Q1 2005 Maxtor Corp Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Welcome to Maxtor Corporation's first quarter conference call. [OPERATOR INSTRUCTIONS] Now I would like to turn the call over to Jennifer Kirtland, vice president of investor relations. Ms. Kirtland, you may begin your conference.

JENNIFER KIRTLAND, VP INVESTOR RELATIONS, MAXTOR CORPORATION: Thank you. Good afternoon, thank you for joining us for Maxtor's first quarter conference call. Before we begin, I would like to remind that we will be making forward-looking statements in both the prepared remarks and in answers to questions. These remarks will include comments on actions related to product development, manufacturing strategy and costs and expense controls as well as an outlook on our second quarter financial results. These statements are based on current expectations and are subject to risks and uncertainties, which could materially affect the company's results.

These risks include, but are not limited to, market demand for hard-disk drives, the company's ability to execute future production ramps and production qualifications, changes in product and customer mix, the availability of components, actions of competitors, the overall pricing environment, the company's ability to utilize its manufacturing assets efficiently, changes in the competitive position of the company's key customers, and general economic and industry conditions.

More details on these factors and other factors which could cause actual results to differ materially are contained in reports the company has filed with the SEC, including Maxtor's most recent 10-K and 10-Qs. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances.

Now I'd like to turn the call over to Dr. C. S. Park, our chairman and chief executive officer.

C.S. PARK, CHAIRMAN AND CEO, MAXTOR CORPORATION: Thank you, Jennifer. Good afternoon, thank you for joining us for Maxtor's first quarter conference call. With me today are Mike Wingert, president and chief operating officer; Dustin Williams, chief financial officer; and Curt Richards, senior vice president of worldwide sales.

Our first quarter financial results reflected positive industry dynamics and excellent growth in our SCSI and branded products markets. Our revenue and net loss were better than the updated guidance we provided in early March. We were pleased with the progress we continue to make and the execution of our turnaround plan. As we articulated on our fourth quarter call, we have a plan in place that we believe will result in more competitive financial profile over the next 12 months. Today we are completely focused on the execution of that plan.

We filled several key senior-level positions. Dennis Hollenback [ph] joined us as a senior vice president and general manager of product development in California. Dennis is a seasoned executive with 29 years of management and technical experience. He spent 15 years at Quantum in executive-level positions across three product lines including high-end storage, mobile, and desktop. We also hired a new senior vice president of human resources who will be started with us next week. We promoted several top internal candidates to key management positions in our server products group, branded products group, and in engineering.

We have reorganized some of our functions to more efficiently address our product development and market efforts. The product development teams are working very hard to ensure the timely introduction and ramp of our new products with high quality and industry-leading features. These include new products scheduled for introduction in the second half of this year and into 2006. Our worldwide sales staff has set its priorities and goals for 2005, and they are driving ahead with optimism.

The transition of our desktop manufacturing to China is going very well. We are on track with our plan to produce approximately two-thirds of our desktop drives in China by the fourth quarter. We are in the final stage of evaluating the optimal location in Asia for our offshore MMC media operation and expect to have more to say about this on our second quarter conference call.

Finally, we continue to have excellent ongoing discussions with our key suppliers. This is especially critical now that component supply, especially media, is tightening. We still have much work ahead of us, but when I look back to our conference call in February, I am extremely pleased with the progress we have made.

Going forward, we have several priorities over the next few months. We must continue to strengthen our engineering teams, we must successfully introduce and ramp new products designed for high-end computing, mid-line, near-line storage, and consumer electronics applications. The move to China must remain on track to hit our target timeframe. We need to finalize our plans for offshore media operation and will continue to aggressively pursue cost of savings by improving our manufacturing processes and focusing on warranty and freight cost activities that should be incrementally positive to our bottom line throughout 2005.

Now I would like to turn the call over to Mike Wingert to provide more details on the current environment and our operations. Mike?

MIKE WINGERT, PRESIDENT AND COO, MAXTOR CORPORATION: Thanks, C.S. Our first quarter was characterized by strength in our SCSI and branded products market in a favorable industry environment. Demand for enterprise drives was very strong. These drives are on allocation and pricing held up well. In the desktop, supply and demand remained in good balance throughout the quarter resulting in very modest price declines.

We shipped 14.2 million drives during the first quarter, including 13.4 million desktop drives and 772,000 SCSI drives. Our average selling price increased $5 from the fourth quarter to $75. The increase was driven primarily by an improved mix on the desktop in a higher percentage of SCSI and branded shipments.

Revenue from the non-desktop PC applications including enterprise, midline and near-line storage, consumer electronics and branded products, represented 39% of the total.

On the desktop we continued to increase our business with OEM customers. The industry also demonstrated good discipline in the distribution channel. This has continued into April and today Maxtor is at roughly five weeks of inventory. Maxtor is seriously committed to the promotion of best …