Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (02-02-09 09:30 AM)

Seagate Technology. CEO STEPHEN J LUCZO bought 500000 shares on 1-27-2009 at $3.56

BUSINESS OVERVIEW

We are the world’s leading provider of hard disc drives, based on revenue and units shipped. We design, manufacture, market and sell hard disc drives. Hard disc drives, commonly referred to as disc drives or hard drives, are devices that store digitally encoded data on rapidly rotating platters or discs with magnetic surfaces. The performance attributes of disc drives, including their cost effectiveness and high storage capacities has resulted in disc drives being used as the primary medium for storing electronic data in systems ranging from desktop and notebook computers, and consumer electronics devices to data centers delivering electronic data over corporate networks and the Internet.



We produce a broad range of disc drive products addressing enterprise applications, where our products are used in enterprise servers, mainframes and workstations; desktop applications, where our products are used in desktop computers; mobile computing applications, where our products are used in notebook computers; and consumer electronics applications, where our products are used in a wide variety of devices such as digital video recorders (DVRs), gaming devices and other consumer electronic devices that require storage. We also sell our branded storage solutions under both the Seagate and Maxtor brands. In addition to manufacturing and selling disc drives, we provide data storage services for small- to medium-sized businesses, including online backup, data protection and recovery solutions.



We sell our disc drives primarily to major original equipment manufacturers (OEMs) and we also market to distributors under our globally recognized brand names. We have longstanding relationships with many of our OEM customers including Hewlett-Packard Company (“HP”), Dell Inc. (“Dell”), EMC Corporation (“EMC”), International Business Machines Corporation (“IBM”) and Lenovo Group Limited (“Lenovo”). For the fiscal years 2008, 2007 and 2006 approximately 67%, 64% and 72%, respectively, of our disc drive revenue was from sales to OEMs. We also have key relationships with major distributors who sell our disc drive products to small OEMs, dealers, system integrators and retailers throughout most of the world. Shipments to distributors were approximately 26%, 30% and 25% of our disc drive revenue in fiscal years 2008, 2007 and 2006, respectively. Retail sales of our branded storage products in fiscal year 2008, as a percentage of our disc drive revenue, were 7%, compared to 6% and 3% in fiscal years 2007 and 2006, respectively. For fiscal years 2008, 2007 and 2006, approximately 30% of our disc drive revenue came from customers located in North America, approximately 27% came from customers located in Europe and approximately 43% came from customers located in the Far East. The only customer exceeding 10% of our disc drive revenue for fiscal years 2006 through 2008 was HP. Dell exceeded 10% of our disc drive revenue in fiscal years 2008 and 2006. Substantially all of our revenue is denominated in U.S. dollars.



Industry Overview



Electronic Data Storage Industry



The electronic data storage industry is comprised of companies that provide storage solutions through a variety of technologies such as disc drives, tape storage, as well as semiconductor-based storage technologies such as flash memory. Participants in the electronic data storage industry include:



Major subcomponent manufacturers. Companies that manufacture components or subcomponents used in electronic data storage devices or solutions include companies such as TDK Corporation (“TDK”), Fuji Electric Device Technology Co., Ltd. (“Fuji”), and Showa Denko K.K. (“Showa”), that supply heads and media to disc drive manufacturers as well as semiconductor companies such as Samsung Electronics Co. Ltd (“Samsung”), SanDisk Corporation (“SanDisk”), Micron Technology, Inc. (“Micron”), and Intel Corporation (“Intel”), who each manufacture flash memory.



Hardware storage solutions manufactures. Companies that transform components into storage products include disc drive manufacturers such as Seagate Technology, Western Digital Corporation (“Western Digital”), Samsung, Fujitsu Limited (“Fujitsu”), Hitachi Global Storage Technologies (“Hitachi”) and Toshiba Corporation (“Toshiba”), magnetic tape storage manufacturers such as Quantum Corporation (“Quantum”), and semiconductor storage manufacturers such as Samsung, SanDisk, STEC Inc. (“STEC”), and Intel, whose operations include integrating flash memory into storage products such as solid state drives (SSDs). SSDs are storage applications that use flash technology as an alternative to disc drives.



System integrators. Companies that bundle and package storage components such as storage hardware and software into end-user, consumer electronics or enterprise applications include OEMs such as HP, Dell, Acer Inc., Lenovo and Apple, Inc. (“Apple”); consumer electronics OEMs such as Apple, Sony, Microsoft Corporation (“Microsoft”), Motorola, Inc. (“Motorola”), Directv Group, Inc., Tivo Inc. and Scientific-Atlanta Inc., a subsidiary of Cisco Systems Inc. company; enterprise storage system OEMs such as HP, EMC and Network Appliance, Inc. (“Net App”); and distributors who in turn integrate storage hardware and software into end user applications.



Storage services . An emerging area within the electronic data storage industry is services and solutions related to the backup, archiving, recovery and discovery of electronic data.



Demand for Electronic Data Storage



The electronic data storage industry has traditionally been focused on compute applications for the enterprise market. We believe that technological advances in storage technology and a proliferation of non-compute applications in the consumer electronics market such as digital video recorders (DVRs), gaming devices, digital music players and digital cameras is increasingly driving the broad, global proliferation of digital content through the:




creation and sharing of all types of digital content, including digital photos, video, movies and music by consumers and electronic data by enterprises;




aggregation and distribution of digital content through services and other offerings by companies such as YouTube by Google Inc. (“Google”), Flickr by Yahoo! Inc. (“Yahoo”), iTunes by Apple and MySpace by News Corporation (“News Corp.”);




network infrastructure , including broadband, cable and satellite that has enabled the access, hosting and distribution of such digital content;




enjoyment and consumption of digital content through DVRs, handheld applications, gaming consoles and in automobiles; and




protection of digital content through storage on backup devices and storage services.



We believe that growth in digital content is being driven by: media-rich content, such as high definition video, digital photos, movies and music; an increase in user generated content, such as online video sharing, blogging and podcasting; the digitization of content previously stored in analog format such as paper filing systems; the duplication of content in multiple locations, including consumers’ replication of digital photos, video and other media. As a result of these factors, the nature and amount of content being created requires increasingly higher storage capacity in order to store, manage, distribute, utilize and back up such content. This in turn has resulted in the rapid growth in demand for electronic data storage applications and solutions.



We believe that demand for electronic data storage in the enterprise and traditional compute markets continues to grow as increasing legal and regulatory requirements and changes in the nature and amount of data being stored has necessitated additional storage. Additionally, the proliferation of digital content in the consumer space has resulted in additional demand for storage by enterprises, including those that host, aggregate, distribute or share such content.

Demand for Disc Drives



While the disc drive industry has traditionally been focused on applications for the enterprise and compute markets, we believe advances in disc drive capacity, cost per gigabyte, power and ruggedness have enabled growth in demand for digital content. These technological advances, as well as a proliferation of non-compute applications in the consumer electronics market, has increased the demand for disc drives used in consumer electronics applications or has indirectly driven the demand for additional disc drives to store, host or back up related media content created by such applications.



Disc drives are presently the most common storage solution in enterprise, desktop, mobile and higher capacity consumer electronics applications. We are particularly focused on the following areas of growing demand for disc drives:



Disc Drives for Mobile Computing. The mobile computing market is growing faster than the market for desktop computers as price and performance continue to improve. Notebook systems are increasingly becoming the preference for both consumers and enterprises as the need for mobility increases and wireless adoption continues to advance. We estimate that in fiscal year 2008, industry disc drive shipments for mobile compute applications grew approximately 45% from fiscal year 2007.



