Bill Watkins - CEO Charles Pope - Executive Vice President and Chief Financial Officer Dave Wickersham - President and Chief Operating Officer Brian Dexheimer - Executive Vice President and Chief Sales and Marketing Officer

Mark Moskowitz – JP Morgan Laura Conigliaro – Goldman Sachs Harry Blount – Lehman Brothers Rich Kugele – Needham Steven Fox – Merrill Lynch Katie Huberty - Morgan Stanley Sherri Scribner - Deutsche Bank Mark Miller - Brean Murray

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Seagate Technologies fiscal first quarter 2007 financial results conference call. (Operator Instructions) This conference call contains forward-looking statements, including but not limited to, statements related to the company’s future financial performance including the expected impacts from the acquisition and integration of Maxtor Corporation. These forward-looking statements are based on information available to Seagate as of the date of this conference call but are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. Information concerning the risks and uncertainties that could cause results to differ materially from those projected in the forward-looking statements is contained in the Company's annual reports, on Form 10-K as filed with the US Securities and Exchange Commission on September 11, 2006 and in the company's Form 8-K filed with the US Securities and Exchange Commission on October 24, 2006. These forward-looking statements should not be relied upon as representing the company's views as of any subsequent date and Seagate undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made. I would now like to turn the conference to over to our host Mr. Bill Watkins, CEO. Please go ahead.

