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Hot off the Press - News & Commentary
Friday, March 04, 2005 by Keith Benicek, Editor

Maxtor To Shift Building HDDs To China Under Tight Market Conditions.

Maxtor announced Friday that they would be shut down one of it’s two manufacturing facilities in Singapore to shift consumer Hard Disk Drive building to it’s new venture in mainland China. The objective is clear, lower the cost of manufacturing HDD’s in a high competitive and low margin market. Maxtor said that it plans to cut 5,500 jobs in Singapore with the closure of the factories.

Maxtor said it expects to cut 2,500 jobs through attrition and the other 3,000 through layoffs with severance packages. Other restructuring during the past four months with a new management team equals reductions of 42 percent of its total workforce of 13,000. Maxtor hasn’t disclosed an official total net reduction of their Singapore or Worldwide employees during a new “100-day plan” streamlining of the company to be more aggressive and profitable.

Competition is very intense in the HDD market, especially in the consumer segment. While in the Enterprise (business) market Seagate is holding a commanding lead (2nd qtr 2003) over everyone else with 58% to Maxtor’s 9%, things are very tight in the Consumer (desktop/other) segment with Seagate number 1 at 35%, Maxtor 2 at 26% and Western Digital 3 at 21% (2nd qtr 2003). Maxtor does not participate in the Notebook 2.5-inch HDD market.

However, even though Maxtor entered the consumer External HDD storage and backup market after the traditional founders a few years ago, Maxtor is now the clear market leader the Windows platform and even successfully penetrating and capturing the clique Macitosh segment. Smart designs that compliment Mac stylings and partnering with leading backup software solutions provider Dantz, shocked once Mac leaders like LaCie.

Gartner Research estimates the HDD market has grown by 19% globally in 2003. This augurs well for the HDD industry, which was going through a lull period over the last few years with single-digit growth rates.

Globally 3.5 inch HDDs constituted around 80% of the shipments, while the adoption of 2.5 inch HDD products is on the rise on the portable computer side. While Seagate has the leadership globally, with multiple vendors like Quantum, Maxtor, Western Digital, and Hitachi, the HDD space has become extremely competitive with each eyeing greater market shares.

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In January 2004 Seagate Technology announced it has shipped more than 1.5 million Serial ATA (SATA) hard drives, primarily for the Enterprise market, which is more than twice the number of its nearest competitor (Fujitsu), according to market analysts.

It’s not just the PCs and Networking –
A big area in the consumer HDD market is in consumer devices other than PC’s and Network storage. Products like game consoles and Tivo like broadcast DVRs top the list for now, but this may also expand directly into Set-top Satellite Boxes, TV sets and DV Camcorders.

All the companies in the HDD business are eyeing this market and the key to success will be to be a trim operation and to offer leading edge reliable drives at the best price.

Just as market leader Seagate has done, moving some or all of Maxtor’s CE drive manufacturing to China where costs are considerably lower, will make Maxtor far more cost effective and competitive. This is a smart move in the companies plan to return to profitability and possible market leadership.

Maxtor earlier reported their fiscal year ended December 25, 2004 and revenue for the quarter was $1.031 billion. The company reported a net loss on a GAAP basis in the fourth quarter of 2004 of $70.2 million, or $(0.28) per share. Company executives stated that the closure of the Singapore facility will take an estimated $12 million charge in the first quarter for the severance packages. Maxtor also plans to spend an additional $6 million over the next two years for retention bonuses.

Maxtor also said they saw good demand in the first quarter and that revenue was on track to be better than previously predicted. Williams projected first-quarter revenue in the range of $975 million to $1 billion, vs. earlier estimates of $950 million to $980 million.

``We are in the early stages of execution,'' of the company's shift to China from Singapore, said Duston Williams, Maxtor's new chief financial officer, as told to analysts in a mid-quarter update conference call. By December (2005), Maxtor hopes to be making two-thirds of its disk drives for desktop computers in China.

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