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

                                  FORM 10-K 

(Mark One) 
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [FEE REQUIRED]
         For the fiscal year ended December 28, 1997

OR 

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
         For the transition period from                  to

                         Commission file number 0-16852

                               KOMAG, INCORPORATED
             (Exact name of registrant as specified in its charter)

                     Delaware                               94-2914864
         (State or other jurisdiction of                (I.R.S.    Employer
         incorporation or organization)                  Identification  No.)

               1704 Automation Parkway, San Jose, California 95131
          (Address of Principal Executive Offices, including Zip Code)

       Registrant's telephone number, including area code: (408) 576-2000

         Securities registered pursuant to Section 12(b) of the Act:

                                                           Name of each exchange
         Title of each class                                on which registered
         -------------------                               --------------------
                  None                                               None

         Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $0.01 par value

         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
                                             ---    ---

                            [Cover page 1 of 2 pages]
<PAGE>

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of the  registrant's  knowledge,  in definitive proxy or information
statements  incorporated  by  reference  in Part  III of this  form  10-K or any
amendment of this Form 10-K. [X]

         The aggregate  market value of voting stock held by  non-affiliates  of
the Registrant as of February 20, 1998 was approximately  $722,784,028  (based
upon the  closing  sale price for  shares of the  Registrant's  Common  Stock as
reported by the Nasdaq  National  Market for the last trading date prior to that
date). Shares of Common Stock held by each officer, director and holder of 5% or
more of the outstanding Common Stock have been excluded in that such persons may
be  deemed to be  affiliates.  This  determination  of  affiliate  status is not
necessarily a conclusive determination for other purposes.

         On  February  20,  1998   approximately   52,806,139   shares  of  the
Registrant's Common Stock, $0.01 par value, were outstanding.

                       Documents Incorporated by Reference

         Designated  portions of the  following  document  are  incorporated  by
reference into this Report on Form 10-K where indicated:

         Komag,   Incorporated   Proxy  Statement  for  the  Annual  Meeting  of
Stockholders to be held on May 27, 1998, Part III.




























<PAGE>

                                     PART I

ITEM 1.  BUSINESS 

Komag, Incorporated ("Komag" or the "Company") designs, 
manufactures and markets thin-film media ("disks"), the primary 
storage medium for digital data used in computer hard disk drives.  
Komag believes it is the world's largest independent manufacturer of 
thin-film media and is well positioned as a broad-based strategic 
supplier of choice for the industry's leading disk drive manufacturers.  
The Company's business strategy relies on the combination of advanced 
technology and high-volume manufacturing.  Komag's products address the 
high-end desktop and the high-capacity/high-performance enterprise 
segments of the disk drive market and are used in products such as 
personal computers, disk arrays, network file servers and engineering 
workstations.  The Company manufactures leading-edge disk products 
primarily for 3 1/2-inch and 5 1/4-inch form factor hard disk drives.  
The Company was organized in 1983 and is incorporated in the State of 
Delaware.

The Company's business is subject to risks and uncertainties, a 
number of which are discussed under "Risk Factors."

Increasing demand for digital storage and low-cost, high-performance 
hard disk drives has resulted in strong unit demand for these products.  
International Data Corporation ("IDC") forecasts that worldwide disk 
drive unit shipments in 1998 through 2001 will grow at a 17% compound 
annual growth rate.  Greater processing power, more sophisticated 
operating systems and application software, high-resolution graphics and 
larger data bases are among the developments that have required ever 
higher performance from disk drives.  For example, the first 5 1/4-inch 
hard disk drive, introduced in 1980, offered a capacity of five 
megabytes (one million bytes is a megabyte or "MB") with a storage 
density of less than two megabits (one million bits is a megabit; eight 
bits is one byte) per square inch.  Current-generation 3 1/2-inch drives 
typically have capacities of one to nine gigabytes (one billion bytes is 
a gigabyte or "GB") with densities of approximately 1.0 to 1.5 
gigabits (one billion bits is a gigabit) per square inch.  Advances in 
component technology have been critical to improving the performance and 
storage capacity of disk drives and lowering the cost per bit stored.

The Company has capitalized on its technological strength in thin-
film processes and its manufacturing capabilities to achieve and 
maintain its position as the leading independent supplier to the thin-
film media market.  The Company's technological strength stems from the 
depth of its understanding of materials science and the interplay 
between disks, heads and other drive components.  Komag's manufacturing 
expertise in thin-film media is evidenced by its history of delivering 
reliable products in high volume.  Current manufacturing operations are 
conducted by the Company in the U.S. and Malaysia as well as through 
Asahi Komag Co., Ltd. ("AKCL"), a joint venture with Asahi Glass Co., 
Ltd. ("Asahi Glass") and Vacuum Metallurgical Company, which 
manufactures thin-film media in Japan and Thailand.  The Company 
manufactures disk substrates for internal use through its subsidiary, 
Komag Material Technology, Inc. ("KMT") located in Santa Rosa, 
California.  A 20% minority interest in KMT is held by Kobe Steel USA 
Holdings Inc. ("Kobe USA"), together with Kobe Steel, Ltd. ("Kobe") 
and other affiliated companies.

Technology
Komag manufactures and sells thin-film magnetic media on rigid disk 
platters for use in hard disk drives.  These drives are used in computer 
systems to record, store and retrieve digital information.  Inside a 
disk drive, the media or disk rotates at speeds of up to 10,000 rpm.  
The head scans across the disk as it spins, magnetically recording or 
reading information.  The domains where each bit of magnetic code is 
stored are extremely small and precisely placed.  The tolerances of the 
disks and recording heads are extremely demanding and the interaction 
between these components is one of the most critical design aspects in 
an advanced disk drive. 

The primary factors governing the density of storage achievable on a 
disk's surface are (1) the minimum distance at which read/write heads 
can reliably pass over the surface of the disk to detect a change in 
magnetic polarity when reading from the disk, defined as glide height 
(measured in microinches or millionths of an inch); (2) the strength of 
the magnetic field required to change the polarity of a bit of data on 
the magnetic layer of a disk when writing, defined as coercivity 
(measured in oersteds-"Oe"), and (3) the ability of the head to 
discriminate a signal from background media noise (signal-to-noise 
ratio).  As glide height is reduced, smaller bits can be read.  The 
higher the coercivity of the media, the smaller the width of the bit 
that can be stored.  The signal-to-noise ratio is determined by the 
choice of magnetic materials and the method for depositing those 
materials on the disk's surface.  The Company's plating, polishing and 
texturing processes result in a uniform surface with relatively few 
defects, which permits the read/write heads to fly over the disk surface 
at glide heights of 0.8 to 1.0 microinches.  The magnetic alloys 
deposited on the surfaces of Komag's disks have high coercivity, low 
noise and other desirable magnetic characteristics.  The combination of 
these factors results in more data stored in a given area on the disk 
surface.

The Company currently manufactures inductive and magnetoresistive 
("MR") media.  Inductive media is designed for use in conjunction with 
a conventional head that uses a single electromagnet to read and write 
data.  The most advanced versions of inductive media are termed 
proximity media, describing the extremely low glide height necessary to 
achieve high recording density.  An MR disk is optimized for use with MR 
heads that use separate read and write elements.  The write element is 
made from conventional inductive materials, but the read element is made 
of a material whose electrical resistance changes when subjected to 
changes in a magnetic field.  MR heads are more sensitive to magnetic 
fields enabling them to read more densely-packed, smaller-sized bits.  
The Company believes that MR disks will be the predominant media for 
disk drives in 1998.  In 1997, MR media accounted for nearly half of the 
Company's net revenue.

Products, Customers and Marketing
Komag's thin-film disk products generally can be classified by size 
and type of media.  The diameter of the disk corresponds roughly with 
the width of the disk drive.  The Company sells primarily 95-mm and 130-
mm disks for 3 1/2-inch and 5 1/4-inch drives, respectively.  The 
Company currently sells inductive (including proximity) and MR media.  
Within each of these sizes and types of media, Komag offers a range of 
coercivities, glide height capabilities and other parameters to meet 
specific customer requirements. 

 Komag primarily sells its media products to independent OEM disk 
drive manufacturers for incorporation into hard disk drives that are 
marketed under the manufacturers' own labels.  The Company also 
currently sells its disks to computer system manufacturers who make disk 
drives for their own use or for sale in the open market.  The Company 
works closely with customers as they design new high-performance disk 
drives and generally customizes its products according to customer 
specifications.

 Five customers accounted for approximately 96% of the Company's net 
sales in 1997.  Net sales to major customers were as follows: Western 
Digital Corporation ("Western Digital")-38%; Maxtor Corporation, a 
subsidiary of Hyundai Electronics America, ("Maxtor")-19%; Quantum 
Corporation ("Quantum"), including its Japanese manufacturing partner, 
Matsushita-Kotobuki Electronics Industries, Ltd. ("MKE")-15%; Seagate 
Technology, Inc. ("Seagate")-14%; and International Business Machines 
("IBM")-10%.  Sales are generally concentrated in a small number of 
customers due to the high volume requirements of the dominant disk drive 
manufacturers and their tendency to rely on a few suppliers because of 
the close interrelationship between media and other disk drive 
components.  Further, industry consolidation continued among the 
Company's disk drive customers in 1997 with the bankruptcy and shutdown 
of Micropolis in November.  Given the relatively small number of high-
performance disk drive manufacturers, the Company expects that it will 
continue its dependence on a limited number of customers. 

Sales are made directly to disk drive manufacturers worldwide (except 
media sales into Japan) from the Company's U.S. and Malaysian 
operations.  Sales of media for assembly into disk drives within Japan 
are made solely through AKCL.  On a selective basis, the Company has 
used AKCL to distribute its products to Japanese drive manufacturers for 
assembly outside of Japan.  During 1997, the Company sold product to MKE 
in Japan and to MKE's Singapore manufacturing facility through AKCL. 
Media sales to the Far East from the Company's U.S. and Malaysian 
operations represented 96%, 88% and 62% of Komag's net sales in 1997, 
1996 and 1995, respectively.  The Company's customers assemble a 
substantial portion of their disk drives in the Far East and 
subsequently sell these products throughout the world.  Therefore, the 
Company's high concentration of Far East sales does not accurately 
reflect the eventual point of consumption of the assembled disk drives. 
All foreign sales are subject to certain risks common to all export 
activities, such as government regulation and the risk of imposition of 
tariffs or other trade barriers. Foreign sales must also be licensed by 
the Office of Export Administration of the U.S. Department of Commerce. 

The Company's sales are generally made pursuant to purchase orders 
rather than long-term contracts. At December 28, 1997, the Company's 
backlog of purchase orders scheduled for delivery within 90 days totaled 
approximately $23.7 million compared to $113.0 million at December 29, 
1996. These purchase orders may be changed or canceled by customers on 
short notice without significant penalty. Accordingly, the backlog 
should not be relied upon as indicative of sales for any future period.

Manufacturing

        Komag's manufacturing expertise in thin-film media is evidenced by 
its history of delivering reliable products in high volume. Through the 
utilization of proprietary processes and techniques, the Company has the 
capability to produce advanced disk products that generally exhibit 
uniform performance characteristics. Such uniform performance 
characteristics enhance the reliability of the drive products 
manufactured by the Company's customers. In addition, these 
characteristics raise production yields on the customers' manufacturing 
lines, which is an important cost consideration especially in high-
performance disk drives with large component counts. Manufacturing costs 
are highly dependent upon the Company's ability to effectively utilize 
its installed physical capacity to produce large volumes of products at 
acceptable yields. To improve yields and capacity utilization, Komag has 
adopted formal continuous improvement programs at all of its worldwide 
operations. The process technologies employed by the Company require 
substantial capital investment. In addition, long lead times to install 
new increments of physical capacity complicate capacity planning.

 The manufacture of the Company's thin-film sputtered disks is a 
complex, multistep process that converts aluminum substrates into 
finished data storage media ready for use in a hard disk drive. The 
process requires the deposition of extremely thin, uniform layers of 
metallic film onto a disk substrate. To achieve this end, the Company 
uses a vacuum deposition, or sputtering, method similar to that used to 
coat semiconductor wafers. The basic process consists of many 
interrelated steps that can be grouped into five major categories: 

1. Sizing and Grinding of the Substrate:  A raw aluminum blank 
substrate is sized by precisely cutting the inner and outer diameter of 
the blank. A mechanical grinding process is then utilized to provide a 
relatively flat surface on the substrate prior to nickel alloy plating.

2. Nickel Alloy Plating and Polishing of the Substrate: Through a 
series of chemical baths aluminum substrates are plated with a uniform 
nickel phosphorus layer in order to provide support for the magnetic 
layer. Next, this layer is polished to achieve the required flatness.

3. Fine Polishing, Texturing and Cleaning: During these process 
steps, disks are smoothed and cleaned to remove surface defects to allow 
the read/write heads of the disk drives to fly at low and constant 
levels over the disks. 

4. Sputtering and Lube:  By a technically demanding vacuum deposition 
process, magnetic layers are successively deposited on the disk and a 
hard protective overcoat is applied. After sputtering, a microscopic 
layer of lubrication is applied to the disk's surfaces to improve 
durability and reduce surface friction.

5. Glide Test and Certification:  In robotically controlled test 
cells, disks are first tested for a specified glide height and then 
certified for magnetic properties. Based on these test results, disks 
are graded against customers' specific performance requirements. 

Most of the critical process steps are conducted in Class 100 or 
better environments. Throughout the process, disks are generally handled 
by custom-designed and, in many cases, Company-built automated equipment 
to reduce contamination and enhance process precision. Minute impurities 
in materials used, particulate contamination or other production 
problems can reduce production yields and, in extreme cases, result in 
the prolonged suspension of production. Although no contamination 
problems have required prolonged suspension of the Company's production 
to date, no assurance can be given that the Company will not experience 
manufacturing problems from contamination or other causes in the future. 

To address increased areal density requirements of disk products that 
will be introduced in mid-1998 and beyond, the Company has decided to 
make certain modifications to its current production processes during 
1998.  While the major processing steps remain the same, the 
implementation of various steps will be different.  For a discussion of 
the process changes and the risks associated with these changes, see 
"Risk Factors-Rapid Technology Change."

Facilities and Production Capacity
Due to a recent slowdown in the growth of demand for media, 
improvements in the capabilities of the Company's competitors (both 
captive and noncaptive) and deployment of significant amounts of new 
media manufacturing capacity by many media suppliers including Komag, 
the Company's capacity is materially underutilized for the first time 
since 1989. The Company is in the process of executing a restructuring 
plan to reduce its manufacturing floorspace in response to these current 
conditions. At December 28, 1997, the Company and its joint venture, 
AKCL, had facilities in the U.S., Japan, Malaysia and Thailand.

The Company occupied four production factories in the U.S. comprising 
approximately 468,000 square feet of floorspace, an R&D facility of 
approximately 188,000 square feet and warehouse and administrative 
facilities with approximately 130,000 square feet.  One factory, subject 
to closure under the Company's restructuring plan, and a warehouse are 
located in Milpitas, California. Two factories are located in San Jose, 
California. The fourth factory, the Company's majority-owned subsidiary 
(KMT), is located in Santa Rosa, California.  The factories in Milpitas 
and San Jose primarily perform the process steps from fine polishing 
through test whereas the KMT facility manufactures aluminum substrates.  
At the end of the third quarter of 1997, the Company closed the first of 
the two Milpitas factories in accordance with the restructuring plan.  
This space has been subleased. Subsequent to year-end, the Company 
closed the second Milpitas factory.

The Company owns three production facilities in Malaysia, two in 
Penang totaling approximately 615,000 square feet and one in Sarawak of 
approximately 275,000 square feet. One of the Penang factories performs 
all of the Company's process steps except aluminum substrate preparation 
and the other is equipped to perform the fine polish through test steps. 
The Sarawak factory is primarily dedicated to plating and polishing and 
has limited capacity to manufacture aluminum substrates. The Company has 
strategically located a large portion of its total worldwide front end 
and back end manufacturing capacity in Malaysia.  These facilities are 
closer to the customers' disk drive assembly plants in Southeast Asia 
and enjoy certain cost and tax advantages. 
AKCL occupies approximately 495,000 square feet of building space.  
AKCL's Japanese facilities are primarily dedicated to fine polish 
through test and its Thailand facility is designed for plating and 
polishing.

The Company expects to have installed equipment capacity at its U.S. 
and Malaysian facilities capable of producing 20 million units per 
quarter by the end of 1998, assuming full utilization with proper labor 
staffing and adequate yields. These facilities when fully equipped and 
staffed are expected to be capable of producing in excess of 25 million 
units per quarter.  AKCL anticipates exiting 1998 with a quarterly 
capacity of approximately 7 million units.  Beginning in 1998, the 
Company and AKCL will use a combination of in-line and static sputtering 
machines to manufacture their disk products. See "Risk Factors-Rapid 
Technology Change".

Research, Development and Engineering 
Since its founding, Komag has focused on the development of advanced 
thin-film disk designs as well as the process technologies necessary to 
produce these designs. The Company's spending and capital investment for 
R&D are aimed at the investigation, design, development and testing of 
new products and processes as well as the development of more efficient 
processes that can be integrated into manufacturing in a commercially 
viable manner.  Historically, the Company has utilized a full-scale in-
line sputtering line for both development and pilot production. The new 
R&D facility is equipped with two in-line sputtering lines and two 
static sputtering systems. The Company believes this additional capacity 
will allow more rapid development of new products as well as expanded 
prototype and pilot production capability.

In 1998, the Company plans to spend approximately $50 million for 
R&D, comparable to the amount spent in 1997. The Company's R&D team will 
focus on introduction of new product generations, on process changes to 
manufacture such products, and on improvements to increase yields of 
products currently in volume production. As areal density increases, 
recording heads are required to read and write smaller data bits packed 
more tightly together on the surface of a disk. To accomplish this, the 
read/write head must fly closer to the disks' surfaces and be able to 
discriminate smaller, weaker magnetic signals. Disk substrates must be 
smoother and flatter, with fewer, smaller defects. In addition, more 
uniform crystal growth and improved magnetic orientation on the surface 
of the disk is needed to facilitate increased density. The Company plans 
to migrate its sputtering process from the deposition of a magnetic 
layer over an amorphous underlayer to epitaxial deposition of the active 
magnetic layer upon a crystalline underlayer, to achieve these desired 
magnetic characteristics. Since epitaxial deposition requires higher 
temperatures and dryer process chambers than current processes, a number 
of changes must be made during 1998. First, the processes related to 
producing substrates, prior to sputtering, must be changed by adding new 
annealing steps to accommodate higher process temperatures. Next, to 
make substrates smoother and reduce defects a new polish step will be 
added. Further, the Company plans to upgrade its existing in-line 
sputtering lines to increase process temperatures and provide higher 
vacuum capability. While the Company believes the relatively slow 
deposition rate achieved in its in-line sputtering machines will provide 
a competitive advantage over time, the Company and AKCL will also 
purchase and use static sputtering lines. This will allow the Company to 
gain experience using static sputtering equipment, which runs at higher 
deposition rates and temperatures than the Company's in-line sputtering 
systems.  Finally, the Company will have to continue reducing and 
eliminating sources of contamination throughout its process to reduce 
small surface defects on its disk products.  See "Risk Factors-Rapid 
Technology Change."

        The Company's expenditures (and percentage of sales) on research, 
development and engineering, were $51.4 million (8.1%) in fiscal 1997, 
$29.4 million (5.1%) in fiscal 1996 and $23.8 million (4.6%) in fiscal 
1995.

Strategic Alliances 
The Company has established joint ventures with Asahi Glass and Kobe. 
Komag believes these alliances have enhanced the Company's competitive 
position by providing research, development, engineering and 
manufacturing expertise that reduce costs and technical risks and 
shorten product development cycles.

Asahi Komag Co., Ltd. ("AKCL") 
In 1987, the Company formed a partnership (Komag Technology Partners) 
with the U.S. subsidiaries of two Japanese companies, Asahi Glass and 
Vacuum Metallurgical Company. The partners simultaneously formed a 
wholly owned subsidiary, AKCL, to manufacture and distribute thin-film 
disks in Yonezawa, Japan. Under the joint venture agreement, the Company 
contributed technology developed prior to January 1987 and licensed 
technology developed after January 1987, to the extent such technology 
relates to sputtered thin-film hard disk media, for a 50% interest in 
the partnership. The Japanese partners contributed equity capital 
aggregating 1.5 billion yen (equivalent to approximately $11 million at 
that time). AKCL began commercial production in 1988.