The disc drive industry has recently seen the introduction of alternative technologies that directly compete with mobile disc drives. For example, certain manufacturers have introduced SSDs, using flash memory technology, which is an alternative to disc drives in certain applications. Due to the high capital requirements and capacity required to manufacture flash memory, we believe the perceived benefits of SSDs are not currently realized at an attractive cost relative to hard disc drives, particularly in higher capacity applications. We believe that the market for these alternative technologies is still developing and because of the current high cost per gigabyte of these storage solutions, we do not expect these solutions to have a significant near-term impact on the overall market for disc drives for mobile computing.



Disc Drives for Enterprise Storage. The need to address the expansion in data storage management requirements has spurred the evolution of new storage and data management technologies for both mission critical and business critical enterprise storage.



Mission critical enterprise storage is defined by the use of high performance, high capacity disc drives for use in applications which are vital to the operation of enterprises. We expect the market for mission critical enterprise storage solutions to grow, driven by many enterprises continuing to move network traffic to dedicated storage area networks (SANs). In addition, many enterprises are moving away from the use of server-attached storage to network-attached storage (NAS). Both of these solutions are comprised principally of high performance, high capacity disc drives with sophisticated software and communications technologies. In addition, many enterprises are also consolidating data centers, aiming to increase speed and reliability within a smaller space, reducing network complexity and increasing energy savings, which has led to an increased demand for more energy efficient, small form factor disc drives. SSD storage applications have been introduced as a potential alternative to redundant system startup or boot disc drives. In addition, enterprises are considering the use of SSDs in applications where rapid processing is required for high volume transaction data. The timing of the adoption of SSDs in these applications is currently unknown as enterprises weigh the cost benefits of mission critical enterprise disc drives relative to the perceived performance benefits of SSDs.



Business critical enterprise storage is an emerging and growing application in enterprise storage whereby enterprises are using higher capacity disc drives to store less frequently accessed, less time-critical, but capacity-intensive data. Because of recent decreases in cost per gigabyte, business critical electronic data, which historically has been stored on tape or other backup and archival technologies, are now being stored on these high capacity disc drives. In the long-term, however, we believe that this trend towards business critical systems that utilize high capacity, enterprise class serial advanced technology architecture (SATA) and serial attached small computer system interface (SAS) will, in addition to expanding the overall enterprise market, likely shift some demand from disc drives used in traditional mission critical enterprise storage.

Disc Drives for Branded Solutions . We believe that the proliferation of media-rich digital content has increased consumer demand for storage to augment their current desktop or notebook disc drive capacities. Consumers are also using external branded storage solutions to backup and secure data in case of disaster or system failure.



Disc Drives for Desktop Computing. We believe growth in disc drives for desktop computing has recently moderated, in part due to the growth in demand for notebook computers, particularly in developed countries. We believe that current growth in demand for disc drives in desktop computing is focused on developing markets where price remains a primary consideration. Demand for inexpensive, high capacity external storage has also driven growth of 3.5-inch desktop disc drives.



Disc Drives for Consumer Electronics. Disc drives in the consumer electronics markets are primarily used in high-capacity solutions, such as DVRs, that require more storage capability than can be provided in a cost-effective manner through alternative technologies such as flash memory, which is used in lower capacity consumer electronics applications. We believe the demand for disc drives in consumer electronics will become more pronounced with the increased amount of high definition content that requires larger amounts of storage capacity. Although solid state or flash memory has largely replaced disc drives in handheld applications, we believe that the demand for disc drives to store, hold or back up related media content from such handheld devices, continues to grow.



Success in the Disc Drive Industry Depends on Technology and Manufacturing Leadership, High Levels of Capital and Research and Development Investments and Large Scale Operations



The design and manufacturing of disc drives depends on highly advanced technology and manufacturing techniques, especially in the areas of read/write heads and recording media, thereby requiring high levels of capital and significant research and development investments. Disc drive manufacturers are distinguished by their level of vertical integration, which is the degree to which they control the technology used in their products, and by whether they are captive, producing disc drives for their own computer systems, or independent, producing disc drives as a stand-alone product. Integrated manufacturers are companies that design and produce the critical technologies, including read/write heads and recording media, used in their disc drives. An integrated approach enables them to lower manufacturing costs and to improve the functionality of components so that they work together efficiently. In contrast, manufacturers that are not integrated purchase most of their components from third-party suppliers, upon whom they depend for key elements of their technological innovation and differentiation. This can limit their ability to coordinate technology roadmaps and optimize the component design process for manufacturing efficiency and product reliability while making them reliant on the technology investment decisions of their suppliers. Independent manufacturers can enjoy a competitive advantage over captive manufacturers in working with OEMs because they do not compete with OEMs for computer system sales. We believe the competitive dynamics of the disc drive industry favor integrated, independent manufacturers with the scale to make substantial technology investments and apply them across a broad product portfolio and set of customers.



Due to the significant challenges posed by the need to continually innovate and improve manufacturing efficiency and because of the increasing amounts of capital and research and development investments required, the disc drive industry has undergone significant consolidation as disc drive manufacturers and component manufacturers merged with other companies or exited the industry. Through such combinations, disc drive manufacturers have also become increasingly vertically integrated. While recent combinations have limited the opportunity for additional industry consolidation, the increasing technological challenges, associated levels of investment and competitive necessity of large-scale operations, may still drive future industry consolidation.



Disc Drive Technology



Overview



All of our disc drive products incorporate certain components, including a head disc assembly and a printed circuit board, which are sealed inside a rigid base and top cover containing these components in a contamination controlled environment.

The head disc assembly consists of one or more discs attached to a spindle assembly powered by a spindle motor that rotates the discs at a high constant speed around a hub. The discs, or recording media, are the components on which data is stored and from which it is retrieved. Each disc typically consists of a substrate of finely machined aluminum or glass with a layer of a thin-film magnetic material. Read/write heads, mounted on an arm assembly similar in concept to that of a record player, fly extremely close to each disc surface and record data on and retrieve it from concentric tracks in the magnetic layers of the rotating discs. The read/write heads are mounted vertically on an E-shaped assembly. The E-block and the recording media are mounted inside a metal casing, called the base casing.



The printed circuit board contains standard and custom application specific integrated circuits (ASICs) and ancillary electronic control chips. ASICs move data to and from the read/write head and the internal controller, or interface, which communicates with the host computer. The ASICs and control chips form an electronic circuitry that delivers instructions to a head positioning mechanism called an actuator to guide the heads to the selected track of a disc where the data is recorded or retrieved. Disc drive manufacturers typically use one or more of several industry standard interfaces such as advanced technology architecture (ATA); SATA, which provides higher data transfer rates than the previous ATA standard; small computer system interface (SCSI); SAS; and Fibre Channel.



Disc Drive Performance



Disc drive performance is commonly differentiated by six key characteristics:




storage capacity, commonly expressed in gigabytes (GB) or terabytes (TB), which is the amount of data that can be stored on the disc;




spindle rotation speed, commonly expressed in revolutions per minute (RPM), which has an effect on speed of access to data;




interface transfer rate, commonly expressed in megabytes per second, which is the rate at which data moves between the disc drive and the computer controller;




average seek time, commonly expressed in milliseconds, which is the time needed to position the heads over a selected track on the disc surface,




data transfer rate, commonly expressed in megabytes per second, which is the rate at which data is transferred to and from the disc; and




product quality and reliability, commonly expressed in annualized return rates (ARR).



Areal Density



Areal density is a measure of storage capacity per square inch on the recording surface of a disc. Current areal densities are sufficient to meet the requirements of most applications today. The capacity of a disc drive is determined by the number of discs it contains as well as the areal density of these discs. We expect the long-term demand for increased disc drive capacities will continue to grow proportionately with the shift in storage applications from predominantly compute applications to more media-rich content. In particular, audio, video and photo storage data continue to increase in size, with high definition video content an example of data requiring many multiples of the storage capacity of standard video. We believe that demand will further intensify by the proliferation of these forms of content. We have pursued, and expect to continue to pursue, a number of technologies to increase areal densities across the entire range of our products to increase disc drive capacities allowing us to use fewer discs per disc drive and potentially reduce product costs overtime.



