Bill Watkins - CEO Charles Pope - EVP and CFO Dave Wickersham - President and COO Brian Dexheimer - EVP and Chief Sales and Marketing Officer

Paul Mansky - Citigroup Harry Blount - Lehman Brothers Mark Moskowitz - J.P. Morgan David Bailey - Goldman Sachs Aaron Rakers - A.G. Edwards Tom Curlin - RBC Capital Markets. Kevin Hunt - Thomas Weisel Rob Semple - Credit Suisse Katie Huberty - Morgan Stanley Jeff Brickman - UBS Daniel Renouard - Robert W. Baird Steven Fox - Merrill Lynch Rich Kugele - Needham & Company

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Seagate Technology's Fiscal Third Quarter 2007 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for questions, and instructions will be given at that time. (Operator Instructions). This conference is being recorded This conference call contains forward-looking statements including, but not limited to, statements related to the company's future financial performance. 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 these forward-looking statements is contained in the company's annual report on Form 10-K, as filed with the U.S. Securities and Exchange Commission on September 11, 2006, and the company's quarterly report on Form 10-Q, as filed with the U.S. Securities and Exchange Commission on February 2, 2007, and in the company's Form 8-K, as filed with the U.S. Securities and Exchange Commission on April 17, 2007. 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. We would now like to turn the conference over to our host, Mr. Bill Watkins, CEO. Please go ahead, sir.

Welcome everyone, 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'll begin today’s call by reviewing our performance for the quarter and our expectations for the fourth quarter. Then Brian, Dave and Charles will give you more details on the core market, operating and financial performance. As I noted in our press release, we are disappointed with our results for the third quarter. We miscalculated the market. And in this unusually challenging environment, we failed to deliver the results that we had projected. The gap was due primary to a shortfall in the expected total market demand for 3.5-inch ATA disc drives and due to our pricing environment for high capacity 3.5-inch ATA disc drive that was more aggressive than we had planned. In light of the fact that we did not meet our plan for the quarter, we no longer expect to meet the annual revenue and earnings targets forecast in January. Charles will provide an adjusted forecast later in his part. Despite this uncharacteristic market environment, it's important to note that the fundamentals of Seagate business and that of the industry remained solid. Seagate’s revenue remained strong, our balance sheet is healthy, and we continue to generate cash for ongoing investments in the capital and R&D, required for growth. Further, from a market perspective, we increased our share in key growth markets and maintained our leadership in the core markets. We are operating at the kind of scale that allows us to continue to innovate while driving down costs, and thus exercise a great deal of market flexibility. Overall, our results continue to reflect our leadership position in the sector, as well as a strong trend line that shows the creation sharing of the content needed to grow at this pace. We remain confident in our strategy and in the growing strength of our company. Seagate is well positioned in an industry that has seen some strong growth trends. We remain committed to pricing discipline, maintaining profit and ensuring continued investment in our industry-leading technology. We have consistently demonstrated our ability to deliver superior profitability. And we believe that we will continue to deliver industry leading results in the fiscal year and over the long-term. Now, I would like to turn the call over to Brian for more details on the market dynamics of the quarter.

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Thank you, Bill. As Bill clearly discussed the March quarter outcome was not what we had anticipated. While Enterprise Mobile Compute and CE markets displayed expected demand patterns, this is not the case in the 3.5-inch ATA space. Post Chinese New Year and through March, the market typically displays an accelerated demand pattern. This pattern did not emerge this year, making March a weaker month than our plans predicted, which resulted in a total available market that we believe was over 4 million units less than the December quarter. I will offer more detail on this as I discuss individual markets. We believe the overall total available market or TAM was 112 million units, down 5% from the December quarter, although this still represents a 10% year-over-year increase. In the quarter, Seagate retained its overall industry leadership as well as number one positions in Enterprise, Desktop, and CE shipments, and increased share in Mobile Compute and Consumer Electronics. Heading into the June quarter, we expect normal seasonality to bring the overall TAM down to between 106 million and 110 million units, representing a year-over-year growth in the 6% to 10% range. Now, I'll give some detail on the individual markets. In the Desktop Compute market, we maintained our leadership position by shipping 24 million units. The earlier discussed TAM decrease was mostly attributed to PC weakness in the U.S. consumer PC market and lighter than expected demand from the Asia-Pacific region. Product mix continued to improve as the average capacity of Seagate shipments rose 10% sequentially and remains above the competition. The TAM in the distribution channel was down 7% sequentially, off primarily in North America and China. Downstream channel demand in March was likely affected to some degree by major microprocessor manufacturers announcing significant price moves in March to take effect in early to late April. Seagate exited the quarter with target inventory levels at less than five weeks of inventory in the channel. Also, primarily in the desktop space in-quarter pricing pressure on high capacity ATA drives was more pronounced than planned, specifically for those products, 400 gigabytes and greater. While demand for this class of products increased sequentially as predicted, and Seagate maintained its share in this class of product. Off-list pricing and commercial distribution and retail channels were substantially more aggressive than we predicted. We expect the TAM in Desktop Compute to be seasonally down in the June quarter. In the Consumer Electronics market, Seagate expanded its leadership position during the quarter, shipping 6.7 million units. Gaming was again a bright spot during the March quarter, leading to a sequential share increase in the CE market. We did experienced some in-quarter softness in the DVR portion of this market and believe this is a portion of the overall 3.5-inch ATA sequential TAM decline. This softness was particularly true in the U.S. and Asia-Pacific regions as certain customers rebalance inventory and some platform introductions were pushed out. In addition, the release of our much anticipated 1.8-inch 60 gigabyte per platter drive into the handheld portion of this market remains on plan. Qualifications of this drive are well underway and we expect meaningful volume in the current quarter. We believe the overall TAM for the CE market in the June quarter is likely to be lower than the March quarter due to seasonal demand factors. The Enterprise market performed as expected as we believe the industry shipped just over 7 million units. Seagate maintained its clear leadership in this market shipping 4.1 million units, an increase of 18% year-over-year. Seagate saw strong adoption of small form factor drives during the quarter, as shipments reached 1.3 million units, up 60%, sequentially. Looking forward, we expect the enterprise TAM in the June quarter to be essentially flat to that of the March quarter. In the Mobile Compute market, we believe the TAM was essentially flat to the December quarter as expected. Seagate shipped 4.7 million units, an increase of 25% year-over-year and 7% sequentially. We attribute these gains to greater market access through additional qualifications of our market leading products. Average capacity per drive in the space increased to 97 gigabytes. We expected TAM in the June quarter to be seasonal and lower than the March quarter. Finally, in our brand solutions business, revenue was flat sequentially. As noted, pricing for higher capacity solutions was more aggressive than expected. Also results in the space were hampered by later than expected launch of our new FreeAgent solutions, and product transition issues on legacy products earlier in the quarter. We expect improved execution and adoption in the June quarter as our new FreeAgent solutions are more broadly available in the market. We remain very enthusiastic regarding the growth prospects in this space. Now, I'd like to turn the call over to Dave to provide an update on our operations.

