Bill Watkins - CEO Brian Dexheimer - EVP and ChiefSales and Marketing Officer Dave Wickersham - President andCOO Charles Pope - EVP and CFO

David Bailey - Goldman Sachs Keith Bachman - Bank of Montreal Steven Fox - Merrill Lynch Aaron Rakers - Wachovia Katherine Huberty - MorganStanley Daniel Renouard - Robert W. Baird Mark Miller - Brean Murray,Carret Rich Kugele - Needham & Company Mark Moskowitz - J.P. Morgan Christian Schwab - Craig-HallumCapital Group Kevin Hunt - Thomas WeiselPartners Andrew Neff - Bear Stearns Shaw Wu - American TechnologyResearch

Good afternoon, ladies andgentlemen. Thank you for standing by. Welcome to Seagate Technology's FiscalFirst Quarter 2008 Financial Results Conference Call. At this time, all linesare in a listen-only mode. Later, there will be an opportunity for questions.Instructions will be given at that time. (Operator Instructions). Thisconference is being recorded. This conference call containsforward-looking statements including, but not limited to, statements related tothe company's future financial performance. These forward-looking statementsare based on information available to Seagate as of the date of this conferencecall, and are subject to a number of risks and uncertainties that could causeactual results to differ materially from those anticipated by theseforward-looking statements. Information concerning additionalfactors that could cause the results to differ materially from those projectedin these forward-looking statements are contained in the company's annualreport on Form 10-K, as filed with the U.S. Securities and Exchange Commissionon August 27, 2007. These forward-looking statementsshould not be relied upon as representing the company's views as of anysubsequent date, and Seagate undertakes no obligation to update forward-lookingstatements to reflect events or circumstances after the date they were made. I would now like to turn theconference over to our host, Mr. Bill Watkins, CEO. Please go ahead.

Thank you, Justin. Welcomeeveryone and thank you for joining us. On the phone with me today are DaveWickersham, President and Chief Operating Officer, Charles Pope, Executive VicePresident and Chief Financial Officer, and Brian Dexheimer, Executive VicePresident and Chief Sales and Marketing Officer. I am pleased to report that wehad a very strong quarter, which produced record results in virtually everyarea of our business. I will start the call today byspending a few minutes reviewing those numbers with you, and sharing someadditional perspective on the industry landscape and the unique characteristicsof our platform and business model that enable us to achieve these results. Then I'll turn to our outlook forthe quarter ahead and share with you our view of the key factors that willinfluence our performance going forward. I will then turn over to Brian, Daveand Charles who will each in turn discuss details of our market, operation andfinancial results. Attractive market trends continueto drive robust demand for storage and significant opportunities for growth. Inthe September quarter, Seagate's revenue grew 18% year-over-year to $3.3billion. As you know, the first fiscal quarter is typically among our strongestand this year unit demand exceeded even the high-end of our expected range. We effectively capitalized onthis strong demand environment by shipping a record 47 million units thisquarter, representing a 21% increase over units shipped in the first quarter oflast year and 20% increase over our fiscal fourth quarter of 2007. Clearly,conditions in the industry as a whole have been quite favorable. Record demand that continues togrow is, of course, a big part of the equation and against that favorablebackdrop is Seagate's strategically optimized manufacturing operations andcommitment to technology innovations that have enabled us to extend ourleadership in the enterprise and desktop markets and maintain our leadership inthe consumer electronics market. We are particularly gratifiedthat our results this quarter underscore the value of the Maxtor acquisition,and the strategic and competitive benefits that have accrued to Seagate as aresult. We have already talked about our substantial year-over-year growth inrevenue and unit shipped. In addition, the results fromthis quarter demonstrate that the cash generation capabilities of Seagate withfree cash flow were approximately $604 million generated during the Septemberquarter. This is a dynamic industry that continues to be characterized byrobust demand growth, and for Seagate in particular, it is a story ofcommitment to competitive leadership and a demonstrated agility and vision tocreate value across all cycles. In summary, we delivered a verystrong quarter, which we believe has reflected not only the strengths of theindustry as whole, but equally important is the group positive or thecompetitive and strategic benefits that we have enjoyed as a result of theMaxtor acquisition. And an integration that has proven to be one of the mostsuccessful ever in a disk drive industry. As we look ahead, we willcontinue to focus on extending our technology, product, and market leadership,as we grow the business and execute our strategy to generate meaningful valuefor our shareholders. Now, I would like to turn thecall over to Brian to provide more details of our performance in the differentmarkets and the outlook in each of those markets in the quarter ahead.