Manufacturing



We pursue a vertically integrated business strategy based on the ownership of critical component technologies, allowing us to maintain control over our product roadmap and component cost, quality and availability. We believe that because of our vertical design and manufacturing strategy, we are well suited to meet the challenges posed by the close interdependence of components for disc drives. Our manufacturing efficiency and flexibility are critical elements of our integrated business strategy. We continuously seek to improve our manufacturing efficiency and cost by:




employing manufacturing automation to enhance our efficiency and flexibility;




improving product quality and reliability, and reducing costs;




integrating our supply chain with suppliers and customers to enhance our demand visibility and reduce our working capital requirements;




coordinating between our manufacturing group and our research and development organization to rapidly achieve volume manufacturing; and




rationalizing the facilities we operate and reducing the number of personnel we employ.



Manufacturing our disc drives is a complex process that begins with the production of individual components and ends with a fully assembled unit. We design, fabricate and/or assemble a number of the most important components found in our disc drives, including read/write heads and recording media. Our design and manufacturing operations are based on technology platforms that are used to produce various disc drive products that serve multiple disc drive applications and markets. As an example, our 3.5-inch SATA disc drive with perpendicular recording technology platform is sold to customers for use in desktop, enterprise and consumer electronics applications. Our main technology platforms are primarily focused around areal density of media and read/write head technologies. Our integrated platform technologies and manufacturing allow our set of disc drive products to be used in a wide range of electronic data storage applications and in a wide range of industries.



Read/Write Heads. The function of the read/write head is to scan across the disc as it spins, magnetically recording or reading information. The tolerances of recording heads are extremely demanding and require state-of-the-art equipment and processes. Our read/write heads are manufactured with thin-film and photolithographic processes similar to those used to produce semiconductor integrated circuits, though challenges in magnetic film properties and topographical structures are unique to the disc drive industry. Beginning with six and eight-inch round ceramic wafers, we process more than 30,000 head elements at one time. Each of these head elements goes through more than 500 steps, all in clean room environments. We have upgraded our fabrication facilities in capital equipment and systems to deliver the required complexity and precision needed to complete our product transition to perpendicular recording technology, which we achieved during fiscal year 2008. Additional capital investments will be driven primarily by volume. We perform all primary stages of design and manufacture of read/write heads at our facilities. We currently manufacture all of our read/write heads. We are currently evaluating third party read/write head for use in future products.



Recording Heads and Media. The percentage of our requirements for recording media that we produce internally varies from quarter to quarter. Our long-term strategy is to externally purchase approximately 10% of total recording media requirements. In July 2008, we announced the proposed closure of our recording media manufacturing facility in Milpitas, California. The closure is part of our ongoing focus on cost-efficiencies in all areas of our business. We plan to cease production at the Milpitas manufacturing facility in October 2008. We are continuing to expand our recording media production facilities in Singapore. We expect meaningful output from our new media facility in Singapore beginning the first quarter of fiscal year 2009 and we believe we will have adequate internal and external supply plans in place to support our requirements. Similar to our long-term strategy on recording media supply, our future plans include the evaluation and external purchase of approximately 10% of recording heads requirements.



We purchase all of our glass substrates from third parties (mainly in Japan), which are used to manufacture our disc drives for mobile and small form factor consumer electronics products. Historically, we purchase approximately 70% of our aluminum substrates for recording media production from third parties. In December 2007, we announced the proposed closure of our substrate manufacturing facility in Limavady, Northern Ireland.

CEO BACKGROUND

William D. Watkins
55 years old Director since November 2000 Mr. Watkins , our Chief Executive Officer (CEO) and one of our directors, joined us in February 1996, upon our merger with Conner Peripherals, Inc., as Executive Vice President of our Recording Media Group. In October 1997, Mr. Watkins took on additional responsibility as Executive Vice President of Disc Drive Operations, and in August 1998, he was appointed to the position of Chief Operating Officer, with responsibility for our disc drive manufacturing, recording media and head operations and product development. In June 2000, he was appointed to the position of President, and in November 2000, he became a member of our Board. In April 2004, Mr. Watkins relinquished the title of Chief Operating Officer, and he was appointed as our Chief Executive Officer effective in July 2004. In September 2006, he relinquished the title of President. Prior to joining us, he was President and General Manager of the Disk Division at Conner Peripherals, Inc., an information storage solutions company, from January 1990 until December 1992. In January 1993, Mr. Watkins became President of Heads & Media Manufacturing Operations at Conner Peripherals, Inc. Mr. Watkins also serves on the Board of Directors of Maxim Integrated Products, Inc.


Stephen J. Luczo

51 years old Director since November 2000 Mr. Luczo serves as the Chairman of the Board, a position he has held since June 2002. Mr. Luczo joined us in October 1993 as Senior Vice President of Corporate Development. In September 1997, Mr. Luczo was promoted to the position of President and Chief Operating Officer of our predecessor, Seagate Technology, Inc., and in July 1998, he was promoted to Chief Executive Officer. Mr. Luczo resigned as our Chief Executive Officer effective in July 2004, but retained his position as Chairman of the Board. He became the non-employee Chairman of the Board in October 2006. Prior to joining us, Mr. Luczo was Senior Managing Director of the Global Technology Group of Bear, Stearns & Co. Inc., an investment banking firm, from February 1992 to October 1993.


Frank J. Biondi, Jr.

63 years old Director since December 2005 Mr. Biondi became a member of our Board in December 2005. Mr. Biondi is Senior Managing Director of WaterView Advisors LLC, a private equity fund specializing in media, a position he has held since June 1999. He was Chairman and Chief Executive Officer of Universal Studios from April 1996 through November 1998. Mr. Biondi previously served as President and Chief Executive Officer of Viacom, Inc. from July 1987 through January 1996, and was a member of the Viacom Board of Directors. Prior to joining Viacom, Mr. Biondi was Chairman and Chief Executive Officer of Coca-Cola Television from November 1986. In addition, he was Executive Vice President of the Entertainment Business Sector of the Coca-Cola Company, and of its predecessor company, Columbia Pictures Industries, Inc., from January 1985 to July 1987. Mr. Biondi currently serves on the Boards of Directors of Amgen, Inc., Hasbro, Inc., Cablevision Systems, and Yahoo!, Inc. He is a founding member of the University of Southern California’s Board of Councilors of the School of Cinema-Television.


William W. Bradley
65 years old Director since July 2003 Senator Bradley became a member of our Board in July 2003. Senator Bradley is a Managing Director of Allen & Company LLC, a position he has held since November 2000. Senator Bradley served as chief outside advisor to McKinsey & Company’s non-profit practice from 2001 to 2004. From 1997 to 1999, he was a Senior Advisor and Vice Chairman of the International Council of J.P. Morgan & Co., Inc. During that time, he also served as an essayist for CBS Evening News and was a visiting professor at Stanford University, the University of Notre Dame and the University of Maryland. Senator Bradley served in the U.S. Senate from 1979 to 1997, representing the State of New Jersey. In 2000, he was a candidate for the Democratic nomination for President of the United States. He is also a member of the Boards of Directors of Starbucks Corporation and Willis Group Holdings Limited.


Donald E. Kiernan

67 years old Director since April 2003 Mr. Kiernan became a member of our Board in April 2003. Mr. Kiernan is the retired Senior Executive Vice President and Chief Financial Officer of SBC Communications, where he served for 11 years until his retirement in 2001, and was responsible for all of SBC’s financial affairs. Prior to joining SBC, Mr. Kiernan was a partner with Arthur Young & Co., the predecessor of Ernst & Young LLP, where he held several positions over his 20-year tenure, including head of the firm’s management consulting practice in Florida, and both Audit-Coordinating Partner and Managing Partner of the firm’s St. Louis office. Mr. Kiernan is also a member of the Boards of Directors of LaBranche and Company, Inc. and Health Management Associates, Inc.