Thanks, Brian. Seagate's performance in development and operations during the March quarter were solid. In particular, we are very pleased with the successful ramp of our perpendicular products and processes. Overall, perpendicular component and product yields not only met our plan, but are already better than legacy longitudinal products. We are very pleased with the continued progress and customer qualifications, and the volume ramp of our new products. Now, I would like to discuss three topics in more detail. Total inventory increased by $61 million with finished goods and work-in-process coming down slightly from last quarter, and raw materials increasing by $65 million. Inventory turnover for the March quarter was 10.7, short of the 12-turn goal for this quarter. The lower than expected demand for 3.5-inch ATA drives at the end of the quarter prevented anticipated reductions in finished goods inventory and was the primary reason that turns came in under our projection. Regarding expectations for the June quarter, while we continue to focus on optimizing our supply chain, the impact of precious metal use associated with the volume ramp of perpendicular products will further impact our turnover. Consequently, turns are expected to be approximately 10 in the June quarter. The continued successful introduction of perpendicular recording products across all the market segments we serve is critical for our results going forward. Customer qualifications of perpendicular based products continue to progress as expected. In the March quarter, we shipped over 17 million drives that utilize perpendicular recording, up from the 10 million shipped in the December quarter. We expect that during our fiscal fourth quarter, greater than 50% of our drive shipments will utilize perpendicular recording. In regards to the capital investments, we are proceeding with our planned media and substrate capacity expansions in Asia. Our goal is to continue to align capacity additions with customer demand. Based on the current demand environment, we will reduce our fiscal 2007 capital investment by $100 million to approximately $1.05 billion. Now, I would like to turn the call over to Charles.

