MILPITAS, Calif., April 4 /PRNewswire-FirstCall/ — Maxtor Corporation (NYSE: MXO) today provided an update to its financial guidance for the first quarter ended April 1, 2006. While industry conditions during the first quarter were within typical seasonal expectations, Maxtor faced challenges related to its pending acquisition by Seagate Technology.
During the first quarter, Maxtor experienced lower than expected unit volume growth, largely attributable to the pending acquisition. This lower than expected unit growth, combined with marginal merger-related market share losses, placed increased pressure on the Company’s already burdened cost structure and constrained Maxtor’s ability to compete, especially on the low-end of the desktop drive market. In addition, due to the pending Seagate merger transaction, the Company was unable to realize some component cost improvements that it anticipated in the quarter, which also negatively affected the gross profit margin.
Because of the decrease in volume, the Company significantly reduced its production schedule in the first quarter. Accordingly, Maxtor will eliminate approximately 900 positions at its Singapore manufacturing facility over the next several weeks. As a result, the Company expects to take an approximately $6 million reserve in the first quarter for severance-related expenses from the reduction in force.
The Company’s first quarter financial results will also reflect a charge for unamortized debt issuance costs related to its 2.375% Convertible Senior Notes due 2012. Under the terms of the Indenture governing the Senior Notes, the Senior Notes are convertible, at the option of the holders, at any time during a fiscal quarter if during the last 30 trading days of the immediately preceding quarter, the Company’s common stock trades at a price in excess of 110% of the conversion price for 20 consecutive trading days. This conversion condition was met when the closing price of Maxtor’s common stock exceeded $7.18 per share for 20 trading days within the last 30 days of trading ended April 1, 2006. As a result, the Company will classify the $326 million of Senior Notes as short-term debt on its April 1, 2006 balance sheet. In addition, Maxtor will expense approximately $7.4 million in unamortized debt issuance costs. The Company believes that the likelihood that any holder of the Senior Notes will exercise its conversion right is remote.
With these factors, Maxtor’s revised guidance for the first quarter of 2006 is as follows:
— Revenue between $875 and $885 million;
— Gross profit margin of approximately 2%;
— A net loss of between $(100) and $(104) million, or $(0.39) to $(0.40) per share on a GAAP basis; and
— Cash balance in excess of $500 million.
The Company is working through its normal close process and expects to announce its first quarter 2006 financial results on Wednesday, April 26, 2006, after the close of the market. The Company will not hold an investor conference call relative to its first quarter results. The Company is also discontinuing its prior practice of providing guidance on its financial performance for any future quarters, including the second quarter ending
July 1, 2006.