David F. Marquardt

59 years old Director since November 2000 Mr. Marquardt became a member of our Board in November 2000. Mr. Marquardt is a founding general partner of August Capital, a venture capital firm formed in 1995, and has been a general partner of various Technology Venture Investors entities, which are private venture capital limited partnerships, since August 1980. He is a member of the Board of Directors of Microsoft Corporation.


Lydia M. Marshall

59 years old Director since April 2004 Ms. Marshall became a member of our Board in April 2004. Ms. Marshall is retired from Versura, Inc., an education loan exchange company that she founded. She served as Chair and Chief Executive Officer of Versura, Inc. from 1999 until 2004. Previously, she was Managing Director of Rockport Capital Incorporated from 1997 to 1999, Executive Vice President-Marketing of Sallie Mae from 1993 to 1997, and Senior Vice President heading Sallie Mae’s Institutional and Public Finance and Strategic Planning Divisions from 1985 to 1993. Ms. Marshall is a member of the Boards of Directors of Nationwide Mutual Insurance Company and Nationwide Financial Services, Inc.


C.S. Park

60 years old

Director since May 2006
Dr. Park became a member of our Board in May 2006. Prior to joining Seagate’s Board, Dr. Park served as Chairman and Chief Executive Officer of Maxtor Corporation (“Maxtor”) from November 2004 until May 19, 2006 and as Chairman of Maxtor’s Board of Directors from May 1998 until May 19, 2006, and served as a member of its Board from February 1994 to May 19, 2006. Dr. Park served as Investment Partner and Senior Advisor at H&Q Asia Pacific, a private equity firm, from April 2004 until September 2004, and as a Managing Director for the firm from November 2002 to March 2004. Prior to joining H&Q Asia Pacific, Dr. Park served as President and CEO of Hynix Semiconductor Inc. from March 2000 to May 2002, and from June 2000 to May 2002 he also served as its Chairman. Dr. Park is a member of the Boards of Directors of Smart Modular Technologies Inc., Ballard Power Systems, Inc., CSC and Brooks Automation, Inc.


Gregorio Reyes

67 years old

Director since April 2004
Mr. Reyes became a member of our Board in April 2004. Mr. Reyes has been a private investor and management consultant since 1994. Mr. Reyes began his career in the semiconductor industry with National Semiconductor Corporation in 1962, followed by executive positions with Motorola, Inc., Fairchild Semiconductor and Eaton Corporation. From 1981 to 1984, he was President and Chief Executive Officer of National Micronetics, Inc., a provider of hard disc magnetic recording head products for the data storage industry. Between 1986 and 1990, he was Chairman and Chief Executive Officer of American Semiconductor Equipment Technologies. Mr. Reyes co-founded Sunward Technologies in 1985 and served as its Chairman and Chief Executive Officer until 1994. Mr. Reyes is Non-Executive Chairman of LSI Logic Corp., and Chairman of the Board of Dialog Semiconductor plc.


John W. Thompson

59 years old

Director since November 2000
Mr. Thompson became a member of our Board in November 2000. Mr. Thompson is Chairman of the Board of Directors and Chief Executive Officer of Symantec Corporation. Before joining Symantec in April 1999, Mr. Thompson held various executive and management positions with IBM from 1971. Mr. Thompson is also a member of the Board of Directors of United Parcel Service, Inc.


MANAGEMENT DISCUSSION FROM LATEST 10K

The following is a discussion of the financial condition and results of operations for the fiscal years ended June 27, 2008, June 29, 2007 and June 30, 2006. Unless the context indicates otherwise, as used herein, the terms “we,” “us” and “our” refer to Seagate Technology, an exempted company incorporated with limited liability under the laws of the Cayman Islands, together with its subsidiaries.



You should read this discussion in conjunction with “Item 6. Selected Financial Data” and “Item 8. Financial Statements and Supplementary Data” included elsewhere in this report. Except as noted, references to any fiscal year mean the twelve-month period ending on the Friday closest to June 30 of that year.



Some of the statements and assumptions included in this Annual Report on Form 10-K are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects and estimates of industry growth for the fiscal quarter ending October 3, 2008 and beyond. These statements identify prospective information and include words such as “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” and similar expressions. These forward-looking statements are based on information available to us as of the date of this report. Current expectations, forecasts and assumptions involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks, uncertainties, and other factors may be beyond our control. In particular, such risks and uncertainties include the impact of the variable demand and the aggressive pricing environment for disc drives, particularly in view of current domestic and global economic uncertainty; dependence on our ability to successfully qualify, manufacture and sell our disc drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly the new disc drive products with lower cost structures; the impact of competitive product announcements and possible excess industry supply with respect to particular disc drive products; our ability to achieve projected cost savings in connection with our announced restructuring plans; market conditions and alternative cash imperatives which could impact our ability to repurchase stock; and the factors listed in the “Risk Factors” section of Item 1A of this Annual Report on Form 10-K, which we encourage you to carefully read. These forward-looking statements should not be relied upon as representing our views as of any subsequent date and we undertake no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.



Our Company



We are the world’s leading provider of hard disc drives, based on revenue and units shipped. We design, manufacture, market and sell hard disc drives. Hard disc drives, commonly referred to as disc drives or hard drives, are devices that store digitally encoded data on rapidly rotating platters or discs with magnetic surfaces. The performance attributes of disc drives, including their cost effectiveness and high storage capacities has resulted in disc drives being used as the primary medium for storing electronic data in systems ranging from desktop and notebook computers, and consumer electronics devices to data centers delivering electronic data over corporate networks and the Internet.



We produce a broad range of disc drive products addressing enterprise applications, where our products are used in enterprise servers, mainframes and workstations; desktop applications, where our products are used in desktop computers; mobile computing applications, where our products are used in notebook computers; and consumer electronics applications, where our products are used in a wide variety of devices such as digital video recorders (DVRs), gaming devices and other consumer electronic devices that require storage. We also sell our branded storage solutions under both the Seagate and Maxtor brands. In addition to manufacturing and selling disc drives, we provide data storage services for small- to medium-sized businesses, including online backup, data protection and recovery solutions.



We sell our disc drives primarily to major original equipment manufacturers (OEMs), and we also market to distributors and retailers under our globally recognized brand names. We have longstanding relationships with many of our OEM customers including Hewlett-Packard, Dell, EMC, IBM and Lenovo. We also have key relationships with major distributors, who sell our disc drive products to small OEMs, dealers, system integrators and retailers throughout most of the world. Substantially all of our revenue is denominated in U.S. dollars.

Industry Overview



Our industry is characterized by several trends that have a material impact on our strategic planning, financial condition and results of operations.



Disc Drive Industry Consolidation



Due to the significant challenges posed by the need to continually innovate and improve manufacturing efficiency and because of the increasing amounts of capital and research and development investments required, the disc drive industry has undergone significant consolidation as disc drive manufacturers and component manufacturers merged with other companies or exited the industry. Through such combinations, disc drive manufacturers have also become increasingly vertically integrated. While recent combinations have limited the opportunity for additional industry consolidation, the increasing technological challenges, associated levels of investment and competitive necessity of large-scale operations, may still drive future industry consolidation. Additionally, we may in the future face indirect competition from present and potential customers who from time to time evaluate whether to offer electronic data storage products that may compete with our products.



Price Erosion



Our industry has been characterized by continuous price erosion for disc drive products with comparable capacity, performance and feature sets (i.e., “like-for-like products”). Price erosion for like-for-like products (“price erosion”) is more pronounced during periods of:




industry consolidation in which competitors aggressively use discounted price to gain market share;




few new product introductions when multiple competitors have comparable or alternative product offerings;




temporary imbalances between industry supply and demand; and




seasonally weaker demand, which may cause excess supply.