Thank you, 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 www.seagate.com. Seagate reported March quarter revenue of $2.8 billion and unit shipments of 39.5 million. GAAP net income and diluted earnings per share are $212 million and $0.37 respectively. Included in the GAAP results are approximately $62 million of acquisition-related charges and associated tax effects. Without these charges and the associated tax effects, non-GAAP net income and diluted earnings per share was $274 million and $0.47. There were many factors that caused our non-GAAP earnings to be less than expected for the March quarter. Let me take you through these. A couple of market-driven factors impacted us late in the quarter. Due to lower demand for 3.5-inch ATA drives, revenue was impacted $90 million and profitability by $25 million. Price declines for high-capacity 3.5-inch ATA drives impacted revenue and profitability by approximately $70 million. Also, as Brian mentioned, the launch of the new FreeAgent line of products in retail was later than planned and profitability was impacted by approximately $30 million, as there was less margin contribution from these more cost-effective products than previously expected. Offsetting these negative factors was a favorable impact due to the elimination of the company's fiscal 2007 Variable Compensation Plan, as the current outlook for our fiscal year does not achieve the required profitability targets. The positive financial impact of this is reflected in our GAAP and non-GAAP results for the March quarter and was approximately $64 million. Half of the benefit came from reversing the accrual on the books and the other half from avoiding an additional $32 million we would have incurred if we had been on track to achieve our profitability target. GAAP gross margin for the March quarter was 21.3%, excluding approximately $40 million of acquisition-related costs. Non-GAAP gross margin was 22.7%. GAAP and non-GAAP gross margins in the March quarter were impacted by the factors just discussed. The positive impact of eliminating the variable compensation plan was approximately $16 million for the amount accrued through the first six months of the fiscal year. And another $16 million that would have been accrued in the March quarter if we had achieved our profitability target. Without this favorable impact, GAAP and non-GAAP gross margins for the March quarter would have been 110 basis points lower. Slide six has the adjustments made to GAAP gross margin. Those are on our website. GAAP operating expenses were $356 million. Excluding acquisition-related costs, non-GAAP operating expenses were $335 million. The offsetting positive financial impact of eliminating the variable compensation plan was approximately $16 million for the amount accrued for the first six months of the fiscal year. And another $16 million that would have been accrued in March quarter if we had achieved our profitability target. Cash, cash equivalents and marketable securities ended the quarter at $1.2 billion. During the first three quarters of fiscal 2007, Seagate made capital investments totaling $688 million, of which $222 million occurred in the March quarter. Cash flow from operations was $269 million for the March quarter. Days sales outstanding was 44, up from the December quarter, but reflective of the shipment profile of the March quarter. Days payable outstanding was 57, also up from the last quarter, but within the normal range. During the March quarter, the company took delivery of approximately 22.6 million shares related to its share repurchase plan. The average price of the shares that were delivered to the company in the March quarter was $26.26. The company has authorization to purchase approximately $1.175 billion of additional shares under the current stock repurchase program. Now relative to our business outlook. The 3.5-inch ATA market dynamics that were in play during the month of March has at least for the near-term reset the base line operating results of the company. Exit pricing in the high-capacity 3.5-inch ATA in the notebook markets was noticeably lower than our plan, and this has a significant impact on the June quarter. For the June quarter, we are expecting the industry to experience a normal seasonal decline in unit demand of approximately 2% to 6% as compared to March. Price declines in aggregate on a percentage basis are expected to moderate slightly. However, keep in mind that we entered the June quarter with a lower starting point for prices. Efforts are underway across all functions within Seagate to accelerate cost reductions and process efficiencies. The management team remains committed to delivering differentially superior financial results over the long-term. For the June quarter, revenue is expected to be between $2.65 billion and $2.75 billion. GAAP diluted earnings per share is expected to be $0.29 to $0.33, and includes approximately $28 million of expected acquisition-related costs. Accordingly, non-GAAP diluted earnings per share, excluding the acquisition related costs, is expected to be $0.34 to $0.38. GAAP operating expenses are expected to be $370 million for the June quarter. Operating expenses on a non-GAAP basis, excluding approximately $20 million of acquisition-related costs are expected to be approximately $350 million. The expected GAAP and non-GAAP diluted earnings per share for the June quarter reflects: Other income and expense modeled to be a net expense of approximately $17 million, a tax rate of approximately 7.5%, and a diluted share count expected to be 570 million shares. For the fiscal year 2007, the company's outlook for revenue is $11.3 billion to $11.4 billion, and GAAP diluted earnings per share is expected to be $0.92 to $0.96. And it includes approximately $247 million of costs directly related to the recent acquisitions and $19 million of charges related to the early redemption of the 8% notes. Accordingly, on a non-GAAP basis, diluted earnings per share, excluding the above charges, are expected to be $1.37 to $1.41. That concludes my remarks. I will now turn the call back over to Bill.

Thank you, Charles. Technology leadership, cost leadership and product leadership across a broad customer base are Seagate's great strength. They are the fundamentals of a model designed to deliver strong long-term financial performance in spite of the occasional short-term fluctuations of the market. I would like to acknowledge and thank Seagate employees who continue to establish for themselves and for our company the highest standards of performance. And with that we are ready to open it up for questions.

(Operator Instructions). Our first question comes from the line of Paul Mansky with Citigroup. Paul Mansky - Citigroup: Yeah, great thank you. You cited desktop a couple of times in the script as a source of that shortfall, when in fact it's down 7%, but that's actually in line with your three-year average. At the same time, CE was down 5% well off the trend line. Am I missing something here?

Yeah, I think so. This is Brian. Let me try and handle that. When we looked at historical TAMs, we see an expectation of December to March quarter rolling off at about 3% to 4%. In fact, what we saw in the quarter we just finished, it was 6% to 7%. So, it was essentially more than what the average was. In fact, it's the highest December to March roll off we have seen in the last three years. Paul Mansky - Citigroup: And what is your average capacity, and you mentioned it on notebook, what's your average capacity on desktop currently?

It is right around 180 gigabytes, pure desktop. Paul Mansky - Citigroup: Alright. Thank you.

Our next question comes from the line of Harry Blount with Lehman Brothers. Harry Blount - Lehman Brothers: Hi guys. I want to focus in on the gross margin a second. Charles, certainly it sounds like if most of the shortfall is on the desktop. It sounds like Enterprise margins and CE margins were generally in line with expectations and perhaps notebooks maybe a little bit below. Is that a correct read on what you guys are saying here?

Well, the high-capacity 3.5-inch ATA crosses both desktop and what we call business critical spaces and even includes some CE. And so, the biggest single impact was high-capacity 3.5-inch ATA across those multiple markets. Harry Blount - Lehman Brothers: Okay. And then as we think about the longer term margin targets that you guys had previously set out to the 24 to 26. Help me understand a little bit here if, why the PMR is not seeing more of a beneficial impact, particularly in the high-capacity space where arguably you guys have lower component costs. So, I guess, one of the things I am trying to rationalize is, you guys are ahead of the game on this PMR transition, but it doesn't seem to be translating into better margins on the high cap.

Well, at the risk of sounding a little defensive, if you look at the differential margins that the company has in the industry, I would say that the fact that we were the first to TGMR and the first to perpendicular has in fact represented differential gross margins for Seagate compared to the industry. As we said and look forward when you have a reset like this where there is just a precipitous fall in pricing in a given capacity point, it takes a while to work through that. And usually it requires a product generation to completely recover from that. So, we have a lot of work ahead of us to try to figure out what we need to do to get back to where we would want to be on our gross margins.