Thanks, Bill. Our fiscal 2008began with the best quarter of demand in the history of the industry. Clearly,the overall consumption of storage remains very robust. Overall industry demandwas extremely strong and all key health indicators for the industry werepositive. Supply and demand were wellbalanced and price erosion, while in the normal range, was more benign in theprevious two quarters. Specific to the September quarter, we believe theoverall industry TAM was approximately 132 million units, up 15% year-over-yearand 19% sequentially. Seagate shipped 36% of the industry'svolume, maintaining its overall leadership, as well as number one positions inthe Enterprise,Desktop, and CE markets. Seagate unit shipments were strong in all segments,growing 21% year-on-year. Looking towards the Decemberquarter, we expect seasonal growth to bring the overall TAM up 4% to 5%quarter-over-quarter to 137 to 139 million units, representing year-over-yeargrowth of 14% to 16%. Now I'll give some detail on theindividual markets. The enterprise market TAM in the September quarterexhibited the growth pattern we expected at the beginning of the quarter,growing about 6% sequentially to 7.3 million units. Seagate maintained its leadershipposition in this market, shipping a record 4.6 million units. Continuing theoverall strength in this market, the adoption of small form factor drivescontinued to accelerate during the quarter, as CE shipments reachedapproximately 1.8 million units. We are pleased that our delivery of industryleading technology continues to enable important innovations for our customersin the areas of power, performance and physical footprint. Regarding another area of technologyinnovation for the enterprise, I also wanted to highlight our collaborationwith the storage and security industry to extend our hardware based full-diskencryption technology to our enterprise portfolio. This week at Storage NetworkingWorld, we are demonstrating the performance and security capabilities ofenterprise drive-level FDE. Demonstrations underscore the value that FDEtechnology brings to storage system administrators tasked with protectingagainst breaches of data that can occur in drives and systems that have beenrepurposed, decommissioned, disposed of, misplaced or stolen. Looking forward to December forthe enterprise market, we expect similar sequential growth to that of theSeptember quarter. I'd like to make one finalcomment on the additional factor of enterprise growth. As I mentioned last quarter,we're seeing a continuation of strong incremental growth in high-capacityenterprise class SATA products deployed primarily in support of the massiveamounts of digital content aggregated and distributed over the Internet. As a leader in enterprise storagespace, we believe we possess the technology, product breadth and customerengagement, and application expertise to take full advantage of this importantgrowth factor. We believe we saw evidence ofthis leverage in the September quarter, as we grew share substantially in thisspace, with significant shipments of our 750-gigabyte product, and we expectstrong adoption of our 1-terabyte drive in these applications going forward. In Consumer Electronicsapplications, we believe the TAM reached over 19 million units during thequarter, a 19% increase sequentially. We are pleased to see the strongsequential growth in this market as manufacturers built out for the holidayseason. Seagate maintained its leadershipposition during the quarter, shipping 5.7 million units, driven primarily byshipments into gaming applications and DVRs. Seagate's DVR shipments rose 35%year-over-year. Given the strong seasonal buildout in the September quarter, we are planning for overall TAM for the CE marketto be flat in the December quarter. We believe the mobile computemarket TAM grew sequentially by a phenomenal 27% to almost 40 million units.The strength in this market was fueled primarily by consumer demand forback-to-school and holiday purchases. Seagate shipped a record 7.9million units into this market during the quarter, an increase of 87%year-on-year. Capacities continue to trend higher in the space as the notebookdisplaces the desktop as the platform of choice in the digital home. In theSeptember quarter over 50% of our shipments were in capacities 120 gigabytes orgreater, and we expect this to continue to rise rapidly. In addition, during the quarterthree major OEMs began shipping notebooks, while our hybrid drive and volumeshipments reached approximately 100,000 units. We also saw a strong shifttoward our 7200-RPM products up to 200 gigabytes, led by PC gaming andcommercial performance applications. We expect another strong December quarterfor the mobile compute market and have set expectations around a 5% to 8%sequential TAM growth or approximately 40% year-over-year growth. The TAM in the desktop computemarket grew 16% sequentially to approximately 66 million units, which is higherthan we originally predicted. Seagate shipments grew fasterthan the industry in the space, increasing 22% sequentially to a record 29millions units, more than 5 million units higher than that of the June quarter.During the quarter, we were able to react rapidly to build strong overalldemand and a higher capacity mix, once again leveraging our leading technologyand highly efficient flexible supply chain. In fact, across all segments, wesaw a strong shift to higher capacities for 3.5-inch ATA products, with an 80%sequential increase in industry shipments of 500-gigabyte and greater. From the technology supply chainperspective, we remained well positioned for this trend and believe we'vestrengthened our leadership position, with shipments of 750-gigabyte products,reaching 1.5 million units during the quarter. Additionally, we made a strongmove to enter the 1-terabyte category, with almost 60,000 units shipped duringthe quarter. Lastly, we ramped significantlyvolume of the industry's first 3.5-inch, 250-gigabyte per disk product to over1.5 million units. We believe channel inventory and3.5-inch ATA products for the industry, exiting the September quarter, waslower than that of the June quarter, with less than four weeks for the industryand less than three weeks for Seagate. For the December quarter, weexcept the desktop compute TAM to be seasonally up, less than 5% sequentiallyand about 11% year-on-year. Finally, in our Branded Solutionsbusiness, revenue again improved sequentially by about 10%. We're pleased withthe initial demand for our newly announced Maxtor OneTouch 4 products thatprovide innovative security and protection features, in both the PC and Macmarkets, along with higher capacity points to meet the growing needs of thedigital consumer. With both the Seagate/Maxtorbranded products refreshed and redesigned, we look forward to a strong holidayseason. We expect the December quarter to be the strongest sales quarter of theyear for this business. Now, I'd like to turn the callover to Dave to provide an update on our operations.

Thanks, Brian. Overall, we arevery pleased with our development and operational execution in the Septemberquarter, as we continue to focus on extending Seagate's category of leadershipas measured by the key factors, valued by our customers: product leadership,quality and reliability, and cost. I'll start with a few commentsregarding our inventory performance in the September quarter and an update ofour expected capital investments for fiscal 2008 and conclude with commentsregarding the supply chain. Seagate's inventory in Septemberquarter decreased $31 million from $794 million to $763 million. Finished goods inventory wasreduced by approximately 21% or $90 million as we responded to higher thanforecasted customer requirement. The reduction in finished goods inventory morethan offset an increase of $59 million in raw material and the working processrequired to support increased customer demand in the September and Decemberquarter. Inventory turnover improved toapproximately 13 turns in the September quarter and our December quarterinventory turns are expected to be approximately 11 turns, as we replenishedcustomer jet hubs to required level. As evidenced by the significantreduction in finished goods inventory, Seagate operated at full capacity in theSeptember quarter. Likewise, in the December quarter, we will fully utilize ouravailable capacity, and consequently expect to be supply constrained based oncurrent customer demand for Seagate products. As discussed in previous calls,we aligned our capacity expansions consistently with customer demand.Considering that the lead time for meaningful capacity expansion is six monthor more, we made our capacity decisions for the current quarter back in theMarch and June calendar quarters of this year based on the demand, and thecompany’s expected return on investments. Additionally, considering theprojected seasonal demand in the upcoming March and June quarters, we do notplan on increasing our fiscal 2008 capital spending plan. Going forward, wewill continue to align our capital investments with customers demand. And byMarch of next year we will identify what additional capacity will be required forfiscal year 2009. Consequently, the fiscal 2008 capital investment outlook isunchanged, at approximately $900 million and continues to include theinvestments planned for expansion of our finished media and substrate factoriesin Asia. The hard disc drive supply chaincontinues to experience consolidation at a rapid pace. This past quarter alone,TDK completed its acquisition of the recording head assets of Alps Electric andannounced plans to acquire Magnecomp, a suspension supplier. And as most of youknow, WD completed their acquisition of Finished Media and aluminum substratesupplier Komag. While the consolidation in the supply chain can sometimes leadto a supply disruption, we do not anticipate any significant supply shortagesfor the industry in the near term. Specifically for Seagate, we are confidentthat we have an adequate supply of the internal and external componentsrequired to support our production plans. Now, I would like to turn thecall over to Charles.