Welcome and thank you for joining us. On the call with me today are Charles Pope, Executive Vice President and Chief Financial Officer; Dave Wickersham, President and Chief Operating Officer; and Brian Dexheimer, Executive Vice President, and Chief Sales and Marketing Officer. I would like to make a few comments on our performance this quarter and then provide a brief outlook for the remainder of fiscal 2007. I will then hand the call to Brian for review of our market performance during the quarter. I am pleased to report that Seagate closed a strong first quarter for fiscal year 2007. In which we achieved our financial objectives and record shipments of 39 million units. During the quarter, we continued to make significant progress on many of the broader objectives we set out to accomplish for the year, while maintaining our leadership position and setting the foundation to benefit from the nearly $10 billion of industry revenue growth expected over the next two years. During the quarter, we maintained our position as the industry leader in the three of the four major markets and our revenue retention targets following the Maxtor acquisition. We saw tremendous unit growth in the mobile computing space where qualifications of our industry-leading 160 gigabyte perpendicular drives continues to be well accepted by key OEMs. Seagate growth rate year-over-year in consumer electronic applications outpaced the industry and consumer electronics remains one of the most exciting markets for storage companies. In the enterprise space, we maintained our strong leadership position and saw very positive trends in both the adoption of small form factor products as well as high capacity products with Internet infrastructure applications. The desktop market remained competitive at the low end of the market, but we are seeing growing trends to higher capacity drives, which we believe favors Seagate products and cost leadership. Since closing the Maxtor acquisition last quarter, we have been focused on completing the integration process which will allows to rationalize our capacity to further lower our cost structure. The integration is going well, and continues to progress ahead of schedule allowing us to realize synergies from this acquisition sooner than originally anticipated. OEM customer transition to Seagate products continues to progress as expected, as we have discussed previously, by aggressively transitioning the Maxtor products to equivalent Seagate products, we have concentrated the negative financial impact on the product transition into the June, September and December quarters 2006. Dave and Charles will discuss later during this call how the completion of this transition will result in material improvement in our gross margins and operating model beginning in the March 2007 quarter. In the channel, the recent launch of our dual-brand hard drive strategy has been well received and we will continue to manage both our Seagate and Maxtor sales channels to achieve maximum market share from all our customer segments. Overall, I am pleased that through this acquisition we have met our revenue share goals to remain highly profitable. In connection with the Maxtor acquisition, we have planned on certain capital expenditures. However, with the acceleration of positive traction of the integrations, I am pleased to report that we will require significantly less capital investment than originally anticipated. This has also contributed to the reduction in our fiscal 2007 capital requirements, which Dave and Charles will detail shortly. Our outlook has been adjusted and will be affected by the aggressive pricing environment in the OEM desktop and notebook markets. Resulting from what we believe are competitors who seem intent on trying to capture market share without regard for profitability. I am pleased though, particularly in the face of this environment with the revenue retention we have achieved and we are confident in our ability to continue to reduce costs and improve profitability throughout the year. Since the announcement in December of the Maxtor acquisition, the market has had ample time to complete its adjustments of supply chain strategy. In light of this, we expect the normal dynamics of the market to returned and absent product transitions, quality issues or supply chain disruptions, there is no reason to expect market share shifts. Seagate has been and remains committed to pricing discipline which builds profitability and allows us to reinvest in technology, one of the keys to our leadership; but we are equally determent to maintain our current share positions. Consequently, we will meet market prices to maintain market share. Therefore, while there was an impact to our top line and original outlook we provided for the year, we are extremely confident in our ability to perform well in this environment. We have consistently demonstrated our ability to deliver superior profitability and believe that we will continue to deliver strong results in the fiscal year and over the long-term. For the second half of the fiscal year, there are three key factors that will drive or improve profitability. First, we are accelerating our development efforts and we will introduced new, higher margin, lower cost products as quickly as possible to optimize product mix. Second, we will entering the growing 1.8 inch market where we believe we will have a market-leading product ready to ship at the end of the calendar year. And finally, as mentioned earlier, we are very focused on completing the Maxtor integration, which will allow us achieve a lower cost structure. Seagate continues to be the industry’s technology product and cost leader with access to virtually every available market in the $30 billion plus disk drive industry and a strong and growing customer base. We continue to focus on delivering on our financial and operational objectives. I believe our board of directors demonstrated their continued confidence in our business and prospects with today’s increase in the quarterly dividend to $0.10 per share. Now I would like to turn the call over to Brian to provide details on our performance in the quarter. Brian Dexheimer: The September quarter was characterized by seasonal unit growth and industry demand of 13% sequentially and 17% year-on-year. We believe the industry had record revenue performance and Seagate maintained it’s leadership in three of the four major markets, shipping a record 39 million units. In addition, overall revenue retention as a result of the Maxtor acquisition remained within our target range. As we look forward into December, we expect industry unit demand overall to be a 115 to120 million units for about 10% to 15% year-on-year growth. Now I’ll give some detail on the individual markets. In the mobile computing space, the market remained strong, delivering over 26 million units of demand. Seagate saw continued growth, shipping 4.2 million drives, an increase of 24% sequentially and 74% year-on-year, over twice that of the industry. We believe we are extremely well-positioned in the space, with one of the broadest product offerings in the industry, including our newly introduced mobile MAX line of Maxtor branded notebook products for channel partners globally. Further, our technology leadership in this space allowed Seagate to increase its average gigabyte per drive shipped to nearly 80 gigabytes, once again leading the industry. Our industry-leading 5400 RPM, 160 gigabyte notebook drive is now qualified at nine leading notebook manufacturers, and we expect to complete another three qualifications during the December quarter. Looking forward, we expect overall notebook demand for the December quarter to be seasonally up from the September quarter. In the consumer electronics market, Seagate maintained its leadership position during the quarter, shipping 6.5 million units. In the DVR space, all significant previous Maxtor customers have engaged in qualification, or shipment of, Seagate designed products and we feel good about our ability to retain this revenue going forward. Also in this space, the launch of our 750 gigabyte DV-35 and SV-35 products have been well-received and are in qualification for high definition digital video recorders and surveillance systems planned for later in the year. As we have seen the average capacity of our DVR shipments grow to nearly 180 gigabytes, we feel the introduction of this high capacity platform gives Seagate an important advantage in cost and capacity in this space going forward. Gaming applications remain one of the strongest sectors of this market, as console makers geared up for increased demand in product launches during the holiday season. To date, we have been pleased with our significant participation in both of the next generation consoles available in the market. In hand-held applications, demand for our 1 inch products remains steady, with shipments comparable to that of the June quarter. In addition, our 1.8 inch drive, announced during the June quarter, targeted at personal media players, digital video cameras and other portable devices is on track to begin qualifications during this quarter. We expect demand in the CE market to be flat to slightly up in the December quarter. Demand in the Enterprise space was in line with expectations, as Seagate shipped 4.1 million units, maintaining our leadership position in this space. Our industry-leading product line is well-positioned to take advantage of the growth ahead, particularly in the tiered storage and small form factor segments of this market. In fact, shipments of our 2.5 inch Enterprise-class drives grew 36% sequentially, and we expect to see rapid industry adoption of this platform over the next three to nine months. We expect overall Enterprise demand in the December quarter to be flat to that of the September quarter. In the desktop compute market, we maintained our leadership position by shipping 24.4 million units. Revenue retention in this space is at the low end of our expectations as once again we saw willingness from our competition to secure additional share on aggressive terms, particularly at the low end of the product line. Our product mix continued to improve, as shipments of products 200 gigabytes and greater continued to exceed the industry average as a percent of volume. Global distribution demand for desktop products was strong later in the quarter, as is usual for a September quarter. Our dual brand offering is being well received by our partners and end customers in the both the commercial and consumer channels of sale and we remained pleased with our revenue retention. Channel inventory ending September was less than June on an absolute basis and was under five weeks, consistent with our recent history and model. For the December quarter, we expect to see a normal seasonal demand increase in the desktop space. Finally, Seagate’s branded solution revenue, comprised of Seagate and Maxtor branded products, was up sequentially. Demand for networked and attached storage in small businesses and the home continues to grow. We have the industry’s largest product offering in this space, and believe we are best positioned to capitalize on the growth ahead. We expect December quarter to be seasonally strong for this business. In summary, we are encouraged by the industry growth trends in fiscal 2007, and Seagate’s unique position to capture revenue share across all markets. Now, I would like to turn the call over to Dave to provide an update on our acquisition and operations.