The terms of the joint venture agreement provide that AKCL may only 
sell disks for incorporation into disk drives that are assembled in 
Japan, with no limitation on the territory in which AKCL's customers can 
sell such assembled disk drive products. During the term of the joint 
venture agreement and for five years thereafter, the Japanese partners 
and their affiliates have agreed not to develop, manufacture or sell 
sputtered media anywhere in the world other than through the joint 
venture, and the Company and its affiliates have agreed not to develop, 
manufacture or sell such media in Japan except through the joint 
venture. The Company has, however, periodically granted AKCL a limited 
right to sell its disks outside of Japan and has received royalties on 
such sales. Upon the occurrence of certain terminating events and the 
subsequent acquisition of AKCL by one or more of the joint venture 
partners, the restrictions related to activities of the acquiring joint 
venture partner(s) within Japan may lapse. 

Disk sales to AKCL represented 14% of the Company's net sales in 1997 
compared to 6% in 1996 and less than 1% in 1995. Disk sales by the 
Company to AKCL for distribution are expected to decline in 1998. The 
Company purchased 11% of AKCL's unit output during 1997 compared to 
approximately 3% and 1% in 1996 and 1995, respectively. The Company 
anticipates that distribution sales of AKCL-produced disks to U.S. 
customers in 1998 will remain a relatively small percentage of the 
Company's net sales. 

As a result of product transition and qualification issues, AKCL 
operated substantially under capacity for the majority of 1997.  While 
AKCL has obtained qualification on new product offerings, the Company 
anticipates that AKCL will continue to underutilize its capacity through 
at least the second quarter of 1998. In February 1998, AKCL decided to 
replace certain manufacturing equipment. The capacity underutilization, 
coupled with the equipment write-off, will most likely generate 
substantial quarterly losses at AKCL for at least the first half of 
1998.  

AKCL plans to use a combination of static and in-line sputtering 
machines to manufacture its disk products. AKCL believes that the 
products produced by a static sputtering process will be technically 
similar to those produced by other Japanese media suppliers, thus 
improving AKCL's ability to meet specific requirements of certain 
Japanese customers on a timely basis.  AKCL also plans to implement the 
new epitaxial process on certain in-line sputtering equipment.  The 
successful implementation of the epitaxial process on AKCL's in-line 
sputtering equipment, and the Japanese market acceptance of products 
produced using in-line equipment, will determine AKCL's relative mix of 
in-line and static machines. 

Komag Material Technology, Inc. ("KMT")
In 1988, Komag formed a wholly owned subsidiary, KMT, to secure an 
additional stable supply of aluminum substrates of satisfactory quality 
for the Company's products. In 1989, Kobe, a leading worldwide supplier 
of blank aluminum substrates, purchased a 45% interest in KMT for $1.4 
million. In December 1995, the Company reacquired 25% of the outstanding 
Common Stock of KMT by purchasing shares from Kobe for $6.75 million. 
The Company's purchase raised its total ownership percentage of KMT to 
80%. Under the recent stock purchase and related agreements, Kobe 
retained one seat on KMT's Board of Directors.

Under these agreements, Kobe will continue to supply substrate blanks 
to KMT while the Company will continue to purchase KMT's entire output 
of finished substrates. Further, the Company has indicated its intention 
to purchase a substantial proportion of its future substrate 
requirements from Kobe, a continuation of a past procurement practice.  
In combination, KMT,  Kobe, and the Company's Sarawak facility supply 
substantially all of the Company's substrate requirements.  The 
Company's Sarawak facility began substrate production in 1997.

Equity Positions Held by Asahi Glass and Kobe in Komag 
Asahi Glass and Kobe each purchased two million shares of newly 
issued Common Stock from the Company for $20 million in January 1989 and 
March 1990, respectively. In 1992, Asahi Glass transferred ownership of 
its shares to a U.S. subsidiary of Asahi Glass. Under their respective 
stock purchase agreements, Asahi Glass and Kobe each have the right to 
purchase additional shares of the Company's Common Stock on the open 
market to increase their respective equity interests in the Company to 
20%, to maintain their percentage interest in the Company by purchasing 
their pro rata shares of any new equity issuance by the Company and to 
require the Company to register their shares for resale, either on a 
demand basis or concurrent with an offering by the Company. Each stock 
purchase agreement further provides that the Company shall use its best 
efforts to elect a representative of each investor to the Company's 
Board of Directors and to include such representatives on the Nominating 
Committee of the Board. There were no purchases or sales of the 
Company's stock by Asahi Glass or Kobe in 1997 and according to the 
Company's stock records at February 20, 1998, Asahi America and Kobe 
held 2,000,000 and 2,000,002 shares of Common Stock, respectively. Sales 
of significant amounts of the security holdings of Asahi Glass and/or 
Kobe in the future could adversely affect the market price of the 
Company's Common Stock. Any sales by either party, however, would 
relieve the Company of its obligation to nominate that party's 
representative for election to the Board of Directors.



Competition

Current thin-film disk competitors fall into three groups: U.S. 
noncaptive manufacturers, U.S. captive manufacturers, and Japanese/Asian 
manufacturers. Historically, each of these groups has supplied 
approximately 30% to 40% of the worldwide thin-film disk unit output. 
Based upon research conducted by an independent market research firm, 
the Company believes it is the leading independent supplier of thin-film 
disks. The Company's 1997 net sales were more than 90% greater than the 
next largest U.S. noncaptive manufacturer during the same period. U.S. 
noncaptive thin-film disk competitors include HMT Technology Corporation 
and StorMedia Inc. (including the former Akashic Memories Corporation, 
which was purchased by StorMedia as of December 31, 1997). Japan-based 
thin-film disk competitors include Fuji Electric Company, Ltd.; 
Mitsubishi Kasei Corp.; Showa Denko K.K.; and HOYA Corporation. The U.S. 
captive manufacturers include IBM and OEM disk drive manufacturers, such 
as Maxtor, Seagate and Western Digital, which manufacture disks as a 
part of their vertical integration programs. To date, IBM and these OEM 
disk drive manufacturers have sold nominal quantities of disks in the 
open market.  Captive media suppliers, in particular Seagate, added 
significant capacity in 1997 and gained market share.  The captive 
manufacturers supplied in the low-40% range of the disk drive industry's 
media requirements for 1997 and exited the year with a market share in 
the mid- to high-40% range.  Continued success by the captive suppliers 
could heighten competition among the noncaptive media suppliers for the 
remaining available market.  Such competition could adversely affect the 
financial results of noncaptive suppliers, such as Komag. See "Risk 
Factors-Competition."



Environmental Regulation 

The Company is subject to a variety of regulations in connection with 
its operations and believes that it has obtained all necessary permits 
for its operations. The Company uses various industrial hazardous 
materials, including metal plating solutions, in its manufacturing 
processes. Wastes from the Company's manufacturing processes are either 
stored in areas with secondary containment before removal to a disposal 
site or processed on site and discharged to the industrial sewer system.

The Company has made investments in upgrading its waste-water 
treatment facilities to improve the performance and consistency of its 
waste-water processing. Nonetheless, industrial waste-water discharges 
from the Company may, in the future, be subject to more stringent 
regulations. Failure to comply with present or future regulations could 
result in the suspension or cessation of part or all of the Company's 
operations. Such regulations could restrict the Company's ability to 
expand at its present locations or could require the Company to acquire 
costly equipment or incur other significant expenses. 


Patents and Proprietary Information 
Komag holds and has applied for U.S. and foreign patents and has 
entered into cross-licenses with certain of its customers.  While 
possession of patents could present obstacles to the introduction of new 
products by competitors and possibly result in royalty-bearing licenses 
from third parties, the Company believes that its success does not 
depend on the ownership of intellectual property rights but rather on 
its innovative skills, technical competence and marketing abilities. 
Accordingly, the patents held and applied for will not constitute any 
assurance of the Company's future success.

The Company regards elements of its equipment designs and processes 
as proprietary and confidential and relies upon employee and vendor 
nondisclosure agreements and a system of internal safeguards for 
protection. Despite these steps for protecting proprietary and 
confidential information, there is a risk that competitors may obtain 
and use such information. Furthermore, the laws of certain foreign 
countries in which the Company does business may provide a lesser degree 
of protection to the Company's proprietary and confidential information 
than provided by the laws of the U.S. In addition, the Company from time 
to time receives proprietary and confidential information from vendors, 
customers and partners, the use and disclosure of which are governed by 
nondisclosure agreements. Through internal communication and the 
monitoring of use and disclosure of such information, the Company 
complies with its obligations regarding use and nondisclosure. However, 
despite these efforts, there is a risk that such information may be used 
or disclosed in violation of the Company's obligations of nondisclosure.

        The Company has occasionally received, and may receive in the future, 
communications from third parties asserting violation of intellectual 
rights alleged to cover certain of the Company's products or 
manufacturing processes or equipment. In such cases, the Company 
evaluates whether it would be necessary to defend against the claims or 
to seek licenses to the rights referred to in such communications. 
However, no assurance can be given that the Company will be able to 
negotiate necessary licenses on terms that would not have a material 
adverse effect on the Company, or at all, or that any litigation 
resulting from such claims would not have a material adverse effect on 
the Company's business and financial results.

Employees 
As of December 28, 1997, the Company and its consolidated 
subsidiaries had 4,738 employees (4,689 of which are regular employees 
and 49 of which were employed on a temporary basis), including 4,233 in 
manufacturing, 330 in research, development and engineering and 175 in 
sales, administrative and management positions. Of the total, 2,930 are 
employed at offshore facilities. 

The Company believes that its future success will depend in large 
part upon its ability to continue to attract, retain and motivate highly 
skilled and dedicated employees. None of the Company's employees is 
represented by a labor union and the Company has never experienced a 
work stoppage.



Risks Factors

The Company's business is subject to a number of risks and 
uncertainties. While this discussion represents the Company's current 
judgment on the risks and future direction of the business, such risks 
and uncertainties could cause actual results to differ materially from 
any future performance suggested herein. The discussion contained in 
Item 1-"Business" and Item 7-"Management's Discussion and Analysis 
of Financial Condition and Results of Operations" contains predictions, 
estimates and other forward-looking statements that involve a number of 
risks and uncertainties. Among the factors that could cause actual 
results to differ are the following. The Company sells a single product 
into a market characterized by rapid technological change and sudden 
shifts in the balance between supply and demand. Further, the Company is 
dependent on a limited number of customers, some of whom also 
manufacture some or most of their own disks internally. Competition in 
the market, defined by both technology offerings and pricing, can be 
fierce, especially during times of excess available capacity. The 
Company has a high fixed-cost structure that can cause operating results 
to vary dramatically with changes in the yield, productivity and 
utilization of its factories. In addition, the business requires 
substantial investments for research and development activities and for 
physical assets such as equipment and facilities, that are dependent on 
the Company's access to financial resources.  These and other risks are 
discussed more fully below. The Company undertakes no obligation to 
publicly release the result of any revisions to these forward-looking 
statements that may be made to reflect events or circumstances after the 
date hereof or to reflect the occurrence of unanticipated events.

Rapid Technology Change

The thin-film disk industry has been characterized by rapid 
technological developments, increasingly shorter product life cycles and 
price erosion. The Company believes that its future success depends, in 
large measure, on its ability to develop and implement new process 
technologies in a timely manner and to continually improve these 
technologies. Such technologies must support cost-effective, high-volume 
production of thin-film disks that meet the ever-advancing customer 
requirements for enhanced magnetic recording performance.

Although the Company has a significant, ongoing research and 
development effort to advance its process technologies and the resulting 
products, there can be no assurance that the Company will be able to 
develop and implement such technologies in a timely manner in order to 
compete effectively against competitors' products and/or entirely new 
data storage technologies. The Company's results of operations would be 
materially adversely affected if the Company's efforts to advance its 
process technologies were not successful or if the technologies that the 
Company had chosen not to develop were proven to be viable competitive 
alternatives.

As areal density increases, recording heads are required to write and 
read smaller data bits packed more tightly together on the surface of 
the disk. To accomplish this, the read/write head must fly closer to the 
disks' surfaces and be able to discriminate smaller, weaker magnetic 
signals. Disk substrates must be smoother and flatter, with fewer, 
smaller defects. In addition, more uniform crystal growth and improved 
magnetic orientation on the disk surface is needed to facilitate 
increased density. The Company plans to migrate its sputtering process 
from the deposition of a magnetic layer over an amorphous underlayer to 
epitaxial deposition of the active magnetic layer upon a crystalline 
underlayer to achieve these desired magnetic characteristics. Since 
epitaxial deposition requires higher temperatures and dryer process 
chambers than current processes, a number of changes must be made during 
1998. First, the processes related to producing substrates, prior to 
sputtering, must be changed by adding new annealing steps to accommodate 
higher process temperatures. Next, to make substrates smoother and 
reduce defects a new polish step will be added. Further, the Company 
plans to upgrade its existing in-line sputtering lines to increase 
process temperatures and provide higher vacuum capability. While the 
Company believes the relatively slow deposition rate achieved in its in-
line sputtering machines will provide a competitive advantage over time, 
the Company and AKCL will also purchase and use static sputtering lines. 
This will allow the Company to gain experience using static sputtering 
equipment, which runs at higher deposition rates and temperatures than 
the Company's in-line sputtering systems.  Finally, the Company will 
have to continue reducing and eliminating sources of contamination 
throughout its process to reduce small defects on the disks' surfaces.  
There can be no assurance that the Company and AKCL will succeed in 
modifying equipment or deploying these new processes into manufacturing 
in a timely or cost-effective manner.  Failure to execute these process 
changes, or to execute them on time, or the inability to achieve 
expected improvements through these planned changes could result in 
products that would not meet industry needs.  This would in turn lead to 
delay in, or failure of, new product qualification and resulting lower 
sales, which could have a material adverse effect on the Company's 
results of operations.

Dependence on Hard Disk Drive Industry; Limited Number of Customers

The demand for the Company's high-performance thin-film disks depends 
upon the demand for hard disk drives and the Company's ability to 
provide technically superior products at competitive prices. The hard 
disk drive market is characterized by short product life cycles and 
rapid technological change. Failure by the Company to qualify new 
products and/or successfully achieve volume production of new customer 
products could adversely affect the Company's results of operations. The 
market is also characterized by changes in the balance between supply 
and demand. During periods of excess supply, prices can drop rapidly, 
causing abrupt changes in the Company's financial performance.  Prior to 
1997, the Company's financial performance was partially insulated from 
this effect due to its focus on sales of enterprise-class disk products.  
The enterprise disk drive market segment experienced increased 
competitive pressures and an excess supply of disk drives in 1997 as new 
entrants vied for market share in this historically higher-margin 
segment.  Additionally, the captive media operations of various disk 
drive manufacturers became stronger technically and supplied enterprise-
class disks in volume during 1997.  As a result, the Company's exposure 
to the more price-competitive desktop market increased significantly 
while the Company's sales volume and pricing of enterprise-class disk 
products declined sharply.

 In June 1997, a major customer made a sudden and material cut in the 
Company's orders due to the increased competition and oversupply in the 
enterprise segment of the data storage business.  This customer reduced 
its disk drive production, utilized its own captive media operations and 
purchased limited quantities of disks from noncaptive suppliers, 
including Komag.  Since June, the production of disk drives for the 
enterprise market segment has remained at low levels as excess 
inventories of enterprise-class disk drives were gradually reduced, thus 
limiting the Company's sales of enterprise disk products. The $45 
million drop in sales from the second quarter of 1997 to the third 
quarter of 1997 was primarily attributable to reductions in enterprise 
disk sales to two major customers.  These two customers comprised 43% of 
sales in the first half of 1997 compared to only 12% of sales in the 
second half of the year.  In late December 1997, the Company experienced 
another unexpected and material reduction in disk orders for high-end 
desktop drives due to deteriorating conditions within this market 
segment.  The weak market condition in both the enterprise and desktop 
market segments will adversely affect the Company's financial 
performance for at least the first half of 1998.  Furthermore, the 
Company's sales are generally made pursuant to purchase orders that are 
subject to cancellation, modification or rescheduling without 
significant penalties. There can be no assurance that the Company's 
current customers will continue to place orders with the Company, that 
orders by existing customers will recover to the levels of earlier 
periods or that the Company will be able to obtain orders from new 
customers.

In general, the Company's customers are moving towards fewer larger-
volume programs, characterized by shorter product life cycles. 
Competition for this limited number of programs is increasing due to 
media capacity additions during 1997. Additionally, customer 
expectations of media suppliers are growing more demanding.  Media must 
be more customized to each disk drive program and supply chain 
management, including just-in-time delivery, has assumed greater 
importance. Timely development of new products and technologies that 
assist customers in reducing their time-to-market performance and 
operational excellence that supports high-volume manufacturing ramps and 
tight inventory management throughout the supply chain will be keys to 
both the Company's profitability and the maintenance of constructive 
customer relationships. There can be no assurance that the Company will 
respond to this rapidly changing environment in a manner that will 
maximize utilization of its production facilities and minimize its 
inventory losses.

Furthermore, the Company's sales are concentrated in a small number 
of customers due to the high-volume requirements of the dominant disk 
drive manufacturers and their tendency to rely on a few suppliers 
because of the close interrelationship between media performance and 
disk drive performance and the complexity of integrating components from 
a variety of suppliers.  Net sales to major customers in 1997 were as 
follows: Western Digital Corporation ("Western Digital")-38%; Maxtor 
Corporation, a subsidiary of Hyundai Electronics America, ("Maxtor")-
19%; Quantum Corporation ("Quantum") including its Japanese 
manufacturing partner, Matsushita-Kotobuki Electronics Industries, Ltd. 
("MKE")-15%; Seagate Technology, Inc. ("Seagate")-14%; and 
International Business Machines ("IBM")-10%.  Consolidation continued 
among the Company's disk drive customers in 1997 with the bankruptcy and 
shutdown of Micropolis in November 1997. Given the relatively small 
number of disk drive manufacturers, the Company expects that it will 
continue its dependence on a very limited number of customers. 

AKCL, the Company's Japanese joint venture, despite a long-
established working relationship with MKE, suffered a dramatic drop in 
sales of AKCL-produced media to MKE due to difficulties with new product 
qualifications. Like the Company, AKCL is converting its processes to 
epitaxial deposition in order to improve its competitive position in the 
future. During 1997, all of the Company's product sales to MKE in Japan 
and to MKE's Singapore manufacturing facility were through AKCL. 


Competition

The Company's thin-film disk products primarily serve the 3 1/2-inch 
and 5 1/4-inch hard disk drive market, where product performance, 
consistent quality and availability, taken together, are of great 
competitive importance. To succeed in an industry characterized by rapid 
technological developments, the Company must continuously advance its 
thin-film technology at a pace consistent with or faster than its 
competitors. However, if the Company is not able to keep pace with rapid 
advances, the Company may lose market share and face increased price 
competition from other manufacturers. Such competition could materially 
adversely affect its results of operations.

Worldwide disk drive shipments grew approximately 23% in 1997 over 
1996 and are projected to grow at a 17% compound annual growth rate in 
1998 through 2001 according to International Data Corporation ("IDC"). 
In response to these historical and projected growth rates for the disk 
drive market, the Company and a majority of the Company's competitors 
(both independent disk manufacturers and captive disk manufacturers 
owned by vertically integrated disk drive customers) have substantially 
increased their disk manufacturing capacity to satisfy the anticipated 
demand for disk products. The Company believes that its manufacturing 
operations in Penang and Sarawak, Malaysia can provide a competitive 
cost advantage relative to most other thin-film disk manufacturers that 
operate exclusively in the U.S. and Japan. However, in order to remain 
cost competitive, many of the U.S.- and Japan-based competitors, 
including captive manufacturers, have or are currently expanding into 
lower-cost regions in the world such as Southeast Asia. These 
significant investments in capable new disk production capacity, 
combined with the recent slowdown in demand, have resulted in an 
oversupply of disk media and increased price competition in the media 
market. These supply-demand conditions have increased competition for 
the remaining market and have led to higher than historical price 
erosion and lower factory utilization. These conditions are expected to 
adversely affect the Company's results of operations for the first half 
of 1998, particularly in the first quarter.  Such conditions, should 
they continue beyond the first half of 1998, would continue to adversely 
affect the Company's results of operations.

Of the Company's U.S.-based customers, IBM, Seagate and Western 
Digital produce significant portions of their media demand internally.  
During 1997 IBM and Seagate produced in excess of 75% of their media 
demand internally.  Western Digital produced approximately one-third of 
its media requirement.  For the longer term, IBM and Seagate are 
expected to maintain a similarly high proportion while Western Digital 
has announced its intention to produce more of its media needs 
internally. Another customer, Maxtor, recently commenced internal media 
production.  Other customers and potential customers could adopt similar 
vertical-integration strategies. Depending on the overall growth in 
market demand for disk products, such actions could result in the 
reduction or cessation of purchases from the Company, thus materially 
adversely affecting the Company's results of operations.


