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    (09-03-08 05:01 AM)

The Daily Magic Formula Stock for 09/03/2008 is Seagate Technology. According to the Magic Formula Investing Web Site, the ebit yield is 18% and the EBIT ROIC is 50-75%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

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
Chief Executive
Officer and Director
age 55
Mr. Watkins has been Chief Executive Officer since 2004, and a Director of Seagate since 2000. Prior to that, he was President and Chief Executive Officer from 2004 to 2006; President and Chief Operating Officer from 2000 to 2004; Executive Vice President and Chief Operating Officer from 1998 to 2000; and Executive Vice President, Recording Media Operations from 1996 to 1998. Mr. Watkins is also a member of the Board of Directors of Maxim Integrated Products, Inc.


David A. Wickersham
President and Chief Operating Officer
age 52
Mr. Wickersham has been President since 2006 and Chief Operating Officer since 2004. He served as Chief Operating Officer and Executive Vice President from 2004 to 2006; Executive Vice President, Global Disc Storage Operations from 2000 to 2004, Senior Vice President, Worldwide Product Line Management from 1999 to 2000; and Senior Vice President, Worldwide Materials from 1998 to 1999.


Charles C. Pope
Executive Vice President and Chief Financial Officer
age 53
Mr. Pope has been Executive Vice President and Chief Financial Officer since 1999. From 1998 to 1999 he was Senior Vice President and Chief Financial Officer. Prior to that, he was Senior Vice President Finance, Storage Products from 1997 to 1998; Vice President Finance, Storage Products from 1996 to 1997; Vice President/General Manager, Media from 1994 to 1996; Vice President Finance and Treasurer from 1991 to 1994; and Vice President, Finance Far East Operations from 1989 to 1991.


Brian S. Dexheimer
Division President, Consumer Solutions
age 45
Mr. Dexheimer has been Division President of our Consumer Solutions division since March 2008. He served as Executive Vice President and Chief Sales & Marketing Officer from 2006 to 2008. Prior to that he was Executive Vice President, Storage Business and Worldwide Sales, Marketing and Customer Service from 2005 to 2006; Executive Vice President, Worldwide Sales, Marketing and Customer Service from 2000 to 2005; Senior Vice President, Worldwide Sales from 1999 to 2000; Senior Vice President, Personal Storage Group/Product Line Management from 1998 to 1999; Vice President, and General Manager, Removable Storage Solutions from 1997 to 1998.


Robert Whitmore
Executive Vice President and Chief Technology Officer
age 46
Mr. Whitmore has been Executive Vice President Product and Process Development and Chief Technology Officer since 2007. Prior to that he was Executive Vice President, Product and Process Development from 2006 to 2007; Senior Vice President, Product and Process Development from 2004 to 2006; Senior Vice President, Product Development Engineering from 2002 to 2004; Vice President, Enterprise Storage Design Engineering from 1999 to 2002, Vice President and Executive Director, Twin Cities Manufacturing Operations from 1997 to 1999; Senior Director, Manufacturing Engineering, Singapore Operations from 1995 to 1997; and Senior Manager, Design Engineering, Twin Cities Division from 1992 to 1995.


D. Kurt Richarz
Executive Vice President, Sales and Customer Service Operations
age 47
Mr. Richarz joined Seagate in May 2006, when we acquired Maxtor. He has served as our Executive Vice President, Sales and Customer Service Operations since May 2008. Previously, he served as Vice President of Global OEM Sales from 2006 to 2007 and Senior Vice President of Global OEM Sales from 2007 to 2008. At Maxtor, from 2002 to 2006, he served as Vice President, Global OEM Account Sales and Senior Vice President of Worldwide Sales. From 1990 to 2001, he served in various sales positions at Quantum Corporation.

Jaroslaw S. Glembocki
Senior Vice President, Recording Heads and Media
age 52
Mr. Glembocki has been Senior Vice President, Recording Heads and Media Operations since 2000. Prior to that he was Senior Vice President/General Manager, Recording Media Group, from 1997 to 2000; and Vice President, Engineering and CTO Media from 1996 to 1997.


W. David Mosley
Senior Vice President, Global Disc Storage Operations
age 41
Mr. Mosley has been Senior Vice President, Global Disc Storage Operations since 2007. Prior to that, he was Vice President, Research and Development, Engineering from 2002 to 2007; Senior Director, Research and Development, Engineering from 2000 to 2002; Director, Research and Development, Engineering from 1998 to 2000; and Manager, Operations and Manufacturing from 1996 to 1998.


Patrick J. O’Malley
Senior Vice President, Finance, Principal Accounting Officer and Treasurer 1
age 46
Mr. O’Malley has been Senior Vice President, Finance since October 2005, and assumed the additional roles of Principal Accounting Officer and Treasurer in 2006. Prior to that, he was Senior Vice President, Consumer Electronics from 2004 to 2005; Senior Vice President, Finance, Manufacturing from 1999 to 2004; Vice President, Finance-Recording Media from 1997 to 1999; Senior Director Finance, Desktop Design, from 1996 to 1997; Senior Director, Finance, Oklahoma City Operations from 1994 to 1996; Director of Finance/ Manager, Corporate Financial Planning & Analysis from 1991 to 1994; Manager, Consolidations & Cost Accounting from 1990 to 1991; Manager, Consolidations from 1988 to 1990; and Senior Financial Analyst in 1988.


Glen A. Peterson
Senior Vice President, Worldwide Finance
age 46
Mr. Peterson has been Senior Vice President, Worldwide Finance since January 2004. Prior to that, he was Vice President, Finance and Treasurer from 1998 to 2004; and Director, Strategic Planning from 1995 to 1998.