Thank you, Brian. The Maxtor integration and product transition to Seagate products and processes is proceeding ahead of plan. We are closing in on the final build of legacy Maxtor products quickly. Production of all legacy Maxtor products is expected to be complete by the end of November with the exception of the 10-K RPM SAS Enterprise drive which will be completed by mid-December. The completion of legacy Maxtor products is a significant milestone and the expected improve in our manufacturing capacity, utilization, and shift to Seagate products and processes ensure we are positioned to achieve our financial targets in the second half of fiscal year. As Bill discussed earlier, completing this planned product transition will result in a material improvement in our gross margin and operating model beginning in the March 2007 quarter. Regarding inventory, last quarter I described our plan to improve inventory turns for the Seagate designed products to 12 to 14 times range. Our performance did not meet our objective or requirement as inventory turns in the September quarter for Seagate designed products were slightly less than 11 turns, which is basically flat compared to the June quarter. We have implemented a number of process changes to improve our inventory turns and I am confident it will improve our results. Resources and weekly management reviews are in place to help ensure we meet 12 inventory turns this quarter. Regarding legacy Maxtor products finished goods inventory, we expect to have at most a couple hundred thousand legacy Maxtor drives at the end of December. Looking at our transition to perpendicular recording, Seagate’s technology leadership is clear. During the September quarter, we shipped approximately 3.7 million drives that utilized perpendicular recording. Every major market -- desktop, notebook, enterprise and consumer electronics -- is being served in some manner by a perpendicular recording based drive. We have growing confidence that we will achieve our internal plan of exiting our fiscal fourth quarter with greater than 50% of all drives shipped utilizing perpendicular recording. Finally, our leadership in perpendicular recording technology will allow us to access new revenue opportunity with the industry’s first single-disc 60 gigabyte 1.8 inch drive. Our fiscal 2007 capital investment forecast has been reduced and we now expect capital investment to be approximately $1.15 billion for fiscal year 2007. This is a reduction of approximately $150 million and is primarily driven by process, test and yield improvements; and to some extent utilization of equipment acquired from Maxtor. Finally there has been no change to our Singapore Woodlands 3 media expansion plan and we continue to target initial production in the first half of calendar 2008. Now I would like to turn the call over to Charles.