Fluctuation in Operating Results

The Company believes that its future operating results will continue 
to be subject to quarterly variations based upon a wide variety of 
factors, including the cyclical nature of the hard disk drive industry; 
the ability to develop and implement new manufacturing process 
technologies; the ability to introduce new products and to achieve cost-
effective, high-volume production in a timely manner; changes in product 
mix and average selling prices; the availability and the extent of 
utilization of the Company's production capacity; manufacturing yields; 
prolonged disruptions of operations at any of the Company's facilities 
for any reason; changes in the cost of or limitations on availability of 
labor; and increases in production and engineering costs associated with 
initial design and production of new product programs.

Because thin-film disk manufacturing requires a high level of fixed 
costs, gross margins are also extremely sensitive to changes in volume. 
At constant average selling prices, reductions in manufacturing 
efficiency cause declines in gross margins. Additionally, decreasing 
market demand for the Company's products generally results in reduced 
average selling prices and/or low capacity utilization that, in turn, 
adversely affect gross margins and operating results. The Company's 
ability to maintain average selling prices is dependent on its ability 
to produce, in volume, products that are differentiated on the basis of 
technological superiority. During 1997, competitive technology had 
advanced to the point that the Company's current products did not 
provide a sufficient advantage, increasing the downward pressure on 
pricing.

During 1997, the Company introduced new products to keep pace with 
the industry's 60% improvement in areal density. These products 
incorporate many new technologies including smoother substrates, laser 
textures and new magnetic alloys. Industry pricing for new products has 
typically decreased over a given product life cycle based on the 
assumption that as improvements in new product yield and other 
manufacturing efficiencies were realized, profit margins would be 
maintained.  In light of increasingly complex production processes and 
shorter product cycles, accurately forecasting yields is a difficult 
task. The difficulty in maintaining cost competitiveness through 
improving yields will continue to be magnified by ever-increasing 
process complexity and by the compression of product life cycles. Lower-
than-planned yields on new products, coupled with continued high usage 
of production equipment for product and process development activities, 
constrained unit output throughout 1997.  In addition, weak demand for 
enterprise-class disks in the second half of 1997 resulted in a further 
reduction in utilization of the Company's factories.  Further, in 
December 1997, the desktop segment of the market weakened; several 
customers have reduced their order volumes in the first quarter of 1998.  
The Company expects that net sales could be as much as 55% lower in the 
first quarter of 1998 than in the fourth quarter of 1997.  Even with 
expected, improved industry conditions in the second quarter, the 
Company expects financial results will remain under pressure due to 
capacity utilization and pricing issues. In light of the capital-
intensive, fixed-cost nature of the business, low unit output results in 
high unit costs and low gross margins. In the event that market demand 
does not improve, that yields of new products do not improve at the rate 
expected or that the Company is unable to introduce and ramp to volume 
production next-generation products in a timely manner, the Company's 
operating results would likely continue to be adversely affected.


Financial Resources

The thin-film disk industry is highly capital intensive. The Company 
must anticipate customer demand for both production volume and 
technological capability. Careful planning is essential since the lead 
time for deployment of new capacity and new process capabilities 
typically exceeds current product life cycles. The Company must make 
major commitments well in advance of anticipated need. The inaccurate 
estimation of capacity requirements or the failure to implement the 
proper technologies in a timely manner would have a material adverse 
effect on the Company's business, financial condition and results of 
operations.

The Company believes that, in order to achieve its long-term growth 
objectives and maintain and enhance its competitive position, it will 
need significant additional financial resources over the next several 
years for capital expenditures, working capital and research and 
development. During 1996 and 1997, the Company spent approximately $403 
million and $199 million, respectively, on property, plant and 
equipment. In 1998, the Company plans to spend $120 million, primarily 
to upgrade existing facilities and equipment in order to deploy new 
process technologies into manufacturing and to improve yield and 
productivity. There can be no assurance that net sales will increase 
sufficiently to absorb these additional costs.

The Company borrowed $175 million during 1997 and $15 million 
subsequent to year-end, increasing overall debt to $260 million and 
leaving a balance of $85 million available for future borrowing under 
existing lines of credit. The Company's lines of credit are subject to 
certain covenants, including the number and size of consecutive 
quarterly losses. In anticipation of a violation of these profitability 
tests at the end of the first quarter of 1998, the Company renegotiated 
the terms and covenants of its $175 million syndicated loan facility to 
provide for continued access to these funds.  Current borrowings under 
this facility totaled $100 million at December 28, 1997.  The Company 
will most likely remain in compliance with its other credit facilities 
through at least the first half of 1998.  There can be no assurance that 
these funds will remain available should the Company violate its loan 
covenants at any future date or that any available funds will be 
sufficient for the Company needs. The Company believes that it will be 
able to fund planned 1998 expenditures from a combination of cash flow 
from operations, funds available from existing bank lines of credit and 
existing cash balances. If the Company is unable to obtain sufficient 
capital, it could be required to reduce its capital equipment and 
research and development expenditures, which could have a material 
adverse affect on the Company's results of operations.


Risk of Foreign Operations / Joint Venture

In 1997, sales to customers in the Far East, including the foreign 
subsidiaries of domestic disk drive companies, accounted for 
approximately 96% of the Company's net sales from its U.S. and Malaysian 
facilities. The Company's customers assemble a substantial portion of 
their disk drives in the Far East and subsequently sell these products 
throughout the world. Therefore, the Company's high concentration of Far 
East sales does not accurately reflect the eventual point of consumption 
of the assembled disk drives. The Company anticipates that international 
sales will continue to represent the majority of its net sales. All of 
the Company's sales are currently priced in U.S. dollars worldwide. 
Certain costs at the Company's foreign manufacturing and marketing 
operations are incurred in the local currency. The Company also 
purchases certain operating supplies and production equipment from 
Japanese suppliers in yen-denominated transactions. Accordingly, the 
Company's operating results are subject to the risks inherent with 
international operations, including, but not limited to, compliance with 
or changes in the law and regulatory requirements of foreign 
jurisdictions, fluctuations in exchange rates, tariffs or other 
barriers, difficulties in staffing and managing foreign operations, 
exposure to taxes in multiple jurisdictions and transportation delays 
and interruptions. 

The Company's Malaysian operations accounted for a significant 
portion of the Company's 1997 consolidated net sales and generated 
profits that partially offset losses incurred in the U.S. Prolonged 
disruption of operations in Malaysia for any reason would cause delays 
in shipments of the Company's products, thus materially adversely 
affecting the Company's results of operations.  Recently, there has been 
a substantial devaluation of the Malaysian ringgit, along with other 
Southeast Asian currencies. Changes in relative currency values can be 
swift and unpredictable. While the effect of the ringgit's devaluation 
has been to reduce the U.S. dollar equivalent of the ringgit-based 
operating expenses, future fluctuations may have the opposite effect.

Fluctuations in the financial results of AKCL, the Company's 
unconsolidated Japanese disk manufacturing joint venture, also impact 
the Company's financial performance. Equity in the net loss of AKCL 
increased the Company's 1997 consolidated net loss by $4.9 million.  
AKCL operated substantially under capacity for the majority of 1997 and 
the Company anticipates that AKCL will continue to underutilize its 
capacity through at least the first half of 1998.  This 
underutilization, coupled with the anticipated write-off of certain 
unutilized equipment, will most likely generate substantial quarterly 
losses at AKCL for at least the first half of 1998.  AKCL is subject to 
many of the same risks facing the Company, including the risks 
associated with new product introduction. In addition, the equity income 
derived from AKCL fluctuates over time due to its dependence on a more 
limited customer base (MKE and Fujitsu Ltd. accounted for 76% and 17%, 
respectively, of AKCL's 1997 net sales) and yen/dollar exchange rate 
fluctuations.


Volatility of Stock Price

The Company's Common Stock has experienced and can be expected to 
experience substantial price volatility in response to actual or 
anticipated quarterly variations in operating results; announcements of 
technological innovations or new products by the Company or its 
competitors; the success or failure of new product qualifications 
(especially as new generations of product are introduced); developments 
related to patents or other intellectual property rights; developments 
in the Company's relationships with its customers or suppliers; 
announcements of alliances, mergers or other relationships by or between 
the Company's competitors and/or customers; and other events or factors. 
In addition, any shortfall or changes in revenue, gross margins, 
earnings or other financial results from analysts' expectations could 
cause the price of the Company's Common Stock to fluctuate 
significantly. In recent years, the stock market in general has 
experienced extreme price and volume fluctuations which have 
particularly affected the market price of many technology companies and 
which have often been unrelated to the operating performance of those 
companies. These broad market fluctuations may adversely affect the 
market price of the Company's Common Stock. See "Price Range of Common 
Stock."


Patents and Proprietary Information

Protection of technology through patents and other forms of 
intellectual property rights in technically sophisticated fields is 
commonplace. In the disk drive industry, it is not uncommon for 
companies and individuals to initiate actions against others in the 
industry to enforce intellectual property rights. There can be no 
assurance that others have not or will not perfect intellectual property 
rights and either enforce those rights to prevent the Company from 
practicing certain technologies or demand royalty payments from the 
Company in return for practicing those technologies, both of which may 
have a material adverse affect on the Company's results of operations. 
As a measure of protection, the Company has entered into cross-license 
agreements with certain of its customers. In addition, the Company 
reviews, on a routine basis, patent issuances in the U.S. and patent 
applications that are published in Japan. Through these reviews, the 
Company occasionally becomes aware of a patent, or an application that 
may mature into a patent, which could give rise to a claim of 
infringement. When such patents are identified, the Company investigates 
the validity and possibility of actual infringement. The Company is 
presently involved in such an investigation of several recently issued 
patents.


Other Risk Factors

The Company relies on a limited number of suppliers, in some cases a 
sole supplier, for certain materials and equipment used in its 
manufacturing processes. These materials include aluminum substrates, 
nickel plating solutions, certain polishing and texturing supplies, and 
sputtering target materials.  These suppliers work closely with the 
Company to optimize the Company's production processes. Although this 
reliance on a limited number of suppliers, or a sole supplier, entails 
some risk that the Company's production capacity would be limited if one 
or more of such materials were to become unavailable or available in 
reduced quantities, the Company believes that the advantages of working 
closely with these suppliers outweigh such risks. If such materials 
should be unavailable for a significant period of time, the Company's 
results of operations would be adversely affected.

Given the Company's dependence on a few customers and a limited 
number of product programs for each customer, the magnitude of the 
inventory 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 results of operations. While the Company has taken certain 
charges including inventory write-downs, to address known issues, there 
can be no assurance that the Company will not be required to take 
additional inventory write-downs due to the Company's inability to 
obtain necessary product qualifications or due to further order 
cancellations by customers.

Recently the Company was forced to reduce, for a short period of 
time, operations at its Malaysian factories due to smoke generated by 
wide-spread fires in the region. This curtailment did not have a 
material effect on the Company's operations. In addition, the Company's 
California manufacturing facilities, its Japanese joint venture (AKCL), 
its Japanese supplier of aluminum blanks for substrate production, other 
Japanese suppliers of key manufacturing supplies and its Japanese 
supplier of sputtering machines are each located in areas with seismic 
activity. The Company has incurred no significant disruptions to its 
business due to seismic activity; however, there can be no assurance 
that natural or man-made disasters will not result in a prolonged 
disruption of production in the future. Such disruptions could have a 
material adverse effect on the Company's results of operations. 

ITEM 2. PROPERTIES

Worldwide (excluding AKCL), the Company currently occupies facilities 
totaling approximately 1.6 million square feet. The Company owns three 
disk-manufacturing facilities in Malaysia, two in Penang and one in 
Sarawak. The square footage of each of these facilities and acreage of 
the related land parcels are 340,000 square feet and 13 acres, 275,000 
square feet and 18 acres, and 275,000 square feet and 89 acres. The 
Company leases five manufacturing facilities in Milpitas, San Jose and 
Santa Rosa, California. The Company's new headquarters facility and new 
R&D facility in San Jose, California were occupied in the first quarter 
of 1997. These facilities are leased for the following terms: 

        Facility Size   Current Lease   
        (square feet)   Term Expires    Extension Options

        225,000         September 2006    20 years
        188,000         January 2007      20 years
        103,000         July 1999         10 years 
        97,000  (1)     February 2001     10 years        
        96,000  (2)     February 2001     10 years 
        82,000          February 2007     20 years
        48,000          December 1999      -       
        44,000          April 1999        10 years        

In addition to the facilities listed above, the Company leases other 
smaller facilities in California and Singapore. The Company owned 
approximately 6 acres of undeveloped land adjacent to its Milpitas 
manufacturing complex, which it sold in March 1998.

(1) This facility was vacated in the third quarter of 1997 as part of 
the Company's restructuring plan and subleased in December 1997.

(2) Subsequent to year-end, the Company closed this facility as part of 
the Company's restructuring plan.

ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which either the Company 
or its subsidiaries is a party or to which any of its property is 
subject.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

No matters were submitted to the stockholders of the Company during 
the Company's fourth quarter of 1997.

Executive Officers of the Registrant

     As of February 23, 1998 the executive officers of the Company are as
follows:


          Name            Age                    Position
------------------------- ---- ---------------------------------------------
Tu Chen..................  62  Chairman of the Board of Directors
Stephen C. Johnson.......  55  President, Chief Executive Officer and Director
Christopher H. Bajorek...  54  Senior Vice President and Chief Technical Officer
Willard Kauffman.........  62  Senior Vice President and Chief Operating Officer
William L. Potts, Jr. ...  51  Senior Vice President, Chief Financial Officer
                                   and Secretary
Thian Hoo Tan............  49  Senior Vice President - Worldwide Manufacturing
Fred J. Wiele............  59  Senior Vice President - Marketing and Sales
Ronald Allen.............  49  Vice President - Equipment Technology and
                                   Automation
Richard Austin...........  42  Vice President - U.S. Manufacturing
Elizabeth A. Lamb........  46  Vice President - Human Resources
Ray Martin...............  54  Vice President - Product Assurance and Product
                                   Test
Steven J. Miura..........  45  Vice President - Advanced Products
Sonny Wey................  58  Vice President - Product Research and Development
Tsutomu T. Yamashita.....  43  Vice President - Process Technology Research and
                                   Development

Dr. Chen is a founder of the Company and has served as Chairman of 
the Board from its inception in June 1983. From 1971 to June 1983, he 
was a Member, Research Staff and principal scientist at Xerox 
Corporation's Palo Alto Research Center. From 1968 to 1971, Dr. Chen was 
employed as a research scientist for Northrop Corp. Dr. Chen received 
his Ph.D. and M.S. degrees in Metallurgical Engineering from the 
University of Minnesota and holds a B.S. degree in Metallurgical 
Engineering from Cheng Kung University in Taiwan.  Dr. Chen is a 
director of Headway Technologies, Inc.

Mr. Johnson has served as President and Chief Executive Officer of 
the Company since September 1983. From 1977 to 1983, Mr. Johnson was an 
officer of Boschert Incorporated, a manufacturer of switching power 
supplies, initially as Vice President, Marketing and subsequently as 
President and Chief Executive Officer. Mr. Johnson holds a B.S. degree 
in Engineering from Princeton University, a M.S. degree in Electrical 
Engineering from the University of New Mexico and an M.B.A. degree from 
the Harvard Graduate School of Business. Mr. Johnson is a director of 
Uniphase Corporation.

Dr. Bajorek joined the Company and was elected to the newly created 
position of Senior Vice President-Chief Technical Officer in June 1996. 
Dr. Bajorek was most recently Vice President, Technology Development and 
Manufacturing for the Storage Systems Division of IBM in San Jose, 
California. During his 25-year career with IBM, Dr. Bajorek held various 
positions in research and management related to magnetic recording, 
magnetic bubble and optical storage applications. He holds a Ph.D. 
degree in Electrical Engineering and Business Economics from Caltech.

Mr. Kauffman was appointed Senior Vice President and Chief Operating 
Officer in February 1990. For three years prior to joining the company, 
Mr. Kauffman was Executive Vice President and Chief Operating Officer of 
Vitelic Corporation. Prior to that, he was employed at Intel Corporation 
for 16 years in a variety of positions, including Vice President of 
Component Production and Vice President of Component Quality. Mr. 
Kauffman holds B.S. and M.S. degrees in Engineering Physics from Lehigh 
University.

Mr. Potts joined the Company in 1987 and served as Vice President and 
Chief Financial Officer from January 1991 until his promotion to Senior 
Vice President and Chief Financial Officer in January 1996. In addition, 
Mr. Potts serves as Secretary. Prior to joining Komag, Mr. Potts held 
financial management positions at several high-technology manufacturing 
concerns. He has also served on the consulting staff of Arthur Andersen 
& Co. Mr. Potts holds a B.S. degree in Industrial Engineering from 
Lehigh University and an M.B.A. degree from the Stanford Graduate School 
of Business.

Mr. Tan was appointed Vice President of Manufacturing in September 
1993 and was promoted to  Senior Vice President-Worldwide Manufacturing 
in February 1998. He previously served as Vice President-
Manufacturing-Asia Operations in charge of the Company's operations in 
Penang and Sarawak, Malaysia. Prior to that,  he served as the Managing 
Director of the Company's Penang, Malaysia operation. Mr. Tan joined 
Komag in 1989 and was in charge of operations at the Company's first San 
Jose, California manufacturing facility. Before joining Komag in 1989, 
Mr. Tan was Vice President of Operations at HMT Technology. Mr. Tan 
holds a M.S. degree in Physics from the University of Malaya at Kuala 
Lumpur.

Mr. Wiele joined the Company as Senior Vice President-Marketing and 
Sales in June 1996. Most recently, he was General Manager, Worldwide 
Sales and Marketing for the Storage Systems Division of IBM in San Jose, 
California. During his 31 years with IBM, Mr. Wiele held various 
marketing and sales positions within the domestic and overseas 
operations of IBM. He headed product management for AS/400 hardware and 
software for IBM's U.S. Marketing and Services Division. He also 
directed marketing and product management for IBM Europe, Middle East 
and Africa. He holds a B.S. degree in Mechanical Engineering from 
Villanova University.

Mr. Allen was promoted to Vice President-Equipment Technology and 
Automation in January 1997. Mr. Allen joined the Company in October 1983 
to establish the Company's automation manufacturing program that he has 
since directed. Prior to joining Komag, Mr. Allen was employed with 
Xerox's Palo Alto Research Center as a member of the research staff. Mr. 
Allen holds a B.S. degree in Physics and a minor in Chemistry from 
Dillard University.

Mr. Austin joined the Company in October 1988 as Facilities and 
Equipment Maintenance Manager. Prior to his promotion to Vice 
President-U.S. Manufacturing in August 1997, Mr. Austin served Komag as 
Vice President-Manufacturing and Corporate Facilities. Prior to joining 
Komag, Mr. Austin was an Equipment Maintenance and Facilities Manager at 
VLSI Technology Inc. Mr. Austin also worked at National Semiconductor 
and Rockwell International between 1975 and 1983.

Ms. Lamb joined the Company as Vice President-Human Resources in 
October 1996. From 1995 to 1996 she was Director of Worldwide Staffing 
and Employee Relations at Adaptec. Prior to that, Ms. Lamb was Director 
of Compensation, Benefits and Executive programs at Tandem. Ms. Lamb 
holds a B.A. degree in Communications from San Jose State University.

Mr. Martin joined the Company as Vice President-Product Assurance 
and Product Test in October 1997. From 1990 to 1997, he headed product 
engineering and head/media development as Director of Process and 
Technology at Quantum Corporation. Prior to working at Quantum, Mr. 
Martin held a number of management and engineering positions at several 
leading disk drive manufacturers, including Western Digital, Seagate, 
and IBM. Mr. Martin holds a B.S. degree in Mechanical Engineering from 
Kansas State University.

Mr. Miura joined the Company in 1984 as Director of Test Engineering 
prior to his promotion to Vice President-Quality and Product 
Integration in November 1991. He currently serves as Vice President-
Advanced Products. Before joining Komag, Mr. Miura held various 
engineering positions at IBM. Mr. Miura holds both B.S. and M.S. degrees 
in Electrical Engineering from the University of California, Davis.

Dr. Wey was appointed Vice President-Engineering in April 1988. Dr. 
Wey currently serves as Vice President-Product Research and 
Development. Dr. Wey joined the Company in November 1983 and has held 
director positions in both engineering and manufacturing. For 10 years 
prior to joining the Company, Dr. Wey worked in various engineering and 
engineering management positions at IBM. Dr. Wey received his Ph.D. 
degree in Physical Chemistry from the Illinois Institute of Technology 
and holds a B.S. degree in Chemical Engineering from National Chen-Kung 
University in Taiwan.

