Maxtor's Stuck in the Mud

Maxtor Corp. (NYSE: MXO) has firmly emerged as the poster boy for the troubled disk drive industry.

These are rough times for drive manufacturers, which have been hurt financially by declining prices and intense competition. But one day after Seagate Technology Inc. (NYSE: STX) hinted things might finally be looking up, Maxtor showed it is still deep in the doldrums (see Maxtor Loses $90.6M).

Besides posting a $90.6 million loss last quarter and giving disappointing guidance for the current quarter, Maxtor is still trying to explain what CEO Paul Tufano calls the white elephant in the living room." The pachyderm in question is the sudden resignation of CFO Michael Bless last Friday, less than two months after taking the job (see Maxtor CFO Quits). Bless replaced Robert Edwards, who resigned in March (see Maxtor Gets New CFO and Maxtor's Bad Hair Day).

Tufano says Bless left for personal reasons, and his departure should not be seen as a negative on Maxtor’s financial practices.

“Clearly, when two CFOs leave you have to stand up and take notice,” Tufano told analysts on a conference call Wednesday night. “So I know there’s probably conjecture and innuendo. I will stand behind these financials 100 percent.”Maxtor announced the layoff of around 450 employees in July and was forced to re-qualify drives with Dell Inc. (Nasdaq: DELL) because of production issues in the second quarter (see FCC Probe Pops Primus). And its problems are far from over. Maxtor expects to lose another $45 million to $55 million this quarter.

“We expect it may be a number of quarters before Maxtor finds its footing," Piper Jaffray analyst Les Santiago wrote in a research note today. “We don’t expect the re-qualification effort at Dell to reach a resolution until the first quarter of 2005, and even then it is unclear how much share Maxtor will be able to regain.”

Maxtor’s results contrast negatively with those of Seagate. Maxtor's shipment of enterprise drives fell 9 percent from last year and remained flat from the previous quarter, while Seagate increased its enterprise shipment 18 percent from the previous quarter. Seagate estimates it has around 50 percent enterprise drive market share, with Maxtor under 11 percent.

Seagate’s income and revenue also fell last quarter, however, though it did better than analysts expected. Seagate reported income of $54 million and revenue of $1.56 billion, down from income of $198 million and revenue of $1.74 billion the previous year.

Other hard drive manufacturers remain to be counted. Western Digital Corp. (NYSE: WDC) reports its earnings Monday. Hitachi Global Storage Technologies (HGST), which is part of Hitachi Ltd. (NYSE: HIT; Paris: PHA), doesn’t report its earnings independently. But HGST has its own problems -- it’s in the process of cutting 400 employees between now and the end of the year through early retirement and layoffs.— Dave Raffo, Senior Editor, Byte and Switch