Thanks Dave. You will find the company’s press release, 8-K and additional financial information related to Seagate’s financial performance, along with a reconciliation of GAAP to non-GAAP financial results and other supplemental information in the Investor Relations section of Seagate’s website at seagate.com. Throughout my remarks I will be referring to specific sections of the supplemental financial information by slide number. Seagate reported September quarter revenue of $2.8 billion and unit shipments of 39 million. Included are revenue and unit shipments from legacy Maxtor products of approximately $344 million and 4.9 million units respectively. GAAP net income and diluted earnings per share are $59 million and $0.10 respectively. Included in the GAAP results are approximately $82 million of acquisition-related charges and associated tax effects; as well as a favorable restructuring adjustment of $4 million. Without these charges and the associated tax effects, non-GAAP net income and diluted earnings per share was $137 million and $0.23. These are shown on slides 3 and 4. Non-GAAP gross margin for the combined company in the June quarter was 17.3%. Slide 5 has the adjustments made to GAAP gross margin. Gross margin percent for the legacy Maxtor product was notably worse then expected and was approximately negative 16.3%. Gross margin percent for Seagate products was approximately 22.1%, slightly better than we expected. The pricing environment on average for the quarter was in line with our expectations. The desktop and notebook markets continued to see competitors using aggressive price in attempting to achieve higher market share. For Seagate products, average price declines on a like-for-like basis across all markets was in excess of 6%, similar to the June quarter. Price declines accelerated in almost all markets as we negotiated pricing and share allocations with the OEM customer base for the December quarter, and is reflected in our outlook. GAAP operating expenses composed of R&D, SG&A, and amortization of intangibles for the September quarter were $394 million. Excluding acquisition-related costs of $46 million non-GAAP operating expenses were $348 million; considerably less than excepted. Due to the uncertainty around the pricing environment, Seagate focused on minimizing operating expenses during the quarter as an offset. Going forward, we will continue to focus on limiting increases in the operating expense area and now expect operating expenses for fiscal 2007 inclusive of Maxtor ramp down costs, but excluding acquisition related costs, to be approximately $1.48 billion. Slide 6 has the details for the adjustments made to GAAP operating expenses. Net other income and expense for the September quarter was $2 million of income. The September quarter reflects a full quarter of the Maxtor debt we assumed as part of the acquisition, and approximately two weeks of the debt Seagate issued late in the September quarter. The accounting provision for income tax was a benefit of $5 million for the September quarter. The primary cause of the tax benefit was a greater than expected loss from the legacy Maxtor operations. Looking forward, we expect the tax rate for the year to be approximately 5%. It is important to note that we do not expect a material change in our cash tax rate now or in the foreseeable future. Cash, cash equivalents and marketable securities ended the quarter at $2.65 billion. Seagate made capital investments during the first quarter of fiscal 2007 that totaled $227 million. As Dave indicated, we now expect approximately $1.15 billion in capital investments during fiscal 2007 During the quarter, the company used approximately $150 million to repurchase 6.7 million shares. There is approximately $2.35 billion still available under the current stock repurchase authorization. During the December quarter, significant uses of cash will include redeeming the $400 million, 8% note and roughly $130 million of the $500 million previously discussed related to the Maxtor acquisition. As noted in our press release today, we have adjusted our business outlook for fiscal 2007. There are a couple of reasons behind the change in our outlook. First in response to recent competitive behavior that we believe focused on market share and not profit, Seagate has shifted to a meet market price approach with the intent of not ceding any share in the market. Second, revenues generated from legacy Maxtor products will continue to have a meaningful drag on the company’s financial results. We estimate a negative impact to gross margin and earnings of approximately $30 million in the December quarter associated with legacy Maxtor designed products resulting in approximately negative 16% gross margins versus an earlier expectation of zero gross margins. In light of these changes, the management team has embarked on a focused cost improvement plan that spans all elements of spending within the company from bill of material costs to below the line spending. The currently identified savings from this effort is already incorporated into our outlook. Our financial outlook for the year incorporates our expectation of the environment I just described and also requires crisp execution by Seagate around three key activities. The first is completing the Maxtor product transition and improving manufacturing utilization rates. The second is launching and ramping new products with lower cost structures across various markets. Third, expanding market coverage with the new 1.8 inch product mentioned earlier. During the second half of our fiscal year, we believe that the synergies and the accretion associated with the Maxtor acquisition will be realized and the company will move back into its gross margin model of 24% to 26% with sequentially improving financial results throughout the fiscal year. For the year, revenue is expected to be $11.4 billion to $11.8 billion. Operating expenses, including the ramp down of Maxtor but excluding acquisition related costs, is expected to be approximately $1.48 billion. The booked tax rate should be approximately 5%. Our outlook does not incorporate any impact to other income and expense or the outstanding share total represented by potential share repurchases that may occur during the year. As such other income and expenses model to be a net of approximately $20 million and the average diluted outstanding shares model is 595 million. Accordingly, non-GAAP diluted earnings per share expected to be $1.70 to $1.80. Including the estimated costs directly relate to the Maxtor acquisition and approximately $18 million of fees related to the early redemption of the 8% note, fiscal 2007 GAAP diluted earnings per share is expected to be a $1.35 to $1.45. For the December quarter, revenue is expected to be between $2.8 billion and $3.0 billion with approximately $175 million for legacy Maxtor products. Gross margins for the company are expected to improve roughly 200 basis points due to improved manufacturing utilization as we accelerate the ramp down of legacy Maxtor products. Operating expenses including Maxtor ramp-down costs but excluding acquisition-related costs is expected to be around $370 million. Other income and expenses model to be a modest net income; diluted outstanding shares are modeled to be flat from the September quarter exit level at 595 million. Accordingly, non-GAAP diluted earnings per share for the December quarter is expected to be $0.30 to $0.34 including acquisition-related costs, and approximately $18 million related to the early redemption of the 8% note. GAAP diluted earnings per share are expected to be $0.17 to $0.21. Finally, I want to provide an update on our internal audit regarding option grants. Our auditors have completed the review of all of our option grants as well as the option granting process since the company went public in December 2002 and will be presenting their report to the audit committee later this week. Based on that review, I am confident that no adjustments to our financial statements are necessary with respect to our accounting for stock options. That concludes my remarks. I will now turn the call back to over to Bill.

Thank you, Charles. Looking forward, I seeing continuing success for Seagate. The bulk of the Maxtor transition is behind us and I believe our employees have done an excellent job in meeting our acquisition goals. We believe we are the best positioned storage company in the industry and we will soon realize all the benefits of the acquisition in the form of revenue and earnings which will improve progressively each quarter throughout the fiscal year. With that on behalf of the entire Seagate management team, I would like to thank Seagate employees around the world for their contribution to another strong quarter. With that, let’s open it up for questions.

Your first question comes from Mark Moskowitz – JP Morgan. Mark Moskowitz – JP Morgan: Yes, thank you. A few questions, if I may. It is somewhat of a loaded question for you, Charles and Bill. You describe pricing has gotten much worse, during what is probably the best time of the year historically. Given the hard disk drive industry’s past, I would say that when pricing starts to slide it is usually a pretty slippery slope. So I wanted to get your sense in terms of what is lending to your confidence that you get this material snap-back in your outlook in the March and June quarters of fiscal ’07, given that we are in a pretty tenuous pricing environment right now? And the slower period of the year is just around the corner.

Tell you what, Mark. I will let Charles answer it. If he doesn’t give you the right answer, I’ll add. Go ahead, Charles.

Okay. Well, as I sat and looked at the back half of the year, the biggest part of the significant improvements in margins that was referred to in our remarks is really credited in products that are being introduced that have significantly reduced their cost structure. That is something that is within our control to be able to go and do that. We are feeling good about the products that are underway and will be coming out at the back half of the year. That is the biggest part of the lift.