Kenneth M. Massaroni
Senior Vice President, General Counsel and Corporate Secretary
age 47
Mr. Massaroni has been Senior Vice President, General Counsel and Corporate Secretary since April 2008. He served as Vice President and Acting General Counsel from December 2007 to April 2008, and Vice President of Intellectual Property from 2006 to December 2007. Prior to joining Seagate in 2006, Massaroni was vice president of law, deputy general counsel and assistant secretary at Scientific-Atlanta from 1997 to 2006. In addition, Massaroni has also held senior patent counsel positions at Motorola from 1993 to 1997, served as general counsel and secretary at Optical Imaging Systems from 1990 to 1992 and as a patent attorney at Energy Conversion Devices from 1987 to 1990, and as an associate at the law firm of Collier, Shannon, Rill and Scott from 1992 to 1993.


David Z. Anderson
Vice President, Finance, Storage Markets
age 43
Mr. Anderson joined Seagate in 1995, and has served as our Vice President, Finance, Storage Markets, since 2007. He previously held positions as Vice President, Finance, Asia Operations from 2005 to 2007 and Senior Director, Corporate Accounting, Compliance and External Reporting and Corporate Financial Planning & Analysis from 2003 to 2005. Prior to 2003, Mr. Anderson held a variety of progressively senior management positions within the Finance organization of the Company. On July 1, 2008, Mr. Anderson was appointed Principal Accounting Officer and Treasurer of the Company. The transition by which Mr. Anderson will assume the responsibilities of these offices began on July 1, 2008, and he will formally acquire the titles on August 25, 2008.

MANAGEMENT DISCUSSION FROM LATEST 10K

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.

The only customer exceeding 10% of our disc drive revenue for fiscal years 2006 through 2008 was Hewlett-Packard. Dell exceeded 10% of our disc drive revenue in fiscal years 2008 and 2006.



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.

Results of Operations

Fiscal Year 2008 Compared to Fiscal Year 2007

Revenue growth in fiscal year 2008 reflected a 15% growth in the number of disc drives shipped. We believe unit growth was driven by continued growth in digital content, the resulting increase in demand for storage and customer acceptance of our new products. Industry disc drive demand across all markets grew by 18% from fiscal year 2007, with our share of the desktop and enterprise markets increasing by 5% and 6%, respectively, while our share of the mobile compute and consumer electronic markets declined by 6% and 10%, respectively. The increase in the number of units shipped and an improved mix of products shipped was partially offset by price erosion, which was relatively benign during the first half of the fiscal year as a result of favorable industry conditions, including well-balanced disc drive supply and demand, while being more pronounced during the second half of fiscal year 2008, as is consistent with historical seasonal patterns.



Our overall average sales price per unit (ASP) for our products was $68 for fiscal year 2008, down from $71 in fiscal year 2007, as an improved mix of products shipped was more than offset by price erosion.



Unit shipments for our products in fiscal year 2008 were as follows:




Enterprise—20.3 million, up from 16.7 million units in fiscal year 2007.




Mobile—26.7 million, up from 19.4 million units in fiscal year 2007.




Desktop—111 million, up from 97.8 million units in fiscal year 2007.




Consumer—24.6 million, down from 25.3 million units in fiscal year 2007.



We maintain various sales programs such as point-of-sale rebates, sales price adjustments and price protection, aimed at increasing customer demand. We exercise judgment in formulating the underlying estimates related to distributor and retail inventory levels, sales program participation and customer claims submittals in determining the provision for such programs. Sales programs recorded as contra revenue were approximately 9% of our gross revenue, for both fiscal years 2008 and 2007.

For fiscal year 2008, cost of revenue increased due to a higher number of units shipped and a higher mix of products with higher average capacities, feature sets, and performance, partially offset by a 10% decline in the average cost per unit. The average cost per unit reduction was impacted by the more efficient utilization of our manufacturing capacity resulting from increased demand and the completed integration of Maxtor, transitions to more cost effective products, and the elimination of lower margin Maxtor designed products. The lower cost per unit combined with increased number of units shipped and improved mix of higher margin products resulted in gross margin improvement, which was partially offset by price erosion.

Product development expense for fiscal year 2008 included $82 million in variable performance-based compensation compared to none in fiscal year 2007. Product development expenses associated with developing alternative technologies and storage services increased by $40 million, while depreciation and other research and development costs increased by approximately $29 million. These increases were partially offset by a decrease of $27 million in costs associated with the Maxtor acquisition.

Marketing and administrative expenses increased primarily due to increases of $53 million in variable performance-based compensation compared to none in fiscal year 2007, $29 million in additional payroll expense resulting from increased headcount and salary increases, $38 million increase in expenses related to our data storage services and $32 million in incremental legal expenses. These increases were partially offset by a charge of approximately $40 million in fiscal year 2007 for the provision of doubtful accounts receivable related to eSys Technologies Pte. Ltd. and its related affiliate entities (“eSys”) and a charge of $35 million for costs associated with the Maxtor acquisition in fiscal year 2007.

During fiscal year 2008, we recorded restructuring and other charges of $88 million, comprised mainly of restructuring charges related to the planned closures of our Limavady, Northern Ireland and our Milpitas, California operations.



The restructuring charges associated with the Limavady facility were primarily related to employee termination costs of approximately $29 million and approximately $18 million related to expected grant repayments. We plan to cease production at our Limavady facility during the first quarter of fiscal year 2009 and expect all activities related to this closure to be complete by the second half of fiscal year 2009. We expect additional restructuring charges of approximately $10 million to be recorded primarily over the next two quarters, resulting in aggregate restructuring charges of approximately $60 million to $65 million.



