Stephen J. Luczo - Chairman of the Board, President, Chief Executive Officer William David Mosley - Executive Vice President - Sales, Marketing and Product Line Management Robert W. Whitmore - Executive Vice President - Product and Process Development, Chief Technical Officer Patrick J. O'Malley - Chief Financial Officer, Executive Vice President

Keith Bachman - BMO Capital Markets Kathryn Huberty – Morgan Stanley Sherri Scribner – Deutsche Bank Richard Kugele – Needham & Company Ben Reitzes – Barclays Capital Mark Moskowitz – JP Morgan Bill Fearnley – FTN Capital David Bailey – Goldman Sachs Rob Cihra – Caris & Company Jayson Noland - Robert W. Baird Stephen Fox – CLSA Kaushik Roy – Wedbush Morgan Ananda Baruah - Brean, Murray, Carret & Co. Amit Daryanani – RBC Capital Markets Christian Schwab – Craig-Hallum Capital Group

Welcome to the Seagate Technology fiscal second quarter financial results conference call. (Operator's Instructions) As a reminder, this conference is being recorded for replay purposes. 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, uncertainties and other factors that could cause actual results to differ materially from those anticipated by these forward-looking statements. Information concerning additional factors that could cause results to differ materially from those projected in the forward-looking statements is contained in the company’s annual report on Form 10-K as filed with the US Securities and Exchange Commission on August 19, 2009 and in the company’s quarterly reports on form 10-Q as filed with the US Securities and Exchange Commission on November 4, 2009. 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 the events or circumstances after the date they were made. I would now like to turn the conference over to host, Mr. Steve Luczo, CEO. Please proceed, sir.

Thank you. Good afternoon everyone and thank you for joining us today. On the call with me are Pat O'Malley, our Chief Financial Officer; Bob Whitmore our Chief Technology Officer and Head of R&D and Manufacturing Operations and Dave Mosley, Head of Sales and Product Line Management. Over the course of calendar year 2009 the technology industry has improved faster than the broader economy and the storage sector has outperformed almost every other sector in technology. As a result the demand for storage continued to accelerate throughout the calendar year. Given Seagate’s breadth of product line we have been able to adjust our production schedules to meet this accelerating demand for storage as the global recovery broadens. Our strong performance in our second fiscal quarter was influenced by many factors that allowed us to deliver financial results that far exceeded our guidance at the beginning of the quarter. When we discussed our first fiscal quarter results three months ago we also discussed our approach to planning for the December quarter. We indicated there would be variability in a number of factors that could positively impact the quarter. While two of those assumptions did help us achieve better than expected results we expect the other two variables to provide additional opportunities throughout the calendar year 2010. First, the demand profile across our entire product line was linear throughout the quarter and we did not experience the dramatic decline during the last two weeks in the quarter as we did in the December 2008 quarter. Second, our assumption for enterprise storage demand proved to be conservative as demand accelerated throughout the quarter. Those two factors positively impacted our results in the December quarter. Third, we indicated that the Windows 7 refresh would likely accelerate PC demand. We do not believe there was a meaningful refresh cycle reflected in our Q2 results. However, we still expect this to be an opportunity for us throughout this calendar year. Fourth, we were not planning for a robust economic recovery in the United States or Europe during the quarter. We now expect a broader global economic recovery to occur in the second half of calendar year 2010 and we believe this recovery will result in a higher probability for a broad based commercial refresh of information technology products including storage devices. Throughout the quarter we continued to have very strong demand for our high capacity, high performance products in both the notebook and desktop markets. In addition the enterprise market experienced the second consecutive quarter of double digit growth. The combination of increases of demand across our portfolio with the stable pricing environment resulted in gross margin of 30.5% and provides strong momentum as we move into calendar year 2010. To the extent these market conditions continue we expect the company to operate above our stated target range for gross margin percentage. We achieved revenue in the December quarter of $3 billion, a 33% increase year-over-year and a 14% increase sequentially. Net income was $533 million resulting in $1.03 of earnings per share. We also continued to strengthen the balance sheet generating operating cash flow of $753 million and repaying $246 million in debt. We believe the TAM for the December quarter was approximately 160 million units. At these demand levels the industry experienced constraints throughout the supply chain. As we plan for the March quarter we are assuming muted seasonality with a TAM in a range of between 155 and 160 million units. Throughout the calendar year we anticipate ongoing component constraints across the supply chain including internally sourced components which we believe will constrain disc drive supply relative to demand. In this environment we expect to make capacity additions although our objectives will continue to be maintaining the balance of supply and demand while optimizing our production volumes and product mix to meet customer needs. Finally, I want to emphasize that while we are experiencing a robust demand environment and we have a strong product portfolio based on our technology leadership there is still room for improvement at Seagate in all operating, technical and support functions. We remain highly focused on excellence throughout our company and delivering the best products to our customers and achieving strong financial performance for our shareholders. With that let me turn the call over to Dave to discuss the specific market dynamics for fiscal Q2 and going into fiscal Q3.