Mark, as we’ve said a couple of times, getting rid of the Maxtor, after going through this quarter, once we get rid of the Maxtor products and transition to Seagate, we feel that we have not only now, but going forward with the opportunities that Dave and his team are working on, we have the ability to be in a pretty aggressive price environment, but our ability to reduce cost in this environment and continue to grow revenue and earnings – we feel pretty confident about. The net of it is, is our ability to execute. You can’t always control pricing, but we can have a big say in our cost structure. We are feeling pretty good about some of the opportunities ahead of us. Mark Moskowitz – JP Morgan: Then as an offshoot there, how should we think about this opportunity for Seagate to take advantage of the lower cost structure, in terms of how much ammo from that lower cost structure is going towards your meet the market approach, as you have described it? Versus gross margin improvements? Can we get a sense there?

Again, I think we are not going to drive pricing down. We are going to follow the market. We are going to be focused on profitability. We have been continuously. That said, we are not giving up any market share for pricing. And so, I think the net of it is as we take advantage of our cost structure, we are going to try to float the gross margins first. But again, we are not giving up any more market share from where we are. Mark Moskowitz – JP Morgan: So you are pretty much shooting the cannon balls across the bows of your competitors today then, I take it?

No, I think that we have stabilized where the markets are and we are keeping our share. I think there is a great opportunity for all of us. I mean, it’s a nice market. There is a lot of growth and if we act smart I think we can all do well.

Mark, I think if you reflect back to conversations that we’ve had with the investment community announcing the Maxtor acquisition, we’ve been open about the fact that we felt that there was share that would be lost; there was probably some share that we wouldn’t mind losing. This is basically a statement that says, that time has past. And so it is not really trying to be aggressive or anything else, it is saying that the transition has occurred, we are where we are and now let’s go to business. Mark Moskowitz – JP Morgan: Okay, two more questions, if I could. The distribution channel. Brian, how should we think about Seagate’s exposure to the distribution channel now, given that you have more of a dual source here with the Maxtor and the Seagate lines in the distribution channel? Brian Dexheimer: I think as a percent of the business, obviously we have seen the business increase substantially, across the board, Mark. So I think in terms of percentage of business, it is really probably not as dramatic as you might think it is. So our mix did shift a little bit towards channels as opposed to OEM, but it is in low single-digits kind of a shift, so I don’t think it is really that material. In fact, I think because of the additional mix levers at our disposal relative to having two brands and two paths to market, I actually think it helped stabilize the business to some degree. Mark Moskowitz – JP Morgan: Lastly, a major enterprise storage provider has commented that they have been building more or less a war chest of inventory for 3Q and 4Q. I am just wondering, given your position in the enterprise drive market, how does that impact your revenue assumptions going into the first part of ’07?

Well I don’t think we factored in anything substantially different. I have been pretty consistent, I think maybe back in August when we talked about the September quarter being flat to June, there was some skepticism around whether that was really going to happen. In fact, we think that is exactly what happened and that is why we are saying this quarter will be flat as well. What we are seeing is a tremendous uptick in terms of pedabytes consumed in that space, but the unit totals are relatively flat and I think as it pertains to the first half of calendar ’07, we don’t have anything in our outlook that would say that they would be anything other than the same kind of seasonal enterprise demand we have seen before. Mark Moskowitz – JP Morgan: Okay. Thank you.

Your next question comes from Laura Conigliaro – Goldman Sachs. Laura Conigliaro – Goldman Sachs: Yes, a couple of things. What is your thinking behind the movement in your internal inventory where Seagate’s finished goods inventory is up 80 million? And then I guess in a related question, maybe you can talk a little bit more about the $30 million of unexpected costs on the Maxtor side in gross margins for the December quarter? In addition, what exactly do you expect for pricing to be in the December quarter?

I will let Dave take the inventory. Dave Wickersham: Hi, Laura. I will start first on the inventory, up 81 million quarter on quarter. It is driven, that is basically two major components. Two-thirds of it are finished goods and the other is some increases in purchasing, primarily due to precious metals and positioning some perpendicular media this quarter. The majority of it is finished goods, and it is frankly a result of forecasts coming in different than what we planned. So what we have done – and it is across all market segments, it is not legacy product, it is not old product, it is just again our inability in the September timeframe in particular to adjust the changes in the mix of customers across desktop, notebook and enterprise. So what we have done is put together a process, focus and some resources to make sure that throughout the quarter, not just the last month of the quarter, as we see changes in the actual consumption from our customers, we are in a position to quickly make adjustments.