Disc drive manufacturers typically attempt to offset price erosion with an improved mix of disc drive products characterized by higher capacity, better performance and additional feature sets and/or product cost reductions.

We expect price erosion in our industry will continue for the foreseeable future. To remain competitive, we believe it will be necessary to continue to reduce prices as well as introduce new product offerings that utilize advanced technologies ahead of our competitors in order to take advantage of potentially higher initial profit margins and reduced cost structure on these new products.



Disc Drive Industry Demand Trends



We believe that the disc drive industry is experiencing the following demand trends:



We believe that technological advances in storage technology and a proliferation of non-compute applications is increasingly driving the broad, global proliferation of digital content through the creation, sharing, aggregation, distribution, consumption and protection of all types of digital content. We believe that growth in digital content is being driven by increases in media-rich as well as user generated content, the digitization of content previously stored in analog format and the duplication of content in multiple locations. As a result of these factors, the nature and amount of content being created requires increasingly higher storage capacity in order to store, manage, distribute, back up and use such content.



We believe that demand for electronic data storage in the enterprise and traditional compute markets continues to grow as increasing legal and regulatory requirements and changes in the nature and amount of data being stored has necessitated additional storage. Additionally, the proliferation of digital content in the consumer space has resulted in additional demand for storage by enterprises, including those that host, aggregate, distribute or share such content.




Disc Drives for Mobile Computing. The mobile computing market is growing faster than the market for desktop computers as price and performance continue to improve. Notebook systems are increasingly becoming the preference for both consumers and enterprises as the need for mobility increases and wireless adoption continues to advance. We estimate that in fiscal year 2008, industry shipments of disc drives for mobile compute applications grew approximately 45% from fiscal year 2007.



The disc drive industry has recently seen the introduction of alternative technologies that directly compete with mobile disc drives. For example, certain manufacturers have introduced solid state drives (SSDs), using flash memory technology, which is an alternative to disc drives in certain applications. Due to the high capital requirements and capacity required to manufacture flash memory, we believe the perceived benefits of SSDs are not currently realized at an attractive cost relative to hard disc drives, particularly in higher capacity applications. We believe that the market for these alternative technologies is still developing and because of the current high cost per gigabyte of these storage solutions, we do not expect these solutions to have a significant near-term impact on the overall market for disc drives for mobile computing.




Disc Drives for Enterprise Storage. The need to address the expansion in data storage management requirements has increased the demand for new hardware storage solutions for both mission critical and business critical enterprise storage.



Mission critical enterprise storage is defined by the use of high performance, high capacity disc drives for use in applications which are vital to the operation of enterprises. We expect the market for mission critical enterprise storage solutions to grow, driven by many enterprises continuing to move network traffic to dedicated storage area networks (SANs). In addition, many enterprises are moving away from the use of server-attached storage to network-attached storage (NAS). Both of these solutions are comprised principally of high performance, high capacity disc drives with sophisticated software and communications technologies. In addition, many enterprises are also consolidating data centers, aiming to increase speed and reliability within a smaller space, reducing network complexity and increasing energy savings, which has led to an increased demand for more energy efficient, small form factor disc drives. SSD storage applications have been introduced as a potential alternative to redundant system startup or boot disc drives. In addition, enterprises are considering the use of SSDs in applications where rapid processing is required for high volume transaction data. The timing of the adoption of SSDs in these applications is currently unknown as enterprises weigh the cost benefits of mission critical enterprise disc drives relative to the perceived performance benefits of SSDs.



Business critical enterprise storage is an emerging and growing application in enterprise storage whereby enterprises are using higher capacity disc drives to store less frequently accessed, less time-critical, but capacity-intensive data. Because of recent decreases in cost per gigabyte, business critical electronic data which historically has been stored on tape or other backup and archival technologies are now being stored on these high capacity disc drives. In the long-term, however, we believe that this trend towards business critical systems that utilize high capacity, enterprise class serial advanced technology architecture (SATA) and serial attached small computer system interface (SAS) will, in addition to expanding the overall enterprise market, likely shift some demand from disc drives used in traditional mission critical enterprise storage.




Disc Drives for Branded Solutions . We believe that the proliferation of media-rich digital content has increased consumer demand for storage to augment their current desktop or notebook disc drive capacities. Consumers are also using external branded storage solutions to backup and secure data in case of disaster or system failure.




Disc Drives for Desktop Computing. We believe growth in disc drives for desktop computing has moderated, in part due to the growth in demand for notebook computers, particularly in developed countries. We believe that current growth in demand for disc drives in desktop computing is focused on developing markets where price remains a primary consideration. Demand for inexpensive, high capacity external storage has also driven growth of 3.5-inch desktop disc drives.




Disc Drives for Consumer Electronics. Disc drives in the consumer electronics (CE) markets are primarily used in high-capacity solutions, such as DVRs, that require more storage capability than can be provided in a cost-effective manner through alternative technologies such as flash memory, which is used in lower capacity CE applications. We believe the demand for disc drives in CE will become more pronounced with the increased amount of high definition content that requires larger amounts of storage capacity. Although solid state or flash memory has largely replaced disc drives in handheld applications, we believe that the demand for disc drives to store, hold or back up related media content from such handheld devices, continues to grow.



We believe that for some of the fastest growing applications described above, the demand is focused on higher capacity disc drive products.



Product Life Cycles and Changing Technology



Our industry has been characterized by significant advances in technology, which have contributed to rapid product life cycles. As a result, success in our industry has been dependent to a large extent on the ability to be the first-to-market with new products, allowing those disc drive manufacturers who introduce new products first to sell those products at a premium until comparable products are introduced. Also, because our industry is characterized by continuous price erosion, the existence of rapid product life cycles has necessitated the need to quickly achieve product cost effectiveness. Changing technology also necessitates the need for on-going investments in research and development, which may be difficult to recover due to rapid product life cycles. Further, there is a continued need to successfully execute product transitions and new product introductions, as factors such as quality, reliability and manufacturing yields become of increasing competitive importance.



Seasonality



The disc drive industry traditionally experiences seasonal variability in demand with higher levels of demand in the second half of the calendar year. This seasonality is driven by consumer spending in the back-to-school season from late summer to fall and the traditional holiday shopping season from fall to winter. In addition, corporate demand is typically higher during the second half of the calendar year when IT budget calendars provide for more spending. We expect the disc drive industry to experience normal seasonal patterns of increased demand for the September 2008 quarter.



Recording Heads and Media



Due to industry consolidation there are limited number of independent suppliers of recording heads and media available to disc drive manufacturers. As a result, vertically integrated disc drive manufacturers, who manufacture their own recording heads and media, are less dependent on external supply of recording heads and media than less vertically integrated disc drive manufacturers. While we believe that there is adequate supply to meet currently identified industry demand, these consolidations may limit the supply of recording heads and media from independent suppliers in the long-term.



Commodity and Other Manufacturing Costs



The production of disc drives requires precious metals, scarce alloys and industrial commodities, that are subject to fluctuations in prices, and the supply of which has at times been constrained. Recent increases in the price of many commodities have resulted in higher costs of materials used in the manufacture of disc drive products. Additionally, adverse economic conditions such as rising fuel costs may further increase commodity, manufacturing and freight costs. Should the disc drive industry not be able to pass these costs onto customers, gross margins may be impacted.



Industry Supply Balance



Historically, the industry has from time to time experienced periods of imbalances between supply and demand. To the extent that the disc drive industry builds capacity and products based on expectations of demand that do not materialize, there may be an oversupply of products that could lead to increased price erosion. Conversely, during periods where demand exceeds supply, price erosion is generally more benign. The industry, excluding Seagate, exited the June 2008 quarter with what we believe to be approximately five weeks of distribution inventory in the desktop channel, which is consistent with historical seasonal patterns.