Thanks Steve. Seagate shipped 49.9 million units during the quarter representing 36% annual growth and 8% sequential growth. We believe the overall industry shipped approximately 160 million units. Linearity held strong from October all the way through the quarter end. The strong demand reflected an intense customer appetite for our notebook and desktop product lines particularly at 500 GB and 1 terabyte capacity points and high performance 7,200 RPM configurations. In addition we experienced accelerated demand for our 15,000 RPM enterprise products throughout the quarter. These demand conditions resulted in an improved product mix that combined with strong unit demand and improved factory utilization to drive continued margin improvement. Now I will give some detail on the individual markets. The TAM in the mission critical space for the December quarter was approximately 7.5 million units up 14% quarter-over-quarter and 8% year-over-year. Seagate shipped 4.6 million drives for mission critical server and storage applications during the quarter maintaining its leadership position. Mission critical drive shipments of 3.5 inch 15,000 RPM products were stronger than we anticipated throughout the quarter owing to an improving picture in enterprise storage systems. Seagate’s portfolio scale and leverage allowed us to efficiently meet these demand increases for our enterprise customers. As with last quarter this represents strong sequential growth and as this market returns to historical levels or greater Seagate as the market leader will benefit. The TAM in the desktop market for the December quarter was approximately 64 million units, up 7% sequentially and 26% year-over-year. We believe we maintained our leadership position in this market shipping 25.1 million units, up 8% from the September quarter. Seagate clearly leads the industry in component volume shipments of capacity points at or above 500 GB per disc in the desktop market. Over 85% of our desktop products shipping during the December quarter were of this configuration signaling that the product transition we have discussed in our calls for the past three quarters is now complete. For the March quarter we expect the desktop TAM to be flat sequentially. The overall TAM in the mobile compute space was approximately 71 million units in the December quarter, up 10% sequentially and 53% year-over-year. Seagate shipped 14.8 million units, an increase of 7% sequentially and 95% from the year-ago quarter. During the quarter Seagate benefited from delivering high capacity and high performance drives, particularly 250 GB per disc products and 7,200 RPM products. Our consumer electronics and retail product lines also took advantage of these capacity points. We expect the TAM in the mobile compute space in the March quarter to be slightly down sequentially. Now I would like to turn the call over to Bob to provide an update on our operations and product development.