Mr. Yamashita joined the Company in 1984 and was Senior Director of 
Research prior to his promotion to Vice President-Research and 
Development in January 1995. Mr. Yamashita currently serves as Vice 
President-Process Technology Research and Development. Prior to joining 
the Company, Mr. Yamashita was a graduate research assistant in the 
Department of Material Science and Engineering at Stanford University. 
Mr. Yamashita holds a B.S. degree in Chemistry and an M.S. degree in 
Materials Science from Stanford University.

                                      PART II 

ITEMS 5, 6, 7 and 8. 

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's  Common Stock is traded on the Nasdaq  National  Market under
the  symbol  KMAG.  The  following  table  sets  forth the range of high and low
closing sales prices, as reported on the Nasdaq National Market. At February 20,
1998 the Company had approximately 507 holders of record of its Common Stock and
52,806,139  shares  outstanding.

                                               Price Range of
                                                Common Stock
                                            --------------------
                                              HIGH        LOW
                                            ---------  ---------
     1996
        First Quarter                        33 1/4     23
        Second Quarter                       36 9/16    24
        Third Quarter                        27         19 3/8
        Fourth Quarter                       36         21

     1997
        First Quarter                        32 7/8     25 13/32
        Second Quarter                       35 1/8     16 7/16
        Third Quarter                        22 7/16    16 1/8
        Fourth Quarter                       21 3/8     14 1/2

     1998
        First Quarter (through
         February 20, 1998)                  15 5/8     12 1/16

                                DIVIDEND POLICY

         The  Company has never paid cash  dividends  on its Common  Stock.  The
Company  presently  intends  to  retain  all cash for use in the  operation  and
expansion  of the  Company's  business and does not  anticipate  paying any cash
dividends  in the near  future.  Certain of Komag's  debt  agreements  limit the
amount of dividend payments without the lenders' consent.

Item 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         The following table sets forth selected consolidated financial data and
other  operating  information  of Komag,  Incorporated.  The financial  data and
operating  information is derived from the consolidated  financial statements of
Komag,  Incorporated  and should be read in  conjunction  with the  consolidated
financial  statements,  related notes, and other financial  information included
herein.
<TABLE>
<CAPTION>
                                                             Fiscal Year Ended
                                     ---------------------------------------------------------------
                                        1997         1996         1995         1994          1993
                                     -----------  -----------  -----------  -----------  -----------
                                     (in thousands, except per share amounts and number of employees)
<S>                                  <C>          <C>          <C>          <C>          <C>
Consolidated Statements of
   Operations Data:
Net Sales                              $631,082     $577,791     $512,248     $392,391     $385,375
Gross Profit                             93,546      175,567      197,486      125,386       91,439
Restructuring Charge                     52,157          --           --           --        38,956
Income (Loss) Before
   Minority Interests and Equity
   in Joint Venture Income (Loss)       (16,838)     100,553      101,410       54,156      (33,738)
Minority Interests in Net Income
   (Loss) of Consolidated
   Subsidiaries                             400          695        1,957        1,091      (18,977)
Equity in Net Income (Loss) of
   Unconsolidated Joint Venture          (4,865)      10,116        7,362        5,457        4,860
Net Income (Loss)                      ($22,103)    $109,974     $106,815      $58,522      ($9,901)

Basic Income (Loss) Per Share            ($0.42)       $2.15        $2.24        $1.31       ($0.23)
Diluted Income (Loss) Per Share          ($0.42)       $2.07        $2.14        $1.27       ($0.23)


Consolidated Balance Sheet Data:
Working Capital                        $296,099     $142,142     $252,218     $118,230      $97,265
Net Property, Plant & Equipment         678,596      643,706      329,174      228,883      187,267
Long-term Debt (less current
   portion)                             245,000       70,000          --        16,250       29,482
Stockholders' Equity                    686,184      697,940      574,564      331,215      255,331
Total Assets                         $1,084,664     $938,357     $686,315     $424,095     $382,297

Number of Employees at Year-end           4,738        4,101        2,915        2,635        3,497

<FN>
(1) Results of operations for 1997 included a $52.2 million restructuring charge
    related to the consolidation of the Company's U.S. manufacturing
    operations.

(2) Results of operations for 1993 included the Company's thin-film head          
    operations and a restructuring charge for the closure of the thin-film
    head operations.

(3)  The Company paid no cash dividends during the five-year period.
</FN>
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS 

Results of Operations

Overview

        The Company's business is both capital intensive and volume 
sensitive, making capacity planning and efficient capacity use 
imperative.  Physical capacity, utilization of this physical capacity, 
yields and average unit sales price constitute the key determinants of 
the Company's profitability.  Of these key determinants, price and 
utilization are the most sensitive to changes in product demand.  If 
capacity and product price are fixed at a given level and demand is 
sufficient to support a higher level of output, then increased output 
attained through improved utilization rates and higher manufacturing 
yields will translate directly into increased sales and improved gross 
margins.  Alternatively, if demand for the Company's products decreases, 
falling average selling prices and lower capacity utilization could 
adversely affect the results of the Company's operations.

Risk Factors

        The following discussion contains predictions, estimates and other 
forward-looking statements that involve a number of risks and 
uncertainties.  While this discussion represents the Company's current 
judgment on the future direction of the business, such risks and 
uncertainties could cause actual results to differ materially from any 
future performance suggested herein.  Factors that could cause actual 
results to differ include the following: industry supply-demand 
relationship and related pricing for enterprise and high-end desktop 
disk products; successful product qualification of next-generation 
products; successful deployment of new process technologies into 
manufacturing; utilization of manufacturing facilities; rate of 
improvement in manufacturing efficiencies; extensibility of process 
equipment to meet more stringent future product requirements; 
availability of sufficient cash resources; vertical integration and 
consolidation within the Company's limited customer base; increased 
competition; and availability of certain sole-sourced raw material 
supplies. See "Business-Risk Factors" for more detailed discussions 
of the Company's risk factors.

1997 vs. 1996

        Operating results for 1997 were dramatically lower than 1996.  
Entering 1996, the Company was producing mature product offerings at 
high yields with full utilization of its capacity and strong demand for 
these products.  Gross margins exceeding 40% in both the first and 
second quarters of 1996 were at near-record levels for the Company.  In 
the third quarter of 1996, the Company began a rapid transition to MR 
and proximity-inductive thin-film media products.  Manufacturing yields 
for these products were substantially below the high yields achieved 
during the first half of 1996.  Additionally, the Company devoted 
significant portions of its manufacturing capacity to development 
efforts for the new products.  As a result of these low yield and 
equipment utilization rates, the Company's sales in the second half of 
1996 were production constrained and declined from the levels during the 
first half of the year.  Furthermore, an increasing mix of the low 
yielding new products led to higher unit costs and  sequential declines 
in the gross margin percentage in the second half of 1996.  The gross 
margin percentages for the third and fourth quarters of 1996 were 24.0% 
and 11.7%, respectively.

        Net sales increased sequentially to $167.2 million and $175.1 
million during the first and second quarters of 1997, respectively.  The 
sequential increases were primarily due to manufacturing capacity 
additions. The gross margin percentages for the first and second 
quarters of 1997 were 23.5% and 20.4%, respectively.  Demand for thin-
film media products fell sharply at the end of the second quarter of 
1997 as an excess supply of enterprise-class disk drives caused drive 
manufacturers to reduce their build plans for this class of drives. The 
resulting imbalance between media supply and demand caused a loss of 
sales and prevented the Company from fully utilizing its expanded 
capacity during the last half of 1997.  Net sales and the gross margin 
percentage fell sharply to $129.7 million and 0.2%, respectively, in the 
third quarter of 1997.  

        During the third quarter of 1997, the Company undertook an 
evaluation of the size and location of its existing production capacity 
relative to the short-term market demand outlook.  Based upon this 
evaluation, the Company implemented a restructuring plan in August 1997.  
Under the restructuring plan, the Company consolidated its U.S. 
manufacturing operations into its San Jose, California facilities and 
closed two older factories in Milpitas, California.  The first Milpitas 
factory was closed at the end of the third quarter of 1997 and the 
second factory was closed in January 1998.  Over time, the Company 
expects that its Malaysian manufacturing operations will account for an 
increasing portion of the Company's production output.  These facilities 
are closer to the customers' disk drive assembly plants in Southeast 
Asia and enjoy certain cost and tax advantages over the Company's U.S. 
manufacturing facilities.

        Net sales and the gross margin percentage at $159.0 million and 
11.6%, respectively, for the fourth quarter of 1997 improved over the 
third quarter of 1997.  In December 1997, several disk drive 
manufacturers initiated cutbacks in their high-end desktop product 
production plans for early 1998 in response to supply-demand imbalances 
within that industry segment.  Weakened demand for desktop media 
products, combined with the continuing slow recovery of the enterprise-
class market segment and the increased capacity of captive media 
suppliers, resulted in an excess supply of media and heightened price 
competition among independent media suppliers.

        While these conditions dampened the results for the fourth quarter 
of 1997, the most significant impact of lower unit volumes and average 
selling prices will be evident in the Company's results for the first 
quarter of 1998.  The Company expects that net sales for the first 
quarter of 1998 could fall as much as 55% relative to the fourth quarter 
of 1997.  Improving industry conditions and shipment of new, higher-
density products could improve the Company's net sales in the second 
quarter of 1998 but financial results will likely remain under pressure 
due to low capacity utilization and continuing pricing issues. In 
response to this situation, the Company has implemented a hiring freeze 
and idled portions of its Malaysian production operations for 
approximately two weeks during the first quarter of 1998. The Company 
also accelerated the closure of its second Milpitas manufacturing 
facility, which it initially planned to close in June 1998.  
Additionally, the Company reduced its 1998 capital expenditure plan to 
$120 million, compared to nearly $200 million in 1997.

Net Sales

        Net sales for 1997 increased to $631.1 million, up 9% from $577.8 
million in 1996. The higher sales were primarily due to an increase in 
unit sales volume.  The overall average selling price increased less 
than 1% in 1997 relative to 1996.  The overall average selling price 
typically strengthens only as the result of product transitions to more 
technologically advanced, higher-priced product offerings.  Price 
reductions for individual product offerings are characteristic of the 
thin-film media industry.  Sales of the new MR and proximity-inductive 
products, which began in the third quarter of 1996, increased rapidly 
and accounted for nearly all unit sales in the last half of 1997.  The 
effect of the sales mix shift to these new higher-priced, next-
generation products more than offset the effect of price reductions on 
individual product offerings and resulted in the flat overall average 
selling price.

        In addition to sales of internally produced disk products, the 
Company has historically resold products manufactured by its Japanese 
joint venture, Asahi Komag Co., Ltd. ("AKCL").  Distribution sales of 
thin-film media manufactured by AKCL were $10.5 million in 1997 and $5.7 
million in 1996.  The Company expects that distribution sales of AKCL 
product will remain a relatively small percentage of the Company's net 
sales.

        During 1997, five customers accounted for over 95% of consolidated 
net sales:  Western Digital Corporation ("Western Digital")-38%; 
Maxtor Corporation, a subsidiary of Hyundai Electronics America, 
("Maxtor")-19%; Quantum Corporation ("Quantum"), together with its 
Japanese contract manufacturing partner, Matsushita-Kotobuki Electronics 
Industries, Ltd. ("MKE")-15%; Seagate Technology, Inc. 
("Seagate")-14%; and International Business Machines ("IBM")-10%.  
The distribution of sales among customers may vary from quarter to 
quarter based on the match of the Company's product capabilities with 
specific disk drive programs of the customers.  The Company's customer 
mix shifted dramatically in the third quarter of 1997 as a result of the 
reduction in enterprise-class disk drive production by the Company's 
customers.  In the third quarter of 1997, Quantum (together with MKE) 
and Seagate collectively accounted for less than 10% of the Company's 
net sales.  The Company's disk sales to these customers were primarily 
incorporated into enterprise-class disk drives.  These two customers 
accounted for 35% of net sales in the second quarter of 1997.

        Unit production increased 6% in 1997 relative to 1996.  Increased 
production volume typically occurs due to increased capacity (additional 
sputtering lines and improvements in process cycle times) and/or 
improvements in manufacturing efficiencies (improved production 
throughput from higher yields and/or better equipment utilization).  The 
Company increased capacity 25% in 1997 relative to 1996.  Equipment 
utilization rates decreased significantly in 1997 compared to 1996 as 
the Company operated below capacity in the last half of 1997 due to weak 
market demand for enterprise-class disk products.  Overall manufacturing 
yields declined as the Company experienced continuing yield losses on MR 
products. These losses were due in large measure to certain deficiencies 
in the Company's front end processing operations.  Additionally, the 
overall manufacturing yield was substantially higher during the first 
half of 1996 prior to the transition to proximity-inductive and MR 
media.

Gross Margin

        The gross margin percentage for 1997 decreased to 14.8% from 30.4% 
for 1996.  The substantial decrease in the gross margin percentage 
between the years was primarily attributable to a combination of lower 
manufacturing yields, reduced equipment utilization rates and inherently 
higher material and processing costs for MR and advanced proximity 
disks.  Additionally, the Company incurred inventory write-downs in 
1997, which accounted for approximately one-fourth of the decrease in 
the gross margin percentage.

Operating Expenses

        Research and development ("R&D") expenses increased 75% ($22.0 
million) in 1997 relative to 1996.  The Company moved into a newly 
constructed 188,000-square-foot R&D facility in the first quarter of 
1997.  Costs for the new facility and increased R&D staffing accounted 
for the increases between the years.  In 1998, the Company plans to 
spend approximately $50 million for R&D, comparable to the amount spent 
in 1997.  R&D spending will focus on the introduction of new product 
generations, on process changes to manufacture such products and on 
improvements to increase yields of products currently in volume 
production.  Selling, general and administrative ("SG&A") expenses 
decreased $6.1 million in 1997 compared to 1996.  The decrease was 
mainly due to a decrease of $10.2 million in provisions for bonus and 
profit sharing programs offset by increased provisions for bad debt of 
$2.4 million.  Excluding provisions for bonus/profit sharing programs 
and provisions for bad debt, SG&A expenses increased $1.7 million due 
primarily to higher payroll and facility-related costs.  The Company 
moved into a newly constructed administration facility in March 1997.

        In the third quarter of 1997, the Company implemented a 
restructuring plan involving the consolidation of its U.S. manufacturing 
operations and recorded a restructuring charge of $52.2 million.  The 
restructuring charge included $3.9 million for severance costs 
associated with approximately 330 terminated employees, $33.0 million 
for the write-off of the net book value of equipment and leasehold 
improvements, $10.1 million related to equipment order cancellations and 
other equipment-related costs and $5.2 million for facility closure 
costs.  Non-cash items included in the restructuring charge totaled 
approximately $33.0 million.  The Company has made cash payments 
totaling approximately $7.9 million primarily for severance and 
equipment-related costs.  The majority of the remaining $11.3 million 
restructuring liability, primarily related to equipment order 
cancellations and facility closure costs, is expected to be paid in 
1998.

Interest Income/Expense and Other Income

        Interest income decreased $1.7 million (26%) in 1997 relative to 
1996 primarily due to a lower average investment balance in 1997.  
Interest expense increased $8.5 million in 1997 compared to 1996.  The 
Company was debt free from late 1995 until November 1996.  Between 
November 1996 and the end of 1997, the Company borrowed $245 million 
under its credit facilities.  Other income increased $1.3 million in 
1997 relative to 1996 mainly due to foreign currency gains generated by 
the weakening of the Malaysian ringgit.  

Income Taxes

        The tax provision benefit of 55% for 1997 represents tax loss 
carrybacks associated with the Company's U.S. operations.  The effective 
income tax rate for 1996 of 17% was lower than the 1996 combined federal 
and state statutory rate of 41% primarily as a result of an initial 
five-year tax holiday granted to the Company's wholly owned thin-film 
media operation, Komag USA (Malaysia) Sdn. ("KMS"), which commenced in 
July 1993.  Assuming the Company fulfills certain commitments under its 
license to operate within Malaysia, this initial tax holiday may be 
extended for an additional five-year period by the Malaysian government.  
The impact of this tax holiday was to reduce the Company's 1997 net loss 
by approximately $20.8 million ($0.40 per share under both the basic and 
diluted methods) and increase 1996 net income by approximately $21.8 
million ($0.43 basic income per share and $0.41 diluted income per 
share).  Losses incurred prior to the commencement of this initial tax 
holiday, approximately $6.2 million, are available for carryforward to 
years following the expiration of this tax holiday.  The Company has 
also been granted an additional ten-year tax holiday for its second and 
third plant sites in Malaysia.  This new tax holiday had not yet 
commenced at December 28, 1997. 

Minority Interest in Consolidated Subsidiary/Equity in Unconsolidated 
Joint Venture 

        The minority interest in the net income of consolidated subsidiary 
during 1997 represented Kobe Steel USA Holdings Inc.'s ("Kobe USA") 
share of Komag Material Technology, Inc.'s ("KMT") net income.  KMT 
recorded net income of $2.0 million and $3.5 million in 1997 and 1996, 
respectively.  

        The Company records 50% of AKCL's net income (loss) as equity in 
net income (loss) of unconsolidated joint venture.  AKCL reported a net 
loss of $9.7 million for 1997, compared to net income of $20.2 million 
for 1996.  AKCL's results for 1997 included a gain on the sale of its 
investment in Headway Technologies, Inc. ("Headway") of $5.3 million 
(net of tax).  AKCL's results for 1996 included write-downs of $4.5 
million (net of tax) related to its investment in Headway.  Excluding 
the Headway-related items, AKCL's net loss was $15.0 million in 1997 
compared to net income of $24.7 million in 1996.  

        AKCL was primarily producing mature inductive products with more 
stable, higher yields in 1996.  Product transition issues related to 
AKCL's qualification and production of MR products adversely affected 
1997 results.  AKCL operated substantially under capacity for the 
majority of 1997. While AKCL has obtained qualification on new MR 
product offerings recently, the Company anticipates that AKCL will 
continue to underutilize its capacity through at least the first half of 
1998. In February 1998, AKCL decided to replace certain manufacturing 
equipment. The capacity underutilization, coupled with the equipment 
write-off, will most likely generate substantial quarterly losses at 
AKCL for at least the first half of 1998.  

AKCL plans to use a combination of static and in-line sputtering 
machines to manufacture its disk products. AKCL believes that the 
products produced by a static sputtering process will be technically 
similar to those produced by other Japanese media suppliers, thus 
improving AKCL's ability to meet specific requirements of certain 
Japanese customers on a timely basis.  AKCL also plans to implement the 
new epitaxial process on certain in-line sputtering equipment.  The 
successful implementation of the epitaxial process on AKCL's in-line 
sputtering equipment, and the Japanese market acceptance of products 
produced using in-line equipment, will determine AKCL's relative mix of 
in-line and static sputtering capacity.  

        The Company translates AKCL's yen-based statements of operations 
to U.S. dollars at the average exchange rate in effect for each 
quarterly period.  The Japanese yen weakened approximately 11% in 1997 
relative to 1996.  AKCL's net loss would have been $11.5 million in 1997 
had the yen-based statement of operations been translated at the average 
rate in effect for 1996.

Impact of Year 2000

        Many computer systems were not designed to handle any dates beyond 
the year 1999.  Such systems were designed using two digits rather than 
four to define the applicable year.  Any computer programs that have 
time-sensitive software may recognize a date using "00" as the year 
1900 rather than the year 2000.  This could result in a system failure 
or miscalculations causing disruptions of operations, including, among 
other things, a temporary inability to process transactions, send 
invoices or engage in similar normal business activities. The Company is 
currently evaluating the impact of the year 2000 on its operations, 
suppliers and customers.  Nothing has come to the attention of the 
Company that would materially impact the results of the Company's 
operations.  However, there can be no assurance that a year 2000 issue, 
if encountered, would not have a material impact on the Company's 
results of operations.


1996 vs. 1995                   

        Product transitions were significant factors in both the 1995 and 
1996 fiscal years.  In 1995, the Company transitioned to its then-
current leading-edge inductive disk product family.  Quarterly sales and 
gross margins increased sequentially during 1995 from $105.1 million and 
31.2%, respectively, in the first quarter of 1995 to $153.5 million and 
42.6%, respectively, in the fourth quarter of 1995.  The Company entered 
1996 with continuing strong demand for its inductive media products.  
Quarterly sales in excess of $150 million and gross margins exceeding 
40% in both the first and second quarters of 1996 were at near-record 
levels for the Company.  During the third and fourth quarters of 1996, 
the Company began a rapid transition to MR and proximity-inductive 
media.  Sales and gross margins decreased during the last half of 1996 
as low manufacturing yields on these new products and high usage of 
production equipment for product and process development activities 
prevented the Company from fulfilling customer demand for the products.  
In the third quarter of 1996, net sales and gross profit decreased to 
$131.5 million and 24.0%.  Net sales and gross profit were $141.2 
million and 11.7% for the fourth quarter of 1996.  During the fourth 
quarter of 1996, the Company achieved volume production of MR disk 
products and also increased the production volume for proximity-
inductive products. These two new products accounted for 54% of unit 
shipments during the fourth quarter.