We recorded approximately $19 million in restructuring charges associated with employee termination costs related to the planned closure of our media manufacturing facility in Milpitas, California. We plan to cease production at our Milpitas facility during the first quarter of fiscal year 2009 and expect all activities related to this closure to be complete by the second half of fiscal year 2009. We expect additional restructuring charges of approximately $17 million to be recorded primarily over the next two quarters, resulting in an aggregate restructuring charge of approximately $36 million. In addition, as a result of the planned closure of the Milpitas facility, the Company expects approximately $38 million relating to accelerated asset depreciation to be recorded to cost of revenue in the first quarter of fiscal year 2009.



The remaining restructuring and other charges were primarily comprised of employee termination costs as a result of plans to continue the alignment of our global workforce with existing and anticipated business requirements around the world. We expect these restructuring activities to be completed by the end of our fourth quarter of fiscal year 2009.

We recorded a provision for income taxes of $67 million for the fiscal year ended June 27, 2008 compared to a benefit from income taxes of $352 million for the fiscal year ended June 29, 2007. We are a foreign holding company incorporated in the Cayman Islands with foreign and U.S. subsidiaries that operate in multiple taxing jurisdictions. As a result, our worldwide operating income is either subject to varying rates of tax or is exempt from tax due to tax holidays or tax incentive programs we operate under in China, Malaysia, Singapore, Switzerland and Thailand. These tax holidays or incentives are scheduled to expire in whole or in part at various dates through 2020.



Our provision for income taxes recorded for the fiscal year ended June 27, 2008 differs from the provision for income taxes that would be derived by applying a notional U.S. 35% rate to income before income taxes primarily due to the net effect of (i) the tax benefit related to the aforementioned tax holidays and tax incentive programs, (ii) a decrease in our valuation allowance for certain deferred tax assets, and (iii) tax expense related to intercompany transactions. Our provision for income taxes recorded for the fiscal year ended June 29, 2007 differed from the provision for income taxes that would be derived by applying a notional U.S. 35% rate to income before income taxes primarily due to the net effect of (i) a decrease in our valuation allowance for certain deferred tax assets and (ii) the tax benefit related to the aforementioned tax holidays and tax incentive programs.



Based on our foreign ownership structure and subject to (i) potential future increases in our valuation allowance for deferred tax assets and (ii) limitations imposed by Internal Revenue Code Section 382 (“IRC Section 382”) on usage of certain tax attributes (further described below), we anticipate that our effective tax rate in future periods will generally be less than the U.S. federal statutory rate. Dividend distributions received from our U.S. subsidiaries may be subject to U.S. withholding taxes when and if distributed. Deferred tax liabilities have not been recorded on unremitted earnings of certain foreign subsidiaries, as these earnings will not be subject to tax in the Cayman Islands or U.S. federal income tax if remitted to our foreign parent holding company.



As of June 27, 2008, the deferred tax asset valuation allowance recorded was $433 million. Approximately $22 million of this amount relates to deferred tax assets acquired in the Maxtor acquisition for which the related benefit will be credited directly to goodwill when and if realized. The net increase in the valuation allowance in fiscal year 2008 was $34 million. In fiscal years 2007 and 2006, the valuation allowance decreased by $580 million and increased by $327 million respectively. The fiscal year 2007 valuation allowance release was largely due to the completion during 2007 of the restructuring of the Company’s intercompany arrangements, which enables the Company to forecast future U.S. taxable income with greater certainty and U.S. taxable income from the intercompany sale of certain Maxtor assets.



As of June 27, 2008, we recorded net deferred tax assets of $890 million. The realization of $808 million of these deferred tax assets is primarily dependent on our ability to generate sufficient U.S. and certain foreign taxable income in future periods. Although realization is not assured, we believe that it is more likely than not that these deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, may increase or decrease, when we reevaluate the underlying basis for our estimates of future U.S. and certain foreign taxable income.



As a result of the Maxtor acquisition, Maxtor underwent a change in ownership within the meaning of IRC Section 382 on May 19, 2006. In general, IRC Section 382 places annual limitations on the use of certain tax attributes such as net operating losses and tax credit carryovers in existence at the ownership change date. As of June 27, 2008, $ 1.3 billion and $337 million of U.S. federal and state net operating losses, respectively, and $36 million of tax credit carryovers acquired from Maxtor are generally subject to an annual limitation of approximately $110 million. Certain amounts may be accelerated into the first five years following the acquisition pursuant to IRC Section 382 and published notices.



On January 3, 2005, we underwent a change in ownership under IRC Section 382 due to the sale of common shares to the public by our then largest shareholder, New SAC. Based on an independent valuation as of January 3, 2005, the annual limitation for this change is $44.8 million. As of June 27, 2008, there were $453 million of U.S. net operating loss carryforwards and $110 million of U.S. tax credit carryforwards subject to IRC Section 382 limitation associated with the January 3, 2005 change. To the extent we believe it is more likely than not that the deferred tax assets associated with tax attributes subject to this IRC Section 382 limitation will not be realized, a valuation allowance has been provided.



Effective at the beginning of the first quarter of fiscal year 2008, we adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with FASB Statement (SFAS) No. 109, Accounting for Income Taxes (SFAS No. 109). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.



As a result of the implementation of FIN 48, we increased our liability for net unrecognized tax benefits at the date of adoption. We accounted for the increase primarily as a cumulative effect of a change in accounting principle that resulted in a decrease to retained earnings of $3 million and an increase to goodwill of $25 million. The total amount of gross unrecognized tax benefits as of the date of adoption was $385 million excluding interest and penalties. At June 27, 2008, we had approximately $374 million in total unrecognized tax benefits excluding interest and penalties. The total unrecognized tax benefits that, if recognized, would impact the effective tax rate were $63 million and $75 million as of June 29, 2007 and June 27, 2008, respectively.