Hey, Harry this is Watkins. I mean again we do think we have a differentiated margin and obviously we were profitable. So, we do have competitors who are not focused on profitability right now and are willing to take. Basically they'll sell high-cap drives at whatever price they have to sell it out and take the hit. And we just got that to the environment where we think it's going to be somewhat short-term, because it only lasts for so long. But, we have to deal with that. Harry Blount - Lehman Brothers: Okay. And then two last quick ones. Charles, I think you said that you expect share count to be flat at 570 in June. Does that imply no share buyback? And then lastly back on the gross margin question again. How much of an impact did selling through the remaining Maxtor inventory have? Thanks.

On share count, we've consistently excluded any impact that might arise from share repurchase. If you look at our forecast for last quarter it was consistent with that. We will need to go through and evaluate what our cash availability in it is, and how we want to proceed with share repurchase. If you sit and look, there was probably a nominal impact on selling through some of the Maxtor legacy product to gross margins, but in reality we certainly look at all of the products at this point in time and view that as our normalized margin.

Harry, this is Watkins. If I have to really characterize that, we came into March thinking that would be a much bigger month than it was. And what happened is as we all looked that demand started sailing, we also started to move the higher-capacity drive, which started a lot of pricing in those high-capacity drive. And as we got towards the end of March, we came down with a decision, "Look, we have got to get back to many markets. We have got to calm this thing down." And there was a choice. We could probably go stop the channel. We could have got a lot more aggressive and things like that or pull back, keep the channel right and look at this as a longer term deal and that's the decision we made. Harry Blount - Lehman Brothers: Okay. Thanks.

Our next question comes from the line of Mark Moskowitz with J.P. Morgan. Mark Moskowitz - J.P. Morgan: Thank you. I would like to follow up on that last comment from Bill, if I could. When you say, you are looking longer term, it seems like you guys are kind of battling down the hatches in terms of maybe the pricing conditions that we are starting to see right now as far as showing signs of slippage or have some [underlying] force if that could extend beyond the near term. Am I misreading that?

Well, I think, we have got to be cautionary in an environment that we are at. I think one of the things that -- obviously, I think the inventories are in good position. I have been in this place, where we end up with eight, nine weeks in inventory as people try to make a short-term quarter. We did not do that. We pulled back. I think that having a good channel inventory is important as we go through this. We think that will minimize the impact. Again, I do believe from my competitors who are losing hundreds of million dollars, will not do that for another four quarters. Mark Moskowitz - J.P. Morgan: Well, they have been doing this for the past few years. I mean, when does this stop?

I don’t now. We have to plan right now to be smart or where we want to be.

And Mark, just a reminder, in the September quarter, we indicated to everyone that Seagate's pricing philosophy was going to be to meet market, right. And so, as we ended the March quarter, we were faced with a decision of how are we going to meet market on these prices or feed share. And we chose to meet markets to demonstrate our confidence in our cost structure, the cost structure of our products and the product breadth that we have. And so, I think that's an appropriate position to take. Mark Moskowitz - J.P. Morgan: Okay. And then if I could, I guess with the exception of the December quarter, Seagate have had some difficulty reading the market dynamics back to June and September. And now here again, the expectations have not been met for various reasons. Can you give us some insights in terms of what you are doing either Brian or Bill in terms of devoting resources, so you have a better accurate read either with the OEMs, the distribution channel or now the increasing opportunity in the branded side of things?

Well Mark, we've done a really crappy job. We've done a terrible job on that. The easy compound is that we keep underestimating the ability of people to lose money in this business. We pay them some of the pricing that some people do. With that said though, we think this is a big issue to us and Brian has done a lot of work in that. So, let Brian -- will answer that.

Well Mark, this is Brian. I think if you look at what we laid out in specific, if you are talking about the year guidance that we gave back in July timeframe. The two biggest factors that we didn't anticipate correct was one Bill mentioned, which is the competitive behavior, which took a big chunk of both top line and bottom line out of that plan. But frankly, other one and the related was our ability to maintain share or gain share in some cases in this kind of a competitive environment. So, I think those are the two things that we are looking at with a much more constructive view in terms of what the reality at this current industry structure is going to allow. And probably not get ourselves in a position where we commit ourselves to taking what we think are fundamental technology and cost advantages to market, and having them accrue in terms of share gain. I just think at this point, our competitors have already demonstrated their behavior that says, without technology and cost leadership they are more than willing to compete head to head. And like Bill said, we don't think that can remain forever. But we're certainly going to plan accordingly going forward until we see the change.

Mark, the easy answer for us to say, look, we are not going to give you guidance. We are not going to do yearly guidance. We are not going to do it quarterly. And we don't want to do that. We want to be transparent and open and this is what we think. That said, we are always going to have to take into regard our competitors have a big vote in this. And much bigger vote than we thought they would do. And we are just going to have to take that into our guidance. But again, we want to be open and transparent, and we will set what we think we can do. And to the point that we get more conservative based on competitors who are putting much more credibility and the competitor is losing money. We will just have to do that. Mark Moskowitz - J.P. Morgan: Okay. I appreciate it. If I can just tweak in one more question here. I guess it's kind of early in the game still, but some of your major systems customers out of this morning and late this afternoon commented that at least in the US you are starting to see some choppiness from a demand perspective. I want to get a sense in terms of the enterprise, based on Brian or Bill, in terms of the folks you are talking down the field. Is there risk in your enterprise business which has really held up in terms of the share position relative to the competition? Could that see some slippage later this summer and what could be the effect on margins if so?

