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Maxtor's Bad Hair Day

Maxtor Corp. (NYSE: MXO) is off to a bad start this week, in what looks to be the latest tough spot to hit the ultra-competitive disk drive market.

In a note to investors today, analyst Richard Kugele of Needham & Co. reports his firm is reducing their estimates on Maxtor for the next two years, based on a combination of factors that include a slowdown in distribution and rumors of quality problems at OEMs.

"To be conservative, we are proactively (and independently of Maxtor) lowering our estimates due to concerns over the companys channel sell-through, distribution market share, and OEM business," writes Kugele and colleague Glenn Hanus in today's note.

Needham originally estimated that Maxtor would realize $1.04 billion in sales, about 14 cents earnings per share, this quarter. Now, it's revising that estimate to $1 billion and 11 cents. For 2004, the analysts think revenues will be about $4.15 billion, or 69 cents per share, instead of $4.3 billion, or 80 cents a share. Further, for 2005, they think the company will make $4.44 billion, or 87 cents per share, rather than $4.56 billion, or 90 cents.

Kugele and Hanus cite a 6 percent price hike on Maxtor's drives of 120 Gbytes and below that took place in February as responsible for the slowup in sales. And they refer to rumors of problems with OEM product quality, though they're careful to say the issue may not have happened and may have been resolved.

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