Thanks, Dave. You will find thecompany's press release, 8-K and additional financial information related toSeagate's financial performance, along with a reconciliation of GAAP tonon-GAAP financial results, and other supplemental information in the InvestorRelations section of Seagate's website at www.seagate.com. At the beginning of the Septemberquarter, Financial Accounting Standards Board Interpretation Number 48,commonly referred to as FIN 48 was adopted by Seagate. FIN 48 requires ananalysis of the company's material tax positions for all open years. Thecumulative effect of applying FIN 48 must be reflected as adjustments to thecompany's balance sheet in the quarter of adoption. From a financial modelingperspective, we believe that the company's book tax rate will not be materiallyimpacted due to the implementation of FIN 48. Additional details regarding FIN48 and their impact on the balance sheet will be provided as required when wefile the company's 10-Q. Now, I will provide morespecifics on our financial performance for the quarter, and our outlook goingforward. For the September quarter,Seagate reported revenue of $3.3 billion and unit shipments of 47 million,which reflects year-over-year growth of 18% and 21% respectively. The year agoperiod was the first full quarter Seagate reported after the Maxtor acquisitionwas completed. Consequently, the non-GAAP results this September quarter arecleanly comparable to the September quarter a year ago. The highlights of the benefits ofthe Maxtor acquisition are evident as Seagate continues to grow revenue andearnings and at the same time generates significant amounts of free cash flow. GAAP net income and dilutedearnings per share for the September quarter are $355 million and $0.64respectively. Included in the GAAP results are approximately $30 million ofpurchased intangible, amortization, and other charges associated with theMaxtor and EVault acquisitions. Without these charges and the associated taxeffect, non-GAAP net income and diluted earnings per share was $385 million and$0.69 respectively. Included in both the GAAP andnon-GAAP results is approximately $5 million related to restructuring chargeswhich reduced diluted earnings per share by about $0.01. GAAP gross margin in theSeptember quarter was 24.6%. Excluding approximately $20 million ofacquisition-related costs, non-GAAP gross margin was 25%. Gross marginincreased 300 basis points from the prior quarter due to a more favorablepricing environment than expected and an improved mix of products. The pricing environment duringthe September quarter was better than what we had been expecting at thebeginning of the quarter, price declines were not at the lowest levels we haveseen for a September quarter. In fact, the like-for-like price declines wereapproximately 4%, which we would describe as normal for a September quarter. GAAP, R&D and SG&A costswere $395 million for the September quarter. Excluding costs related to theMaxtor and EVault acquisitions, non-GAAP expenses were $390 million. Theroughly $30 million increase in R&D and SG&A expenses compared to theprior quarter is primarily due to Seagate's variable compensation plan, whichin the prior quarter was zero. Slide 6 has the details of theadjustments made to GAAP, R&D and SG&A for the September quarter. Cash flow from operations were$754 million for the September quarter, while free cash flow, defined as netcash provided by operating activities less capital expenditures, were $604million. Cash, cash equivalents, andmarketable securities ended the quarter at $1.5 billion, up $354 million fromthe previous quarter. During the September quarter, Seagate returnedapproximately $300 million of cash to its shareholders through the payment ofthe quarterly dividend, and approximately $250 million of share repurchases. Seagate's ability to generatecash was something we highlighted at our Analyst Day last month, and thisquarter's results certainly underscores that point. Days sales outstanding was 42, animprovement of four days, reflecting the linearity of shipments resulting fromthe strong demand we saw early in the September quarter. Days payableoutstanding was 57, an increase of two days and within the normal range. Capital investment in theSeptember quarter was $150 million, and as Dave previously indicated, wecontinue to plan for approximately $900 million of capital investment forfiscal 2008. Depreciation and amortization forthe September quarter was $205 million, up slightly from the prior quarter.Approximately $24 million is related to the amortization of purchasedintangibles. You will find our fiscal year 2008 estimates for amortization ofpurchased intangibles on slide 9 of the supplemental information package. During the September quarter, thecompany took delivery of 10.3 million shares related to its share repurchaseplan, with an average price of $24.27. Cumulatively, under the current sharerepurchase authorization, we have repurchased 72.2 million shares with anaverage cost of $24.57. The company has authorization to purchase approximately$725 million of additional shares under the current stock repurchase program. Now, I'd like to provide furtherdetails on our outlook for the December quarter. As Brian mentioned, for theDecember quarter, we are expecting industry unit growth to be at the high endof the 10% to 15% year-over-year range we discussed at our Analyst Day. On a sequential basis, this wouldbe 4% to 5% unit growth for the industry. Seagate expects revenue to be in therange of $3.4 billion to $3.5 billion. GAAP diluted earnings per share isexpected to be $0.66 to $0.70 and includes approximately $26 million ofpurchased intangibles, amortization, and other charges associated with theMaxtor and EVault acquisitions. Accordingly, non-GAAP dilutedearnings per share, excluding these acquisition-related costs is expected to be$0.71 to $0.75. GAAP, R&D and SG&A expenses are expected to beapproximately $418 million to $423 million for the December quarter. On a non-GAAP basis, excludingapproximately $3 million of acquisition-related costs, R&D and SG&Acosts are expected to be approximately $415 million to $420 million. Theincrease over the prior quarter reflects the impact of Seagate's annual focalmerit increase for the company, variable product launch spending and R&D,and the receipt during the September quarter of a government research grant. Additionally, other income andexpenses are expected to be a net expense of approximately $17 million. Our taxrate is expected to be near the low-end of the 5% to 10% range. As always, this outlook does notinclude the impact of any future acquisitions, stock repurchases orrestructuring activities that the company may undertake during the quarter. That concludes my remarks. I willnow turn the call back over to Bill.