Our policy to include interest and penalties related to unrecognized tax benefits in the provision for taxes on the Condensed Consolidated Statements of Operations did not change as a result of implementing the provisions of FIN 48. As of the date of adoption of FIN 48, we had accrued approximately $19 million for the payment of interest and penalties relating to unrecognized tax benefits. This accrual increased by $3 million to approximately $22 million as of June 27, 2008.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

During fiscal year 2007, we completed our integration of Maxtor. Our year-ago quarter and nine-month periods ended March 2007 included Maxtor’s operating losses as we transitioned Maxtor products to Seagate products and recognized significant acquisition and integration related charges.

Revenue – Revenue for the March 2008 quarter was approximately $3.1 billion, down 9% from approximately $3.4 billion in the immediately preceding quarter. This decrease from the immediately preceding quarter was primarily driven by a 14% decrease in the number of disc drives shipped. The decrease was the result of seasonally slower demand, which was more pronounced in the United Stated distribution channel for 3.5-inch ATA products in the final two weeks of the March 2008 quarter, and lower share in the mobile compute and consumer electronics markets. Consistent with seasonal patterns price erosion during the March 2008 quarter was higher than the December 2007 quarter. These factors were partially offset by a favorable mix of products within each market.

Revenue for the March 2008 quarter was up 10% from approximately $2.8 billion in the year-ago quarter driven by an 8% unit shipment growth from increased demand for storage of digital content as well as an improved mix of products shipped within each market. The increase in shipments and improved mix were partially offset by price erosion, which was at the low end of historical ranges for a March quarter.

Revenue for the first nine months of fiscal year 2008 was approximately $9.8 billion, up 14% from approximately $8.6 billion in the corresponding year-ago period. Unit shipments grew 16% from increased demand across mobile, enterprise and desktop compute markets and our share in these markets, as well as an improved mix of products shipped within each market. The increase in shipments and improved mix were partially offset by price erosion.

Unit shipments for our products in the quarter ended March 28, 2008 were as follows:




Enterprise – 5.3 million, unchanged from the immediately preceding quarter and up from 4.2 million units in the year-ago quarter.




Mobile – 5.5 million, down from 6.4 million in the immediately preceding quarter and up from 4.7 million units in the year-ago quarter.




Desktop – 26.7 million, down from 29.9 million in the immediately preceding quarter and up from 23.9 million units in the year-ago quarter.




Consumer Electronics – 5.1 million, down from 8.1 million and 6.7 million in the immediately preceding and year-ago quarters, respectively.

We maintain various sales programs aimed at increasing customer demand. We exercise judgment in formulating the underlying estimates related to distributor inventory levels, sales program participation and customer claims submittals in determining the provision for such programs. Sales programs recorded as contra-revenue, as a percentage of our gross disc drive revenue, was approximately 9% for the March 2008 quarter as compared to 8% in each of the immediately preceding and year-ago quarters. The increase in sales programs as a percentage of gross disc drive revenue from the immediately preceding quarter was primarily the result of a less favorable pricing environment and a lower mix of OEM sales, which generally require lower program support than distribution and retail sales. The increase in sales programs as a percentage of gross disc drive revenue from the year-ago quarter was primarily due to higher distributor incentives and reserves for price protection.

Cost of Revenue . Cost of revenue for the March 2008 quarter was approximately $2.3 billion, which was substantially flat from the immediately preceding quarter. Gross margin as a percentage of revenue for the March 2008 quarter was 26%, which was unchanged from the immediately preceding quarter.

Cost of revenue for the March 2008 quarter was approximately $2.3 billion. Gross margin as a percentage of revenue increased from 21% in the year-ago quarter to 26% in the March 2008 quarter. This was due primarily to a transition to new lower cost products, higher ASP and more efficient utilization of our manufacturing capacity. These positive impacts on gross margin were partially offset by a $51 million increase in variable performance-based compensation compared to the year ago quarter and additional costs related to the introduction of new products.

Cost of revenue for the first nine months of fiscal year 2008 of $7.3 billion was up 4% from approximately $7.0 billion in the corresponding year-ago period. Gross margin as a percentage of revenue increased to 26% for the first nine months of fiscal year 2008 as compared to 18% in the corresponding year-ago period. This was due primarily to more efficient utilization of our manufacturing capacity as a result of increased demand and the completed integration of Maxtor, transitions to lower cost products, and the elimination of lower margin Maxtor designed products. These positive impacts on gross margin were partially offset by variable performance-based compensation of $106 million compared to none and a 3% lower ASP, both as compared to the corresponding year-ago period.

Product Development Expense. Product development expense for the March 2008 quarter decreased by $9 million, or 3%, when compared with the immediately preceding quarter. The decrease in product development expense from the immediately preceding quarter was primarily due to an acceleration of product development expenditures in the December 2007 quarter to complete the development of new high capacity desktop and notebook drives.

Product development expense for the March 2008 quarter increased by $40 million, or 19%, when compared with the year-ago quarter, primarily due to an increase of $31 million in variable performance-based compensation.

Product development expense for the first nine months of fiscal year 2008 increased by $75 million, or 11%, when compared with the corresponding year-ago period. The increase in product development expense was primarily due to $68 million in variable performance-based compensation in the first nine months of fiscal year 2008 compared to none in the corresponding year-ago period and $36 million in research and development associated with developing alternative technologies and storage services, partially offset by a decrease of $27 million in costs associated with the Maxtor acquisition.

Marketing and Administrative Expense. Marketing and administrative expense for the March 2008 quarter was essentially flat when compared with the immediately preceding quarter.