Thanks Dave. Our focus in R&D and operations continues to be in executing time to market, product introductions, staging technology for the future and supplying our customers with products in a robust demand environment. Today I will give an update on products, technology and capital investment. We continue to have a very high priority on new product execution, customer qualifications and product transitions across our portfolio. The 3.5 inch, 15,000 RPM mission critical enterprise product line continues the transition from a 450 GB product family to a 600 GB product family. We have substantially completed customer qualifications and are increasing to volume production. In addition we have completed development and started qualification of the industry’s first 600 GB 2.5 inch 10,000 RPM mission critical product. For business critical/cloud applications we continue to ramp the industry’s first 2.5 inch 500 GB drive and customer qualifications have been completed. Qualifications of our 3.5 inch 2 terabyte 7,200 RPM business critical products have been achieved at its selected OEMs and are also entering volume production. As for our notebook products we proceeded with OEM qualifications and production ramps for our 320 GB per disc product as well as the industry’s first ultra thin 7 mm high notebook product with a number of qualifications complete. Finally, in the desktop market we continue to focus on yields and output of our widely accepted 500 GB per disc product line. Additionally we have now started to ship our first 667 GB per disc 2 terabyte product into the retail market and will continue to increase production throughout this quarter. Now I would like to make a few comments on technologies we are staging for future product generations. We continue to invest the appropriate resources and capital throughout the development and manufacturing infrastructure to insure that the technology and product leadership extends well beyond our current offerings. These investments are delivering results that give us increasing confidence in the extension of conventional perpendicular recording to sustain the aerial density growth rate for the next several product generations. In addition, we continue to invest resources and capital towards technologies that will take us well beyond conventional perpendicular recording. Over the past several quarters we have made considerable progress in demonstrating recording capabilities with several advanced technologies. We believe this positions us well for future product integration. These demonstrations underpin a cost effective, magnetic recording solution that leverages our existing capital and is extendable for the next decade. Finally I will make a few remarks on capital spending. It is important to note that our total capital investments supports our advancement of technology, production maintenance and increased supply. We believe our baseline capital spend is $450-550 million per year with no increase in drive output. We have aligned our current capital plans with industry analyst forecasts of a 650-670 million unit TAM for calendar year 2010 as well as customer demand for our high performance, high capacity product. No significant share shifts are assumed in our planning assumptions. Therefore we have raised our fiscal 2010 capital spending to approximately $750 million which we believe maintains a fundamental balance of supply and demand given the mix of our products. Moving forward we will continue to evaluate business requirements and carefully raise or lower our capital investments to the appropriate levels. In summary our operations and development teams remain focused on delivering time to market products, staging technologies for the future and increasing output and efficiencies throughout the supply chain. Now I will turn the call over to Pat. Patrick O'Malley: Thanks Bob. You will find the company’s press release, 8-K and additional financial information related to Seagate’s financial performance and other supplemental information in the Investor Relations section of Seagate’s website at Seagate.com. I will start with some comments regarding the fiscal Q2 results, then touch on the balance sheet and close with our March quarter outlook. For the December quarter Seagate’s unit shipments were 49.9 million, up 8% compared to the prior quarter and up 36% compared to the year-ago quarter. Revenue for the quarter was $3.03 billion, up 14% from the previous quarter and up 33% year-over-year. Gross margin for the December quarter expanded to 30.5%, an increase of roughly 600 basis points compared to the prior quarter due to a stable pricing environment reflecting tight industry supply, the shift of the company’s higher capacity, higher performing drives in the desktop and notebook markets and an increased demand for enterprise class products and improving factory efficiencies and utilization. R&D and SG&A totaled $337 million for the December quarter essentially in line with our expectations at the beginning of the quarter. The cost of restoring salaries previously subject to the company wide salary reductions implemented last January and funding of performance based variable compensation plan are included in the December quarter’s results. The tax provision for the December quarter was a benefit of $6 million due to favorable adjustments due to favorable adjustments related to recent tax legislation changes and other tax adjustments. For the balance of fiscal year 2010 we are now using for planning purposes a tax rate of 3%. Moving onto the balance sheet, at this time last year Seagate had a net debt position of approximately $1 billion. Conversely because of strong cash generation over the last six months the company now has a net cash position of approximately $200 million. Cash, cash equivalents, restricted cash and short-term investments totaled approximately $2.2 billion at the end of the December quarter, up $418 million as compared to the September quarter. Cash flow from operations was $753 million for the December quarter while free cash flow was $650 million. The [match core] 6.8 convert reaches maturity in April of this year and we expect to use cash for approximately $80 million to retire this debt. Beyond the April maturity the next debt occurs in October of 2011 and currently has a principle amount of approximately $560 million. All of Seagate’s cash is fully accessible without meaningful tax implications to service our debt. Depreciation and amortization from the December quarter was $192 million including approximately $10 million of purchase intangibles amortization. Now I would like to update the outlook for the March quarter. As we did last quarter we will first discuss the key assumptions on which we have based our outlook, the Variability surrounding Chinese New Year. Pricing trends will reflect the balanced supply and demand environment and Seagate will continue to lever time to market products. Consequently for the March quarter the company expects the following: Industry unit TAM of 155-160 million. Revenue of approximately $2.9 to $3.1 billion. R&D and SG&A costs of approximately $340 million. Other income expense of a net expense of approximately $35 million. A tax rate for planning purposes of 3%. An outstanding share count of approximately 530 million and GAAP earnings per share of $0.88 to $0.92 which includes approximately $0.02 in charges related to purchase intangibles amortization expense. It is important to note that the impact of modeling a 3% tax rate and a higher share count for the March quarter is approximately $0.06 per share when compared against the December quarter financial results. Based on results for the first six months combined with our view of the March quarter and beyond it is clear that our financial results for fiscal 2010 will greatly exceed the annual outlook we provided in October. Given the current tightness of supply and how this may extend throughout the calendar year, we feel shareholders are better served by Seagate providing outlook for the June quarter at a later date when our customer base is sufficiently underpinned. The March quarter outlook does not include the impact of any potential new restructuring activities, future mergers, acquisitions, financing, dispositions or other business combinations the company may undertake. The company’s policy is to refrain from commenting on such activities. That concludes my remarks for today. Steve?

Thanks Pat. Entering calendar year 2010 we believe we are in a strong position from a product, technology and operations standpoint and we are very well positioned for the demand opportunities we expect throughout the remainder of the calendar year. I want to thank our employees for their continued focus on achieving our goals. I would also like to thank our customers, suppliers and partners for their ongoing support and confidence in Seagate. We are ready to open up the call for questions.

(Operator Instructions) The first question comes from the line of Keith Bachman - BMO Capital Markets. Keith Bachman - BMO Capital Markets: I have two related questions if I could. Pat, based on the TAM you provided for March of 155-160 million could you talk a little bit about what the inventory assumption puts and takes are there? In other words are you assuming there is some replenishment from what I think is a fairly dry inventory situation throughout the channel? Or if you could just talk a little bit about the assumptions behind the TAM.