Laura, I will cover the next two points. At the time that we were putting together our fiscal year plans originally, we had expectations reviewing the material and product cost of Maxtor products, that in the December quarter we would be able to have zero gross margin. As we have better understood the purchase commitments and everything else and matched them up against our plans, we have found that we had a disconnect with that from a planning perspective. It is the same purchase orders that were there, continuing out the legacy build. It was missed in our planning process before. And so that is really what that is. If we sat and looked at the pricing environment, the pricing environment that we see for December is about a point more aggressive than it was in the September quarter and about a point-and-a-half more aggressive on a like-for-like basis than what we had built into our plans at the beginning of the year. As you know, once you have an exit price that has stepped down and you maintain some reasonable price reduction expectations, it has a ripple effect throughout the year then. That is one of the major drivers of the adjusted outlook that we have given. Laura Conigliaro – Goldman Sachs: Can we go back to the last question, which is this has really been two quarters in a row now that you have had some inventory issues that you are really adjusting for. Maybe you can talk about that too? You had the high end drive situation last quarter. Dave Wickersham: Last quarter it was primarily driven by a mix change, frankly primarily in the desktop and the notebook area. I won’t describe it as anything different than the need to improve our process, recognizing the complexity in terms of configuration and number of customers that we are serving, we need to make those adjustments more timely. I do think we understand the issue. I do think, like I said, with the additional attention, resources and tools that we have put in place that we can manage this and get back to the 12 turns this quarter. So again, it is a process that we own and we are accountable for that we just didn’t adjust or forecast quick enough. I do think that we understand that. We have taken the steps to ensure that does not continue.

Laura, it can’t. Just how we are thinking about, I think we need to be better focused on inventory, I am not going to try to side-step the issue. As we look at the September and December quarters, we are not probably as worried about inventory going into a December quarter. I think what is paramount is that we come out of December with the right inventory balance. So again, we kind of look at opportunities to put things on boats and things like that. I mean, we don’t do the hard shutdowns of production builds that we could have done to bring the inventory in line. We would be more inclined to do something like that in a December or March quarter.

Your next question comes from Harry Blount – Lehman Brothers. Harry Blount – Lehman Brothers: The first couple are for Charles. Charles, you had mentioned that the company has embarked on some cost optimization initiatives on both the operating costs and the bill of materials side of the equation. I was wondering if you could refine that a little bit more for us? Also, if you could give us a bit more clarity on the share buyback side? I know you have guided for no change from a modeling perspective, but maybe you could give us a little bit of a sense on the go forward basis, how much might be in a normalized buyback program versus more of an opportunistic buyback program?

First, relative to the cost reduction, there were quite a few notes out from investors and also just industry notes during this last quarter identifying a great deal of uncertainty relative to demand, to the pricing environment and everything else. We as a management team felt like we needed to batten down the hatches. I think that’s reflected in the spending levels that we reported. And so to a very large extent at this point in time, we are focused on maintaining the spending levels that we have reported in this set of financial results, and as we continue to have growth and demand growth and revenue and other things to fulfill that through efficiency measures versus increased spending. There are areas where we are actually going through and have opportunities to reduce some costs, reduce some inefficiencies, but by and large it is maintaining where we are now and not having the increases that we had planned during the course of the year. Share buyback. You know, I have between now and Friday to figure out exactly what we might want to do with the share buyback. I don’t think it is prudent to really describe it, because it takes away the opportunities we have to be opportunistic in the market and everything. I think it is fair to say that we would expect to be in the market, that us guiding you to flat numbers and the model as it is there is not an indication that we don’t have an appetite and a desire to be in the market repurchasing shares, and I think that our history would demonstrate that we will in fact do that. Harry Blount – Lehman Brothers: Thanks. Dave, I know you said you anticipated being fully transitioned on the Maxtor product later this quarter, but is it safe to assume that the desktop products specifically is now fully transitioned? Dave Wickersham: No. We basically have 700,000 drives to go to complete it. Most of the desktop will be completed by the end of November completely and then we will have a minor number of enterprise drives that will carry us into mid-December.

Dave is addressing it from a manufacturing perspective. There may be a few hundred thousand left from a sales perspective that carry over into the March quarter, but aren’t expected to have a material impact on the March quarter results. Harry Blount – Lehman Brothers: Then the last few questions are, Brian you had indicated that CE in the 1 inch space was essentially flat during September. Could you give a little bit more of a breakout on the DVR gaming side? And then Charles, I just have one more back on the desktop side. You indicated negative 16 on the Maxtor product in the December quarter. Should we assume as we move to the March timeframe, just to tighten up the models as we look forward, that we should be building in a Seagate desktop margin that is more in the mid-teens?

Well I have never really been granular about what the individual market margins are, but in the March and June quarters we are essentially 100% Seagate based products, and we have modeled and feel confident in returning to our operating model of 24% to 26% gross margins, with some sequential improvement during that period. Brian Dexheimer: June to September growth was what I would say relatively modest unit growth in DVR and gaming combined, and somewhere in the 5% to 10% range. Harry Blount – Lehman Brothers: But similar amount of increase on both the DVR and the gaming? Brian Dexheimer: Yes. Harry Blount – Lehman Brothers: Thanks.