Marketing and administrative expense for the March 2008 quarter increased by $39 million, or 31%, when compared with the year-ago quarter. The increase from the year-ago quarter was primarily due to increases of $21 million in variable performance-based compensation and $9 million in legal expense resulting from the progression of on-going litigation.

Marketing and administrative expense for the first nine months of fiscal year 2008 increased by $38 million when compared with the corresponding year-ago period. This increase resulted from $44 million in variable performance-based compensation in the first nine months of fiscal year 2008 compared to none in the corresponding year-ago period, $36 million in additional payroll expense resulting primarily from increased headcount and $21 million in incremental legal expenses related to on-going litigation. These increases were partially offset by additional expenses in the corresponding year-ago period of $40 million for the provision of doubtful accounts receivable related to eSys Technologies Pte. Ltd. and its affiliates and $34 million for costs associated with the Maxtor acquisition.

Amortization of Intangibles . Amortization of intangibles was flat when compared to the immediately preceding and year-ago quarters and increased from the nine-month year-ago period as a result of intangibles acquired in the EVault acquisition.

Restructuring and Other. In the quarter ended March 28, 2008, we recorded restructuring costs and other asset write-downs of approximately $20 million. Of this amount, restructuring costs of $12 million were primarily related to the planned closure of our Limavady, Northern Ireland operations as part of our ongoing focus on cost efficiencies in all areas of our business. During the nine-month period ended March 28, 2008, we recorded restructuring costs and other asset write-downs of approximately $52 million. The restructuring costs of $44 million included $35 million related to the closure of our Limavady facility. We currently expect to complete this closure by the second quarter of fiscal year 2009, with additional restructuring charges of approximately $20 million to $25 million to be recorded over the next three quarters, aggregating to approximately $55 million to $60 million.

Net Other Income (Expense). Net other expense was $14 million for the March 2008 quarter, compared to net other income of $3 million in the immediately preceding quarter. The change was primarily due to an $11 million reduction in gains from asset sales and we recognized a loss of $8 million related to deferred compensation plan assets compared to a gain of $3 million in the immediately preceding quarter. The corresponding gain or loss on deferred compensation plan liabilities is offset against compensation expenses in cost of sales and operating expenses.

Net other expense was $14 million for the March 2008 quarter, compared to $17 million in the year-ago quarter. The change was primarily due to recognition of a loss of $8 million related to deferred compensation plan assets compared to a gain of $2 million in the year-ago quarter, substantially offset by gains from asset sales and lower interest expense. The corresponding gain or loss on deferred compensation plan liabilities is offset against compensation expenses in cost of sales and operating expenses.

Net other expense was $32 million for the nine-month period ended March 28, 2008, compared to $37 million in the year-ago quarter. The change was primarily due to approximately $20 million in gains from asset sales, a decrease in interest expense of $11 million, partially offset by a decrease in interest income of $8 million and the recognition of a loss of $9 million related to deferred compensation plan assets compared to a gain of $10 million in the corresponding year-ago period. The corresponding gain or loss on deferred compensation plan liabilities is offset against compensation expenses in cost of sales and operating expenses.

Income Taxes. We are a foreign holding company incorporated in the Cayman Islands with foreign and U.S. subsidiaries that operate in multiple taxing jurisdictions. As a result, our worldwide operating income either is subject to varying rates of tax or is exempt from tax due to tax holiday or tax incentive programs we operate under in China, Malaysia, Singapore, Switzerland and Thailand. These tax holidays or incentives are scheduled to expire in whole or in part at various dates through 2020.

Our provision for income taxes recorded for the three and nine months ended March 28, 2008 differs from the provision for income taxes that would be derived by applying a notional U.S. 35% rate to income before income taxes primarily due to the net effect of (i) the tax benefit related to the aforementioned tax holiday and tax incentive programs, (ii) a decrease in our valuation allowance for U.S. deferred tax assets, and (iii) the tax expense related to intercompany transactions. Our benefit for income taxes recorded for the three and nine months ended March 30, 2007 differed from the provision for income taxes that would be derived by applying a notional U.S. 35% rate to income before income taxes primarily due to the net effect of (i) the tax benefit related to the aforementioned tax holiday and tax incentive programs, (ii) an increase in our valuation allowance for U.S. deferred tax assets, and (iii) foreign tax benefits recorded during the period relating to reductions in previously accrued taxes and reductions in valuation allowances for certain foreign deferred tax assets.

Based on our foreign ownership structure and subject to (i) potential future increases in our valuation allowance for deferred tax assets and (ii) limitations imposed by Internal Revenue Code Section 382 on usage of certain tax attributes (further described below), we anticipate that our effective tax rate in future periods will generally be less than the U.S. federal statutory rate. Dividend distributions received from our U.S. subsidiaries may be subject to U.S. withholding taxes when, and if distributed. Deferred tax liabilities have not been recorded on unremitted earnings of certain foreign subsidiaries, as these earnings will not be subject to tax in the Cayman Islands or U.S. federal income tax if remitted to our foreign parent holding company.

As of March 28, 2008, we recorded net deferred tax assets of $884 million. The realization of $798 million of these deferred tax assets is primarily dependent on our ability to generate sufficient U.S. and certain foreign taxable income in future periods. Although realization is not assured, we believe that it is more likely than not that these deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, may increase or decrease in subsequent quarters, when we reevaluate our estimates of future taxable income.

As a result of the Maxtor acquisition, Maxtor underwent a change in ownership within the meaning of Section 382 of the Internal Revenue Code (IRC Sec. 382) on May 19, 2006. In general, IRC Sec. 382 places annual limitations on the use of certain tax attributes such as net operating losses and tax credit carryovers in existence at the ownership change date. The annual limitation for this change is $110 million. Certain amounts of these attributes may be accelerated into the first five years following the acquisition pursuant to IRC Sec. 382 and published notices.