Thank you, Charles. The trendtowards greater creation and consumption of digital content are clearly drivingtremendous growth for Seagate. We see this growth continuing and we are excitedabout the opportunities in front of us. On behalf of the entiremanagement team, I would like to thank our employees around the world for theircommitment and for delivering an outstanding quarter. And with that, we areready to open up the call for questions. Justine?

(Operator Instructions). Ourfirst question comes from David Bailey with Goldman Sachs. David Bailey - Goldman Sachs: You've already bought up againstthat higher end of that range. Are there times when you could actually go abovethe new range and would these factors drive you there?

Hey, David. David Bailey - Goldman Sachs: Yeah.

This is Bill. We didn't hear thefirst part of that question. Could you repeat please? David Bailey - Goldman Sachs: Sure. At the Analyst Meeting inSeptember, you gave a new gross margin range of 21% to 25%. Well, you arealready there. You are already at the high-end of that. So, are there timeswhen you could go above the high-end of the new range? And what would cause youto go above the 25%?

I will let Charles answer, but wehad pricing declines of 2% that we have been involved in this quarter. Go aheadCharles.

The range that we gave on ourAnalyst Day was a long-term range that reflected the product mix changes thatare anticipated to occur over the next couple of years. During any givenquarter, particularly during the front-end of that period of time, if you haveenvironments like you do today, it may be possible to go beyond the top-end ofthat range. The range was discussed as a long-term range which includes thestructure of the industry and the growth of 2.5 inch in other products whichtends to have lower margins in the industry on the relative basis. David Bailey - Goldman Sachs: And could I just get a follow-upto that. Given the seasonally lower volumes in the March and June quarters,should we expect the gross margin to drop to the lower end of the range orthere are specific Seagate items that should keep it sort of at the mid rangeor above that going forward?

I don't think we will comment onMarch and June quarters yet, I think it’s too early to determine what thosedynamics are. But, we recognize that those are normally seasonally slowerperiods of time in the year and given the leverage that is in the company, youwould expect to have a decline in profits during those periods. David Bailey - Goldman Sachs: Okay. Thank you.

Our next question comes from theline of Keith Bachman with Bank of Montreal. Keith Bachman - Bank of Montreal: Hi. Can you hear me okay?

Yeah. Keith Bachman - Bank of Montreal: Just to follow-up on David'squestion. I think you benefited from the behavior of your competitors duringthe course of September and it clearly seems like that's going to continue inthe December quarter. If you think about some of the issues that Samsung andFujitsu have had, and perhaps even Hitachi,how should we be thinking about some of the competitive dynamics as we exit Decemberand look to the seasonal period. Is there any kind of color or comments on theway you guys are thinking about it?

Well, again in the Septemberquarter, and as Charles and Brian mentioned it, we had 4% price. That's notwhat we call a great pricing quarter. Now, that would be normally what we wouldexpect. My sense says that, when I look at the losses that people had last yearand historically in this industry we don't tend to go two solid years of priceforce. I think in our mind that it should be a much better and more stableyear, especially with all the demand in front of us. That said, we arepreparing for the worst. Keith Bachman - Bank of Montreal: Okay. Well, let me just try toget a follow up in there. It seems like during the course of this quarter, aswe were in the summer, it seems like desktop was a big area of surprise interms of the sequential growth there. And you guys are forecasting, I think yousaid 4% to 5% sequential growth in the desktop. Why do you think the desktopmarket had this seasonal spike during the course of September, even on the backof what was arguably great notebook numbers?

Yeah. Keith this is Brian, let metake that one. It's a good question. One of the things that's phenomenal. I cantell you that what we did see is a much earlier September quarter than wenormally see in terms of linearity, primarily pronounced in Europe,which of all places, is usually slower. So, the reasons behind that are myriad.I think there is some potential exchange rate phenomenon that has crept inthere. Remember too that June was not the kind of June that we normally see. Itwas on the low side of June. So, I think maybe some of that demand rollovered aswell. The last one I gave you is thatit is not all through desktop. So, when we talk about growth and 3.5-inch ATAbeing 4% to 5%, or 15% or 11% year-on-year, there is a lot of applicationscreeping into that now that are growing at a much faster rate. You've gotthings like surveillance, you've got things like digital video recorders, youhave the branded businesses that both we and some of our competitors have thatare putting tremendous amounts of storage into peoples’ homes under variousdifferent brands. So, those segments are moving, sort of, at different cadencethan the pure desktop market. Clearly, the desktop market is growingparticularly in emerging markets. But you certainly have to layer those thingsat higher growth rates on top of that, so that is some of it as well. Keith Bachman - Bank of Montreal: Okay. Thanks very much guys.