Seagate Overview



We are the world’s leading provider of hard disc drives, based on revenue and units shipped. Our products address the enterprise, desktop, mobile computing and CE and branded solutions storage markets. The Seagate 3.5-inch and 2.5-inch disc drive units used in our branded storage products are reported in the desktop and mobile market information, respectively. We maintain a highly integrated approach to our business by designing and manufacturing a significant portion of the components we view as critical to our products, such as read/write heads and recording media. We believe that our control of these key technologies, combined with our platform design and manufacturing, will enable us to achieve product performance, time-to-market leadership and manufacturing flexibility, which will allow us to respond to customers and market opportunities. Our technology ownership, combined with our integrated design and manufacturing approach, has allowed us to effectively leverage our leadership in traditional computing to enter new markets with only incremental product development and manufacturing costs.



Maxtor Acquisition



During fiscal year 2007, we completed our integration of Maxtor, including customer and product transitions where we replaced Maxtor designed disc drive products with Seagate designed disc drive products. Our fiscal year 2007 included Maxtor’s operating losses largely recognized during the first half of fiscal year 2007 as we transitioned Maxtor products to Seagate products and acquisition and integration related charges recognized over the entire fiscal year. We expect to continue to incur charges, the most significant of which are expected to be the amortization of acquired intangible assets.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

The following is a discussion of the financial condition and results of operations for our fiscal quarter ended October 3, 2008, herein referred to as “the September 2008 quarter.” Unless the context indicates otherwise, as used herein, the terms “we,” “us,” “Seagate” and “our” refer to Seagate Technology, an exempted company incorporated with limited liability under the laws of the Cayman Islands, together with its subsidiaries.

You should read this discussion in conjunction with financial information and related notes included elsewhere in this report. We operate and report financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. The quarter ended October 3, 2008 was 14 weeks and the quarters ended June 27, 2008 and September 28, 2007 were both 13 weeks. Except as noted, references to any fiscal year mean the twelve-month period ending on the Friday closest to June 30 of that year.

Some of the statements and assumptions included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects and estimates of industry growth for the fiscal quarter ending January 2, 2009 and beyond. These statements identify prospective information and include words such as “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects” and similar expressions. These forward-looking statements are based on information available to us as of the date of this report. Current expectations, forecasts and assumptions involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks, uncertainties and other factors may be beyond our control. In particular, uncertainty in global economic conditions pose a risk to the overall economy as consumers and businesses may defer purchases in response to tighter credit and negative financial news. Such risks and uncertainties also include the impact of the variable demand and the aggressive pricing environment for disk drives, particularly in view of current business and economic conditions; dependence on our ability to successfully qualify, manufacture and sell our disk drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly our new disk drive products with lower cost structures; the impact of competitive product announcements and possible excess industry supply with respect to particular disk drive products; our ability to achieve projected cost savings in connection with our announced restructuring plans; market conditions and alternative cash imperatives that could impact our ability to repurchase additional common shares pursuant to our previously announced share repurchase program; and the factors listed in the “Risk Factors” section of Item 1A of Part II of this Quarterly Report on Form 10-Q, which we encourage you to carefully read. We also encourage you to read our Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission on August 13, 2008 as it contains information concerning risk, uncertainties and other factors that could cause results to differ materially from those projected in the forward-looking statements These forward-looking statements should not be relied upon as representing our views as of any subsequent date and we undertake no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.

Our Company

We are the world’s leading provider of hard disk drives, based on revenue and units shipped. We design, manufacture, market and sell hard disk drives. Hard disk drives, commonly referred to as disk drives or hard drives, are devices that store digitally encoded data on rapidly rotating platters or disks with magnetic surfaces. The performance attributes of disk drives, including their cost effectiveness and high storage capacities has resulted in disk drives being used as the primary medium for storing electronic data in systems ranging from desktop and notebook computers, and consumer electronics devices to data centers delivering electronic data over corporate networks and the Internet.

We produce a broad range of disk drive products addressing enterprise applications, where our products are used in enterprise servers, mainframes and workstations; desktop applications, where our products are used in desktop computers; mobile computing applications, where our products are used in notebook computers; and consumer electronics applications, where our products are used in a wide variety of devices such as digital video recorders (DVRs) and other consumer electronic devices that require storage. We also sell our branded storage solutions under both the Seagate and Maxtor brands. In addition to manufacturing and selling disk drives, we provide data storage services for small- to medium-sized businesses, including online backup, data protection and recovery solutions.

Industry Overview

Our industry is characterized by several trends that have a material impact on our strategic planning, financial condition and results of operations.

Disk Drive Industry Consolidation

Due to the significant challenges posed by the need to continually innovate and improve manufacturing efficiency and because of the increasing amounts of capital and research and development investments required, the disk drive industry has undergone significant consolidation as disk drive manufacturers and component manufacturers merged with other companies or exited the industry. Through such combinations, disk drive manufacturers have also become increasingly vertically integrated. While recent combinations have limited the opportunity for additional industry consolidation, the increasing technological challenges, associated levels of investment and competitive necessity of large-scale operations may still drive future industry consolidation. Additionally, we may in the future face indirect competition from customers who from time to time evaluate whether to offer electronic data storage products that may compete with our products.

Price Erosion

Our industry has been characterized by continuous price erosion for disk drive products with comparable capacity, performance and feature sets (“like-for-like products”). Price erosion for like-for-like products (“price erosion”) is more pronounced during periods of:




economic contraction or industry consolidation in which competitors may use discounted pricing to attempt to maintain or gain market share;




few new product introductions when multiple competitors have comparable or alternative product offerings;




temporary imbalances between industry supply and demand; and




seasonally weaker demand, which may cause excess supply.

Disk drive manufacturers typically attempt to offset price erosion with an improved mix of disk drive products characterized by higher capacity, better performance and additional feature sets and/or product cost reductions.

We expect price erosion in our industry will continue for the foreseeable future. To remain competitive, we believe it will be necessary to continue to reduce prices as well as introduce new product offerings that utilize advanced technologies ahead of our competitors in order to take advantage of potentially higher initial profit margins and reduced cost structures on these new products.

CONF CALL

Stephen J. Luczo

Thank you, [Wesley]. Good afternoon, everyone, and thank you for joining us today. On the call with me are Pat O'Malley, our Chief Financial Officer, Bob Whitmore, who heads R&D and manufacturing operations, Brian Dexheimer, head of our Consumer Solutions Division, and Kurt Richards, head of our Global Sales.

Before we get to results of the second quarter, I'd like to take a few minutes to discuss some of the announcements we've made over the past couple of weeks, as well as to discuss the challenges posed by the current business environment. I'll then give you my perspective on our business going forward before turning the call over to Bob and Pat.

We are currently experiencing one of the most dramatic economic downturns of our generation. Macroeconomic trends are worse than what anyone expected even just a few months ago. While we continue to firmly believe that Seagate has a solid future and we view the long-term prospects for storage to be positive, there are significant short-term challenges facing Seagate. Companies of all types, regardless of size or industry, are being negatively impacted by this global downturn, and most of these businesses, large and small, are significant consumers of storage and therefore of Seagate's products.

Due to the ever-changing and declining economic environment, the Board determined that now is the appropriate time to make changes in the leadership team, to facilitate quicker changes in organizational structure and to implement other actions to regain our position as the leading provider of storage devices across all markets.

The entire Board and the management team have the highest regard for Bill Watkins and for his many contributions to Seagate. Bill's advice and his efforts to ensure a smooth transition are much appreciated and will help us in this acceleration of change.

We also announced last week that Dave Wickersham has resigned from the company as President and COO. Bob Whitmore has assumed the additional operational responsibilities previously performed by Dave. Bob has been with Seagate for 22 years and is an important member of our leadership team. In his expanded role he is now responsible for all research and development and global disc storage operations. I am pleased that Bob will assume these additional duties in his role going forward.