Net Sales

        Net sales for 1996 increased to $577.8 million, up 13% from $512.2 
million in 1995.  The higher sales resulted from the net effect of a 21% 
increase in unit sales volume and an 8% decrease in the overall average 
selling price. The effects of price reductions on maturing inductive 
disk products were only partially offset by a product mix shift to 
higher-priced MR and proximity-inductive media.  Distribution sales of 
product manufactured by AKCL increased to $5.7 million in 1996 from $0.9 
million in 1995.  

        The increase in unit production required to support the increase 
in unit sales volume for 1996 relative to 1995 was primarily achieved 
through the addition of production lines.  Improvements in process cycle 
times only slightly outpaced decreases in manufacturing yields and 
equipment utilization between the years and resulted in a marginal 
improvement in manufacturing efficiencies.  Manufacturing yields and 
equipment utilization decreased between the years mainly due to 
substantially lower yield and utilization rates in the last half of 1996 
on the new MR and proximity-inductive product families.  Development 
time for these new products, incurred on manufacturing lines, lowered 
the manufacturing equipment utilization rate in the last half of 1996. 

Gross Margin

        The gross margin percentage for 1996 decreased to 30.4% from 38.6% 
for 1995.  The combination of an 8% decrease in the overall average 
selling price, lower yield and equipment utilization rates in the last 
half of 1996 and higher costs associated with the production of the new 
MR and advanced proximity disks resulted in the lower gross margin 
percentage. 

Operating Expenses

        Research and development ("R&D") expenses increased 24% ($5.6 
million) in 1996 relative to 1995.  The increase was primarily due to 
development costs associated with next-generation proximity and MR media 
products. Selling, general and administrative ("SG&A") expenses 
decreased $10.9 million in 1996 compared to 1995.  The decrease was 
mainly due to a $12.0 million reduction in the provision for the 
Company's bonus and profit sharing programs. Lower provisions in 1996 
were primarily due to the Company's 1996 operating profit performance 
relative to the Company's 1996 operating profit plan.  Provisions for 
bad debt also decreased $2.5 million between the years.  Excluding 
provisions for bad debt and the Company's bonus and profit sharing 
programs, SG&A expenses increased approximately $3.6 million.  Increases 
in administrative costs required to support the growth in operations in 
both the U.S. and Malaysia accounted for the increase.

Interest Income/Expense and Other Income

        Interest income increased $0.6 million (11%) in 1996 relative to 
1995 primarily due to a higher average investment balance in 1996.  
Interest expense decreased $1.2 million in 1996 compared to 1995.  The 
Company repaid all of its existing outstanding debt in September 1995 
and remained debt free until November 1996.  The Company borrowed $70.0 
million under its credit facilities during November and December 1996.  
Other income increased $0.7 million in 1996 relative to 1995 mainly due 
to the commencement of a royalty from AKCL for sales AKCL made outside 
of Japan.  The royalty began in the second half of 1996 and amounted to 
$1.3 million for the year.

Income Taxes

        The effective income tax rate for 1996 of 17% was lower than the 
1996 combined federal and state statutory rate of 41% and the effective 
income tax rate of 25% in 1995 primarily as a result of an initial five-
year tax holiday granted to the Company's wholly owned thin-film media 
operation, Komag USA (Malaysia) Sdn. ("KMS"), which commenced in July 
1993.  The effective tax rate for 1996 was lower than the rate in effect 
for 1995 primarily due to growth in the percentage of consolidated 
income derived from the Company's Malaysian operations in 1996.  The 
impact of the tax holiday was to increase net income by approximately 
$21.8 million ($0.43 basic income per share and $0.41 diluted income per 
share) and $11.5 million ($0.24 basic income per share and $0.23 diluted 
income per share) in 1996 and 1995, respectively.  

Minority Interest in Consolidated Subsidiary/Equity in Unconsolidated 
Joint Venture 

        The minority interest in the net income of consolidated subsidiary 
during 1996 represented Kobe Steel USA Holdings Inc.'s ("Kobe USA") 
share of Komag Material Technology, Inc.'s ("KMT") net income.  KMT 
was owned 55% by the Company and 45% by Kobe USA from November 1988 to 
December 1995.  On December 28, 1995, the Company increased its 
ownership of KMT to 80% through the purchase of KMT Common Stock 
directly from Kobe USA.  Kobe USA retained a 20% minority interest 
investment in KMT.  KMT recorded net income of $3.5 million and $4.3 
million in 1996 and 1995, respectively.  

        The Company records 50% of AKCL's net income as equity in net 
income of unconsolidated joint venture.  AKCL reported net income of 
$20.2 million for 1996, up from $14.7 million for 1995.  Excluding 
losses related to Headway, AKCL recorded net income of $24.7 million in 
1996, up from $16.9 million in 1995.  AKCL's improved operating 
performance in 1996 was primarily due to the combination of an increase 
in the overall average selling price of its products and a reduction in 
the overall average unit production cost on a substantially higher unit 
sales volume.  The Company translates AKCL's yen-based income statements 
to U.S. dollars at the average exchange rate in effect for each 
quarterly period.  The Japanese yen weakened approximately 13% in 1996 
relative to 1995.  AKCL's net income would have been approximately $23.9 
million in 1996 had the yen-based income statement been translated at 
the average rate in effect for 1995.


Liquidity and Capital Resources

        Consolidated cash and short-term investments of $166.2 million at 
the end of 1997 increased from $93.2 million at the end of 1996.  
Operating activities generated $84.4 million in cash during 1997 and 
partially funded the Company's $199.1 million of capital spending during 
the year.  The Company borrowed $175.0 million under its credit 
facilities.  Sales of Common Stock under the Company's stock option and 
stock purchase programs during the year generated $11.8 million. Working 
capital increased to $296.1 million at the end of 1997 from $142.1 
million at the end of 1996. Trade accounts payable and accounts payable 
to related parties decreased $36.2 million primarily due to reductions 
in capital spending at the end of 1997 relative to the end of 1996.  
Trade accounts receivable and accounts receivable from related parties 
were $17.8 million higher at the end of 1997 than at the end of 1996.  
The increase was due to a combination of higher net sales in the fourth 
quarter of 1997 and an increase in days of sales outstanding at the end 
of 1997 compared to the corresponding period of 1996. 

        Total capital expenditures for 1998 are currently planned at 
approximately $120 million.  The 1998 capital spending plan primarily 
includes costs to upgrade existing facilities and equipment to support 
the deployment of new process technologies into manufacturing and to 
improve yield and productivity.

        Current noncancellable capital commitments total approximately $75 
million. At December 28, 1997, the Company had $100 million available 
under its $345 million unsecured, multiyear bank lines of credit. The 
Company's lines of credit are subject to certain covenants, including 
the number and size of consecutive quarterly losses. In anticipation of 
a violation of these profitability tests at the end of the first quarter 
of 1998, the Company renegotiated the terms and covenants of its $175 
million syndicated loan facility to provide for continued access to 
these funds.  Current borrowings under this facility totaled $100 
million at December 28, 1997.  The availability of the remaining $75 
million under this facility is subject to maintenance of certain 
financial ratios.  The Company currently expects to remain in compliance 
with its other credit facilities through at least the first half of 
1998.  There can be no assurance that these funds will remain available 
should the Company violate its loan covenants at any future date or that 
any available funds will be sufficient for the Company's needs. The 
Company believes that it will be able to fund planned 1998 expenditures 
from a combination of cash flow from operations, funds available from 
existing bank lines of credit and existing cash balances. If the Company 
is unable to obtain sufficient capital, it could be required to reduce 
its capital equipment and research and development expenditures, which 
could have a material adverse affect on the Company's results of 
operations.


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS 

KOMAG, INCORPORATED 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

Report of Ernst & Young LLP, Independent Auditors 
Consolidated Statements of Operations,
        1997, 1996 and 1995 
Consolidated Balance Sheets, 1997 and 1996
Consolidated Statements of Cash Flows,
        1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity, 
        1997, 1996 and 1995 
Notes to Consolidated Financial Statements

             Report of Ernst & Young LLP, Independent Auditors


The Board of Directors and Stockholders
Komag, Incorporated

        We have audited the accompanying consolidated balance sheets of 
Komag, Incorporated as of December 28, 1997 and December 29, 1996, and 
the related consolidated statements of operations, stockholders' equity, 
and cash flows for each of the three years in the period ended December 
28, 1997. Our audits also included the financial statement schedule 
listed in the Index at Item 14(a). These financial statements and 
schedule are the responsibility of the Company's management.  Our 
responsibility is to express an opinion on these financial statements 
and schedule based on our audits.  We did not audit the financial 
statements of Asahi Komag Co., Ltd. (a corporation in which the Company 
has a 50% interest) as of December 28, 1997 and December 29, 1996, and 
for each of the three years in the period ended December 28, 1997.  
Those financial statements were audited by other auditors whose reports 
have been furnished to us, and our opinion, insofar as it relates to 
data included for Asahi Komag Co., Ltd. as of December 28, 1997 and 
December 29, 1996, and for each of the three years in the period ended 
December 28, 1997, is based solely on the report of the other auditors.

        We conducted our audits in accordance with generally accepted 
auditing standards.  Those standards require that we plan and perform 
the audit to obtain reasonable assurance about whether the financial 
statements are free of material misstatement.  An audit includes 
examining, on a test basis, evidence supporting the amounts and 
disclosures in the financial statements.  An audit also includes 
assessing the accounting principles used and significant estimates made 
by management, as well as evaluating the overall financial statement 
presentation.  We believe that our audits and the report of other 
auditors provide a reasonable basis for our opinion.

        In our opinion, based on our audits and the report of other auditors, 
the financial statements referred to above present fairly, in all 
material respects, the consolidated financial position of Komag, 
Incorporated at December 28, 1997 and December 29, 1996, and the 
consolidated results of its operations and its cash flows for each of 
the three years in the period ended December 28, 1997, in conformity 
with generally accepted accounting principles.  Also, in our opinion, 
the related financial statement schedule, when considered in relation to 
the basic financial statements taken as a whole, presents fairly in all 
material respects the information set forth therein.


                                                     ERNST &  YOUNG LLP


San Jose, California
February 27, 1998

                                KOMAG, INCORPORATED
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share amounts)
<TABLE> 
<CAPTION> 
                                                      Fiscal Year Ended
                                             ----------------------------------
                                                1997        1996        1995
                                             ----------  ----------  ----------
<S>                                          <C>         <C>         <C>
Net sales (see Note 13)                       $631,082    $577,791    $512,248
Cost of sales (see Notes 12 and 13)            537,536     402,224     314,762
                                             ----------  ----------  ----------
             Gross profit                       93,546     175,567     197,486
                                             ----------  ----------  ----------
Operating expenses:
   Research, development and engineering        51,427      29,409      23,804
   Selling, general and administrative          27,523      33,665      44,598
   Restructuring charge                         52,157           --          --
                                             ----------  ----------  ----------
                                               131,107      63,074      68,402
                                             ----------  ----------  ----------
        Operating income (loss)                (37,561)    112,493     129,084
                                             ----------  ----------  ----------
Other income (expense):
    Interest income                              4,753       6,437       5,802
    Interest expense                            (9,116)       (625)     (1,856)
    Other, net                                   4,104       2,843       2,189
                                             ----------  ----------  ----------
                                                  (259)      8,655       6,135
                                             ----------  ----------  ----------
       Income (loss) before income taxes,
         minority interest and equity in
         joint venture income (loss)           (37,820)    121,148     135,219

Provision (benefit) for income taxes           (20,982)     20,595      33,809
                                             ----------  ----------  ----------
       Income (loss) before minority
         interest and equity in joint
         venture income (loss)                 (16,838)    100,553     101,410
Minority interest in net income
   of consolidated subsidiary                      400         695       1,957
Equity in net income (loss) of
   unconsolidated joint venture                 (4,865)     10,116       7,362
                                             ----------  ----------  ----------
             Net income (loss)                ($22,103)   $109,974    $106,815
                                             ==========  ==========  ==========

Basic income (loss) per share                   ($0.42)      $2.15       $2.24
                                             ==========  ==========  ==========
Diluted income (loss) per share                 ($0.42)      $2.07       $2.14
                                             ==========  ==========  ==========
Number of shares used in basic computation      52,217      51,179      47,589
                                             ==========  ==========  ==========
Number of shares used in diluted computation    52,217      53,132      49,905
                                             ==========  ==========  ==========
<FN>
                 See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>

                               KOMAG, INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                       Fiscal Year End
                                                  ------------------------
                                                     1997         1996
                                                  -----------  -----------
<S>                                               <C>          <C>
Assets

Current Assets
   Cash and cash equivalents                        $133,897      $90,741
   Short-term investments                             32,300        2,500
   Accounts receivable, less allowances of
      $4,424 in 1997 and $3,087 in 1996               77,792       55,676
   Accounts receivable from related parties            4,106        8,449
   Inventories:
      Raw materials                                   33,730       33,734
      Work-in-process                                 17,490       21,774
      Finished goods                                  15,558        6,452
                                                  -----------  -----------
         Total inventories                            66,778       61,960
   Prepaid expenses and deposits                       3,697        2,866
   Refundable income taxes                            24,524       13,326
   Deferred income taxes                              28,595       15,579
                                                  -----------  -----------
          Total current assets                       371,689      251,097

Investment in Unconsolidated Joint Venture            30,126       39,754

Property, Plant and Equipment
   Land                                                9,526        9,367
   Building                                          126,405      110,991
   Leasehold improvements                            141,111      131,737
   Furniture                                          11,791        7,754
   Equipment                                         793,561      673,210
                                                  -----------  -----------
                                                   1,082,394      933,059
    Less allowances for depreciation
      and amortization                              (403,798)    (289,353)
                                                  -----------  -----------
          Net property, plant and equipment          678,596      643,706

Deposits and Other Assets                              4,253        3,800
                                                  -----------  -----------
                                                  $1,084,664     $938,357
                                                  ===========  ===========

Liabilities and Stockholders' Equity

Current Liabilities
   Trade accounts payable                            $40,043      $80,089
   Accounts payable to related parties                 7,093        3,294
   Accrued compensation and benefits                  13,596       21,835
   Other liabilities                                   3,596        1,913
   Income taxes payable                                    9        1,824
   Restructuring liability                            11,253         --
                                                  -----------  -----------
           Total current liabilities                  75,590      108,955

Long-term Debt                                       245,000       70,000

Deferred Income Taxes                                 73,335       57,806

Other Long-term Liabilities                              960          497

Minority Interest in Consolidated Subsidiary           3,595        3,159

Commitments

Stockholders' Equity
  Preferred Stock, $0.01 par value per share:
      Authorized--1,000 shares
      No shares issued and outstanding                  --           --
  Common Stock,  $0.01 par value per share:
      Authorized--85,000 shares
      Issued and outstanding--52,794 shares
          in 1997 and 51,696 shares in 1996              528          517
   Additional paid-in capital                        401,869      388,305
   Retained earnings                                 281,476      303,579
   Accumulated translation adjustment                  2,311        5,539
                                                  -----------  -----------
           Total stockholders' equity                686,184      697,940
                                                  -----------  -----------
                                                  $1,084,664     $938,357
                                                  ===========  ===========
<FN>
                 See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>

                               KOMAG, INCORPORATED
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In thousands)
<TABLE>
<CAPTION>
                                                           Fiscal Year Ended
                                                  -----------------------------------
                                                     1997        1996        1995
                                                  ----------- ----------- -----------
<S>                                               <C>         <C>         <C>
Operating Activities
 Net cash provided by operating activities-
   see detail on following page                      $84,396    $200,892    $188,792
                                                  ----------- ----------- -----------
Investing Activities
 Acquisition of property, plant and equipment       (199,112)   (403,062)   (166,450)
 Purchase of subsidiary shares from
   minority interest holder                               --          --      (6,750)
 Purchases of short-term investments                 (37,585)       (163)   (177,993)
 Proceeds from short-term investments
   at maturity                                         7,785     196,462      50,478
 Proceeds from disposal of equipment                     550       1,883         916
 Deposits and other assets                            (1,190)       (649)        113
 Dividend distribution from 
   unconsolidated joint venture                        1,535          --          --
                                                  ----------- ----------- -----------
      Net cash used in investing activities         (228,017)   (205,529)   (299,686)
                                                  ----------- ----------- -----------
Financing Activities
 Proceeds from long-term obligations                 175,000      70,000          --
 Payments of long-term obligations                        --          --     (29,482)
 Sale of Common Stock, net of issuance costs          11,777      10,778     132,871
 Distribution to minority interest holder                 --        (279)       (280)
                                                  ----------- ----------- -----------
      Net cash provided by
         financing activities                        186,777      80,499     103,109
                                                  ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents      43,156      75,862      (7,785)
Cash and cash equivalents at beginning of year        90,741      14,879      22,664
                                                  ----------- ----------- -----------
      Cash and cash equivalents at end of year      $133,897     $90,741     $14,879
                                                  =========== =========== ===========
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                           Fiscal Year Ended
                                                  -----------------------------------
                                                     1997        1996        1995
                                                  ----------- ----------- -----------
<S>                                               <C>         <C>         <C>
Net income (loss)                                   ($22,103)   $109,974    $106,815
Adjustments to reconcile net income (loss) to
  net cash provided by operating activities:
     Depreciation and amortization                   128,542      86,928      65,483
     Provision for losses on accounts receivable       1,315      (1,011)      1,519
     Equity in net (income) of unconsolidated
        joint venture                                  4,865     (10,117)     (7,362)
     Loss on disposal of equipment                     2,854         445         508
     Non-cash portion of restructing charge
        related to write-off of property,
        plant and equipment                           33,013          --          --
     Deferred income taxes                             2,513      13,153      17,418
     Deferred rent                                       463          23         (74)
     Minority interest in net income of
        consolidated subsidiary                          400         695       1,957
     Changes in operating assets and liabilities:
        Accounts receivable                          (23,431)      6,995     (18,615)
        Accounts receivable from related parties       4,343      (3,415)     (4,820)
        Inventories                                   (4,818)    (32,939)     (4,920)
        Prepaid expenses and deposits                   (831)        974      (2,811)
        Trade accounts payable                       (40,046)     51,372      10,875
        Accounts payable to related parties            3,799      (4,467)      5,407
        Accrued compensation and benefits             (8,239)    (10,131)     14,053
        Other liabilities                              1,683        (183)        431
        Income taxes payable (receivable)            (11,179)     (7,404)      2,928
        Restructuring liability                       11,253          --          --
                                                  ----------- ----------- -----------
Net cash provided by operating activities            $84,396    $200,892    $188,792
                                                  =========== =========== ===========

Supplemental disclosure of cash flow information
      Cash paid for interest                          $8,148        $340      $2,204
      Cash paid (refunded) for income taxes          (12,305)     15,280      13,463
      Income tax benefit from stock
           options exercised                           1,834       3,138       3,582

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

                             KOMAG, INCORPORATED
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                               (In thousands)
<TABLE>
<CAPTION>
                                        Common Stock     Additional                 Accumulated
                                     ------------------   Paid-in      Retained     Translation
                                       Shares   Amount    Capital      Earnings     Adjustment
                                     ---------- ------- ------------ ------------- -------------
<S>                                  <C>        <C>     <C>          <C>           <C>
Balance at January 1, 1995              45,803    $458     $238,033       $86,790        $5,934

Common Stock issued under stock
   option and purchase plans,
   including related tax benefits        1,411      14       14,298           --            --
Sale of Common Stock, net of
   issuance costs                        3,500      35      122,068           --            --
Net income                                  --      --           --       106,815           --
Accumulated translation adjustment          --      --           --           --            119
                                     ---------- ------- ------------ ------------- -------------

Balance at December 31, 1995            50,714     507      374,399       193,605         6,053

Common Stock issued under stock
   option and purchase plans,
   including related tax benefits          982      10       13,906           --            --
Net income                                  --      --           --       109,974           --
Accumulated translation adjustment          --      --           --           --           (514)
                                     ---------- ------- ------------ ------------- -------------

Balance at December 29, 1996            51,696     517      388,305       303,579         5,539

Common Stock issued under stock
   option and purchase plans,
   including related tax benefits        1,098      11       13,564           --            --
Net loss                                    --      --           --       (22,103)          --
Accumulated translation adjustment          --      --           --           --         (3,228)
                                     ---------- ------- ------------ ------------- -------------

Balance at December 28, 1997            52,794    $528     $401,869      $281,476        $2,311
                                     ========== ======= ============ ============= =============
<FN>
                 See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>


                               KOMAG, INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation: The consolidated financial statements include 
the accounts of the Company, its wholly owned and majority-owned 
subsidiaries (see Note 12) and equity in its unconsolidated joint 
venture (see Note 13).  All significant intercompany accounts and 
transactions have been eliminated in consolidation.

