Maxtor Cites Channel In Expected 2Q Loss

"Demand has been good and availability has been good," said Fred Schlaffer, president of B3 Computers, a system builder in Gwinn, Mich. "Hard-drive prices have been pretty stable to a little aggressive. But it's not a war out there. Everyone is pretty much stabilized [in pricing] in 40-, 60- and 80- Mbyte hard drives, which is where the action is."

Schlaffer said his primary disk-drive supplier is Western Digital, not Maxtor, but he said his company has not cut hard-drive purchases.

Robert Schaffer, president of Source Micro, a system builder based in Randolph, N.J., agreed, saying that purchases are still high.

"We've not delayed anything," Schaffer said. "Pricing has been declining mildly, but disk drives are like gasoline--you have to have them to go. We haven't been hedging at all."

Maxtor executives said in early July that the company expects shipments for the second quarter, which ended June 26, to be 11.6 million units, about 10 percent below initial guidance for the quarter. Revenue for the quarter is expected to be between $820 million and $825 million, with an expected loss of $20 million to $30 million, or 8 cents to 12 cents per share.

In addition to blaming the shortfall on softness in the distribution channel, especially from white-box builders and systems integrators, Maxtor executives cited a seasonally weak second quarter. Maxtor's average selling price for its drives dropped to about $71, down $4 from the previous quarter.

"We are extremely disappointed in our second- quarter performance, which was the result of a very aggressive pricing environment in both the OEM and distribution channels and lower-than-expected unit shipments, primarily to distributors," said Paul Tufano, Maxtor's president and CEO, in a statement. "During the quarter, we took steps to control costs and expenses to partially offset the shortfall in volume and revenue. We will continue our efforts to cut costs through a reduction in force, beginning this month."