Maxtor posts huge quarterly loss ahead of Seagate acquisition

Milpitas (CA) - In what must have been a sad, and perhaps lonely, day for executives at the once-proud Maxtor, the company posted a net loss for its fiscal first quarter of $102.1 million, or 20¢ per share, versus a loss of only one-fifth that amount for the first quarter of last year.

The reason, stated the company’s chairman, Dr. C. S. Park, today, appears to be increased customer concerns about its pending acquisition by Seagate Technology, announced last December. Park painted a picture of an awful domino effect triggered by the merger announcement. A reduction in estimated market share, on account of lower shipping volume fueled by customer concerns - down 1.5 million units to 12.1 million for the quarter - constrained the company’s ability to compete in the lower-capacity, mainstream hard drive markets, where Maxtor generally thrives. Furthermore, of course, there’s no point in the company researching higher-capacity product lines, as Seagate’s Barracuda has already swallowed up that end of the market.

As a result of all that, the company could not execute the cost improvements it had originally planned, mainly because higher capacities have become the future of hard drives, and Maxtor can’t go that direction any more. The lack of future developments meant prices had to stay low, just for Maxtor to stay in the game. The average selling price of a drive was slightly higher this quarter than in the previous one - $73 versus $71 - but lower production volume generated a much lower profit margin, down to 2.5% in the fiscal first quarter versus 9.3% in the previous quarter. As Maxtor approaches the twilight of its history, it’s sad to see the light flickering out.