I will now briefly review the restructuring program that was announced last week. In fiscal 2006 Seagate began an expansion program to meet rising customer demand. In recent months, however, the market has contracted sharply, and when combined with some market share loss, revenues have declined significantly. In order to adapt our business model to the new economic conditions, we have implemented a series of necessary changes.

In early fiscal 2008, Seagate commenced a restructuring program that to date includes the closure of our recording media facilities in Milpitas, California and Limavady, Northern Ireland, and the announcement of the closure of our research facility in Pittsburgh, Pennsylvania. Recent actions also include a reduction in our global work force, company wide salary reductions, and other cost reduction actions that we believe will result in annual savings in excess of $300 million. These actions are part of a comprehensive plan to align the company's cost structure with the current economic reality. Pat will be addressing this in more detail later in the call.

We continue to remain focused on building liquidity and strengthening our balance sheet by taking actions to reduce capital spending, lower operating expenses, and to align production with demand to control inventory at appropriate levels. Today we also announced that the Board voted to reduce the quarterly dividend to $0.03 per share effective immediately. Reducing the dividend is expected to save approximately $175 million of cash over the next 12 months.

Let me spend a few minutes talking about my perspective on our business. We understand that the issues we are facing today are not solely the result of macroeconomic pressures. I believe we have the right resources in place, but that we haven't executed at the level that we are capable of. After demonstrating sustained areal density leadership through a number of product generations, we decided to manage areal density growth in an attempt to optimize our product portfolio and R&D investment. This decision resulted in products that were less competitive in some markets, as overhead technologies advanced at rates greater than our estimates. Our technology assets, investments and capabilities remain intact, but we have not been efficient in deploying those technologies through the last two product cycles.

In addition, our internal execution issues were compounded by the macroeconomic environment, which we believe will continue to be challenging through calendar 2009 and potentially into the first half of calendar 2010.

Moving forward we need to optimize our leadership systems for faster decision-making and we need to increase the competitiveness and value of our product portfolio by better capitalizing on our core technologies. We will continue to adjust production to a level in line with our current estimates of the total available market. We will continue to structure our business to focus on building liquidity and strengthening the balance sheet so that we are competitive throughout a period that may reflect extended macroeconomic decline.

To the extent that business conditions are more favorable than what we currently anticipate, we can scale reasonably to address growth. We believe a positive change in the economy will be gradual and that we have the right relationships with those customers that are positioned to see an economic upturn earliest.

We believe that Seagate has a solid future. We need to make smarter and faster decisions and execute better and we will. We are committed to implementing actions that will result in Seagate being the clear leader in storage devices across all markets, providing our customers with the industry's leading technology, highest performance and highest quality products, and using our scale and technology to be the most advanced and lowest-cost manufacturer in the industry.

Seagate has achieved and sustained this level of performance before and we believe we can attain it again as we re-focus on advancing areal density and accelerating deployment of our technology into our manufacturing base. Efforts along this line have started to produce positive results. Six months ago we began addressing the issues associated with our product and technology portfolio as well as the company's structure. We've built positive momentum in recent months, providing us with significant opportunities moving forward. Bob will address these improvements in more detail in a few minutes.

The current environment certainly presents challenges, but as historically demonstrated, the fundamental core strengths that Seagate possesses when fully leveraged result in the company's leadership in technology, products, cost and financial performance. We are confident in our ability to execute at these leadership levels as we continue our efforts for improvement.

I'll now turn the call over to Bob, who will highlight some of our product initiatives, technology and operations.

Robert Whitmore

Thanks, Steve. Before I provide you with an update on our products, technology and operations, I'd like to give you a brief background of my career and my perspective on the company's technology and operational priorities as we move forward.

I started my career with Seagate over 20 years ago as an engineer within the Enterprise side of the business. Most recently I've been focused on product development, but through the years I've led nearly every R&D organization and many of the operational teams throughout the company, including management positions at our operations in Asia.

I also know from my overall experience at Seagate that our greatest asset is our people, and I have a clear understanding of their capabilities and dedication. Having engaged with the global operations team, I believe we continue to be well positioned with advanced, low-cost manufacturing technologies, and I'm excited about the opportunity to lead this part of the business.

I'll now provide an update of our products and technology, followed by an outlook of our capital spending.

We have not been satisfied with the consistency of our product and technology execution. We recognized this several quarters ago and have been addressing it directly. Today I'm encouraged to say that we're making measurable progress to that end. Specific to areal density leadership, our accelerated plans to deliver the industry's highest capacity per platter drives are starting to show tangible results. Last month we successfully launched the industry's first 7200 rpm 500 gigabyte per platter 3.5 inch product. Both desktop and CE versions are now released and being qualified.

Additionally, our 5400 rpm 250 gigabyte per platter 2.5 inch drives have been shipping in volume for over a quarter and match the leading capacities in the industry today. We have also launched our 7200 rpm model at 250 gigabytes per platter.

Finally, in the Enterprise market we have now completed the refresh of our 2.5 inch product line, doubling capacity to 300 gigabytes. All major OEM qualifications are now complete.

Overall, we are making progress with our new product introductions; however, simply being at par with our competitors is not our goal. Our goal is to be the clear leader in areal density and product performance, and with these recent successes, we feel we are making progress across the entire portfolio. The product advancements we have made over the last six months are allowing us to recapture qualification positions with some of our key OEMs. This is a significant step in recovering our product leadership and growing market share.

In the Enterprise market we remain the leader, and I'm encouraged with our current road map and position. This road map includes the commitment to solid state devices. We are set to deliver our first SSD product into Enterprise applications later this calendar year. SSDs and solid state technology are essential to our long-term product roadmaps, and we will maintain our investment levels to deliver leading technology as required by our current and future customers.

Now I'd like to address our capital spend for fiscal 2009 and fiscal 2010. Capital investments for December quarter were $214 million. Looking forward, for the balance of this fiscal year our level of capital spending will be greatly reduced as we have completed most of our head wafer conversion from 6 inch to the most cost effective 8 inch format. We continue to minimize our capital spending in line with the reduction we see in demand and the installed capacity we currently have in place.

Capital investment going forward will be targeted primarily at technology transitions. We expect capital investment for fiscal year 2009 to be approximately $650 million, a reduction of approximately $350 million from the outlook at the beginning of this fiscal year and $100 million reduced from the capital outlook we provided last quarter. Based on our perspective of the macroeconomic trends, we believe our capital investments for fiscal year 2010 will be below $500 million.

In summary, clear and sustained time to market, product leadership, superior quality, and world class manufacturing are the key areas of focus for my organization. Seagate's foundation is solid, and I am fully confident in the talent and capability of our employees. Our goal is deliver sustained leadership by leveraging our technology and manufacturing capabilities across all markets.

Now I'd like to turn the call over to our CFO, Pat O'Malley.

Patrick O'Malley

Thanks, Bob. You'll find the company's press release, 8-K, and additional financial information related to Seagate's financial performance and other supplemental information in the Investor Relations sections of Seagate's website at Seagate.com.

First let me provide some insight into how the industry's demand and pricing environment evolved during the quarter. The December quarter proved to be very challenging with industry demand degrading throughout the quarter. When the December quarter began, the total available market or TAM for hard drives was thought to be near 156 million units. Then at about 8 weeks into the quarter, the TAM was expected to be in the 135 million unit range. And now preliminary industry data indicates actual shipments for December quarter were somewhere around 123 million units.

With this type of demand and supply imbalance, pricing was very competitive, especially in the 3.5 inch and 2.5 inch ATA markets, where we believe the industry experienced a second consecutive quarter of double-digit like-for-like price declines.

Now I'd like to discuss Seagate's preliminary financial results for the December quarter. These financial results are preliminary as the company has concluded that it is required to record a noncash impairment charge to reduce the carrying value of the company's goodwill and possibly other long-lived assets, which include purchased intangibles and property, equipment, and leasehold improvements.