On January 3, 2005, we underwent a change in ownership under IRC Sec. 382 due to the sale of common shares to the public by our then largest shareholder, New SAC. Based on an independent valuation as of January 3, 2005, the annual limitation for this change is $44.8 million. To the extent we believe it is more likely than not that the deferred tax assets associated with tax attributes subject to this IRC Sec. 382 limitation will not be realized, a valuation allowance has been provided.

Effective at the beginning of the first quarter of fiscal year 2008, we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with FASB Statement No. 109, Accounting for Income Taxes .

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

As a result of the implementation of FIN 48, we increased our liability for net unrecognized tax benefits at the date of adoption. We accounted for the increase primarily as a cumulative effect of a change in accounting principle that resulted in a decrease in retained earnings of $3 million and an increase in goodwill of $25 million. The total amount of gross unrecognized tax benefits as of the date of adoption was $385 million excluding interest and penalties. Of these unrecognized tax benefits, $63 million would reduce the effective tax rate upon recognition.

CONF CALL

William D. Watkins

Thank you, Wesley. Good afternoon and thank you for joining us today. On the phone with me are Dave Wickersham, our President and Chief Operating Office; Charles Pope, our Executive Vice President and Chief Financial Officer; and Kurt Richards, our Executive Vice President of Sales and Customer Service. Brian Dexheimer, our President of Consumer Solutions, and Pat O’Malley, our income CFO, are also available to answer questions during the Q&A session.

I’d like to start this afternoon’s call by sharing some perspective on the fourth quarter and the fiscal year we just completed, and provide some comments on our outlook for the first quarter and the remainder of fiscal year 2009. I will then turn the call over to Kurt, Dave, and finally Charles, who will cover in our detail our market operating and financial results for the quarter and the year.

In fiscal year 2008, we set new records for units shipped and revenue, which were up 15% and 12% respectively over fiscal year 2007. We delivered equally strong results in net income, which totaled $1.3 billion, up significantly over last year. Specific to the June quarter, Seagate's market leading position remained unchanged in the enterprise and desktop markets. We expanded our leadership share position in the consumer electronics market and grew share in the notebook and retail markets. And while we are certainly pleased with that kind of growth and are gratified to see the demand trends for storage continue to accelerate, we believe and we can and should be doing much better at turning an abundance of opportunity into better performance and better return for our shareholders.

To that end, we focused considerable effort over the past few quarters, successfully getting our product execution back on track, particularly in the notebook arena, where we have lost some of the first mover advantage we have historically enjoyed. We are gaining traction now with a new product lineup that will serve all markets, including the notebook market, and we expect to see significant improvement in Seagate's performance in the December quarter and continue that throughout the remainder of fiscal year 2009.

In addition to a relentless focus on product execution, we are taking action to align our cost structure with the current competitive environment, ensuring that we are investing in the right areas, operating as efficiently as possible, and eliminating redundancies. Dave and Charles will provide more details about these efforts later in the call.

Before I turn the call over to Kurt, I want to reiterate what I see as an important opportunity in our retail segment -- the business represents a significant revenue opportunity for Seagate and we are determined to be a leader in this space. We’ve been essentially flat from Q4 of last year and that’s not the kind of performance I see going forward. Our newly formed consumer solutions division is focused on improved operational execution and launching new products over the next few quarters, which I believe will lead to additional growth.

Although the residual effects of our previously mis-execution in the notebook in the near line markets will be reflected in the results of the September quarter, and the macroeconomic climate does cause some current uncertainty, we believe that our performance is largely dependent on our factors within our control. We have made strides in reclaiming our product leadership. We have confidence in our plan and we believe that we will grow revenue and improve earnings throughout the remainder of fiscal year 2009.

With that, let me turn the call over to Kurt.

Kurt Richards

Thanks, Bill. As Bill mentioned, on the whole we expect the storage industry to continue its long-term growth profile. All macro trends from the industry, including creation, distribution, and consumption of digital content are driving significant unit demand. As a result, we believe the industry total available market, or TAM, grew by 83 million units during the fiscal year to approximately 541 million units.

Nearing fiscal 2009, we see a few near-term challenges but believe the industry will again experience solid year-over-year unit growth. Specific to June quarter, we believe the overall industry TAM was approximately 131 million units, up 18% year over year and down only 1% for the quarter, which was better than our expectations at the beginning of the quarter.

During the quarter, Seagate shipped 43 million units, up 10% year over year. We expect the overall TAM for the September quarter to be up approximately 18% quarter over quarter to approximately 154 million units. This represents a 15% year-over-year growth.

Now I’d like to give some details on the individual markets. In the mission critical enterprise space, the TAM in the June quarter remained strong at approximately 8.3 million units, representing 20% year-on-year growth. Seagate retained its share leadership position in this space as shipments grew 21% year over year to 5.2 million. For the fiscal year, Seagate shipped over 20 million enterprise drivers, more than 60% of overall enterprise drives shipped.

Demand remains strong for high capacity enterprise class SATA products. While we maintained our leadership position in this application in the June quarter, we believe additional qualifications in the coming quarter with our new Barracuda ES products will provide additional opportunities in this space.

Looking forward to the September quarter, we expect the overall enterprise demand to be flat to slightly up seasonally.

The TAM on the desktop compute market for the June quarter was approximately 59 million units. Seagate also retained its share leadership position in this market, shipping an industry leading 25.4 million units during the quarter, representing better than a market growth of 6% year over year.

For the September quarter, we expect the desktop compute TAM to be seasonally up.

