Maxtor Marches On

Beleaguered Maxtor Corp. (NYSE: MXO) reported another tough quarter for earnings, but the drive maker's prospects were buoyed by signs that new management might be righting the ship (see Maxtor Loses $70M ).

The company reported a fourth-quarter net loss of $70.2 million ($0.28 per share) on $1.031 billion in revenues. That improves on the company's most recent guidance of $980 million to $1.01 billion in revenues.

In the year-ago period, Maxtor had a net income of $39.2 million ($0.15 per share) on revenues of $1.171 billion, while it posted a net loss of $90.6 million ($0.36 per share) on revenues of $927.2 million in the third quarter (see Maxtor Loses $90.6M).

Overall 2004 numbers came in at $3.796 billion in revenues with a net loss of $181.9 million, or $0.73 per share. In 2003, Maxtor saw revenues of $4.09 billion and a profit of $102.7 million ($0.41 per share).

Maxtor also joined the list of storage vendors with accounting troubles, disclosing that it will restate 2003 figures for incorrect entries made on the 2001 acquisition of Quantum Corp.'s (NYSE: DSS) disk-drive business (see Dot Hill Dots Its I's and Brocade Switches CEOs, Restates ).Adding to the negative news, the company announced it will cut 200 U.S. employees this year. The first casualty: Mike Cordano, EVP of worldwide sales and marketing, who resigned effective next week. No successor has been named.

Cordano's departure is the latest in a long series of executive changes at Maxtor. The turmoil peaked in November, when CEO Paul Tufano quit and chairman C.S. Park added that role to his title. Soon thereafter, Maxtor brought in Mike Wingert as president and Duston Williams as CFO, positions that had been held by Tufano (see Maxtor CEO Bolts, Maxtor Names President, and Maxtor Names Another CFO).

There's now a glimmer of stability, management indicates. The company's restatement actually strengthened the company's balance sheet, claimed Park in yesterday's earnings call. The layoffs, along with shifts in production, were also couched in terms of efficiencies that would return Maxtor to profitability later this year.

The cost reductions are part of the company's 100-day plan, which execs have touted heavily in recent months. It also includes the cancellation of development work on certain desktop drives while ramping up others (see Maxtor Shoots for Enterprise Growth).

Enterprise drives also figure heavily in the plan, if not officially. Shortages of Fibre Channel drives have actually helped Maxtor and its competitors, reducing supply and giving them pricing leverage with their customers (see Storage Drives Are Low on Fibre)."We anticipate very positive results from our enterprise business throughout fiscal year 2005," said CFO Williams on the earnings call.

That optimism tempered much of the bad news in the eyes of industry analysts.

"Maxtor's challenges are many, including quality issues, manufacturing inefficiencies, product cycle issues, liquidity constraints," writes Robert W. Baird & Co. Inc. analyst Dan Renouard in research note. "However, the improved industry conditions provide management with time and a realistic opportunity to effect a turnaround."

Brett Mendel, Senior Analyst, Byte and Switch Insider

Beleaguered Maxtor Corp. (NYSE: MXO) reported another tough quarter for earnings, but the drive maker's prospects were buoyed by signs that new management might be righting the ship (see Maxtor Loses $70M ).The company reported a fourth-quarter net loss of $70.2 million (28 cents per share) on $1.031 billion in revenues. That improves on the company's most recent guidance of $980 million to $1.01 billion in revenues, but exceeded its forecast of $42 million to $44 million in losses.

In the year-ago period, Maxtor had net income of $39.2 million (15 cents per share) on revenues of $1.171 billion, while it posted a net loss of $58.3 million (EPS) on revenues of $927.2 million in the third quarter.

Overall 2004 numbers came in at $3.796 billion in revenues with a net loss of $181.9 million, or $0.73 per share. In 2003, Maxtor saw revenues of $4.09 billion and a profit of $102.7 million (EPS).

Maxtor also joined the list of storage vendors with accounting troubles, disclosing that it will restate 2003 figures for incorrect entries made on the 2001 acquisition of Quantum Corp.'s (NYSE: DSS) disk drive business (see Dot Hill Dots Its I's and Brocade Switches CEOs, Restates ).

Adding to the negative news, the company announced it will cut loose 200 U.S. employees this year. The first casualty: Mike O'Donnell, EVP of sales and marketing, who resigned effective next week. No successor has been named.O'Donnell's departure is the latest in a long series of executive changes at Maxtor. The turmoil peaked in November, when CEO Paul Tufano quit and chairman C.S. Kuo added that role to his title. Soon thereafter, Maxtor brought in Mike Wingert as president and Duston Williams as CFO, positions that had been held by Tufano (see Maxtor CEO Bolts, Maxtor Names President, Maxtor Names Another CFO).

However, relative stillness in the executive wing and other moves showed a glimmer of stability. The company's restatement actually strengthened the company's balance sheet, claimed Kuo in an earnings call. The layoffs, along with shifts in production, were also couched in terms of efficiencies that would return Maxtor to profitability later this year.

The cost reductions are part of the company's 100-day plan, which execs have touted heavily in recent months. It also includes the cancellation of development work on certain desktop drives while ramping up others (see Maxtor Shoots for Enterprise Growth).

Enterprise drives also figure heavily in to the plan, if not officially. Shortages of Fibre Channel drives have actually helped Maxtor and its competitors, reducing supply and giving them pricing leverage with their customers (see Storage Drives Are Low on Fibre).

"We anticipate very positive results from our enterprise business throughout fiscal year 2005," said CFO Williams on the earnings call.Maxtor expects first quarter growth this area to increase 20 percent from the fourth quarter.

That optimism tempered much of the bad news in the eyes of industry analysts.

"Maxtor's challenges are many, including quality issues, manufacturing inefficiencies, product cycle issues, liquidity constraints," wrote Robert W. Baird & Co. Inc. analyst Dan Renouard in research note. "However, the improved industry conditions provide management with time and a realistic opportunity to effect a turnaround."

— Brett Mendel, Senior Analyst, Byte and Switch Insider