Your next question comes from Rich Kugele – Needham. Rich Kugele – Needham: Thank you. Good afternoon, gentlemen. In terms of your new, low-cost 160 gig, how should we think about that product ramping? Where do you expect it to ultimately be applied? Is this going to be namely 160 gig and under, or will you apply it further within your desktop line? Brian Dexheimer: The 160 gig low-cost, can you just zero me in on what specifically you are referring to? Rich Kugele – Needham: Well that is part of your new low-cost product suite that is going to be launched, right? Brian Dexheimer: In the second half of the year? Rich Kugele – Needham: Yes. Brian Dexheimer: Yes. Rich Kugele – Needham: So as you see that ramping, how should we view that? Is that going to be ultimately applied to attack the markets that other competitors have been going after, so you now have a competitive product? Any color there would be helpful. Brian Dexheimer: Well let me first correct that perception. We have always felt like we have a competitive product. This, as Bill pointed out, helps us bring costs down even further and makes us that much more competitive. So the lack of a competitive product has never been our issue in any statement in the market, necessarily. I think what we are struggling with is the margin profiles up to this point. Going forward, we will not hesitate in struggling with that to keep the share that we’ve got. To address your original question around the second half of the year and the 160 gigabyte, that primarily will be a desktop purpose design, but it will also have applications in the DVR space that I think will be significant. At the same time, we will be working on some higher density PER disk implementations that actually go up in the product line and are greater than the 160 gig disk, that will help us attack things in the line and higher end DVR market. Rich Kugele – Needham: Secondly, in terms of the CapEx reductions, can you provide some color on what is actually represented in the $150 million delta? Any specific examples of the types of process improvements or changes you were able to implement to reduce this capital spending level? Dave Wickersham: Sure Rich. The good news is, from our perspective, is it is across all areas. Frankly head, media and slider through drive. It again demonstrates some of the benefits that we are seeing as we both mature and ramp some of the new technologies. So when I think about the capital utilization, the improvement in OEE, the good news is that it is really across all segments, all portions of our capital equipment. So it did turn out to be roughly 60% slider through drive and the other 40% is in the component world. Again, the good thing that we saw is the benefit of the improved focus and the benefits of the products and technologies across the board. Rich Kugele – Needham: Lastly, Bill, as you look into the next calendar year, there has been a lot of hammering about overall demand falling off a cliff. Any color you have on what you think the industry growth rate will really be, and what you have in your own internal planning; and how much of an effect, either positively or negatively, do you think Vista will be within that forecast?

Sounded more like a Brian question to me. Brian Dexheimer: Rich, let me take a stab at that. First I would point you to history and I would say pretty consistently we have seen a period of about three years here where we have seen high teens in year-on-year growth rate. And in fact, as I pointed out in the comments here, we saw 17% growth from September to September quarter in the one we just finished. I think it would be imprudent for us to think that kind of growth continues back into PC refresh cycles, et cetera. So our expectations going forward for year-on-year growth are slightly less aggressive than that, but still in the teens. So I don’t think it is a great deviation from past experience. Again, these are year-on-year growth rates. The effect of Vista is really a question that we, as you can appreciate, get asked quite often. We are currently planning that there is a little bit of demand shift from this quarter that we are in right now into the March quarter. If you picked up in my earlier comments the fact we expect about 115 million to 120 million units in December; you might note that sequentially, that is not a very aggressive growth rate, based on history. The primary reason for that is the shift of 2 million or 3 million units of desktop and notebook demand into that March quarter. Now if we are right about that, that will generally help the March quarter be a little stronger than normal, which typically is not too far off the December quarter. If we are wrong, then we will probably see some demand shift back towards us in quarter. It is a little too early to tell. Rich Kugele – Needham: Thanks very much.

Your next question comes from Steven Fox – Merrill Lynch. Steven Fox – Merrill Lynch: Two questions. First of all, it sounds like you are going to draw down inventories as you go through the rest of the fiscal year. So can we assume that the negative effects on your gross margin are included in the gross margin outlook that you just provided?

Yes. Our adjustment to inventories is reflected in the outlook. Steven Fox – Merrill Lynch: Great. Secondly, just to further understand the pricing dynamics that you put in, you obviously are going to have a cost advantage in the second half of the year. Can you describe what kind of cost advantage you are going to have versus your competition in order to meet comp and still hold gross margins? Maybe just talk a little bit more specifically about which product areas that is going to come from the most? Dave Wickersham: Let me restate what we said which is, with the introduction of products frankly across all market segments, we are seeing cost benefits of that technology that we discussed with many of you back in June. So it is not specific to any one product and not specific to any one segment. We are basically refreshing to a large extent, across the board. So as those new products are phased in with higher density, higher yields and lower costs, you are going to see the benefit across the board. Steven Fox – Merrill Lynch: This is correct that it does give you enough pricing flexibility where you think you can be aggressive in this type of environment and still hold margins?

That's correct and in fact we believe that it gives the ability to respond to the market pricing and grow our margins during the back half of the year. Steven Fox – Merrill Lynch: Great. That’s very helpful. Thank you.

Your next question comes from Katie Huberty - Morgan Stanley. Katie Huberty - Morgan Stanley: Hi guys. Just a quick question on that the perpendicular transition. As you think about that over the next 12 months, how are you considering the risk of potentially needing to carry more inventory to manage some of the supply constraints? In particular you point to a tight supply of two precious metals in your 10-K that are required in greater amounts as you shift over to perpendicular?