Our visibility into our OEM customers and what not is limited to the hubs and we believe that product is getting pulled through fairly well. I don’t think there is an inventory replenishment consideration there. In the channel we are just under four weeks which is pretty typical for us. So I would say there may be some other backlog in smaller channels worldwide that bears watching especially earlier in the quarter here but we don’t see a big inventory imbalance. Keith Bachman - BMO Capital Markets: So in other words the same amount of inventory at the end of the March quarter so it really is demand you are talking about for 160?

Yes. Keith Bachman - BMO Capital Markets: My follow-up question if I could, I want to try to understand as you are increasing your expectations for capital or CapEx you talked about the TAM being about 160 million units here in December, how is Seagate and how is the industry lining up for the second half of the calendar year in terms of increase in production units? How do you think the industry is shaping up for total CapEx as we look at the second half of calendar year 2010 please?

We can’t really speak to the industry. For us, like I said, I think most of the industry analysts are coming in at you know 650-700 or maybe 650-670 as a tighter range on demand for drives throughout calendar year 2010. That clearly accelerates in the September and December quarter and obviously the industry has no ability today to achieve those types of TAMs in the September and December quarter. If you want to put numbers like 170 or 180 or whatever you have to get to the 650-670. I think from Seagate’s perspective therefore we are trying to put capital to work that is consistent with that type of growth. I think the equation gets much tougher obviously because while we control a lot of our own destiny, more than any other drive company, there is obviously an upstream supply chain that has to address this as well and I think it is obviously tougher for some of the upstream supply chain companies to maybe put capital to work quite as quickly. So we still believe throughout calendar year 2010 supply is going to be short of demand throughout the calendar year. We are going to have to work pretty hard to be lined up for September and December.

The next question comes from the line of Kathryn Huberty – Morgan Stanley. Kathryn Huberty – Morgan Stanley: You commented on notebook and desktop trends for March but you do you have a view yet on how much of the strength in enterprise during the fourth quarter was budget flush or catch up from a slow first half versus the beginning of a longer hardware upgrade cycle that continues into March and June?

I think it is hard to say just yet. I think clearly we now have two quarters of enterprise growth that have been pretty strong. We are still not at the historic levels of the mission critical enterprise TAM which I think was about 8.3 million units. Clearly in notebook and desktop and notebook we are above those levels at this point. Another data point is good. That says it is more than just a budget flush. We expect that the March quarter is showing strength. Certainly I think the bigger point from our perspective and it kind of relates to the prior question is if you ask me do I think the demand for the 2010 calendar year enterprise is going to be substantially above 2009 the answer is yes and we believe that Seagate is going to be able to maintain or even perhaps grow share given our portfolio of products. Kathryn Huberty – Morgan Stanley: So the growth in demand is clearly there it is just a matter of what seasonality looks like as we go?

I think that is right. And clearly once the large system companies provide more clarity on what they see going on that is a better data point. Certainly the discussions we are having with them over the calendar year 2010 indicates strength over the calendar year. Kathryn Huberty – Morgan Stanley: As a quick follow-up for Pat, last time you were running at this headcount OpEx was $26 million higher. Is the difference systemic changes you made during the downturn that carry into fiscal 2010 and 2011 so that we don’t see a big uptick in OpEx or is there some catch up spending to do? Patrick O'Malley: No, I think all the catch up spending you see is now baked into our financials whether it is the restoration of salaries, whether it is the reinstatement of variable comp plan, that is all the in the $337 million so the savings above and beyond that is systemic. It is structurally taken out of the business. So if you see an OpEx increase hopefully it will align with where we need to make increased investments whether it is in research and development. We will continue to try and leverage our OpEx at this level with very tactical investments in that area.

I would say if anything our management focus is continuing to get more leverage out of OpEx and continuing to work that number as tightly as we can. So we are not giving up on our OpEx either as a percentage of revenue or even the absolute dollar amount.

The next question comes from the line of Sherri Scribner – Deutsche Bank. Sherri Scribner – Deutsche Bank: I wanted to get a sense of what is going on with the gross margin number. Clearly a very impressive gross margin this quarter. I think it is the highest quarter you have ever had in terms of the gross margin and it looks like you are guiding to somewhere around 28.5% gross margin at the midpoint for the March quarter. Obviously December is higher than your long-term target range. I know you have said it would be higher going forward but how sustainable this year is sort of that 28.5% number? What are you thinking about in terms of calendar year 2010? Are we consistently in the 28-30% numbers throughout the calendar year as we have supply and demand imbalance? Patrick O'Malley: Given the last caveat, you said all things being equal the answer is yes. But I think that is why we have indicated that even for the June quarter we want to get more data. We are lining up with customers through the calendar year now in terms of availability of supply. So we probably have better visibility than the company ever has, certainly in my two tenures. I think your basic assumptions are right. In the March quarter obviously it is a function of as we said of some muted seasonality and some variability around Chinese New Year. To the prior question about how much acceleration is in enterprise and does that continue or is it muted. We are still sorting that all out but your general point is I think on target that we would expect to be above that range through the calendar year. Sherri Scribner – Deutsche Bank: Is it fair to assume your utilization is relatively close to 100% at this point?

