of its officers and directors (the
"Ferrari Federal Action"). The Ferrari Federal Action contains virtually
identical factual allegations as the Ferrari State Action, and alleges
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
and SEC Rule 10b-5. The plaintiffs in the Ferrari Federal Action also seek
damages of an unspecified amount.

On May 19, 1997, a purported class action complaint was filed in the United
States District Court for the Northern District of California by James C. Nevius
and William Molair against the Company and certain of its officers and directors
(the "Nevius Federal Action"). The Nevius Federal Action alleges that defendants
made false and misleading statements about the Company's business condition and
prospects during a purported class period of March 2, 1996 - June 19, 1996, and
alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and SEC Rule 10b-5. The plaintiffs in the Nevius Federal Action seek
damages of an unspecified amount.

The Ferrari Federal Action and the Nevius Federal Action were consolidated into
one action by the court, In re Read-Rite Corp. Securities Litigation (the
"Consolidated Action"). Plaintiffs in the Consolidated Action filed an amended
and consolidated complaint. On March 16, 1998, the Company and the individual
defendants filed a motion to dismiss the amended and consolidated complaint.
On August 4, 1998, the Federal court heard the motion to dismiss..

There has been no discovery to date in the Consolidated Actions and no trial is
presently scheduled in any of these actions. The Company believes it has
meritorious defenses in all of these 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 each of
these actions vigorously. Failure by the Company to obtain a favorable
resolution of the claims set forth in any of these actions could, however, 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 material pending legal proceedings other than ordinary routine litigation
incidental 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.




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<PAGE>   22



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     27.1       Financial Data Schedule (electronic filing only)


(b)  Reports on Form 8-K

                On May 8, 1998, the Company filed a Form 8-K solely for the
                purpose of disclosing the effect of adoption of FAS 128, "
                Earnings per Share", on its Annual Report on Form 10-K for the
                fiscal year ended September 30, 1997 and the related statement
                of earnings per share thereon, so that such information may be
                incorporated by reference into future filings.

                                    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 12, 1998                  /s/ John T. Kurtzweil
                                            --------------------------------
                                            John T. Kurtzweil
                                            Vice President, Finance and
                                            Chief Financial Officer



                                       21
<PAGE>   23

                                 EXHIBIT INDEX

Exhibit #        Description
---------        -----------


27.1             Financial Data Schedule