In the consumer electronics applications, we believe the industry TAM was approximately 18 million units. Sequentially, Seagate extended its share leadership position in this space as shipments grew 11% to 5.7 million units. In particular, we saw in-quarter strength from several DVR customers who increased volume requirements in quarter.

We remain confident that our line of pipeline HD products designed specifically for video dependent applications will continue to set the standard for customers expectations in this space moving forward. We begin qualifications at several OEMs during this quarter for this new line of products.

We expect the CE market will experience higher seasonal demand in the September quarter.

With regard to the mobile market, the overall TAM grew 48% year over year to approximately 46 million units. We grew share sequentially by a few percentage points as Seagate shipments reached 6.9 million units, an increase of 12% year-on-year. Fiscal year shipments for Seagate grew at 37% to 26.7 million units.

We expect the September for mobile compute market to exhibit normal seasonality and be up from the June quarter.

In our branded products business, we continue to make progress. We believe industry sell-through in this market was seasonally lower, as expected. Largely based on continued supply chain performance and improved product mix, we believe Seagate gained share sequentially. Specifically, Seagate's percentage of shipments and share increased in the 2.5-inch products of 250 and greater, as well as 3.5-inch products 750 and greater.

We remain focused on continued operational improvements and new product launches over the next few quarters, which will lead to improved results in this fast-growing global market.

Now I’d like to turn the call over to Dave to provide some updates on operations.

David A. Wickersham

Thanks, Kurt. I will cover four topics with you today; the recently announced closing of our media operations in Milpitas, California, inventory, capital, and new products.

Last week, Seagate announced additional restructuring charges related to the ongoing realignment of our media operations. The closing of the Milpitas, California media operation will be completed by early October of this year. Consolidating our media production operation provides cost reduction opportunities in addition to inventory and transit time reduction.

The savings expected from the closing of the Milpitas media operation is expected to be approximately $42 million annually. In addition, our previously announced closure of our Limavady substrate factory is on schedule and will be completed by October of this year. This is expected to result in annual savings of approximately $30 million.

As Bill mentioned, we are focused on more effectively aligning our cost structure and these are two of the many actions we will take over the next year to improve our financial results.

In the June quarter, we made progress towards properly aligning Seagate's inventory. Our inventory decreased $128 million quarter over quarter from $1.073 billion to $945 million, while inventory turns improved from 8.5 in March to 9.3 turns in June.

A decrease in finished goods of $130 million accounted for virtually all of the reduction quarter over quarter. We remain focused on the requirement to improve our inventory turns while we continue to utilize ocean shipments to help offset the increase in fuel costs. Consequently, we expect to again improve inventory turns modestly to approximately 10 in the September quarter.

Fiscal 2008 capital investment came in at $930 million. Looking ahead to fiscal 2009, and as discussed in previous calls, we are committed to ensuring our manufacturing capacity aligns with customer demand and will continue to manage our capital investments in this manner.

Accordingly, the current outlook for fiscal year 2009 capital investment is approximately $1 billion.

Last quarter I mentioned the execution of product transitions to new, higher aereal

density products was critical to our success. Recovering and sustaining time-to-market leadership remains a top priority. We have taken appropriate steps to improve our results and are confident in our ability to improve our new product execution.

In the enterprise segment, we remain focused on maintaining our product and technology leadership. We continue to see the mix of mission critical enterprise products in the market continue to evolve to 3.5-inch 15K RPM products, 2.5-inch 10K RPM products, and SAS interfaces. This aligns well to our product roadmap and storage trends such as server virtualization and ISCSI SANs. Our 15K RPM 450-gigabyte product ramp started in the June quarter and we have three major OEMs qualified. We expect to have the vast majority of the major OEM qualifications completed by the end of September.

To further strengthen our position in the enterprise market, last quarter we announced the shipment of the industry’s first 1-terabyte product with SAS interface. Customer interest in this product continues to grow and we have completed two key OEM qualifications and expect to complete two additional qualifications by the end of September.

In the personal compute market, we continue to gain traction with new products, including the industry’s first 1.5-terabyte desktop product and half-terabyte notebook drives, announced last week.

For the notebook market, the ramp of the 250-gig notebook drive has been completed and our participation in the 250-gigabyte capacity point in the June quarter was reflective of our overall notebook market share.

Qualification of our 320-gigabyte notebook product is in process, with some of the early movers already completed. For example, we announced during the quarter that we were shipping to a major OEM the industry’s first 7200 RPM 320-gigabyte notebook drive. The notebook market is expected to be highly competitive during the balance of calendar 2008, as most HDD suppliers are shipping comparable products.

Our checks indicate that we are making progress restoring our time to market competitiveness in the notebook market and we expect to begin volume shipments of our 5400 and 7200 RPM 500-gigabyte notebook drives in the December quarter. So while we have made progress, we will remain relentlessly focused on improving product execution.

Now I would like to turn the call over to Charles.

Charles C. Pope

Thanks, Dave. You will find the company’s press release, 8-K, and additional financial information related to Seagate's financial performance, along with a reconciliation of GAAP to non-GAAP financial results and other supplemental information in the investor relations section of Seagate's website at Seagate.com. I will cover the financial results for the quarter and the outlook for the September quarter. Pat O’Malley, who will be taking over the CFO role next month, is also present and will participate in the Q&A session.

For the June quarter, Seagate reported revenue of $2.9 billion and unit shipments of approximately 43 million, which reflect year-over-year growth of 6% and 10% respectively. Seagate stayed focused on maintaining supply/demand balance by reducing its own finished goods inventory by 21% and ending with 4.2 weeks of inventory on hand in the distribution channel for 3.5-inch ATA drives calculated using a four-week average of shipments out.

