Seagate to Cut More Workers, Executive Pay

The company plans to reduce its worldwide workforce by nearly 3,000 employees

January 15, 2009

3 Min Read
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Seagate Technology Inc. (NYSE: STX) added a few more details to what it is calling a restructuring plan in a filing with the Securities and Exchange Commission (SEC) on Wednesday, saying it would cut more workers and reduce compensation for top executives and managers. The filing came days after the company ousted its chief executive and chief operating officer in a management shake-up.

The company said in the SEC filing that it is realigning its cost structure with the current macroeconomic business environment and plans to cut its worldwide workforce by 2,950 employees, or 6 percent. That number includes the previously announced plan to cut its U.S. workforce of about 8,000 by about 10 percent.

Seagate said the employee cuts should be mostly completed by the end of its March quarter and would cost the company around $90 million. It projected that the reductions would save the company around $130 million annually.

Many of the remaining workers will see smaller paychecks. Seagate said it will cut the salaries of its chief executive and other executive officers and executive vice presidents by 25 percent, senior vice presidents by 20 percent, vice presidents by 15 percent, and management, sales, supervisors, and professional employees by 10 percent. The cuts will become effective next month and should save the company around $80 million annually, the company said.

Seagate, the world's leading maker of hard disk drives, on Monday said chairman Stephen Luczo would replace chief executive Bill Watkins and chief technology officer Robert Whitmore would replace David Wickersham, who resigned as president and chief operating officer.The company on Monday would not provide any details on the management changes, the restructuring plans or make executives available for interviews. But a spokesman told that "everyone here is focused on fixing the execution issues and regaining the technology leadership that we let slip. That means improving time to market, getting the customers the right products at the right time. It's been apparent that we've let that slip, and we've got to get that back."

Seagate has lost 75.4 percent of its market value over the past 12 months, while rival Western Digital Corp. (NYSE: WDC) has fallen 42.8 percent over the same period. Brian Dexheimer, president of the company's consumer division, told Reuters last week that the poor economy has hurt the hard drive industry as a decline in spending on personal computers and other technology products cut into sales in 2008.

In the past 15 years, Luczo has played a major management rule at Seagate. He was chief executive of Seagate from July 1998 to July 2004, and was named chairman in June of 2002. He will continue to hold that post along with that of chief executive. It isn't clear whether Watkins will have a role with the company in the future.

"It is hard to know whether these changes are a result of past performance or whether they represent a change in direction," said John Rydning, a research director specializing in hard disk drives at research firm IDC , following the news of the management changes on Monday. "But Seagate was a very different company under Luczo than it was under Watkins. When Luczo was running the company, it was very focused on HDD technology and HDD products. He invested to improve the efficiencies of the factories. Watkins was more broadly focused on new markets and the company made several acquisitions while he was running things. They had relatively few major technology announcements during that time."

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