Foreign Currency Translation: The functional currency of the Company's 
unconsolidated joint venture is the Japanese yen.  Translation 
adjustments relating to the translation of these statements are included 
as a separate component of stockholders' equity and not included in net 
income.  The functional currency for the Company's Malaysian operation 
is the U.S. dollar.  Remeasurement gains and losses, resulting from the 
process of remeasuring these foreign currency financial statements into 
U.S. dollars, are included in operations.

Foreign Exchange Gains and Losses: The Company enters into foreign 
currency forward exchange contracts to reduce the impact of currency 
fluctuations on firm purchase order commitments for equipment and 
construction-in-process.  Gains and losses related to these contracts 
are included in the cost of the assets acquired. The Company had 
approximately $14,095,000 and $10,320,000 in foreign exchange forward 
purchase contracts outstanding at December 28, 1997 and December 29, 
1996, respectively.  These forward exchange contracts were comprised of 
Japanese yen, Malaysian ringgit and Singapore dollar foreign currencies.  
The fair market value of these foreign exchange contracts was 
approximately $1,200,000 lower than the contract value at December 28, 
1997.  There were no significant unhedged purchase commitments at 
December 28, 1997.

Cash Equivalents: The Company considers as a cash equivalent any highly 
liquid investment that matures within three months of its purchase date.  

Short-Term Investments: The Company invests its excess cash in high-
quality, short-term debt instruments.  None of the Company's debt 
security investments have maturities greater than one year.  At December 
28, 1997, all short-term investments are designated as available for 
sale.  Interest and dividends on the investments are included in 
interest income.     


The following is a summary of the Company's investments by major 
security type at amortized cost, which approximates fair value:


                                                        Fiscal Year Ended
                                                     -----------------------
                                                        1997        1996
                                                     ----------- -----------
                                                         (in thousands)
 Municipal auction rate preferred stock                 $32,300      $2,500
 Corporate debt securities                               56,837      55,618
 Mortgage-backed securities                              79,419      35,699
                                                     ----------- -----------
                                                       $168,556     $93,817
                                                     =========== ===========

 Amounts included in cash and cash equivalents         $136,256     $91,317
 Amounts included in short-term investments              32,300       2,500
                                                     ----------- -----------
                                                       $168,556     $93,817
                                                     =========== ===========


There were no realized gains or losses on the Company's investments 
during 1997 as all investments were held to maturity during the year. 
The Company utilizes zero-balance accounts and other cash management 
tools to invest all available funds, including bank balances in excess 
of book balances.

Inventories: Inventories are stated at the lower of cost (first-in, 
first-out method) or market.

Property, Plant and Equipment: Property, plant and equipment are stated 
at cost less accumulated depreciation and amortization. Depreciation is 
computed by the straight-line method over the estimated useful lives of 
the assets.  The estimated useful life of the Company's buildings is 30 
years.  Furniture and equipment are generally depreciated over 3 to 5 
years and leasehold improvements are amortized over the shorter of the 
lease term or the useful life.

Revenue Recognition: The Company records sales upon shipment and 
provides an allowance for estimated returns of defective products.

Research and Development: Research and development costs are expensed as 
incurred.

Stock Compensation: The Company has adopted Statement of Financial 
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" 
("FAS 123").  In accordance with the provisions of FAS 123, the 
Company applies APB Opinion 25 and related Interpretations in accounting 
for its stock-based compensation plans.  Note 5 to the Consolidated 
Financial Statements contains a summary of the pro forma effects to 
reported net income (loss) and income (loss) per share for 1997, 1996 
and 1995 as if the Company had elected to recognize compensation cost 
based on the fair value of the options granted at grant date as 
prescribed by FAS 123.

Income Taxes: The provision (benefit) for income taxes is based on 
pretax financial accounting income (loss).  Deferred tax assets and 
liabilities are recognized for the expected tax consequences of 
temporary differences between the tax and book basis of assets and 
liabilities.

Income (Loss) Per Share:  In 1997, the Financial Accounting Standards 
Board issued Statement No. 128, "Earnings per Share" ("FAS 128").  
FAS 128 replaced the calculation of primary and fully diluted earnings 
per share with basic and diluted earnings per share.  Unlike primary 
earnings per share, basic earnings per share excludes any dilutive 
effects of options, warrants and convertible securities.  Diluted 
earnings per share is very similar to the previously reported primary 
earnings per share.  Earnings per share amounts for all periods 
presented have been restated to conform to FAS 128 requirements.

                                                  Fiscal Year Ended
                                         -----------------------------------
                                            1997        1996        1995
                                         ----------- ----------- -----------
                                       (in thousands, except per share amounts)

Numerator: Net income (loss)               ($22,103)   $109,974    $106,815
                                         ----------- ----------- -----------
Denominator for basic income (loss)
   per share - weighted-average shares       52,217      51,179      47,589
                                         ----------- ----------- -----------
Effect of dilutive securities:
   Employee stock options                       --        1,953       2,316
                                         ----------- ----------- -----------
Denominator for diluted income (loss)
   per share                                 52,217      53,132      49,905
                                         ----------- ----------- -----------

Basic income (loss) per share                ($0.42)      $2.15       $2.24
                                         =========== =========== ===========
Diluted income (loss) per share              ($0.42)      $2.07       $2.14
                                         =========== =========== ===========

Fiscal Year: The Company uses a 52-53 week fiscal year ending on the 
Sunday closest to December 31.  The years ended December 28, 1997, 
December 29, 1996 and December 31, 1995 were each comprised of 52 weeks.  

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


NOTE 2.  SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in one business segment, which is the development, 
production and marketing of high-performance thin-film media for use in 
hard disk drives.  The Company sells to original equipment manufacturers 
in the rigid disk drive market and computer system manufacturers that 
produce their own disk drives.


Summary information for the Company's operations by geographic location 
is as follows:

<TABLE>
<CAPTION>
                                                  Fiscal Year Ended
                                         -----------------------------------
                                            1997        1996        1995
                                         ----------- ----------- -----------
                                                    (in thousands)
<S>                                      <C>         <C>         <C>
Net sales
   To customers from U.S. operations       $290,986    $316,658    $344,218
   To customers from Far East operations    340,096     261,133     168,030
   Intercompany from Far East operations    121,945      75,608      25,123
   Intercompany from U.S. operations         38,310      22,232       6,683
                                         ----------- ----------- -----------
                                            791,337     675,631     544,054
   Eliminations                            (160,255)    (97,840)    (31,806)
                                         ----------- ----------- -----------
   Total net sales                         $631,082    $577,791    $512,248
                                         =========== =========== ===========

Operating income (loss)
   U.S. operations                        ($112,022)     $9,108     $63,755
   Far East operations                       70,821     107,774      67,930
                                         ----------- ----------- -----------
                                            (41,201)    116,882     131,685
   Eliminations                               3,640      (4,389)     (2,601)
                                         ----------- ----------- -----------
   Total operating income (loss)           ($37,561)   $112,493    $129,084
                                         =========== =========== ===========

Identifiable assets
   U.S. operations                         $768,395    $708,436    $573,006
   Far East operations                      467,990     381,015     201,915
                                         ----------- ----------- -----------
                                          1,236,385   1,089,451     774,921
   Eliminations                            (151,721)   (151,094)    (88,606)
                                         ----------- ----------- -----------
   Total identifiable assets             $1,084,664    $938,357    $686,315
                                         =========== =========== ===========

Export sales by domestic operations included the following:

                                                  Fiscal Year Ended
                                         -----------------------------------
                                            1997        1996        1995
                                         ----------- ----------- -----------
                                                    (in thousands)
Far East (see Note 13)                     $268,117    $249,130    $151,000
Europe                                       11,896         --          --
</TABLE>


NOTE 3.  CONCENTRATION OF CUSTOMER AND SUPPLIER RISK

The Company performs ongoing credit evaluations of its customers' 
financial conditions and generally requires no collateral.  Significant 
customers accounted for the following percentages of net sales in 1997, 
1996 and 1995:  

                                                  Fiscal Year Ended
                                         -----------------------------------
                                            1997        1996        1995
                                         ----------- ----------- -----------
Western Digital Corporation                      38%         22%         12%
Maxtor Corporation                               19%        <10%        <10% 
Quantum Corporation/MKE                          15%         18%         23%
Seagate Technology, Inc.                         14%         52%         44%
International Business Machines                  10%        <10%        <10% 
Hewlett-Packard Company                         --          <10%         15%

In early 1996, Seagate merged with Conner Peripherals, Inc.  In 
addition, Quantum ceased disk drive production in Milpitas, California 
and Penang, Malaysia and contracted with its Japanese manufacturing 
partner, Matsushita-Kotobuki Electronics Industries, Ltd. ("MKE"), to 
manufacture all of its disk drives.  Percentages for 1997, 1996 and 1995 
represent the combined sales to Seagate/Conner and Quantum/MKE.  
Hewlett-Packard exited the disk drive manufacturing business in 1996.

Kobe Steel, Ltd. ("Kobe") supplies aluminum substrate blanks to Komag 
Material Technology, Inc. ("KMT"), and the Company in turn purchases 
KMT's entire output of finished substrates.  The Company also purchases 
substantial quantities of finished substrates from Kobe in addition to 
the substrates purchased from KMT. The Company also relies on a limited 
number of other suppliers, in some cases a sole supplier, for certain 
other materials used in its manufacturing processes.  These materials 
include nickel plating solutions, certain polishing and texturing 
supplies and sputtering target materials.  These suppliers work closely 
with the Company to optimize the Company's production processes.  
Although this reliance on a limited number of suppliers, or a sole 
supplier, entails some risk that the Company's production capacity would 
be limited if one or more of such materials were to become unavailable 
or available in reduced quantities, the Company believes that the 
advantages of working closely with these suppliers outweigh such risks.  
If such materials should be unavailable for a significant period of 
time, the Company's results of operations could be adversely affected.


NOTE 4.  STOCKHOLDER'S EQUITY

In 1995, the Company raised $122,100,000 from the sale of 3,500,000 
shares of Common Stock in a follow-on public stock offering.


NOTE 5.  STOCK OPTION PLANS AND STOCK PURCHASE PLAN

At December 28, 1997, the Company has stock-based compensation plans, 
which are described below.  The Company has elected to follow Accounting 
Principles Board Opinion No. 25, "Accounting for Stock Issued to 
Employees" and related Interpretations in accounting for its plans.  
Accordingly, no compensation cost has been recorded in the financial 
statements for its stock option and stock purchase plans.  Had 
compensation cost for the stock-based compensation plans been determined 
consistent with Statement of Financial Accounting Standard No. 123, 
"Accounting for Stock-Based Compensation," the Company's net income 
and earnings per share would have been reduced to the pro forma amounts 
indicated below:

                                                  Fiscal Year Ended
                                         -----------------------------------
                                            1997        1996        1995
                                         ----------- ----------- -----------
                                                 (in thousands, except per
                                                       share amounts)
Net income:   As reported                  ($22,103)   $109,974    $106,815
              Pro forma                     (36,833)    102,355     103,584

Basic EPS:    As reported                    ($0.42)      $2.15       $2.24
              Pro forma                       (0.71)       2.00        2.18

Diluted EPS:  As reported                    ($0.42)      $2.07       $2.14
              Pro forma                       (0.71)       1.93        2.08

Since FAS 123 is applicable only to options granted subsequent to 
December 31, 1994, its pro forma effect will not be fully reflected 
until 1999.

In September 1997, the Company's Board of Directors approved the 1997 
Supplemental Stock Option Plan ("Supplemental Plan").  Under the 
Supplemental Plan, the Company may grant nonqualified stock options to 
purchase up to 3,600,000 shares of Common Stock.  In January 1998, the 
Company's Board of Directors approved a 1,000,000 share increase in the 
total number of shares that may be issued under the Supplemental Plan.

Under the Company's stock option plans ("Plans"), including the 
Supplemental Plan, the Company may grant options to purchase up to 
21,860,000 shares of Common Stock.  Options may be granted to employees, 
directors, independent contractors and consultants.  Options under the 
Supplemental Plan may not, however, be granted to the Company's 
executive officers or nonemployee members of the Company's Board of 
Directors. The Plans provide for issuing both incentive stock options 
and nonqualified stock options, both of which must be granted at fair 
market value at the date of grant.  Outstanding options generally vest 
over four years and expire no later than ten years from the date of 
grant.  Options may be exercised in exchange for cash or outstanding 
shares of the Company's Common Stock.  Approximately 16,000, 5,000 and 
17,000 shares of the Company's Common Stock were received in exchange 
for option exercises in 1997, 1996 and 1995, respectively. 

In October 1997, the Company's Board of Directors approved an option 
exchange program, subject to election by the option holders, whereby 
options to purchase 1,806,000 shares of the Company's Common Stock at 
prices ranging from $19.75 to $36.00 per share were canceled and 
reissued at $19.44 per share, which was the fair market value of the 
Company's Common Stock at that time.  The new options generally vest 
over two to four years.  The option exchange program was not available 
to the Company's executive officers or nonemployee members of the 
Company's Board of Directors.

At December 28, 1997, approximately 6,473,000 shares of Common Stock 
were reserved for future option grants and 6,894,000 shares of Common 
Stock were reserved for the exercise of outstanding options.  
Approximately 2,297,000, 1,917,000 and 1,487,000 of the outstanding 
options were exercisable at December 28, 1997, December 29, 1996 and 
December 31, 1995, respectively.

For purposes of the pro forma disclosure, the fair value of each option 
grant is estimated on the date of grant using the Black-Scholes option 
pricing model with the following assumptions used for grants in 1997, 
1996 and 1995, respectively:  risk-free interest rates of 6.3%, 6.1% and 
6.4%; volatility factors of the expected market price of the Company's 
Common Stock of 61.9%, 60.0% and 59.3%; and a weighted-average expected 
life of the options of 6.5, 5.9 and 6.2 years.  There was no dividend 
yield included in the calculation as the Company does not pay dividends.  
The weighted-average fair value of options granted during 1997, 1996 and 
1995 was $11.06, $12.88 and $8.58, respectively.

A summary of stock option transactions is as follows: 

                                              Weighted-
                                               average
                                               Exercise
                                  Shares        Price
                                 ---------   ------------
                          (in thousands, except per share amounts)
Outstanding at January 1, 1995      4,699          $8.55
    Granted                         1,479          16.58
    Exercised                        (997)          7.20
    Cancelled                        (153)         10.24
                                 ---------       -------

Outstanding at December 31, 1995    5,028          11.13
    Granted                         1,651          25.65
    Exercised                        (635)          9.00
    Cancelled                        (299)         16.43
                                 ---------       -------

Outstanding at December 29, 1996    5,745          15.26
    Granted                         4,141          22.38
    Exercised                        (678)          9.66
    Cancelled                      (2,314)         25.42
                                 ---------       -------

Outstanding at December 28, 1997    6,894         $16.68
                                 =========       ======= 

The following table summarizes information concerning currently 
outstanding and exercisable options (option shares in thousands):
<TABLE>
<CAPTION>
                          Options Oustanding               Options Exercisable
                  ------------------------------------  ------------------------
                                Remaining
    Range of         Number    Contractual  Exercise       Number     Exercise
Exercise Prices*  Outstanding  Life (yrs)*   Price*     Exercisable    Price*
----------------- ------------ ----------- -----------  ------------ -----------
<S>               <C>          <C>         <C>          <C>          <C>
 $  7.06 - $ 10.00      1,535         5.9       $8.41         1,444       $8.39
   10.01 -   14.00      1,412         7.5       11.76           594       10.67
   14.01 -   21.00      2,615         9.1       19.05           100       19.93
   21.01 -   28.00        901         8.2       25.32           103       25.19
   28.01 -   34.13        431         8.1       29.84            56       33.94
                  ------------                          ------------
Enter                   6,894                                 2,297
                  ============                          ============

 * Weighted-average
</TABLE>

Under the terms of the Employee Stock Purchase Plan ("ESPP Plan"), 
employees may elect to contribute up to 10% of their compensation toward 
the purchase of shares of the Company's Common Stock.  The purchase 
price per share will be the lesser of 85% of the fair market value of 
the stock on the first day of enrollment in a twenty-four-month offering 
period or the last day of each semi-annual period within the twenty-
four-month offering period.  The total number of shares of stock that 
may be issued under the Plan cannot exceed 3,550,000 shares. Shares 
issued under the ESPP Plan approximated 436,000, 352,000 and 431,000 in 
1997, 1996 and 1995, respectively.  At December 28, 1997, approximately 
360,000 shares of Common Stock were reserved for future issuance under 
the ESPP Plan.   In January 1998, the Company's Board of Directors 
approved a 1,300,000 share increase in the total number of shares that 
may be issued under the ESPP Plan.  The increase is subject to 
shareholder approval.

For purposes of the pro forma disclosure, the fair value of the 
employees' purchase rights has been estimated using the Black-Scholes 
model assuming risk-free interest rates of 6.5%, 5.6% and 6.4% in 1997, 
1996 and 1995, respectively.  Volatility factors of the expected market 
price were 60%, 60% and 59% for 1997, 1996 and 1995, respectively.  The 
weighted-average expected life of the purchase rights was six months for 
1997, 1996 and 1995. The weighted-average fair value of those purchase 
rights granted in 1997, 1996 and 1995 was $6.37, $5.09 and $6.36, 
respectively.


NOTE 6.  BONUS AND PROFIT SHARING PLANS

Under the terms of the Company's cash profit sharing plan, a percentage 
of consolidated semi-annual operating profit, as defined in the plan, is 
allocated among all employees who meet certain criteria.  In 1997 and 
1996, under the terms of the Company's bonus plans, a percentage of 
consolidated annual operating profit, as defined in the respective bonus 
plans, was paid to eligible employees.  In 1995, various percentages of 
an operating unit's annual operating profit, as defined in the 
respective bonus plans, was paid to eligible employees.  The Company 
expensed $1,966,000, $9,078,000 and $19,990,000 under these bonus and 
cash profit sharing plans in 1997, 1996 and 1995, respectively.

The Company and its subsidiaries maintain savings and deferred profit 
sharing plans.  Employees who meet certain criteria are eligible to 
participate.  In addition to voluntary employee contributions to these 
plans, the Company contributes four percent of semi-annual consolidated 
operating profit, as defined in the plans. These contributions are 
allocated to all eligible employees.  Furthermore, the Company matches a 
portion of each employee's contributions to the plans up to a maximum 
amount.  The Company contributed $2,534,000, $5,573,000 and $6,653,000 
to the plans in 1997, 1996 and 1995, respectively.

Expenses for the Company's bonus and profit sharing plans are included 
in selling, general and administrative expenses.


NOTE 7.  INCOME TAXES

The provision (benefit) for income taxes consists of the following:

                                                    Fiscal Year Ended
                                           -----------------------------
                                             1997      1996      1995
                                           --------- --------- ---------
                                                    (in thousands)
Federal:
    Current                                ($24,036)   $3,988   $16,496
    Deferred                                  2,192    10,265    14,830
                                           --------- --------- ---------
                                            (21,844)   14,253    31,326
State:
    Current                                    (490)      496    (1,284)
    Deferred                                    321     2,888     2,588
                                           --------- --------- ---------
                                               (169)    3,384     1,304
Foreign:
    Current                                   1,031     2,958     1,179
                                           --------- --------- ---------
                                           ($20,982)  $20,595   $33,809
                                           ========= ========= =========

The foreign provision above consists of withholding taxes on royalty and
interest payments and foreign taxes of subsidiaries.