GAAP net income and diluted earnings per share for the June quarter are $160 million and $0.32 respectively. Included in the GAAP results are approximately $23 million of purchased intangibles amortization and other charges associated with recently completed acquisitions. Without these items and the associated tax effects, non-GAAP net income and diluted earnings per share was $183 million and $0.37 respectively. Included in both the GAAP and non-GAAP results is approximately $36 million of restructuring costs, which reduced diluted earnings per share by about $0.07.

In regards to the $36 million restructuring charge in the June quarter, $16 million relates to the winding down of the media substrate plant in Limavady we announced last October and $20 million relates to severance costs for the just announced closure of our finished media operations in Milpitas, California.

As detailed in the 8-K we filed last week, we expect the total charges related to the closure of the Milpitas facility to be approximately $74 million. Of the $74 million, approximately $36 million will be cash, primarily for severance payments. In the September quarter, we expect to record charges of approximately $43 million, of which $38 million will be for accelerated asset depreciation, which will be reflected in cost of goods sold. Additional detail relating to the Milpitas closure can be found in the 8-K we filed last week.

For our fiscal year 2008, we reported revenue of $12.7 billion, up 12% year over year. Cash provided by operations was $2.5 billion and free cash flow, defined as net cash provided by operating activities less capital expenditures, was $1.6 billion.

During the fiscal year 2008, Seagate returned approximately $1.7 billion of cash to its shareholders, consisting of approximately $216 million through quarterly dividends and approximately $1.5 billion of share repurchases.

GAAP gross margin for the June quarter was 23.8%. Excluding approximately $8 million of acquisition related costs, non-GAAP gross margin was 24.1%. Gross margin was slightly better than expected due to favorable freight costs and lower product return rates leading to favorable warranty costs.

Like for like pricing for the quarter was as expected, near the high end of the normal range for a June quarter.

GAAP R&D and SG&A costs were $445 million for the June quarter. Excluding costs related to recent acquisitions, non-GAAP expenses were $443 million, higher than what we had expected due to litigation cost and spending aimed at improving time to market, future technology development, and expanding our markets. Slide six has the detail for the adjustments made to GAAP R&D and SG&A for the June quarter.

Cash flow from operations was $395 million for the June quarter, while free cash flow was $102 million. Cash, cash equivalents, and marketable securities ended the quarter at $1.14 billion, down $142 million from the previous quarter. During the June quarter, Seagate returned approximately $252 million of cash to its shareholders, consisting of approximately $57 million for the quarterly dividend and $195 million of share repurchases.

Capital investment in the June quarter was $293 million and for the fiscal year totaled $930 million. As Dave previously indicated, our current plan is for approximately $1 billion of capital investment for fiscal 2009.

Depreciation and amortization for the June quarter was $213 million, essentially flat from the prior quarter. Amortization of purchased intangibles totaled approximately $20 million.

During the June quarter, the company repurchased approximately 9.1 million of its common shares at an average price of $21.36. The company has authorization to purchase approximately $2 billion of additional shares under the current stock repurchase program.

Now turning to the business outlook, the September quarter is shaping up to be a challenging quarter for Seagate so I want to clearly summarize the factors influencing our outlook for the September quarter. We are expecting like-for-like price declines beyond the high-end of the historical ranges for a September quarter, which is 3.5% to 5%, due to ample availability of supply and the commonality of product and capacity offerings among the hard disk drive suppliers.

It should be noted that a majority of the price declines are already in place because of completed OEM negotiations. This pricing dynamic, combined with Seagate selling the less cost effective products represented in our June quarter inventory, creates significant margin compression in the September quarter. We expect the favorable impact of our lower cost new products to be substantially realized as we move into the December quarter. As our new products move into volume production and the company’s cost reductions take effect, we are confident in returning to our model for gross margins.

Also, it should be noted that the macroeconomic conditions has created an environment of limited visibility and increased order volatility toward the industry. Consequently, Seagate expects revenue to be in the range of $3.15 billion to $3.3 billion, GAAP diluted earnings per share is expected to be $0.18 to $0.22, and includes approximately $20 million of purchased intangible amortization and other charges associated with completed acquisitions.

Accordingly, non-GAAP diluted earnings per share is expected to be $0.22 to $0.26. These estimates for the September quarter do not include restructuring costs or accelerated depreciation charges related to the previously announced closing of our substrate operations in Limavady and the finished media operations in Milpitas, California. Additionally, this outlook does not include the impact of any future acquisitions, stock repurchases, or potential restructuring activities the company may undertake during the quarter.

R&D and SG&A expenses are experiencing upward pressure due to the 14th week in Seagate's September quarter, but we expect to offset this with reductions in discretionary spending and variable compensation costs and therefore expect R&D and SG&A expense to be flat compared to the June quarter. As Bill has mentioned, we are actively working and executing plans that will more properly align operating expenses with revenue during the course of the year. Other income and expense is expected to be a net expense of approximately $20 million.

That concludes my remarks. I will now turn the call back over to Bill.

William D. Watkins

Thanks, Charles. Now I’d like to make a few comments regarding how we view the long-term outlook for the industry and Seagate. We believe that the demand trends for storage will continue to support healthy growth in the industry unit demand in a 10% to 15% annual range at an annual revenue growth of 5% to 10%. Specific to Seagate, we are confident that the plans we have begun to execute will improve our performance relative to time to market, inventory management, and our overall cost structure. The path to improved financial performance will not be a step function move but will be incremental as we implement numerous changes across all three areas during the fiscal year.

We expect gross margins to begin improving with the December quarter and settle into the targeted range of 21% to 25% for the balance of the fiscal year.

With that, I would like to open it up for questions. I am currently traveling so I am going to have Dave moderate the questions. With that, Operator.

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

8739 Views