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Falling margins, prices push Maxtor into the red

Q3 reverses Q2 trend

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Maxtor fell back into the red during its third fiscal quarter, it admitted this week, after a brief foray into profitability during Q2.

The hard drive maker reported revenues of $926m for the three months to 1 October 2005, only fractionally higher than Q2's $925m, and fractionally down on Q3 FY2004's $927m.

Maxtor shipped more drives in Q3 than the previous quarter, with SCSI shipments up 5.3 per cent, desktop-drive shipments up 15.7 per cent and consumer electronics-oriented product shipments up seven per cent.

But while Q2 had been a profitable quarter, Q3 wasn't, thanks to falling gross margins - down sequentially from 13.2 per cent to 11.1 per cent - and ASPs down from $77 to $70 over the same period.

"The gross profit margins on our desktop products were constrained due to a previously-announced production problem at our internal media operation," said CEO and chairman C S Park. "The production issue limited our supply of media, increased costs associated with scrap and yield and led to a less than favorable customer mix."

The result was a net loss of $17m (seven cents a share), better than the year-ago quarter's $95.1m (38 cents a share) loss, but down on Q2's $9.4m net income.

Park said the production problem has now been resolved and that the company doesn't anticipate that media will hinder Q4 performance. ®

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