That is a fair assumption.

The next question comes from the line of Richard Kugele – Needham & Company. Richard Kugele – Needham & Company: First, understanding the cash flow over the next six months relative to CapEx spend should we assume due to the lead times on equipment that perhaps it all falls into the fiscal fourth quarter? Patrick O'Malley: I would say we start getting the supply base revved back up to support that. Obviously there is a staging effect. One, we have to bring the longer lead items in first which we started doing this first quarter. We saw a small step up in CapEx which would be your media and head components. As we get closer to September as Steve characterized the step up in your end demand we will bring on the last of the supply chain. So I would characterize over the next few quarters we would like to be at somewhat fairly linear over the next spread as opposed to one big jump to be ready for September. That is how we are planning to bring it more linear over the next two quarters. Richard Kugele – Needham & Company: Understanding when it comes to the desktop units many people had gone and expected that market to just continue to show sequential decline as notebook takes over. What do you see as the dynamic there? Do you just see a particular end markets that are just looking for the capacity? What do you expect over the next 12-18 months in that space as demand seems to be resurging?

Quite a few dynamics. A couple of points. First, there are things like all in one computers which are quite compelling to high end consumers and are driving some demand. There is also from probably the biggest item is the fact that there continues to be a strong channel for replacement, refurbs and things like that and that is very robust out in the world as 3.5 based replacing desktop tower hard drives. Then I think the other dynamic is we believe there is an increasing number of 3.5 inch products going into custom systems. I could call them home [Navs] but that may be too sweeping a generality. That dynamic we definitely see inside the channel as well so it is a compelling capacity for the value play to the end customer. That is usually via service to the channel. I think the other thing to keep in mind is there are the inklings of a commercial refresh. I wouldn’t say it has taken hold yet but we are definitely seeing that kind of strength in the commercial segments that speak to our interest. That is why 3.5 inch really hasn’t come down as hard as maybe what we foresaw or other industry analysts would have foreseen a couple of quarters ago. Richard Kugele – Needham & Company: So if we get into the second half of the year and a corporate refresh actually does start to take place, do you see 3.5 inch actually being part of this industry tightness as well since so many had moved their production capabilities over to the 2.5 inch side?

I think it will affect both [form factors].

The next question comes from the line of Ben Reitzes – Barclays Capital. Ben Reitzes – Barclays Capital: Can you address the shortages out there in the marketplace with regard to glass, sub-straight in particular and anything else you may be seeing, maybe drivers, etc. and how you see those being alleviated throughout the year?

I think the whole supply chain is kind of undergoing the same thing we are. Pretty much fully utilized. We see that in the finished media area as well as glass sub straight that has been fully utilized for the past several quarters. So we have been working with our supply base and I think they are cautiously adding equipment and capital at the same rate we are. We expect to see some relief sometime this calendar year but we do expect it to be constrained throughout the whole year. Ben Reitzes – Barclays Capital: So even into the very end of the calendar year there will be a shortage situation?

I think it will be tight. I think people will start to put on capital in the middle of the year and it will ramp throughout the second half of the calendar year but media is definitely top of the list in terms of concerns. Ben Reitzes – Barclays Capital: In terms of your segments, enterprise, desktop and all four of them, what is looking the firmest sequentially as we head into the March quarter and what are the sequential trends by segment that potentially could impact the mix as well?

I kind of already went through the specific numbers and what we thought was flat like desktop or what we thought might be down sequentially a little bit. Notebook keep in mind the 2.5 inch market is where some of the gaming devices come from so there will be some supply that doesn’t have to go towards that space in fiscal Q3 that did in Q2. I think we are foreseeing fairly flat TAMs across the boundary here and tight supply chain as well. That is our view of it right now. Ben Reitzes – Barclays Capital: Is there any chance enterprise is up sequentially or is it looking pretty flat as well?

It looks fairly flat. There is a chance it is up a little bit and I think we will continue to watch some of the server and storage shipments that are coming out in the first few weeks. It will be up small single digits though. Traditionally this quarter is seasonally a little down. I think even if it is flat that is atypical.

The next question comes from the line of Mark Moskowitz – JP Morgan. Mark Moskowitz – JP Morgan: Can you maybe talk a little more qualitatively in terms of the gross margin profile? How should we think about the incremental in terms of what was the portion to Seagate’s own internal improvement in the design platform, materials versus pricing versus mix? I am trying to get a sense of what can really be sustained beyond the midterm in terms of the cycle. Patrick O'Malley: I think you hit all the three key elements. They were all there. I think the one element that Seagate really controlled our own destiny on that was our product portfolio. We were clearly able to mix up, and we were clearly able to take more than our fair share of higher capacity, higher value products. So if you look at the normal distribution curve Seagate with the portfolio was able to benefit from going in there and getting that select mix to support our customer needs. That was across all segments and all markets whether it is notebook, enterprise or desktop. We were able to do that across the board. Mark Moskowitz – JP Morgan: Can you talk is that related to any one or more participants that are maybe hampered by their own execution issues, integration issues where they are kind of leaving money on the table right now?