Yeah. Mark, I worry less about margin pressure there in that space. The space is going through a tremendous demand transition in terms of interface and products. And we have talked in some length about that in the past. So, there is a lot of change present today, which we think benefits us. There is a narrow competitive set today that certainly can change in the future. We don't view that’s going to change in calendar '07. But the thing I do worry about more there is the thing that you have -- opened the comment with is, there's choppiness in overall demand. If our customers were saying that and we certainly can reinforce some of the comments that you've made. That's probably the single biggest risk we have in the enterprise space going forward. It is how big is that market going to be? We think, however, big the market is going to be, our ability is to compete within that and protect the current that we have is good. Mark Moskowitz - J.P. Morgan: Thank you.

Our next question comes from the line David Bailey with Goldman Sachs. David Bailey - Goldman Sachs: Great. Thank you. Two questions please. One, given your outlook for 3.5-inch demand, do you feel your customer capacity additions are enough? And are you concerned about the amount of capacity that the industry as a whole is adding between now and the end of the year?

Well right now, I am concerned about everything. David Bailey - Goldman Sachs: But right now, I am talking about the inventory.

Right. We certainly feel good about where we are at. And as Dave pointed out, we are actually taking some actions to we think more correctly balance our investments and capital to the [for view] demand. Now, relative to how everyone else is looking at that, at least the public reporting of additional capacity coming online. It is a concern. I think its one of those factors that Bill was alluding to you earlier. We need to see a better balance in terms of how competitive behavior is playing out relative to tight financial performance. And right now, it's too early for us to tell how much demand we are going to see in the back half of the year and whether the current public reporting of capacity that's coming online is a good balance of that or not. David Bailey - Goldman Sachs: And second question is that, what factors are you looking at when you are trying to decide whether you are going to continue to meet pricing or if you would actually start to see some share?

It kind of looks at how it affects our capital absorption structure and things like that. Sometimes it's better to keep the fact to at least to somewhat going forward. It’s a financial decision, Charles.

Mark, I guess -- excuse me, David, the single biggest thing I look at and we do competitive analysis and evaluate our product cost against all of our competitor's product cost. If we feel that we have the lowest cost product, then in almost all cases we are best served by meeting market pricing and maintaining the share that we have. In some cases where you have perhaps a product that is not the lowest cost which I am not aware of any at this moment in time. You could sense they hold it, we need to back away for a second because this is hurting us as a differential -- worse than it's hurting our competitors. And so I think that probably the single biggest factor is just what is our product cost and we believe that it’s best in market. David Bailey - Goldman Sachs: Okay. And then finally just one last question. On the gross margin side, do you have any idea where you might be able to get back into your target of 24% to 26% range? Is it even possible by the end of the calendar year?

I am not in a position to really answer that, David. When you go through a reset like this we have to go through and build up our fiscal 2008 and kind of see where we think the demand and pricing environment is going to be. And so I don’t have a good basis for addressing that. David Bailey - Goldman Sachs: Great, thank you.

Our next question comes from the line of Aaron Rakers with A.G. Edwards. Aaron Rakers - A.G. Edwards: Yeah thanks guys, a couple of questions. First on looking at the variable comp change, I just want to be sure, I am clear here. So, if we factor everything in, it looks like variable comp was actually a benefit of roughly $0.10 on EPS line in the quarter. Am I off base there or is that a fair assumption?

No that’s correct. Aaron Rakers - A.G. Edwards: Okay. So considering that, the next question is actually looking at your operating expense structure going forward. If you are pulling back the reins on capacity, why should we not expect to see a little bit better than say $350 million in total OpEx? Are you being conservative there? Is there an opportunity to take more expense out of the company here over the next couple of quarters?

If you look at the $350 million number, there is $16 million that came from a reversal of the accruals in the September and December quarter. As you go forward, we don’t have that same reversal of accruals, and I think that’s the biggest difference. So, this basically says that we are going through evaluating what we need to do in the company to minimize expenses and everything else. We will have a minimum, keep spending flat with what we had this quarter and then we don’t have the benefit of that reversal of accrual. Aaron Rakers - A.G. Edwards: Okay. A couple of other questions. You mentioned some softness in the DVR piece of your consumer electronics business. However, if I look at that industry, I believe there is some regulatory dynamics that looking at some of the big set-top box providers are expecting, actually spur demand here over this quarter and into March and the June quarter in particular. Have you not seen that? Or was there a typical seasonal decline? Where is the disconnect there?

I think it was relatively unique to some manufacturers who pushed out platforms. There are others who rebalance inventories. I think the thing that you are talking about is CableCARD becoming effective in July of this year, and some speculation in advance of that there is going to be build out in set-top boxes. We have pretty good relationships with the set-top box manufacturers. It’s our understanding that that’s been more of a dynamic that will affect those that are not DVR enabled. They are just set-top boxes as digital set-top boxes. So we believe that’s where you are going to see the effect and of course we don’t participate in that part of the TAM. Aaron Rakers - A.G. Edwards: Perfect. And then final question. You guys have reported that you have less then five weeks in your distribution channel inventory. Any sense of where the industry as a whole currently sits in terms of distribution channel for 3.5-inch?

Yeah. With us included, it's under six. Aaron Rakers - A.G. Edwards: Under six. Okay. Thank you very much.

Our next question comes from the line of Tom Curlin with RBC Capital Markets. Tom Curlin - RBC Capital Markets: Good afternoon. Just coming back to the enterprise guidance, you mentioned the TAM is flat. And seasonally, if I just look at your numbers historically, assuming I have the right numbers, it seems like you've been up at least moderately, sequentially in enterprise over the last three or four years in the June quarter. What I am getting to is, is that normal seasonality or you adding in some extra caution or just given some of the demand comments that we've heard from some of the enterprise OEMs?