Deferred tax assets (liabilities) are comprised of the following:

                                              Fiscal Year End
                                           -------------------
                                             1997      1996
                                           --------- ---------
                                               (in thousands)
Depreciation                               ($22,118)  ($9,656)
State income taxes                          (10,299)  (11,988)
Deferred income                             (34,023)  (25,764)
Other                                        (6,895)  (10,398)
                                           --------- ---------
Gross deferred tax liabilities              (73,335)  (57,806)
                                           --------- ---------

Inventory valuation adjustments               8,971     3,448
Accrued compensation and benefits             3,175     2,956
State income taxes                            2,484     5,123
Other                                        13,965     4,052
Tax benefit of net operating losses          35,046    35,046
                                           --------- ---------
Gross deferred tax assets                    63,641    50,625
                                           --------- ---------

Deferred tax asset valuation allowance      (35,046)  (35,046)
                                           --------- ---------
                                           ($44,740) ($42,227)
                                           ========= =========


As of December 28, 1997, a 60%-owned subsidiary of the Company, Dastek 
Holding Company, has a federal tax net operating loss carryforward of 
approximately $100,000,000.  The Company has fully reserved for the 
potential future federal tax benefit of this net operating loss in the 
deferred tax asset valuation allowance due to the fact that its 
utilization is limited to the subsidiary's separately computed future 
taxable income and that the subsidiary has no history of operating 
profits. The deferred tax asset valuation allowance was unchanged in 
1997 and increased $257,000 and $1,189,000 in 1996 and 1995, 
respectively.  The $100,000,000 net operating loss carryforward expires 
at various dates through 2010.

A reconciliation of the income tax provision at the 35% federal 
statutory rate to the income tax provision at the effective tax rate is 
as follows:

                                                    Fiscal Year Ended
                                           -----------------------------
                                             1997      1996      1995
                                           --------- --------- ---------
                                                    (in thousands)
Income taxes computed at federal
   statutory rate                          ($13,237)  $42,402   $47,327
State and foreign income taxes, net of
   federal benefit                              907     5,021       868
Tax-exempt interest income                      --     (1,193)   (1,434)
Permanently reinvested foreign earnings     (25,597)  (26,050)  (12,634)
Losses for which no current
   year benefit available                    16,561       --        --
Other                                           384       415      (318)
                                           --------- --------- ---------
                                           ($20,982)  $20,595   $33,809
                                           ========= ========= =========

Foreign pretax income was $74,400,000, $104,300,000 and $65,903,000 in 
1997, 1996 and 1995, respectively.

Komag USA (Malaysia) Sdn. ("KMS"), the Company's wholly owned thin-
film media operation in Malaysia, was granted its initial tax holiday 
for a period of five years commencing in July 1993.  Assuming KMS 
fulfills certain commitments under its license to operate within 
Malaysia, this initial tax holiday may be extended for an additional 
five-year period by the Malaysian government.  The impact of this tax 
holiday was to reduce the Company's 1997 net loss by approximately 
$20,826,000 ($0.40 per share under both the basic and diluted methods) 
and increase 1996 net income by approximately $21,800,000 ($0.43 basic 
income per share and $0.41 diluted income per share).  Losses incurred 
prior to the commencement of this initial tax holiday, approximately 
$6,237,000, are available for carryforward to years following the 
expiration of the tax holiday.  The Company has also been granted an 
additional ten-year tax holiday for its second and third plant sites in 
Malaysia.  This new tax holiday had not yet commenced at December 28, 
1997.

The Company has generated $230,681,000 of earnings for which no U.S. tax 
has been provided as of December 28, 1997.  These earnings are 
considered to be permanently invested outside the United States.


NOTE 8.  TERM DEBT AND LINES OF CREDIT

The Company has borrowed $245,000,000 and $70,000,000 under its term 
debt and line of credit facilities at December 28, 1997 and December 29, 
1996, respectively.  At December 28, 1997, these borrowings incurred 
interest at 6.5% to 7.4%, with interest-only payments due quarterly.  
Principal payments under the line of credit agreements are due six and 
twelve months after the borrowing date but may be extended by the 
Company for additional one- to twelve-month periods through 1999 and 
2002. The Company intends to extend the principal repayment under these 
lines of credit and has classified the principal as long-term debt. 
Interest rates in effect for the extension periods will be based upon 
prevailing Eurodollar, Federal Funds and/or LIBOR rates plus 0.375% to 
1.875% at the time of principal extension.

The Company's credit facilities total $345,000,000 and are comprised of 
five agreements: a five-year term loan that expires in 2002, two 
separate revolving line of credit agreements that expire in 2002 and two 
separate four-year revolving line of credit agreements that expire in 
1999 and 2000.  These agreements may be extended, subject to bank 
approvals, annually for an additional year, thus perpetuating their 
multiyear tenors.  At December 28, 1997, $100,000,000 was available 
under these unsecured credit facilities.  Subsequent to year-end, the 
Company borrowed an additional $15,000,000 under these unsecured credit 
facilities.

The Company's credit facilities require maintenance of certain financial 
ratios and compliance with covenants, including limitations on both the 
size and number of sequential quarterly losses.  Additionally, these 
covenants limit the amount of dividend payments without the lenders' 
consents.  At December 28, 1997, the Company was in compliance with its 
debt covenants.  


NOTE 9.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of cash and short-term investments, accounts 
receivable and certain other liabilities on the Consolidated Balance 
Sheets approximate fair value at December 28, 1997 and December 29, 1996 
due to the relatively short period to maturity of the instruments. Fair 
value of long-term debt was based on quoted market prices or pricing 
models using current market rates. The carrying value on the 
Consolidated Balance Sheets approximates fair value at December 28, 1997 
and December 29, 1996.  See Note 1 for fair value of foreign currency 
hedge contracts.


NOTE 10.  LEASES AND COMMITMENTS

The Company leases certain production, research and administrative 
facilities under operating leases that expire at various dates between 
1999 and 2007.  Certain of these leases include renewal options varying 
from five to twenty years.

At December 28, 1997, the future minimum commitments for all 
noncancellable operating leases are as follows (in thousands):

    1998                                 $6,879
    1999                                  5,944
    2000                                  5,222
    2001                                  4,900
    2002                                  4,818
    Thereafter                           21,290
                                       ---------
      Total minimum lease payments      $49,053
                                       =========

Rental expense for all operating leases amounted to $8,047,000, 
$4,838,000 and $4,212,000 in 1997, 1996 and 1995, respectively.

The Company has current noncancellable capital commitments of 
approximately $75,000,000.

NOTE 11.  RESTRUCTURING CHARGE

In August 1997, the Company implemented a restructuring plan based on an 
evaluation of the size and location of its existing production capacity 
relative to the short-term market demand outlook. Under the 
restructuring plan, the Company consolidated its U.S. manufacturing 
operations into its San Jose, California facilities and closed two older 
factories in Milpitas, California.  The first Milpitas factory was 
closed at the end of the third quarter of 1997 and the second factory, 
originally scheduled for closure by the end of the second quarter of 
1998, was closed in January 1998. Over time the Company expects that its 
Malaysian manufacturing operations will account for an increasing 
portion of the Company's production output.  These facilities are closer 
to customers' disk drive assembly plants in Southeast Asia and enjoy 
certain cost and tax advantages over the Company's U.S. manufacturing 
facilities.

The planned restructuring actions resulted in a charge of $52,200,000 
and included reducing headcount, vacating leased facilities, 
consolidating operations and disposing of assets.  The restructuring 
charge included $3,900,000 for severance costs associated with 
approximately 330 terminated employees, $33,000,000 for the write-off of 
the net book value of equipment and leasehold improvements, $10,100,000 
related to equipment order cancellations and other equipment-related 
costs and $5,200,000 for facility closure costs.  Non-cash items 
included in the restructuring charge totaled approximately $33,000,000.  
At December 28, 1997, $11,300,000 related to the restructuring 
activities remained in current liabilities. The Company has made cash 
payments totaling approximately $7,900,000 primarily for severance costs 
and equipment-related costs.  The majority of the remaining 
restructuring liability, primarily related to equipment order 
cancellations and facility closure costs, is expected to be paid in 
1998.


NOTE 12.  KOMAG MATERIAL TECHNOLOGY, INC.

The Company's financial statements include the consolidation of the 
financial results of Komag Material Technology, Inc. ("KMT"), which 
manufactures and sells aluminum disk substrate products for high-
performance magnetic storage media.  KMT is owned 80% by the Company and 
20% by Kobe Steel USA Holdings Inc. ("Kobe USA"), a U.S. subsidiary of 
Kobe Steel, Ltd. ("Kobe").

Other transactions between Kobe or its distributors and the Company were 
as follows:

                                                      Fiscal Year Ended
                                               -----------------------------
                                                 1997      1996      1995
                                               --------- --------- ---------
                                                        (in thousands)
Accounts payable to Kobe or its distributors:
   Beginning of year                             $2,430    $3,302    $2,234
      Purchases                                  52,308    53,554    34,478
      Payments                                  (49,908)  (54,426)  (33,410)
                                               --------- --------- ---------
   End of year                                   $4,830    $2,430    $3,302
                                               ========= ========= =========

NOTE 13.  UNCONSOLIDATED JOINT VENTURE

In 1987, the Company formed a partnership, Komag Technology Partners 
("Partnership"), with the U.S. subsidiaries of two Japanese companies 
and simultaneously formed a subsidiary, Asahi Komag Co., Ltd. 
("AKCL").  The Company contributed technology in exchange for a 50% 
interest in the Partnership.  The Partnership and its subsidiary (joint 
venture) established a facility in Japan to manufacture and sell the 
Company's thin-film media products in Japan.  AKCL also sells its 
products to the Company for resale outside of Japan. In 1996, the 
Company granted AKCL various licenses to sell its products to specified 
customers outside of Japan in exchange for a 5% royalty on these sales.  
The Company recorded approximately $1,388,000 and $1,305,000 of royalty 
in other income in 1997 and 1996, respectively.

The Company's share of the joint venture's net income (loss) was 
($4,865,000), $10,116,000 and $7,362,000 in 1997, 1996 and 1995, 
respectively.

Other transactions between the joint venture and the Company were as 
follows:

                                                      Fiscal Year Ended
                                               -----------------------------
                                                 1997      1996      1995
                                               --------- --------- ---------
                                                        (in thousands)
Accounts receivable from joint venture:
    Beginning of year                            $8,316    $4,906       $96
       Sales                                     95,302    69,311    21,224
       Cash receipts                            (99,565)  (65,901)  (16,414)
                                               --------- --------- ---------
    End of year                                  $4,053    $8,316    $4,906
                                               ========= ========= =========

Accounts payable to joint venture:
    Beginning of year                              $549      $355       $46
       Purchases                                 14,686    12,145     5,460
       Payments                                 (12,979)  (11,951)   (5,151)
                                               --------- --------- ---------
    End of year                                  $2,256      $549      $355
                                               ========= ========= =========

Equipment purchases by the Company from its joint venture partners were 
$17,836,000, $20,655,000 and $18,195,000 in 1997, 1996 and 1995, 
respectively.

Summary combined financial information for the Partnership and AKCL for 
the years ended December 31, 1997, 1996 and 1995, and as of December 31, 
1997 and 1996 is as follows.  The subsidiary's total assets, 
liabilities, revenues, costs and expenses approximate 100% of the 
combined totals.  
                                                      Fiscal Year Ended
                                               -----------------------------
                                                 1997      1996      1995
                                               --------- --------- ---------
                                                        (in thousands)
Summarized Statements of Operations:
    Net sales                                  $186,474  $230,904  $173,177
    Costs and expenses                          200,305   188,707   143,766
    Income tax provision (benefit)               (4,101)   21,965    14,687
    Net income (loss)                           ($9,730)  $20,232   $14,724


                                                           Fiscal Year End
                                                         -------------------
                                                           1997      1996
                                                         --------- ---------
                                                             (in thousands)
Summarized Balance Sheets:
    Current assets                                        $63,512   $79,619
    Noncurrent assets                                     151,540   129,068
                                                         --------- ---------
        Total Assets                                     $215,052  $208,687
                                                         ========= =========

    Current liabilities                                  $115,106  $110,239
    Long-term obligations                                  41,975    19,902
    Partners' capital                                      57,971    78,546
                                                         --------- ---------
        Total Liabilities and Partners' Capital          $215,052  $208,687
                                                         ========= =========

NOTE 14.  PARTICIPATION IN HEADWAY TECHNOLOGIES, INC.

Headway Technologies, Inc. ("Headway") was formed in 1994 to research, 
develop and manufacture advanced magnetoresistive ("MR") heads for the 
data storage industry.  Hewlett-Packard Company ("HP") and AKCL (see 
Note 13) provided the initial cash funding to Headway in exchange for 
equity interests.  The Company and Asahi America licensed to Headway MR 
technology developed through a prior joint venture and contributed 
certain research and production equipment in exchange for equity.  As a 
result of these transactions, the Company held a direct voting interest 
in Headway of less than 20% and had no cost basis in its investment in 
Headway.  In 1997, the Company sold its interest in Headway.

AKCL invested in Headway in 1994 and recorded partial write-downs of its 
investment through 1995 based upon net losses incurred at Headway.  
During the third quarter of 1996, Headway's major customer, HP, 
announced the closure of its disk drive manufacturing operations.  Based 
upon anticipated future operating losses at Headway arising from the 
loss of HP's business, AKCL wrote off its remaining Headway investment 
at the end of the third quarter of 1996.  In 1997, AKCL sold its entire 
interest in Headway for $10,800,000 to a group of new investors as part 
of a recapitalization and AKCL recorded the proceeds from this sale as a 
gain ($5,300,000, net of tax).  


 NOTE 15.  QUARTERLY SUMMARIES
(in thousands, except per share amounts, unaudited) 

                                              1997
                      ---------------------------------------------------
                      1st Quarter  2nd Quarter  3rd Quarter(1)4th Quarter
                      -----------  -----------  -----------   -----------
Net sales               $167,242     $175,121     $129,694      $159,025
Gross profit              39,315       35,661          202        18,368
Net income (loss)         17,799       11,677      (52,748)        1,169

Basic income (loss)
  per share                $0.34        $0.22       ($1.01)        $0.02
Diluted income (loss)
  per share                $0.33        $0.22       ($1.01)        $0.02


                                              1996
                      ---------------------------------------------------
                      1st Quarter  2nd Quarter  3rd Quarter   4th Quarter
                      -----------  -----------  -----------   -----------
Net sales               $152,839     $152,208     $131,533      $141,211
Gross profit              64,489       62,956       31,585        16,537
Net income                42,504       42,560       16,498         8,412

Basic income
  per share                $0.84        $0.83        $0.32         $0.16
Diluted income
  per share                $0.80        $0.80        $0.31         $0.16

(1) Results for the third quarter of 1997 included a $52,157,000 restructuring
    charge to consolidate the Company's U.S. manufacturing operations.



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.

         Not Applicable.

                                    PART III

ITEMS 10, 11, 12 and 13.
<TABLE>

        Items 10 through 13 of Part III will be contained in the Komag, 
Incorporated Proxy Statement for the Annual Meeting of Stockholders to 
be held May 27, 1998 (the "1998 Proxy Statement"), which will be filed 
with the Securities and Exchange Commission no later than May 7, 1998.  
The cross- reference table below sets forth the captions under which the 
responses to these items are found: 
<CAPTION>

10-K Item         Description                                   Caption in 1998 Proxy Statement
----------        -----------                                   ------------------------------

<S>               <C>                                         <C>                     
10                Directors and Executive Officers            "Item No. 1--Election of Directors:
                                                                    Nominees; Business
                                                                    Experience of Directors and
                                                                    Nominees" and "Additional    
                                                                    Information: Certain     
                                                                    Relationships and Related
                                                                    Transactions; Other Matters"

11                Executive Compensation                      "Additional Information: Executive
                                                                    Compensation and Related        
                                                                    Information"

12                Security Ownership of Certain Beneficial    "Additional Information: Principal
                      Owners and Management                         Stockholders"

13                Certain Relationships and Related           "Additional Information: Certain
                      Transactions                                  Relationships and Related
                                                                    Transactions"
</TABLE>

         The information set forth under the captions listed above, contained in
the 1998  Proxy  Statement,  are  hereby  incorporated  herein by  reference  in
response to Items 10 through 13 of this Report on Form 10-K.




                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

         (a) List of Documents filed as part of this Report.

         1.  Financial Statements.

         The following consolidated financial statements of Komag,  Incorporated
are filed in Part II, Item 8 of this Report on Form 10-K:

Consolidated Statements of Operations-Fiscal Years 1997, 1996 and 
1995            
Consolidated Balance Sheets-December 28, 1997 and December 29, 1996
Consolidated Statements of Cash Flows-Fiscal Years 1997, 1996 and 
1995                    
Consolidated Statements of Stockholders' Equity-Fiscal Years 1997, 
1996 and 1995                   
Notes to Consolidated Financial Statements                      

         2.  Financial Statement Schedules.

         The following  financial  statement schedule of Komag,  Incorporated is
filed in Part IV, Item 14(d) of this report on Form 10-K:

Schedule II-Valuation and Qualifying Accounts

Report of Other Auditor
     --Report of Chuo Audit Corporation on Asahi Komag Co., Ltd.

         All other  schedules  for  which  provision  is made in the  applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related  instructions  or are  inapplicable,  and therefore  have been
omitted.


         3.  Exhibits.

3.1      Amended and Restated  Certificate  of  Incorporation  (incorporated  by
         reference  from a similarly  numbered  exhibit filed with the Company's
         Report on Form 10-K for the year ended December 31, 1995).

3.2      Bylaws  (incorporated  by  reference  from  Exhibit  3.3 filed with the
         Company's Report on Form 10-K for the year ended December 30, 1990).

4.2      Specimen Stock Certificate  (incorporated by reference from a similarly
         numbered  exhibit  filed  with  Amendment  No.  1 to  the  Registration
         Statement).

10.1.1   Lease Agreement dated May 24, 1991 between Milpitas-Hillview and Komag,
         Incorporated  (incorporated by reference from Exhibit 10.1.2 filed with
         the  Company's  report on Form  10-K for the year  ended  December  29,
         1991).

10.1.2   Lease Agreement dated May 24, 1991,  between  Milpitas-Hillview  II and
         Komag,  Incorporated  (incorporated  by reference  from Exhibit  10.1.3
         filed  with the  Company's  report  on Form  10-K  for the  year  ended
         December 29, 1991).

10.1.3   Lease Agreement dated July 29, 1988 by and between Brokaw Interests and
         Komag Corporation  (incorporated by reference from Exhibit 10.1.6 filed
         with the  Company's  Report on Form 10-K for the year ended  January 1,
         1989).

10.1.4   Lease Agreement dated May 2, 1989 by and between Stony Point Associates
         I and Komag Material Technology,  Inc.  (incorporated by reference from
         Exhibit  10.1.6  filed with the  Company's  Report on Form 10-K for the
         year ended December 31, 1989).

10.1.5   Amendment  to Lease  Agreement  dated  December 28, 1990 by and between
         Milpitas-  Hillview  II  and  Komag,   Incorporated   (incorporated  by
         reference from Exhibit 10.1.11 filed with the Company's  Report on Form
         10-K for the year ended December 30, 1990).

10.1.6   Second  Amendment  to Lease  dated  December  28,  1990 by and  between
         Milpitas-Hillview  and Komag,  Incorporated  (incorporated by reference
         from Exhibit  10.1.12 filed with the Company's  Report on Form 10-K for
         the year ended December 30, 1990).

10.1.7   First  Amendment to Lease dated  November 1, 1993 by and between  Wells
         Fargo Bank et al and Komag Material Technology,  Inc.  (incorporated by
         reference from Exhibit 10.1.14 filed with the Company's  Report on Form
         10-K for the year ended January 2, 1994).

10.1.8   Lease Agreement  dated May 27, 1994 by and between  Hillview I Partners
         and Komag, Incorporated (incorporated by reference from Exhibit 10.1.16
         filed with the Company's Report on Form 10-Q for the quarter ended July
         3, 1994).

10.1.9   Lease  Agreement  dated  August  4,  1995  by and  between  Great  Oaks
         Interests  and Komag,  Incorporated  (incorporated  by  reference  from
         Exhibit  10.1.12 filed with Form 10-Q for the quarter ended October 1,
         1995).

10.1.10  First Amendment to Lease dated November 3, 1995 by and  between Great
         Oaks Interests and Komag, Incorporated  (incorporated by reference
         from Exhibit 10.1.10 filed with the Company's report on Form 10-K for
         the year ended December  28, 1996).

10.1.11  Lease Agreement (B10) dated May 24, 1996 between Sobrato Development
         Companies #871 and Komag, Incorporated (incorporated by reference
         from Exhibit 10.1.11 filed with the Company's  report on Form 10-K
         for the year ended December 28, 1996).

10.1.12  Lease Agreement (B11) dated May 24, 1996 between Sobrato Development
         Companies #871 and Komag, Incorporated (incorporated  by reference
         from Exhibit 10.1.12 filed with the Company's  report on Form 10-K
         for the year ended December 28, 1996).

10.2     Form of Directors' Indemnification Agreement (incorporated by reference
         from Exhibit 10.9 filed with the Company's  Report on Form 10-K for the
         year ended December 30, 1990).