The financial statements that will be included in the Form 10-Q that will be filed by the company for its fiscal second quarter of 2009 will differ from those issued today so as to reflect the outcome of this impairment analysis and any related tax impact.

Seagate reported a net loss and a net loss per share for the December quarter of $496 million and $1.02 per share, respectively. Included in these results are the following items:

$18 million of purchased intangibles amortization and other charges associated with acquisitions;

$94 million of restructuring related charges, and

A $271 million charge to reduce the valuation allowance related to the company's deferred tax assets.

The impact of these cash and non-cash items total approximately $383 million and approximately $0.79 per share. Note that the adjustment to the valuation allowance of deferred tax assets will not impact our cash taxes paid going forward.

For the December quarter, Seagate reported revenue of $2.3 billion, at the low end of our revised guidance, reflecting the project execution issues which we have previously mentioned, the continued softening in demand, and inventory drawdown throughout the PC supply chain and the more competitive pricing environment for the 3.5 inch and 2.5 inch ATA markets.

Seagate unit shipments for the quarter were 36.7 million, down 23% compared to the prior quarter.

In the December quarter we believe we lost approximately 2 points of market share. The factors that contributed to this are the continued transition of demand from 3.5 inch ATA to 2.5 inch ATA, where Seagate has meaningfully less market share, we chose not to participate in specific portions of the 3.5 inch market, and within the 2.5 inch ATA market, while our time to market 250 gig per platter product offerings continue to gain share and customers, the older product platform ceded share as our customers cut demand from the last supplier qualified, which was Seagate, before impacting those who were more timely to market.

Gross margins for the December quarter compressed in excess of 300 basis points, which reflected a more competitive pricing environment, lower unit demand leading to low levels of fixed cost absorption as we reduced build schedules significantly, and a higher cost structure on older products as Seagate continues to transition to newer, more cost-efficient product platforms.

R&D and SG&A totaled $377 million for the December quarter and included costs related to the acquisitions of $2 million and accelerated depreciation of $14 million related to our closing of the Pittsburgh research center.

In addition to tight spending controls, similar to last quarter, R&D and SG&A was lower than planned due to the accounting treatment of the company's employee funded deferred compensation plan. As the plan's liabilities decreased again this quarter, a reduction was recorded in operating expenses while a corresponding increase was recorded in other income and expense. The net impact is essentially neutral to the P&L.

Let me recap some information relating to the restructuring and cost saving actions disclosed by the company last week. First, the work force reduction totaled approximately 3,000 headcount and is expected to save $130 million annually. We will see the majority of this benefit in the June quarter. The expected restructuring charge for this action is approximately $90 million and is mostly for cash-based severance costs.

Secondly, a salary reduction was enacted for nearly all professional employees on a sliding scale that is expected to save an additional $80 million annually. A portion of these savings will be reflected in our March quarter results.

In addition to these actions, we recently completed the shutdown of the finish media operations in Milpitas and the aluminum substrate operations in Limavady, Northern Ireland. We are well into the plan that is expected to improve the efficiency of our research effort by moving much of the activity into existing product and component design centers, enabling Seagate to exit the Pittsburgh research facility.

These restructuring actions I just mentioned are expected to eliminate in excess of $300 million of spending from the overall cost structure.

Additional cost savings outside the scope of these restructuring activities have been identified and have been enacted by the management team and are expected to significantly lower the cost structure of the company. Specifically, for product development and selling, general and administrative based on the actions implemented to date, our quarterly run rate spending level is expected to be approximately $340 million when full savings are realized in the June quarter.

While the savings to date are significant, the management team will continue to evaluate and determine what further actions are necessary to properly align the company's cost structure with the current business environment.

Now I will discuss the balance sheet, cash, cash flow and liquidity.

Cash, cash equivalents and short-term investments ended the quarter at $1.3 billion, up $156 million from the previous quarter. During the quarter, the company borrowed $350 million under the existing revolving credit facility. The Board's authorization of the reduction to our dividend mentioned earlier will improve our liquidity position. Going forward, the management team will continue to monitor the company's liquidity position and determine how to best prioritize the use of cash so as to position the company for long-term success.

Cash flow from operations was $89 million for the quarter while free cash flow, defined as cash from operations less capital expenditures, was negative $125 million.

Depreciation and amortization for the December quarter was $228 million, including approximately $16 million of purchased intangibles amortization and $16 million for accelerated depreciation related to fixed assets at facilities we previously announced were closing.

Investments in capital for the first two quarters of fiscal 2009 totaled $494 million. The current expectation for fiscal 2009 capital investments has been reduced to approximately $650 million.

Looking forward, Seagate's capital investments will primarily be targeted at advancing technology and, as such, can likely be supported with an annual run rate of an amount less than $500 million.

Cash conversion metrics are as follows - days sales outstanding was 42, days payable outstanding was 64, and days inventory outstanding was 37, for a cash conversion cycle of 15 days, which was 10 days longer than the prior quarter. Our target for the cash conversion cycle is 12 to 15 days. Since we are at the high end of the target range, we expect no further incremental cash to be tied up on the balance sheet in the future due to working capital requirements.

Inventory decreased in aggregate by $113 million as a $152 million decrease in work in progress and raw materials more than offset a $39 million increase in finished goods.

Distribution channel inventory for Seagate 3.5 inch ATA product trended down the entire quarter and ended under 4 weeks. We believe all channels, including OEM and retail, brought down inventories during the December quarter. We expect the March quarter will be much more sensitive to true end demand as inventory buffer has been reduced significantly.

Long and short-term debt totaled $2.4 billion, yielding a net debt position of roughly $1 billion. Long-term debt maturities in the near term primarily consist of $300 million due in October of 2009 and $135 million due in April of 2010. The revolving credit facility has a six-month maturity with the company's option to extend the borrowing as long as covenant compliance is maintained through the maturity date in 2011.

In regards to the company's liquidity position, management has recently taken many actions focused on building liquidity and strengthening its balance sheet. We continue to be in compliance with the covenants related to our revolving credit facility, and based on the current business outlook, we believe the company will generate or obtain sufficient sources of liquidity to support the business. The covenant calculations have been added to our supplemental package and can be found on Page 10.

Now let me cover the business outlook. For the March quarter, in light of the company's view of the current market environment and the uncertainty in global economic conditions, for planning purposes the company's expects the overall demand for disc drives to be approximately 110 million units and the pricing environment to be similar in nature to the past six months. In addition, the company is assuming no significant changes in its market share and therefore expects revenue to be approximately $1.6 to $2 billion.

Gross margins for the March quarter are expected to come under further pressure due to the competitive pricing environment and the cost inefficiencies due to lower volumes and higher component costs.

Product development and SG&A are expected to be approximately $395 million in the March quarter, essentially flat compared to the December quarter, when adjusted for the favorable impact from the employee deferred compensation plan.

While current uncertainty and global economic conditions make it particularly difficult to predict product demand, the company expects TAM in the June quarter to be flat to slightly down quarter-over-quarter. Seagate has the potential to experience modest market share gains in the June quarter as our new products qualify and ramp in volume. In addition to a better cost structure on these new products as well as the full quarter benefit of the restructuring and salary reductions recently undertaken, the company expects to realize margin improvement in the June quarter.

That concludes my remarks for today. Steve?

Stephen J. Luczo

Thanks, Pat.

And before going to Q&A I want to emphasize that in this challenging near-term environment, we will stay focused on what we can control - product leadership, cost and inventory management, and technology leadership. As always, my greatest confidence is in our employee base.

Before we go to Q&A, I'd like to indicate that Pat, Kurt, Brian and Bob will likely answer most questions that reference our fiscal Q2 results due to my recent appointment as CEO, and with respect to the future direction of the company, our comments will be reflective of the entire management team.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

1171 Views