Yeah. It's really tough, because if you back over five or six years it's really tough to depict the seasonal pattern, particularly for the June quarter in the Enterprise space. It's a space that typically moves with seasonality in the back half of the year. But it's less predictable in the front half of the year. So, I think you could say yes we're trying to be cautious particularly given how the quarter finished. But, I wouldn't paint any expectations that we have any current signs of any significant upside from that flat expectation. Tom Curlin - RBC Capital Markets: Let me make sure I am understanding you correctly. You are factoring in some incremental caution just to make sure you are covered on some of the weakness comments that have been out there?

Well, we certainly don't have any belief from our existing set of customers who we've been engaged with for a long time that there is any upside potential across the March quarter. Tom Curlin - RBC Capital Markets: Okay, that's clear. And then on low-cost Fibre Channel drives, there is some discussion out there. Maybe that concept is going away in favor of low-cost SAS. Can you guys just comment on, I guess, the trajectory there? Is that the case? What's driving that if you can comment?

Well, we've been a leader in the SAS transition and we have seen a significant portion of our Enterprise volume already moved in that direction, primarily at the expense of parallel SCSI. We have yet to see a significant transition from anyone invested in fibre infrastructure making a switch to SAS. There have been a number of transitions that have been made to date from parallel SCSI to SAS/SATA architectures and we're certainly well placed to accommodate that. I think it's going to be a little bit more time before people decide to disengage from what has been almost a decade long investment in Fibre Channel infrastructure and commit to the SAS/SATA platform. So, if that is a threat going forward in terms of SAS replacing fibre at the low-end, it is something that's in the future and not anything that we see right now. In terms of how to think about the threat, if you want to call it that, the margin differential between Fibre Channel drives and SAS drives for us is rather negligible at this point. Because, of course there is more costs on the Fibre Channel drive. Tom Curlin - RBC Capital Markets: I think what I am speaking to is just low cost version of those drives, right. The alternative to SATA drives in the form of FAT or whatever you would like to call it.

No, I am sorry. I misunderstood your question. Tom Curlin - RBC Capital Markets: Are you finding that OEMs and so forth are leading towards SAS or low cost in lieu of trying to use low-cost Fibre Channel drive at least in next gen design?

Well, certainly anywhere in the direct-attached space, it is already a predominant installation of SATA drives for those type of applications. So what they call it tiered storage, near-line, whatever you want to call it, backup or storage types of application. So, the only place you really haven't seen what I call high-capacity fibre drives that’s been in the network-attached base. And that frankly has been very specifically deployed through a couple of customers. Whether or not they choose to go forward with SAS or SATA architectures going forward, I probably don't want to comment at this point but suffice it to say that some economic advantages are moving in that direction. But here again, they have to really contemplate those economic advantages of the driving [host to that] level versus the investments we already have in the Fibre Channel infrastructures of the host. So, net is, I do expect to see some movement in that direction. Again, there from an impact to Seagate, I think, frankly it's not a differential margin adjustment that we would think is material. Tom Curlin - RBC Capital Markets: Okay. Thank you.

Our next question comes from the line of Kevin Hunt with Thomas Weisel. Kevin Hunt - Thomas Weisel: Hi. Thanks. I had a couple of questions. First, I wanted to clarify on the gross margin that you are looking forward. I know that you already said too much but am I correct in assuming about 100 basis points decline in June over March quarter? And the majority can maybe evenly split between the pricing issues that you talked about versus lower units and less lower utilization? And I had a follow up.

If you back in all the different numbers that I gave you relative to the guidance on OpEx and tax rate and everything else, it basically comes in at relatively flat gross margin to the March quarter. Kevin Hunt - Thomas Weisel: Okay. And then the other question I had just -- follow-up on the first question of the call, actually. I am still having a little hard time following what you guys are saying here given industry groups are pretty much projecting about 110 and 111 million drives for the quarter. You guys are set to 112 million drives for the quarter. So, 112 is higher than 111 from my math. Where is the shortfall, you guys keep pointing coming from I guess? It sounds to me, it's more like you guys must have assumed some kind of market share gains within the curve for yourselves. What am I missing here, I guess?

Talking about the March quarter, Kevin? Kevin Hunt - Thomas Weisel: Yeah, in the March quarter.

This is Brian. Let me walk you through it. So, we finished at almost 119 in December. We had predicted that we would finish it around 116 in March. As you point out, we think the finish was 111 to 112. Almost all of that difference could be explained in 3.5-inch ATA where previous question really addressed this. But we had historically seen 3% to 4% rollover in December to March quarters. What we saw at the end of the March quarter, as a result tallied up to 6% to 7%. 116 was planned on the low end of that 3% to 4% range. So, maybe we were planning in the wrong direction, but certainly based on history, it was a reasonable plan based on all the things we talked about. Kevin Hunt - Thomas Weisel: I guess that maybe the question, because other industries were not assuming 116. So, the question is, why were you guys so confident going into the quarter that things are going to be much better than they turned out to be, even they turned out to be normal quarter really?

Right. I think, I just try to give you numbers to say, it wasn't a normal quarter. But why we were so more confident? I don't think we were. I think we were just as confident as we would have been in any of the past three years. And it didn't turn out to be that way. We were planning to gain share. We were planning to see another 4 million units in the market, 3.5-inch ATA that didn't materialize. Kevin Hunt - Thomas Weisel: Okay. Thanks.