I think there are a few dynamics going on. If you talk about capacity the 1 terabyte capacity point for example it has become very compelling in consumer systems so that draws people to that relative higher capacity. I think performance in some of the notebook systems we are starting to see some compelling notebook performance metrics as well. I think there are a lot of dynamics that are causing these products to be successful and I think those trends will continue as well.

What I think it is it is really our portfolio that they are picking from. So how others are doing I guess I could worry about but we are more worried about what we are doing and so hopefully working with our customers and hitting the products they want with our portfolio. Mark Moskowitz – JP Morgan: Debt service, given the high quality problem right now in having a very high gross margin above your target range and cash flow I presume to improve despite some of the CapEx increases discussed earlier, how should investors think about an accelerated debt service plan or maybe even a return of share repurchase activity?

Obviously gathering cash in this period of time is not the worst thing and trying to recapture some of the debt out in the market may be difficult. So obviously holding a sort of virtual sinking fund would cover the debt maturities we have talked about. About $650 million in debt maturities coming through September 2011. So we first have that foremost and we will certainly want to have cash for that. As cash increases above and beyond that we are always looking at the capital structure and how to best serve our shareholders whether it is through repurchase or dividend. That is really not top of mind right now. Ours is generating the cash first and focusing on making sure our debt structure can be supported by $1.5 billion.

The next question comes from the line of Bill Fearnley – FTN Capital. Bill Fearnley – FTN Capital: In the notebook segment can you provide more color on what you are seeing in the notebook/netbook segment? You had a strong quarter but any changes in product mix here with the addition of the new thin and light notebooks that are starting shipping from the OEMs?

Not yet. I think the thin and light systems will mature over the course of this calendar year. Not significant there. I would say as we talk about the mix to higher capacities and higher performance that is more compelling at the higher price points in the notebook space right now and I think gaining some traction there. My take right now is the netbooks terminology is actually going by the wayside now. Everybody is just looking at the notebook space again in the price points below $500. Does that make sense? Bill Fearnley – FTN Capital: When you look at server and storage upgrades and you take a look at what the OEMs are saying about the enterprise, is it an expansion of existing capacity? Is it new projects or is it both you are seeing in the enterprise?

That is interesting. The answer to your questions is yes. The servers are expanding and getting faster and I think some of the enterprise customers are starting to provide some really compelling server features that are forcing the refresh there for IT efficiency. On the storage side it is more capacity online and more capacity utilized as well inside the system. So all of those trends are playing well inside the storage space.

The next question comes from the line of David Bailey – Goldman Sachs. David Bailey – Goldman Sachs: Given some of the capacity constraints you are seeing up and down the supply chain what are you seeing from a component pricing trend versus normal? Patrick O'Malley: I think there is more pressure on the pricing for sure. We expect to be able to have cost refreshes and take downs to stay constant with that but certainly we will put some pricing pressure back onto the components. David Bailey – Goldman Sachs: Is your sense that there was unmet demand in the December quarter and will you be able to catch up in the March quarter if there was?

My sense is there was unmet demand. If you recall, Steve talked a quarter ago about the TAM being about 160 million and that is about what the industry could build. Indeed the TAM was 160 million. My sense is there was some backlog carried into this quarter. Like I said I don’t know how fast that will be replenished so I think we are going to have to watch very carefully and see especially early on in this quarter and kind of get a feel for that. I don’t expect that it will be very much right now but we will continue to watch it.

The next question comes from the line of Rob Cihra – Caris & Company. Rob Cihra – Caris & Company: I know you don’t want to talk about the June quarter but if I could ask a question market wise if you look back historically it is typically the softest sort of supply and demand dynamic in the year particularly after a better than normal March quarter. I am curious with things going this well how do you prepare for that even if it is sort of a hiccup quarter to make sure you try and keep stable and maintain pricing and maintain the supply/demand dynamic as much as possible knowing that quarter is often a sore spot. I am curious what you can do as a company specifically.

I think it ties together with some of the questions you heard about capital investment. As we have talked about we like to have some of the capital linear to get ready for that potential up ramp in September. So you have really two dynamics that could positively affect you. One, as you have talked about we have a refresh cycle that gets done, an inventory refresh in March or carried in June. That is one element. The second element of it is you are going to have to maybe carry some inventory into the September quarter as you build up and install your capacity base so you have that capacity and support online. So depending on how well you bring that capital in or how it could be provided the industry may have to carry some inventory out in the June quarter.

Or conversely more and more some of the customer dialogue we are having is that the customer may carry that inventory to make sure they have it going into the back half of the year because they are worried about availability of supply as well. So that may actually talk to a different dynamic in the June quarter of actual sell out into customers preparing for the back half of the year.