Our next question comes from theline of Steven Fox with Merrill Lynch. Steven Fox - Merrill Lynch: Hi, good afternoon. I’m justgoing back over a couple of things on the quarter. Can you just sort of dissectthe 300 basis point improvement in margins a little bit more, if you broke itup between units, efficiencies, and pricing mix? And then as a follow-up, if youcould, within that answer, highlight what was the most powerful mix effect inthe quarter?

I will try to do that Steven. Ifyou look at just the order of magnitude of what drove the 300 basis pointimprovement, it would be pricing first and that's pricing relative to what wehad planned and anticipated at the beginning of the quarter. The second would be the mix ofproducts that we shipped and those really cover the entire margin improvements.Volume had a very nominal, if any impact on the margin expansion, depending onthe mix of products that got into it, and so whatever volume was included, itreally gets covered in the product mix piece of it. If you sit and look at some ofthe areas that really contributed to the margin expansion from the product mixperspective, I think it goes back to Brian's comments in the call where hetalked about the very high demand for high capacity ATA drives, 750-gigabytedrives, and the 80% growth rate in ATA drives that are 500 gigabytes and over.And I think that if you sit and look at a mix between product offerings,enterprise, desktop, and mobile, that is not as dramatic of driver as thein-mix, particularly in the ATA products. Steven Fox - Merrill Lynch: Great. That's very helpful. Thankyou.

Our next question comes from theline of Aaron Rakers with Wachovia. Aaron Rakers - Wachovia: Yeah, thanks guys. A couple ofquestions as well, if I can. I guess, the first question is on your free cashflow generation. At the Analyst Day, I believe you gave a framework modelguiding basically $840 million to $1.35 billion and you guys just did $604million. Now, at the time were you thinking that was being rather conservative,or is there something out in front of us that causes you to possibly see somedeceleration in the free cash flow?

Charles is going to take thatquestion.

Good question though. Good timesalways look really good and then when you are in the seasonally slow periods,you kind of grind through them. I think that it's a fair question and I dothink that it reflects that unless we would anticipate negative cash flows inthe back half of the year, which we don't. We expect to still have goodrevenue, good profitability in the back half of the fiscal year, with positivecash flows in those periods, that it may indicate that during this fiscal yearwe underestimated the free cash flow that could be generated by the business. Aaron Rakers - Wachovia: And then if I could follow up onthat. The retail business was down modestly as a percentage of your totalrevenue. Maybe you can touch on the new products coming on board. If we shouldexpect that contribution to start to increase here going forward, and maybe ontop of that, highlight if you know possibly what the gross margin implicationscould be?

Aaron, this is Brian. Let me takethat one. I wouldn't look for any gross margin implications. That's a businessthat we target to run pretty close to the average of the company gross margins.So, I don't think you are going to see any margin expansion to the retailbusiness. So, on a top line basis, we actually feel pretty good about where weare both year-on-year and sequentially. It's a little early to tell allthe returns earning, yet from the people we compete within that space, we feelgood about our position there. We feel good about the cost structure of theproducts. As I mentioned, both brands have been refreshed and we're moving intoa season, that's going to be a high season. So a lot of optimism around thetop-line impact of the business going forward. Aaron Rakers - Wachovia: Thank you. Congratulations.

Our next question comes from theline of Katherine Huberty with Morgan Stanley. Katherine Huberty - Morgan Stanley: Yeah. Hi, guys. As it relates tothe 4% to 5% sequential unit guidance, that's towards the lower end of what youwould typically see in December. How much of that is a function of demand,perhaps being pulled in from September versus just the manufacturing capacitylimitations that you've seen in your business for the quarter?

Brian?

Hey, Katherine, this is Brian. Ihad just a little bit of both. I think part of it's in our planning as well. Wewere proven wrong last quarter when we forecasted 15% sequential growth. It wasstronger than that. You can see by our channel inventories, nobody is sittingon the products. So I don't know that we could say demand was pulled intoSeptember, people are using the product that we're putting out there. So,hopefully, we're on the downside again, that would be a good scenario foreveryone, but frankly, there is also a capacity utilization limit that we'reheading into as well. As Dave mentioned, we madecapacity build-out decisions back in the spring timeframe that we're livingwith today, and living with quite happily in fact. It's presenting a challengeat some of the product pipelines, at or moving in some allocated stage forperiods of time. But, and I think much beyond the 5% range, there is probably,at least at Seagate, if not an industry limitation too in terms of industrycapacity. If you just extrapolate that growth rate out, that's going to be anindustry unit that's down close to 140 million units and is substantiallyhigher than it's ever been before. So I think we are bumping up against some ofthe limits, particularly as you get into certain product lines.

And why wouldn't those capacitylimitations give you better visibility going into the March quarter then youhad, say a year ago? MorganStanley: And why wouldn't those capacitylimitations give you better visibility going into the March quarter then youhad, say a year ago?

Well, Katie, they might. When weare setting in December and January having the conversation with you, they maywell. But we need to get through the December quarter, see what thesell-through is in the December quarter, what the channel inventories are as weexit the December quarter and what the OEM sell-through is and if the demandexceeds the 5% and the selling through, it may well give us better visibility,but it's too early to have that look at it yet.

Okay. And then I apologize if Imissed it, could you give what channel inventory was at the end of the quarter? MorganStanley: Okay. And then I apologize if Imissed it, could you give what channel inventory was at the end of the quarter?

Yes, for Seagate it was under threeweeks, and for the industry excluding Seagate it was four weeks.

Okay, great. Thank you. MorganStanley: Okay, great. Thank you.

Our next question comes from theline of Daniel Renouard with Robert W. Baird.