Our next question comes from the line Rob Semple with Credit Suisse. Rob Semple - Credit Suisse: Thanks. You mentioned channel inventories for the industry just under six weeks. Did you see any, call it, irrational behavior, general stuffing by any of your major competitors at the end of the quarter?

Though it's tough to see, particularly without a little bit of history in your benefit. But to our knowledge, it would appear that the channel inventories and I said this earlier finished under six weeks for the industry and that's pretty normal position to finish. Rob Semple - Credit Suisse: Obviously, you guys usually report first and a lot of your competitors probably look to your industry, kind of TAM guidance as an indication. I mean, do you worry that and maybe if they didn't stop this, are there a lot of drive inventories sitting on their books as well? And is that going to be a big problem in the second calendar quarter?

I really don't know. It is really tough for us to judge that. Rob Semple - Credit Suisse: Okay. And then I guess just lastly, how was demand for corporate desktop PCs? You mentioned some of the shortfall was consumer driven. But given some of the comments from IBM or some of the other enterprise players, it feels like some of the shortfall this quarter was primarily around the enterprises in general. Did they come to market still on the PC side?

To our knowledge they did. We have a number of relationships that service the commercial space. I would say certainly on a relative basis between consumer and commercial, commercial was the stronger of the two. Rob Semple - Credit Suisse: Okay. Thanks.

Our next question comes form the line of Katie Huberty with Morgan Stanley. Katie Huberty - Morgan Stanley: Good evening. Couple of quick questions. As going back to the pricing discussion and given the conversation we've had thus far on the call, what gives you the confidence to guide to lower price decline sequentially going into June. I know the base is lower. But we are obviously surprised by the degree of pricing in March and why not assume that continues in the June?

Katie this is Brian, let me take that one. It's obviously something that we are watching very closely. Let me just kind of back into where we got to. First-off we did see a pretty precipitous decline in the high capacity products as we've outlined. We don't believe that the market has the opportunity to see that kind of a price decline in that product category two quarters in a row. We could be wrong about that, but given the margin oxygen, it appears to be less than that portion of the product line, we don't think it's likely. Secondly, from an OEM standpoint, we have booked a significant amount of the OEM volume for this quarter and that's a significant portion of the 3.5-inch environment, it's about half of it. So, it gives us some confidence that at least we understand that piece. Those are the two data points that we are working on and nothing is completely certain. It really depends a lot on how competitors act in quarter markets. As Charles pointed out earlier, we have every intention of using what we think is the best cost position in the industry to protect the share that we have.

Katie, one additional piece of information, the price erosion that we saw in the March quarter is the worst erosion that we have seen in three and half years on a quarterly basis. While we show that being moderately down from the March quarter, we are still built into our plan, the price erosion that is equal to the next worst price erosion that we have seen in that three and half year period of time. So it's certainly not going back to a low price erosion level, but it's built into our plans. Katie Huberty - Morgan Stanley: Okay. Then as it relates to demand, given the shortfall was late in the March month; do you have any insight into whether that softness continued in the April just to help us, delineate what was demand versus product cycle or processor price cut driven?

I would say so far in April in the 3.5-inch ATA market, our expectations are being meet in term of industry shipments. Katie Huberty - Morgan Stanley: And then lastly, you added a comment in the press release after the forward-looking comments that suggests acquisitions, repurchases and restructuring actions aren’t included in guidance. Is it fair to read into that, that you are taking a step back and rethinking investments in a strategic direction to post the results of the March quarter?

Okay. Go ahead.

I don't think we're looking at changing our strategic directions at all. I think what we're going to do though is to be kind of smart about where we put our investments and we are taking a hard look at cost structures throughout the company to make sure that we continue to be competitive in this environment. Charles?

But we are committed to our strategy. We still believe in it; we still believe in the long-term products in the market. We believe that long-term the volumes are there and we just need to be smart and manage through this June quarter. Katie Huberty - Morgan Stanley: Okay. Great. Thanks guys.

Our next question comes from the line of Jeff Brickman with UBS. Jeff Brickman - UBS: Great. Thanks guys. This might be for Brian or maybe Charles. As far as the 1.8-inch markets goes, are you still expecting that to be one of the main reasons that you get back to your targeted gross margin range? Or you really look at that entry as more strategic rather than something that you are going to rely on for growth and/or margin expansion?

Jeff, this is Brian. Luckily, it’s probably more the latter. I think we have been pretty forthright in talking about our CE margins in general being less than our Company average. So, just with that description, it doesn’t fit the first category. Jeff Brickman - UBS: Okay, and then just secondly. Obviously you saw pretty good acceleration there in the 2.5-inch Enterprise drive deployment. Was that surprising at all as far as maybe taking some actual demand away from 3.5-inch? Was there any shortfall there because of that? Or is that basically a separate thing?

No, I think we were able to fulfill all of our 2.5-inch requirements, and this is something, we've been talking about for several quarters now and we are happy to see that transition is moving very rapidly. Jeff Brickman - UBS: Okay. Great, thanks guys.

Our next question comes from the line of Daniel Renouard with Robert W. Baird. Daniel Renouard - Robert W. Baird: Hi, thanks. Couple of questions. First is the 750 gig, which I believe you guys are going to be the only ones out with that product. Shouldn’t that help, and if not this quarter is that kind of a back half for the year? Maybe if you could just talk about the dynamics and how that might help you on high cap side? And then secondly, can you give us any kind of breakdown or details around ASP by product categories or what you saw on the ASP side by product category? Thanks.