The next question comes from the line of Jayson Noland - Robert W. Baird. Jayson Noland - Robert W. Baird: First on ASP into the March quarter should we expect that to be about flattish at 61 or maybe down a dollar? Patrick O'Malley: [inaudible] where your margin will be down a bit. I think your models are correct with it being down. Jayson Noland - Robert W. Baird: A question on capacity points, when should we expect to see notebook 1 terabyte, desktop 4 terabyte? Is that second half of calendar 2010? How important are those capacity points to profitability?

It is not second half of calendar 2010 for those capacity points. I think not really relevant to calendar year 2010. Jayson Noland - Robert W. Baird: Does that matter much for profitability? The kind of new…

Not in current models. No.

The next question comes from the line of Stephen Fox – CLSA. Stephen Fox – CLSA: Just a clarification on pricing, if you look at like for like pricing are we talking about flattish pricing continuing throughout this calendar year or would you expect to see a return to more normalized pricing maybe at least in the June quarter? Then secondly, if you continue to underestimate demand maybe in the back half of the year what is the opportunity to meet that demand through improved deals and throughput?

I will tag team on the first one and hand it to Bob on the deal improvements and your second question. Obviously on the pricing environment with the technology portfolio leadership we certainly have some leverage on that where we could provide value but as long as the supply/demand stays in relative imbalance whether you call it flat or benign pricing should be maintained whether it is the March quarter or the June quarter.

Could you repeat the second part of your question? Stephen Fox – CLSA: Just curious, obviously it is hard to predict what type of cycle we are in right now. If you are underestimating demand for the second half of the calendar year relative to your capital right now is there an opportunity to still meet some of that through better yields and throughput or is that something that is going to take longer?

We are driving yields up all the time and it is part of our plan to do that.

But you probably don’t have the upstream supply chain to make it all work. I think if the demand profile is above the 650-670 range it is going to be really difficult for the industry to respond to that.

The next question comes from the line of Kaushik Roy – Wedbush Morgan. Kaushik Roy – Wedbush Morgan: Can you give us an update on solid state drives? How many units you have shipped so far or when you can come up with [SAS assistee]? Then what are your expectations for the calendar year?

I won’t speak specifically but what I will say is this, the early samples that we have shipped out have been very well received. Pleasantly surprised I would say relative to the tradeoffs we have made in reliability, performance, cost and capacity. Of course you know about the right endurance challenges that these drives have. I think we are engineering with that in mind foremost to make sure it meets enterprise reliability grades. The SAS offerings will be later this year. I think we will continue to develop exactly what the customer’s need timing wise and need for launching their systems. So that is what we are really focused on right now. Kaushik Roy – Wedbush Morgan: And your revenue expectations for this calendar year? Patrick O'Malley: Very small. We won’t give the revenue expectations but it is still a ascent market. Very much so. Kaushik Roy – Wedbush Morgan: Can you talk about the pricing environment in the enterprise segment? When you talk to OEMs are you seeing them putting more pressure as entering the enterprise segment?

I think we believe that we have a very broad portfolio of course and I think we have the right offerings for the customer right now. Obviously we talk about what the customers need in order to hit their goals as well all the time. So with the breadth of our portfolio it is really the way we address the market. I won’t speak specifically…

Our OEMs are always very tough to negotiate with on the price side. That hasn’t changed. We respond to that by having a very broad portfolio which allows us to create value for our company by the broadness of our portfolio which no other company really has and we don’t expect will have for a number of years. They are tough negotiations but I would caveat that again though in the current supply/demand situation most of our large OEM customers are highly focused on availability of supply particularly with our product leadership across the portfolio but especially in the enterprise space. So the discussions clearly have focused on ability of supply and obviously we meet the cost targets they need to drive the revenues they are trying to achieve as well.

The next question comes from the line of Ananda Baruah - Brean, Murray, Carret & Co. Ananda Baruah - Brean, Murray, Carret & Co.: I believe you made a comment in the prepared remarks there was still room for operational improvement going forward. I am wondering where that might occur and if we might expect to see it at the gross margin line, OpEx, leverage, how it might show up.

I think in both spots. I think we executed well in the quarter and we have a nice portfolio but the reality is we are kind of running at stride now and the question is how do you extend that. Whether or not it is as you say OpEx leverage or improving yields faster in the factory. There is obviously we are concerned about meeting demand. So yielding increases at the component level or the factor level, getting better test times, all that stuff results in us being able to meet customer demand that is in excess of supply right now which we have margin impact as well as obviously operating ratio impact. We believe there is definitely improvement in front of us and that is what we are off to do. Ananda Baruah - Brean, Murray, Carret & Co.: Where do you view the next significant capacity point battleground? The enterprise, desktop, notebook? I guess with the timing of those do you expect them to be and I guess how do you see yourselves in light of what is going on in the server extended marketplace to be?