10.3.1   Joint  Venture  Agreement  by and among Komag,  Inc.,  Asahi Glass Co.,
         Ltd.,  and Vacuum  Metallurgical  Company  dated  November 9, 1986,  as
         amended January 7, 1987 and January 27, 1987 (incorporated by reference
         from  Exhibit  10.10.1  filed with the  Registration  Statement on Form
         S-1--File No. 33-13663)  (confidential treatment obtained as to certain
         portions).

10.3.2   General  Partnership  Agreement  for Komag  Technology  Partners  dated
         January 7, 1987  (incorporated  by reference from Exhibit 10.10.2 filed
         with the Registration Statement on Form S-1--File No. 33-13663).

10.3.3   Technology  Contribution Agreement dated January 7, 1987 by and between
         Komag,  Incorporated  and Komag  Technology  Partners  (incorporated by
         reference from Exhibit 10.10.3 filed with the Registration Statement on
         Form S-1--File No.  33-13663)  (confidential  treatment  obtained as to
         certain portions).

10.3.4   Technical  Cooperation  Agreement  dated January 7, 1986 by and between
         Asahi Glass  Company,  Ltd. and Komag,  Incorporated  (incorporated  by
         reference from Exhibit 10.10.4 filed with the Registration Statement on
         Form S-1--File No. 33-13663).

10.3.5   Third  Amendment to Joint Venture  Agreement by and among Komag,  Inc.,
         Asahi Glass Co., Ltd., Vacuum Metallurgical  Company, et al dated March
         21, 1990 (incorporated by reference from Exhibit 10.10.5 filed with the
         Company's Report on Form 10-K for the year ended December 31, 1989).

10.3.6   Fourth Amendment to Joint Venture  Agreement by and among Komag,  Inc.,
         Asahi Glass Co., Ltd., Vacuum  Metallurgical  Company,  et al dated May
         24, 1990  (incorporated  by reference from Exhibit  10.10.11 filed with
         the Company's Report on Form 10-K for the year ended January 1, 1995).

10.3.7   Fifth  Amendment to Joint Venture  Agreement by and among Komag,  Inc.,
         Asahi  Glass  Co.,  Ltd.,  Vacuum  Metallurgical  Company,  et al dated
         November 4, 1994 (incorporated by reference from Exhibit 10.10.12 filed
         with the  Company's  Report on Form 10-K for the year ended  January 1,
         1995).

10.3.8   Joint  Venture  Agreement  dated  March 6, 1989 by and  between  Komag,
         Incorporated,  Komag  Material  Technology,  Inc.  and Kobe  Steel  USA
         Holdings Inc.  (incorporated  by reference  from Exhibit  10.10.6 filed
         with the Company's  Report on Form 10-K for the year ended December 31,
         1989) (confidential treatment obtained as to certain portions).

10.3.9   Joint Development and  Cross-License  Agreement dated March 10, 1989 by
         and between Komag,  Incorporated,  Kobe Steel, Ltd., and Komag Material
         Technology,  Inc. (incorporated by reference from Exhibit 10.10.7 filed
         with the Company's  Report on Form 10-K for the year ended December 31,
         1989).

10.3.10  Blank  Sales  Agreement  dated  March 10,  1989 by and  between  Komag,
         Incorporated,  Kobe Steel,  Ltd., and Komag Material  Technology,  Inc.
         (incorporated by reference from a similarly numbered exhibit filed with
         the  Company's  Report on Form  10-K for the year  ended  December  31,
         1989).

10.3.11  Finished Substrate Agreement dated March 10, 1989 by and between Komag,
         Incorporated,  Kobe Steel,  Ltd., and Komag Material  Technology,  Inc.
         (incorporated   by  reference  from  Exhibit  10.10.9  filed  with  the
         Company's  Report on Form 10-K for the year ended  December  31,  1989)
         (confidential treatment obtained as to certain portions).

10.3.12  Stock Purchase Agreement between Komag, Incorporated and Kobe Steel USA
         Holdings Inc. dated November 17, 1995 (incorporated by reference from a
         similarly numbered exhibit filed with the Company's Report on Form 10-K
         for the year ended December 31, 1995).

10.3.13  Substrate  Agreement  by  and  between  Kobe  Steel,  Ltd.  and  Komag,
         Incorporated  dated November 17, 1995 (incorporated by reference from a
         similarly numbered exhibit filed with the Company's Report on Form 10-K
         for the year ended December 31, 1995) (confidential  treatment obtained
         as to certain portions).

10.3.14  License Amendment Agreement among Komag,  Incorporated,  Komag Material
         Technology,   Inc.  and  Kobe  Steel,  Ltd.  dated  November  17,  1995
         (incorporated by reference from a similarly numbered exhibit filed with
         the  Company's  Report on Form  10-K for the year  ended  December  31,
         1995).

10.3.15  Substrate Sales Amendment  Agreement among Komag,  Incorporated,  Komag
         Material Technology,  Inc. and Kobe Steel, Ltd. dated November 17, 1995
         (incorporated by reference from a similarly numbered exhibit filed with
         the  Company's  Report on Form  10-K for the year  ended  December  31,
         1995).

10.3.16  Joint Venture  Amendment  Agreement  among Komag,  Incorporated,  Komag
         Material  Technology,  Inc.  and Kobe  Steel USA  Holdings  Inc.  dated
         November 17, 1995  (incorporated by reference from a similarly numbered
         exhibit filed with the Company's Report on Form 10-K for the year ended
         December  31,  1995)  (confidential  treatment  obtained  as to certain
         portions).

10.4.1   Restated 1987 Stock Option Plan,  effective  January 31, 1996 and forms
         of agreement  thereunder  (incorporated  by reference  from a similarly
         numbered  exhibit filed with the Company's  report on Form 10-Q for the
         quarter ended June 30, 1996).

10.4.2   Komag,   Incorporated  1996  Management  Bonus  Plan  (incorporated  by
         reference  from a similarly  numbered  exhibit filed with the Company's
         Report on Form 10-Q for the quarter ended June 30, 1996).

10.4.3   1988 Employee Stock Purchase Plan Joinder  Agreement dated July 1, 1993
         between Komag, Incorporated and Komag USA (Malaysia) Sdn. (incorporated
         by reference from Exhibit  10.11.11 filed with the Company's  Report on
         Form 10-K for the year ended January 2, 1994).

10.4.4   Komag, Incorporated Discretionary Bonus Plan. (incorporated by
         reference from Exhibit 10.4.4 filed with the Company's  report on
         Form 10-K for the year ended December 28, 1996).

10.4.5   Komag, Incorporated 1997 Supplemental Stock Option Plan.

10.5.1   Komag,   Incorporated   Deferred  Compensation  Plan  (incorporated  by
         reference  from a similarly  numbered  exhibit filed with the Company's
         Report on Form 10-K for the year ended January 1, 1995).

10.5.2   Amendment No. 1 to Komag, Incorporated Deferred Compensation Plan dated
         January 1, 1997. (incorporated by reference from Exhibit 10.5.2 filed
         with the Company's report on Form 10-K for the year ended December
         28, 1996).

10.5.3   Komag Material Technology, Inc. 1995 Stock Option Plan (incorporated by
         reference  from Exhibit  10.11.12  filed with Form 10-Q for the Quarter
         ended October 1, 1995).

10.6     Common Stock Purchase  Agreement  dated December 9, 1988 by and between
         Komag,   Incorporated  and  Asahi  Glass  Co.,  Ltd.  (incorporated  by
         reference  from Exhibit 1 filed with the  Company's  Report on Form 8-K
         filed with the  Securities  and  Exchange  Commission  on December  20,
         1988).

10.7     Common Stock Purchase  Agreement  dated February 6, 1990 by and between
         Komag,  Incorporated and Kobe Steel USA Holdings Inc.  (incorporated by
         reference  from Exhibit 10.17 filed with the  Company's  Report on Form
         10-K for the year ended December 31, 1989).

10.8     Registration  Rights  Agreement  dated  March 21,  1990 by and  between
         Komag,  Incorporated and Kobe Steel USA Holdings Inc.  (incorporated by
         reference  from Exhibit 10.18 filed with the  Company's  Report on Form
         10-K for the year ended December 31, 1989).

10.9     Amendment No. 1 to Common Stock Purchase Agreement dated March 21, 1990
         by  and  between  Komag,   Incorporated   and  Asahi  Glass  Co.,  Ltd.
         (incorporated  by reference from Exhibit 10.19 filed with Amendment No.
         1 to the Registration  Statement filed with the Securities and Exchange
         Commission on May 26, 1987).

10.10    Amended and Restated Registration Rights Agreement dated March 21, 1990
         by  and  between  Komag,   Incorporated   and  Asahi  Glass  Co.,  Ltd.
         (incorporated  by reference from Exhibit 10.20 filed with Amendment No.
         1 to the Registration  Statement filed with the Securities and Exchange
         Commission on May 26, 1987).

10.11    Letter  dated   February  10,  1992  from  the   Malaysian   Industrial
         Development  Authority addressed to Komag,  Incorporated  approving the
         "Pioneer  Status" of the Company's thin- film media venture in Malaysia
         (incorporated  by reference from Exhibit 10.28 filed with the Company's
         report on Form 10-K for the year ended January 3, 1993).

10.12    Credit Agreement between Komag, Incorporated and Wells Fargo Bank, N.A.
         (formerly   First   Interstate   Bank   of   California)--Three    Year
         Facility--dated  December  15, 1994  (incorporated  by  reference  from
         Exhibit 10.24 filed with the Company's report on Form 10-K for the year
         ended January 1, 1995).

10.13    First Amendment to Credit Agreement by and between Komag,  Incorporated
         and The Industrial Bank of Japan, Limited, San  Francisco Agency dated
         November 19, 1996 (incorporated by  reference to Exhibit 10.17 filed
         with the Company's report on Form 10-K for the year ended December 28,
         1996).

10.14    Second Amendment to Credit Agreement by and between Komag, Incorporated
         and The Industrial Bank of Japan, Limited, San  Francisco Agency dated
         January 31, 1997 (incorporated by reference to Exhibit 10.18 filed with
         the Company's report on Form 10-K for the year ended December 28,
         1996).

10.15    Credit Agreement between Komag, Incorporated and The Dai-Ichi Kangyo
         Bank, Limited, San Francisco Agency dated October 7, 1996 (incorporated
         by reference to Exhibit 10.19  filed with the Company's report on Form
         10-K for the year ended December 28, 1996).

10.16    First Amendment to Credit Agreement between Komag, Incorporated and The
         Dai-Ichi Kangyo Bank, Limited, San  Francisco Agency dated November 25,
         1996 (incorporated by  reference to Exhibit 10.20 filed with the
         Company's report on Form 10-K for the year ended December 28, 1996).

10.17    Credit Agreement dated as of February 7, 1997 among Komag, 
         Incorporated, institutional lenders and The Industrial Bank of Japan,
         Limited, San Francisco Agency, as agent for the lenders(incorporated by
         reference to Exhibit 10.22 filed with the Company's report on Form 10-K
         for the year ended December 28, 1996).


10.18    Amended and Restated Credit Agreement Among Komag, Incorporated and
         BankBoston, N.A. as agent (incorporated by reference from Exhibit 10.23
         filed with the Company's report on Form 10-Q for the quarter ended June
         29, 1997).      

10.19    First Amendment to Amended and Restated Credit Agreement dated October
         9, 1997 among Komag, Incorporated and  BankBoston, N.A. as agent
         (incorporated by reference from  Exhibit 10.24 filed with the Company's
         report on Form 10-Q for the quarter ended September 28, 1997).


21       List of Subsidiaries.

23.1     Consent of Ernst & Young LLP.

23.2     Consent of Chuo Audit Corporation.

24       Power of  Attorney.  Reference is made to the  signature  pages of this
         Report.

27       Financial Data Schedule.
-----------------
The  Company  agrees to furnish  to the  Commission  upon  request a copy of any
instrument  with respect to long-term  debt where the total amount of securities
authorized thereunder does not exceed 10% of the total assets of the Company.


         (b) Reports on Form 8-K.

         Not Applicable

Undertaking

        For the purposes of complying with the amendments to the rules 
governing Form S-8 (effective July 13, 1990) under the Securities Act of 
1933, the undersigned registrant hereby undertakes as follows: 

        Insofar as indemnification for liabilities arising under the 
Securities Act of 1933 may be permitted to directors, officers or 
controlling persons of the registrant pursuant to the foregoing 
provisions, or otherwise, the registrant has been advised that in the 
opinion of the Securities and Exchange Commission such indemnification 
is against public policy as expressed in the 1933 Act and is, therefore, 
unenforceable.  In the event that a claim for indemnification against 
such liabilities (other than the payment by the registrant of expenses 
incurred or paid by a director, officer or controlling person of the 
registrant in the successful defense of any action, suit or proceeding) 
is asserted by such director, officer or controlling person in 
connection with the securities being registered on the Form S-8 
identified below, the registrant will, unless in the opinion of its 
counsel the matter has been settled by controlling precedent, submit to 
a court of appropriate jurisdiction the question whether such 
indemnification by it is against public policy as expressed in the 1933 
Act and will be governed by the final adjudication of such issue.  

        The preceding undertaking shall be incorporated by reference into 
registrant's Registration Statements on Form S-8 Nos. 33-16625 (filed 
August 19, 1987), 33-19851 (filed January 28, 1988),   33-25230 (filed 
October 28, 1988), 33-41945 (filed July 29, 1991), 33-45469 (filed 
February 3, 1992),  33-53432 (filed October 16, 1992), 33-80594 (filed 
June 22, 1994), 33-62543 (filed September 12, 1995), 333-06081 (filed 
June 14, 1996), 333-23095 (filed March 11, 1997) and 333-31297 (filed 
July 16, 1997).  


<PAGE>

SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Milpitas, California on
this 24th day of March, 1998.

                              Komag, Incorporated

                                         By    Stephen C. Johnson
                                            ----------------------------------
                                               Stephen C. Johnson
                                         President and Chief Executive Officer


                                POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature
appears herein constitutes and appoints Stephen C. Johnson and William L. Potts,
Jr., and each of them, as his true and lawful attorneys-in-fact and agents, with
full power of substitution  and  resubstitution,  for him and in his name, place
and stead,  in any and all  capacities,  to sign any and all  amendments to this
Report on Form 10-K, and to file the same, with all exhibits thereto,  and other
documents in connection therewith,  with the Securities and Exchange Commission,
granting unto said  attorneys-in-fact  and agents,  and each of them, full power
and  authority  to do and  perform  each and every act and thing  requisite  and
necessary  to be done in  connection  therewith,  as  fully to all  intents  and
purposes as he might or could do in person,  hereby ratifying and confirming all
that  said  attorneys-in-fact  and  agents,  or any of  them,  or  their  or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

<PAGE>
         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed by the following  persons in the  capacities  and on
the dates indicated:
<TABLE>
<CAPTION>
         Signature                          Title                     Date
---------------------------- ------------------------------------ -------------
<S>                          <C>                                  <C>
/s/  TU CHEN                 Chairman of the Board                March 24, 1998
------------------------        and Director
    (Tu Chen)


/s/  STEPHEN C. JOHNSON      President and Chief Executive        March 24, 1998
-----------------------         Officer
    (Stephen C. Johnson)


/s/  WILLIAM L. POTTS, JR.   Senior Vice President, Chief         March 24, 1998
-------------------------       Financial Officer and Secretary
    (William L. Potts, Jr.)   (Principal Financial and
                               Accounting Officer)


/s/  CRAIG R. BARRETT        Director                             March 24, 1998
-----------------------
    (Craig R. Barrett)


/s/  CHRIS A. EYRE           Director                             March 24, 1998
-----------------------
    (Chris A. Eyre)


/s/  IRWIN FEDERMAN          Director                             March 24, 1998
-----------------------
    (Irwin Federman)


/s/  GEORGE A. NEIL          Director                             March 24, 1998
-----------------------
    (George A. Neil)


/s/  MAX PALEVSKY            Director                             March 24, 1998
-----------------------
    (Max Palevsky)


/s/  ANTHONY SUN             Director                             March 24, 1998
-----------------------
    (Anthony Sun)


/s/  MASAYOSHI TAKEBAYASHI   Director                             March 24, 1998
-----------------------
    (Masayoshi Takebayashi)


*By WILLIAM L. POTTS, JR.
    ----------------------
    (William L. Potts, Jr.,
     Attorney-in-Fact)
</TABLE>

<PAGE>


ITEM 14(d) FINANCIAL STATEMENT SCHEDULES
                                     KOMAG, INCORPORATED

                                        Schedule II
                           VALUATION AND QUALIFYING ACCOUNTS
                                       (in thousands)
<TABLE> 
<CAPTION> 
                                               Additions
                                Balance at    Charged to                      Balance
                                 Beginning     Costs and                      at End
                                 of Period     Expenses      Deductions      of Period
                                -----------   -----------    -----------    -----------
<S>                             <C>           <C>            <C>            <C>
Year ended December 31, 1995
 Allowance for doubtful
  accounts                          $1,487        $1,519          $  --         $3,006
 Allowance for sales returns           736         2,351 (1)      1,814 (2)      1,273
                                -----------   -----------    -----------    -----------
                                    $2,223        $3,870         $1,814         $4,279
                                ===========   ===========    ===========    ===========

Year ended December 29, 1996
 Allowance for doubtful
  accounts                          $3,006       ($1,011)           $11         $1,984
 Allowance for sales returns         1,273         3,528 (1)      3,698 (2)      1,103
                                -----------   -----------    -----------    -----------
                                    $4,279        $2,517         $3,709         $3,087
                                ===========   ===========    ===========    ===========

Year ended December 28, 1997
 Allowance for doubtful
  accounts                          $1,984        $1,286           ($28)        $3,298
 Allowance for sales returns         1,103         7,145 (1)      7,122 (2)      1,126
                                -----------   -----------    -----------    -----------
  Sub total                          3,087         8,431          7,094          4,424
 Restructuring liability                --        52,157 (3)     40,904 (4)     11,253
                                -----------   -----------    -----------    -----------
                                    $3,087       $60,588        $47,998        $15,677
                                ===========   ===========    ===========    ===========
<FN>

(1)  Additions to the allowance for sales returns are netted against sales.

(2)  Actual sales returns of subsequently scrapped product were charged against
     the allowance for sales returns.  Actual sales returns of product that was
     subsequently tested and shipped to another customer were netted directly
     against sales.

(3)  The Company recorded a restructuring charge of $52,157,000 to consolidate
     its U.S. manufacturing operations.

(4)  Charges against the restructuring liability included non-cash charges of
     $33,000,000 for the write-off of the net book value of equipment and
     leaseholds, and cash charges of approximately $7,900,000 for severance
     and equipment related costs.

</FN>
</TABLE>

<PAGE>



REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors
Asahi Komag Co., Ltd.

        We have audited the accompanying consolidated balance sheets of Asahi 
Komag Co., Ltd. and subsidiary (the "Company") as of December 31, 1997 
and 1996, and the consolidated statements of income, cash flows, and 
stockholder's equity for the years ended December 31, 1997, 1996 and 
1995. These financial statements are the responsibility of the Company's 
management.  Our responsibility is to express an opinion on these 
financial statements based on our audits.  

        We conducted our audits in accordance with auditing standards 
generally accepted in the United States of America.  These standards 
require that we plan and perform the audit to obtain reasonable 
assurance about whether the financial statements are free of material 
misstatement.  An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements.  An 
audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the 
overall financial statement presentation.  We believe that our audits 
provide a reasonable basis for our opinion.

        In our opinion, based on our audit, the financial statements referred 
to above present fairly, in all material respects the consolidated 
financial position of Asahi Komag Co., Ltd. and subsidiary as of 
December 31, 1997 and 1996, and the consolidated results of its 
operations and its cash flows for the years ended December 31, 1997, 
1996 and 1995 in conformity with generally accepted accounting 
principles applicable in the United States of America.

        As discussed in Note 2b of the notes to the consolidated financial 
statements, the Company reporting entity changed in 1995 as a result of 
the establishment of a wholly owned subsidiary.

        As discussed in Note 14 of the notes to consolidated financial 
statements, on February 9, 1998 the Company's board of directors 
approved a plan to replace certain operating equipment with a net book 
value of Y398,555 thousand (Japanese Yen).

        The consolidated financial statements as of and for the year ended 
December 31, 1997 have been translated into United States Dollars solely 
for the convenience of the reader.  Our audit included the translation, 
and in our opinion such translation has been made in accordance with the 
basis stated in note 2h to the financial statements.

                                             CHUO AUDIT CORPORATION

Tokyo, Japan

February 27, 1998