Dan, this is Brian. Let me try and tackle at least the first one and maybe give you something to think about on the second one. 750 gigabyte product we actually have been shipping since last summer. So, it’s a product that’s been on our portfolio for quite some time. It was subject to this price decline environment that we talked about earlier. I expect it was a significant proportion of that, though no one else in the marketplace has equivalent product, at least to this point that we are shipping any significant volume. The value proposition of product is directly tied to the products underneath it, namely the 400 and 500 gigabyte product. So, while it would seem that it gives us insulation from the price environment to some degree, but the fact that we don't have a direct competitor. The fact is that, we have direct competitors on the 500 gigabyte drive and to some extent that moves the 750 pricing with it. Daniel Renouard - Robert W. Baird: Does that slow the adoption in the OEM side?

The fact that it’s sole sourced? Daniel Renouard - Robert W. Baird: Both, sole sourced as well as more aggressive pricing on a 500 gig, sort of slowing the more rapid adoption of 750.

Well, it certainly would if we chose to keep the pricing solid on the 750. But what we've chosen to do is move the value proposition along with the 500 gigabyte market, so that we don't retard the OEM adoption. The sole sourced position for those customers who react to this value proposition are primarily there and some very specific markets around, the business is critical or near line interior storage markets. They are more than happy to adopt this product even though there aren't other sources in the market again, as long as the value propositions present it. Daniel Renouard - Robert W. Baird: Okay.

On the ASP question, I guess the way to think about that, in terms to try to get to what we saw in this high capacity space. As Charles pointed out, in aggregate, our price erosion on the quarter was some of the most aggressive we have seen in recent history. Specifically, this 3.5-inch space we normally think about 3.5-inch ATA price erosion on a quarterly basis in the 4% to 7% range. We had planned for this high capacity because of the available margin there, and the price points available in that category being necessarily higher than the average. We planned for more erosion than 4% to 7%, slightly more than the high end of that range. In fact, what we see was 2x that plan. So, that was the route of some of the margin short fall that Charles outlined earlier.

Dan, to go further relative to the ASPs by product category, we have never really discussed that and feel that we shouldn't. Daniel Renouard - Robert W. Baird: Yes, thank you.

Okay. Justin, next question.

Our next question comes from the line of Steven Fox with Merrill Lynch. Steven Fox - Merrill Lynch: Hi, good afternoon. Just going back to your comments about the Free Agent rollout; can you speak more specific about what caused the delay and when do you get caught up and what that does for your cost structure and then I had a follow-up.

Sure, Steven. This is Brian. We had anticipating product in full production in late January; and in fact it was into March before it was fully available. Delays were what I call normal. Delays that haven't ramped any new products in that class one product integration in ramping at the ODMs that supported some of the products. So, nothing that involves lot of rocket science, just some support and execution and unfortunately we didn't do it very well. That's behind us. We have full availability in the channel now, the entire line-up for Free Agent. And from a cost perspective, I don't want to quantify it for you, but it's a significant improvement over the previous generation of Seagate branded products. Steven Fox - Merrill Lynch: Okay, great, and then secondly, this maybe somewhat of an unfair question. But, when you look at whatever margin target you may set, whether it gets back to 24% to 26%. Tactically, is there anything else that you would be looking at besides the typical cost reduction consolidations, looking at your supply base closer? I mean, what else could you do if you assume that the current end competitive environment stays with us for a while?

Well, I think, again, we would look at all of those things. But we continue to push our technology ideal of bringing in leading aerial density into and continue that. And so the next product rollout we have the opportunity to cut costs significantly per gigabyte. Steven Fox - Merrill Lynch: And is there a way to accelerate that and lap the competition further or is that, I am looking for something else that could happen that would be more creative outside of just the typical cost cuts, I guess?

No. Right now, I think we are just planning on working harder. Steven Fox - Merrill Lynch: Okay. Alright, thanks.

One more question and that’s it.

Our last question comes from the line of Rich Kugele with Needham and Company. Rich Kugele - Needham & Company: Thank you, just two quick questions. First Dave, should we assume then by your comments there that the bulk of the raw material inventory increase was ruthenium and other commodity like materials as opposed to something else?

No, it was exactly that. It was associated with unique raw materials related to perpendicular and you hit it. Rich Kugele - Needham & Company: Okay. And then Bill, just taking a step back now and looking at the Maxtor acquisition and what we all thought we were going to gain in retrospect. More stable enterprise pricing seems to be one. But, is it fair to say that the aggressive pricing environment has washed away many of the other benefits that we should have seen or anything now looking back on what we all can ultimately gain?

Well, I mean it's really easy for me to be very defensive here, and I will try not to be. But, I will be honest, I still like to deal. I think that when I look at the notebook price environment which really should have nothing to do with this. And I think about it in this quarter, if we had Maxtor and their Desktop Enterprise with all the other crap going on, I would be honest and I am glad that we are beyond ourselves. So, I still look at it in this environment, I think it was a good deal for us. I think things would be a lot worse. I would have never imagined that I will have to lose $500 million to $600 million a year, this year. But they've gone from breakeven at that. So, again, I think we are better served where we are today, we would have been trying to have one extra competitor in the business. Rich Kugele - Needham & Company: Okay. Fair enough. Thank you.

Okay. Thanks guys. With that thank you for joining the call today and trust me I look forward to speaking to you next quarter. Thanks.

This concludes today's conference call. You may now disconnect.