I am wondering if you can give ussome flavor on profitability. For the last couple of years you have talkedabout laptop pricing, and that on the PC side it has been more aggressive. Ourlaptops and desktops on the PC side at roughly comparable profitability levelssort of as much as you can do apples-to-apples or do you think there is moremargin pressure not this quarter but say next year on the laptop side. And then secondly, there has beensome conjecture about double ordering etc. with some products on allocation. Wouldyou have any color that you could add to that in terms of what your endcustomers are actually doing in terms of their demand versus orders in furtherpatterns? Robert W.Baird: I am wondering if you can give ussome flavor on profitability. For the last couple of years you have talkedabout laptop pricing, and that on the PC side it has been more aggressive. Ourlaptops and desktops on the PC side at roughly comparable profitability levelssort of as much as you can do apples-to-apples or do you think there is moremargin pressure not this quarter but say next year on the laptop side. And then secondly, there has beensome conjecture about double ordering etc. with some products on allocation. Wouldyou have any color that you could add to that in terms of what your endcustomers are actually doing in terms of their demand versus orders in furtherpatterns?

So Daniel, let me take the firstpiece. This is Charles. Relative to profitability, and I will answer in twodifferent ways, I wasn't sure how you were asking about it. If you look at interms of just an absolute profit pool, by the sheer size of the desktop that weshipped versus the notebook, the desktop is by far the largest profit pool thatexists. If you look at it on a margin basis, I think we were relatively woken upand open about the fact that during this last year with the pricing pressureson the 2.5 inch product, that margins had slipped below the 3.5 inch ATAmargins, and while there may be a path to bring them up comparative at somepoint in time, they are still somehow below the 3.5 inch ATA margins. And so,we will have to see how these dynamics and product pressures allow that tochange overtime.

Daniel this is Brian, I will takethe double ordering question. I think at any time that you have a particularproduct line that is in short supply you can expect, you are going to see someof that, and I certainly would not deny that we are suspicious that there is someof that going on. I would tell you that anything that we've put in front ofyou, in terms of an outlook, including the 4% to 5% unit growth, fullycontemplates that. And the fact is we have far more demand, then that wouldrepresent in front of us today, some of which we don't think is necessarilyreal in period, that we are not frankly in a position to even react to in orderwe put that in our outlook. We are also very confident that there is otherpotential gauge in the supply chains of our customers, both in the desktop andthe notebook space, plastics, batteries, panels, processors, you name it. But wefeel pretty good about our triangulation around those data points and where wesit within that and consequently the outlook we've given you here for thisquarter.

That's helpful. Thank you. Robert W.Baird: That's helpful. Thank you.

Our next question comes from theline of Mark Miller with Brean Murray, Carret

Let me congratulate you forhaving a very strong quarter. It appears very quickly on in your projectionsfor the December quarter that we are seeing somewhat of a more benign pricingenvironment. It also appears more flattish than what we thought was going tohappen in the September quarter. However, we are looking at relatively lowinventory levels, we are talking about products on allocation, and we are alsotalking about a move up in terms of capacity that supported your ASPs to bebasically flat last quarter. In the past, when we see an environment like this,we've actually seen price increases or ASP increases in the December quarter. Anyfeeling about that? You seem to be more conservative here, in terms of yourpricing projection for December? Brean Murray,Carret: Let me congratulate you forhaving a very strong quarter. It appears very quickly on in your projectionsfor the December quarter that we are seeing somewhat of a more benign pricingenvironment. It also appears more flattish than what we thought was going tohappen in the September quarter. However, we are looking at relatively lowinventory levels, we are talking about products on allocation, and we are alsotalking about a move up in terms of capacity that supported your ASPs to bebasically flat last quarter. In the past, when we see an environment like this,we've actually seen price increases or ASP increases in the December quarter. Anyfeeling about that? You seem to be more conservative here, in terms of yourpricing projection for December?

Mark, this is Brain. Let me takethat one. Let me just kind of reset a perception. We've talked about normalpricing ranges on like-for-like across all products being in a 4% to 7% rangefor sometime now and in fact the 4% we saw in September, you would have to goback about four years before you would find anything lower than that. So, thereis a perception that prices actually go up in quarters and periods of tightness.We have seen several of those in the last three to four years, including theperiod we are in right now and prices just don't go up. And the large reason for that is about65% of our business and I think its true in most of the industry, goes to OEMcustomers who have an expectation of price takedowns on a quarter-on-quarterbasis. And those expectations really are set in the previous quarter, and as anindustry we have delivered to those expectations with a limited amount of side linein terms of any individual product lines, supply and demand balance over thenext 90 day period. So, by function of that withinour model in the industry, we have already have some price declines built in,where we typically get some leverages in more transit markets, eitherdistribution channel, which might be as much as 30% of our business, we havethe ability to change price on a more weekly or monthly basis. And so insegments like that, we have sometimes been able to at least keep prices flat insome capacity categories than we do at programs, may be slightly up. But as youmix the sense of the overall, we have not seen any quarters in the last threeyears that have had less than about a 3% like-for-like overall price decline.And the last point I will make for you, is that all of our products are inallocation now. So, the notebook is tight and some high-capacity desktopproducts are tight, there are many segments of a product line that aren’tallocated. Mark Miller - Brean Murray, Carret: But the point I was trying tomake is not on a product-for-product basis, but on an ASP basis because ofproduct mix effects.

I think you see that in ouroutlook, where we have said there would be 4% or 5% unit growth for theindustry. And if you do the math on the guidance we gave you, you are going toget 4% or 5% revenue growth. So, that implies a flattish ASP. Mark Miller - Brean Murray, Carret: Right. Next question is that there’sbeen some reports about mobile component issues. Is it possible that some ofthat could constrain mobile ships in the December quarter, and shift them intothe March quarter? You saw very strong growth this quarter. I am just wonderingwhat you are hearing about, there was a fire at Matsushita plant, also somepanel issues?