I think as far as continuity of supply, including the impact for precious metals, one that has been addressed and two to the extent there is increased cost of those precious metals for the introduction of perpendicular, it's already factored into the outlook that Charles talked about. So we really don’t see any other supply constraints in our ability to phase over. So now what we are doing is frankly working customer-by-customer to ensure that we have the proper amount of overlap between their current product in the phase in a perpendicular. Frankly, that’s no different than any other product transition that we go forward with. So the perpendicular products have been well accepted as I said in the opening comments. We are very, very pleased with the maturity of the perpendicular from a component and a drive assembly and yield perspective. So again, I don’t want to say its business as usual, but frankly I don’t know a better way to describe it other than to say the transition really now has become business as usual, transitioning our customers over to perpendicular. Katie Huberty - Morgan Stanley: Great. And then just one quick follow up, sorry if I missed it, but what's your perception of where industry channel inventory stands at the end of September?

As we've reported, our inventory was pretty consistent with our model which has been less than five weeks for quite some time. The industry inventory outside of Seagate appears to be that or may be even slightly less as we exited September, so it was a rather healthy position as we came into this quarter. Katie Huberty - Morgan Stanley: Great. Thanks so much.

Your next question comes from Sherri Scribner - Deutsche Bank. Sherri Scribner - Deutsche Bank: I guess I'm a little bit confused on your comments on the ASP declines this quarter. I think during your August call you said that you were planning for ASP declines on a like-for-like basis of 7% and it sounds like this quarter you saw 6%. So, I'm trying to reconcile that with your comments that maybe pricing was a point more aggressive than your plan or a point-and-a-half more aggressive than your plan heading into December?

What we had indicated was that September quarter was largely in line with our expectations. As you stated, it's probably a little bit more moderate than the June quarter, but largely in line with our expectations, but was in excess of 6% price erosion on like-to-like basis in September. We had expected a little bit of moderation, only above a half a point or so of moderation, of price decline in the December quarter. We are finding that it’s in fact closer to the 7% range and so we have in the December quarter about a point-and-a-half more price erosion than was built into our original plans that we gave everyone. Sherri Scribner - Deutsche Bank: Okay. Does that suggest that ASP declines in December that you're planning for higher than 7% if it’s a point-and-a-half higher?

The original December plans were about 5.5%. Sherri Scribner - Deutsche Bank: It sounds like from a lot of your comments that you guys are shipping higher capacity drives, on average, than the industry. I would assume that would help the overall blended ASP. But your ASPs were still down 5% in the quarter. How is that offsetting the ASP declines you are seeing? Are you also seeing very aggressive pricing on the high-cap drives?

Well the pricing is pretty consist across all platforms, all our markets. It is probably a little bit more aggressive in the notebook, but when you sit and look at just the mathematical ASP, you know divide revenue by the number of units, there is a very big mix impact on that. And if you sat and look at the increase in desktop, notebook and the reduction in enterprise drives from the June quarter to the September quarter, that represents the biggest shift that you saw in the ASP declines. Sherri Scribner - Deutsche Bank: Okay. So some of that is slower enterprise than the June quarter?

That’s correct. Sherri Scribner - Deutsche Bank: Okay. Great, thank you.

Your next question comes from Mark Miller - Brean Murray. Mark Miller - Brean Murray: The conference began with concerns about pricing, I was just a little puzzled here because I think Bill, you were talking about your expected normal dynamics to return and yet it seems like you know anything if pricing still going to be pretty aggressive December quarter. Maybe I'm taking these comments out of context, but what gives you the feeling things are going to settle down?

Well, you know again I think there is only so much losses -- I mean some of our competitors are going to report some pretty horrendous losses this quarter. So I think there is a sense of that, but right now we are planning on pretty aggressive pricing and what feel confident of is our ability to get rid of the old Maxtor products, which are beyond -- this is like a big anchor on us right now from a cost perspective -- and then the introduction of the new products that we think have significant cost reductions; and then obviously the access to the new market and 1.8 inch drives. So again, we look at those three things and our ability execute those three factors in an environment we feel that we can be very, very competitive and obviously deliver on the continued increase in earnings throughout the year. Mark Miller - Brean Murray: I think very recently that there has been some scuttlebutt about one of the share aggressors at the low-end of desktop maybe walking away from some business. Have you seen anything like that perhaps very recently?

You know, a lot of the OEM deals are cut in September. People were very aggressive in those OEM deals. Now I think, the channels seem to have moderated a little bit going through the month of October, We are going to wait and see.

I think we have started to see some stops and starts relative to some of the behavior we had seen let’s say February through August. It’s not clear to me whether that’s been an intentional backing away of aggressiveness or whether there are some constraints on the supply chain that necessitated that to happen. But just to confirm some reports, we did see that, I would say it’s been on a very selective and regional basis. Mark Miller - Brean Murray: Basically you were talking about fiscal '08 capital spending being down from '07. Is that still going to be the case maybe running 8% to 8.5% of your sales?

I can tell you that it will be down certainly from the 1.15, I don’t want you to pin me down to a percentage yet, but it definitely will be down below 1 billion and consistent with the percent of revenue you described. Mark Miller - Brean Murray: Thank you.

So, with that, thank you for joining on the call today. We look forward to speaking with you next quarter. Thanks.

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