Yeah. That’s a great point. Iwill try to address that a little bit earlier. Let me tackle it directly. Sofar, we certainly checked through our engagements with all of our majorcustomers, we are not going to be a constraint for them nor do they feel thatthe demands they are putting on us right now is in jeopardy because of othercomponent constraints. And so, whether it’s the way they have aligned supply ona specific component -- battery is a great example because of the instance thatoccurred, we don’t think there is risk there given the outlook that we have putin front of you. Mark Miller - Brean Murray, Carret: And final question, some people,I know you don’t want guidance, but to refresh my memory, the March quarterreally is not that big of quarter. It’s typically, if I recall, and you cancorrect me, there are 2% to 5% from December typically, will I have to markthere in a typical March quarter following the summer?

I will let Charles take that.

I would stay that it’s more oftenthe 5% range. Mark Miller - Brean Murray, Carret: Okay. Thank you.

Our next question comes from theline of Rich Kugele with Needham & Company. Rich Kugele - Needham& Company: I have a clarification and a question.First, just to understand better your retail, Brian, when you are talking aboutbranded, are you referring to your retail or is branded also a portion of yourconsumer? I’m just trying to understand the type of growth rate you are talkingabout relative to the additional color on the website.

Yeah. Sure, Rich. That is theproducts that shipped through retail and other channels under the Seagate orMaxtor brand. That’s not any product that we ship or send to the game consoleor DVR space? Rich Kugele - Needham& Company: Okay. And then question for Dave,just a little bit more on the supply chain. In particular, aluminum substrates,I know that you have your agreements with your vendors and as well as someinternal production. So and as you mentioned, you are fine for your own supply.But are you seeing any constraints from an industry perspective, particularlyon high cap perpendicular that maybe impacting maybe some of your Asian guys?

Yeah, Rich. The utilization froman industry perspective is not much different than we talked about at ourAnalyst Day. It's very similar. So, it's in the high 80s. So, you would expectto see some disruptions, as people shift either their sources, theirqualifications or have issues with execution. So, aside from that there isadequate capacity. We think and again other competitors can choose to use thoseeither on the high-end or anywhere else for that matter. So, it's tight, Rich.But again as I mentioned earlier, our view is there is an adequate supply notjust for Seagate but for the industry as well. Rich Kugele - Needham& Company: Okay. And then just lastly, justbecause we can ask the question, the International Trade Commissioninvestigation into the drive land, is this really an issue or is this justexploratory?

I don’t know that I can give anyreal clarification at this point in time on that, Rich. I don’t have anyonethat is close to that topic that can really provide that answer. Rich Kugele - Needham& Company: Okay. I just wanted to ask. Thankyou very much

Our next question comes from theline of Mark Moskowitz with J.P. Morgan. Mark Moskowitz - J.P. Morgan: Yes. Good afternoon. I have twoquestions, one for Dave and one for Brian. Dave, could you maybe give us alittle more context around the discipline that Seagate is exhibiting withrespect to CapEx and the future capacity additions? Is this a sign that themarket momentum could slow in the coming year or that potentially market share shiftsat peak or maybe there’s one more or, or is it really just to sign that thecycles in terms of the peaks and values have a smaller input to what they aregoing to be, looks greater a frequent thing?

Well, Mark, Dave. It's obvious.The first part of the question is really what I tried to hit in the scripts andthat is we continue to be very, very disciplined. And as we talked about ourAnalyst Day, we really focused on our overall efficiency, but to not spend anycapital before it’s absolutely required. So, one of the things that we try todo every quarter is to make sure that we don't put any unnecessary capitalonline and that's what you saw here. Frankly, the 150 actual was a little bitless than plan and that's primarily due to some of the facility's expendituresthat we planned. So on a year, the $900 millionjust for your modeling will be pretty linear roughly half on the first half andhalf at the second half of '08. But I can speak for Seagate and I think we haveseen indications elsewhere that folks are being very mindful about puttingcapacity online before customer. So, they are either being cautions and I thinkthat's healthy for the industry and certainly we are doing our part. Mark Moskowitz - J.P. Morgan: Okay. Thank you. Appreciate that. Andthen, Brian maybe you can just touch really quickly here on the prettyattractive opportunity here that you referenced in terms of high capacity, highmargin through ATA business, 500 to 751 terabyte, seems as if Seagate has apretty lead good followed by Western Digital. What are you seeing from yourcompetitors? Do they have the capacity? Do they have the technology to go outto this market particularly that becomes kind of the coveted profit growthstory for the industry over the next couple of years?

Well, the cynical part of me Markwould say that it close an opportunity to mess up the profit growth story basedon behavior. But, with the kind of growth we are seeing, fortunately right nowthat's not an option for the industry. What I'll tell you is there are twocomponents for the growth. One is through technology, which you are absolutelyright, we are well-positioned for. And products like that, they are a highdish, high headcount products, vertical integration helps, and leadingtechnology is even better, and we happen to have both. So, we arewell-positioned from technology. The other vector is applicationexpertise. As I mentioned to one of the previous questions, the growth we areseeing at high capacity really covers a number of different segments, theobvious one being the desktop market that's certainly a component of it. Lessobvious being things like commercial surveillance, the branded business that wehave and then finally where application expertise is really important and weare well-position the enterprise and this edge of the internet sort of buildout. We believe we shipped over 2 million units to edge-to-the-Internetapplications and high-capacity SATA, which we consider enterprise applications andpart of our enterprise business and the application expertise to pull that off,because it's the same primary custom set of our classic mission-criticalbusiness is not trivial. And we think that's a key component of growth thereand so from pure technology and application expertise, we think we are reallywell-positioned. Mark Moskowitz - J.P. Morgan: Thank you for that. And may be Iwould squeeze one more question. And Charles could you may be give us littlemore color behind the government research grant that you talked about earlier.

Sure. This is a non-US grant. Wehave operations in countries that we operate in the tax holidays, and some ofthe benefits that we get are related to research that it goes on in thosecountries. This grant was about $4 million grant. Mark Moskowitz - J.P. Morgan: Okay. Thank you.

Our next question comes from theline of Christian Schwab with Craig-Hallum Capital Group. Christian Schwab - Craig-Hallum Capital Group: Thanks, Brian. Just a quick questionon the tremendous OEM demand. How much benefit do you think you received duringthe quarter from OEMs, fearful about Hitachi'scommitment to the disk drive business versus end demand? Brian Dexheimer Yeah, Christian, I would probablyhazard to guess on that, it's tough to read minds. What I would tell you is, webelieve we've benefited from additional volume both in terms of market growth,but if you're suit and I know you are, you will look at our growth relativelyto industry and note that it's higher. So, we grew some share, and we grew thatshare probably because of our flexibility in our leading technology lineup. Wemay have also grown it because of some misexecution in part of some competitionand/or some of the things you mentioned. But, it's almost impossible for us totell that specific reason. Christian Schwab - Craig-Hallum Capital Group: Great. No further questions.Thanks.

Our next question comes from theline of Kevin Hunt with Thomas Weisel Partners. Kevin Hunt - Thomas Weisel Partners: Hi. Thanks guys, a couple ofquestions. First on the OpEx, how much you gave, Charles? What should we bethinking about that if you look beyond the December quarter? Should we beassuming those kind of increased bonuses would continue, i.e. the dollar runrates stays similar or should we think that would come little down as a percentof sales going forward? And I have a follow up.

If said look in the March andJune quarters, we would probably expect them to come back down to the $400million to $405 million range, because in the spending level that's reflectedin the December quarter. It does have some increased variable R&D cost forproducts that are coming through that stage of it at this point in time. Kevin Hunt - Thomas Weisel Partners: And do you guys did not talkregarding your options number once in the quarter?

I do not remember on top of myhead what that is. I can certainly have Rod make that available. Kevin Hunt - Thomas Weisel Partners: Okay. And then one follow-up forBrian as well. Looking at the consumer business again just to make sure I amunderstanding things, when you are talking the consumer, the branded itself youare including is part of desktop, is that correct?

No, actually calling our brandedseparately. Kevin Hunt - Thomas Weisel Partners: Okay.

Our branded business are thoseproducts that we shipped under the Maxtor and Seagate brands, where we saw(inaudible) consumer electronics business, is that which goes into consumerelectronics applications really as it drives them so. Think of handheld, DVR,game consoles, things like that, automotive. Kevin Hunt - Thomas Weisel Partners: But did you give a number of abrand, I just missed that.

I didn't give a specific number.I said it was up 10% sequentially on a top line basis. Kevin Hunt - Thomas Weisel Partners: Okay. So when we're adding up inthe units here, is that part of that $29 million desktop fan or what?

We throw the units when you arelooking at the website. If you look at units, it will be in the desktop number. Kevin Hunt - Thomas Weisel Partners: Okay. Now, then going to the backto the gaming segment again, that was actually based on my numbers here anywaydown year-over-year. So could you talk about the dynamics, was that probablyjust because the real small contractors going way down or what, gaming down orwhat?

Right. If you remember last year,it was the launch of the PS3. Kevin Hunt - Thomas Weisel Partners: Yeah.

And you remember that launch wasdelayed, so a lot of volume that might have been in. The similar quarter lastyear got pushed to the December quarter. So, it makes a difficult year-on-yearcomp. Kevin Hunt - Thomas Weisel Partners: Okay.

Make sense? Kevin Hunt - Thomas Weisel Partners: Yeah, all right. Thank you.

Out next question comes from theline of Andrew Neff with Bear Stearns. Andrew Neff - Bear Stearns: Sure. I just wanted to see if youcould elaborate a little more than you get on competition and what you areseeing in that respect in terms of -- talked a lot at the analyst meeting aboutthings you are seeing Hitachi,Fujitsu, is that have you seen any change since the analyst meeting in terms ofcompetitive behavior?

Not necessarily, so we haven'tnoticed anything I think at least for now. Again, the pricing was some whatbenign, more than we thought going to the core, but now we haven't seen anythingthat we didn't talk about the analyst and it appears that everyone's prettymuch got their head down and is kind of focus on the Metro products. Andrew Neff - Bear Stearns: Okay. Thanks very much.

Last question please.

Our last question comes from theline of Shaw Wu with American Technology Research. Shaw Wu - American Technology Research: Sure. Just a clarification onyour hybrid comments, where do you said you shipped 100,000 units, not sure ifI heard that correctly, and just related to that, just kind of wondering what'syour view on Intel's Robson technology, is that something that's competitive,complementary or where we see notebook products kind of a both forms some withhybrid and some with Robson? Thanks.

John, first I want to clarifyyes, you did hear a 100,000 units. It's early days on hybrid. We got three OEMsthat are shipping new products. The market is still quite nascent relative toRobson. We are very confident this technology will perform well versus thatalternative architecture for several commercial reasons why, OEMs might notwant to align with Robson as an alternative. And we think the hybrid designwill provide some additional benefits beyond the performance that Robsonpromises. So, we feel pretty good about it. We're part of the industryassociation around hybrid, that's in full support of the hybrid design, and Ithink we're getting good acceptance from the customer base. Shaw Wu - American Technology Research: Okay. And just a quick follow-up,in terms of support for the hybrid, the flash portion, is that through the OSlayer, through like Windows, or is that your software?

No, hybrid is really a functionof the operating system. So, Vista had anumber of changes in it that were to accommodate hybrid in fact. There isnumber of changes forthcoming in Service Pack 1 that will take more advantageof the features that the hybrid drive provides. But it is within the control ofMicrosoft. Shaw Wu - American Technology Research: Okay. Thank you.

Okay. With that, thank you allfor joining us today. We look forward to speaking with you next quarter. Takecare.