I’m not sure I understand the question. Ananda Baruah - Brean, Murray, Carret & Co.: Where do you see and when do you see the next significant capacity battleground taking place? What do you see those capacity points as being?

Like Bob went through in his section we have in enterprise we just launched two new 600 GB products, one 2.5 inch and 3.5 inch, 10,000 RPM and 15,000 RPM respectively that will be ramping throughout the rest of this calendar year. I think that will be the focus item for the enterprise market. In desktop 1 terabyte and 500 GB will continue to be really strong I think throughout the rest of the year. Then Bob talked about the 2 terabyte products that we are ramping right now. Specifically for business critical applications or cloud applications and also a desktop version of that which is really the next generation capacity point that he mentioned. Then in the notebook we see strength at 320 GB and 500 GB. I don’t think that is going to markedly change. It might shift a little bit between one and the other but I don’t think maybe to one of the earlier questions I don’t think it will go significantly north of that in calendar year 2010.

The next question comes from the line of Amit Daryanani – RBC Capital Markets. Amit Daryanani – RBC Capital Markets: I had a question I think at 50 million units right now you are probably running at full capacity. How high will you be able to ramp the unit production number as you add on about $750 million of CapEx in fiscal 2010? Patrick O'Malley: I think what we said is it is highly dependent on mix. We expect the TAMs for the year to go up by 15-20%. Our share is going to be constant. So we think we ought to be able to meet that TAM increase. That is what we are planning for. Amit Daryanani – RBC Capital Markets: What would the trigger be to add capacity beyond that to possibly gain more market share or target incremental demand that may come up in the back half of the year. Would you need to [audio break] in March?

I don’t think we would put any capacity in place to assume taking market share unless there was a product leadership that made that obvious or a strategic relationship where we were actually lining up capital for specific customers. Again, I think we are looking at the industry outlooks and matching our supply to that. Those outlooks basically are very compatible with the customer input we are getting in terms of what the rest of the year looks like. If there was obviously a delta between that and what we are seeing one direction or the other then we are obviously going to obviously either lower or increase capital but it is going to be in response to customer requirements for sure. Amit Daryanani – RBC Capital Markets: It sounds like most of the incremental capacity will come live in the end of June or early September quarter timeline. Is that fair?

It will be throughout the calendar year really. Amit Daryanani – RBC Capital Markets: Inventory was up a little at 3.5-4% sequentially. Was there anything specific that drove that? Patrick O'Malley: No it was just booking into our supply chain with our customers. We are very happy with the terms [of 13] and lining up to what the January supply and we felt that was the appropriate level to carry.

The next question comes from the line of Christian Schwab – Craig-Hallum Capital Group. Christian Schwab – Craig-Hallum Capital Group: You mentioned earlier some of the OEM customers going into the second half could be slightly cautious and fearful about securing enough product for demand. Should we assume you are starting strategic relationships or discussions with those OEMs or was that just a point suggesting that possibly that may occur in June?

I would hate to endorse a word like fearful. I would hate to think our customers were going to fear us. Like I said last quarter or even the quarter before. Whenever there is supply/demand imbalance the drive industry really becomes strategic. I think there is something much more fundamental going on here which is with the economic downturn and the reduction that people saw across most every product area in the world, the demand for storage continued to accelerate in terms of capacity and number of units to the tune where 2009 was 100 million units greater than people thought at the beginning of the year. So one I think what people recognize is the demand for compute and the demand for storage in particular is pretty fundamental and I think that has people rethinking their outlook going forward. Secondly I do think people are realizing that the entire supply chain as it relates to drives has changed dramatically over the last 4-5 years. The companies that obviously have large R&D budgets and the ability to invest in capital and capital equipment that drives R&D and production have scale advantage. I think we are seeing that. I think our customers see that. Then yes, we do have discussions that certainly extend several quarters out about availability of supply. I think it is a fundamental change that our customers are understanding. I don’t think they are afraid of it. I think it is just a new world they are planning to and it obviously helps us in terms of capacity adds and technology roadmaps and things like that. I guess I do believe it is more of a partnership going forward in terms of certainly the very large computer companies. Christian Schwab – Craig-Hallum Capital Group: It appears given the consolidation and the less number of suppliers and the expansion of storage in particular hard drives above and beyond just selling into PCs that there seems to be some structural change going on within the industry. Is that fair to say? I don’t want to put words in your mouth.

I think there is structural change that has been going on for 20 years. Consolidation I think has an implication of a lot of proactive activity. I guess I call it rationalization or that the industry is clearly always laying supply and demand, adequacy of investment and technology leadership wins. I think we are seeing that. I think the second point is probably the even more relevant one and that is the application space has changed so dramatically over the last 20 years. Again this didn’t just happen last week. The compute environment has gone from a glass room to kids with little things in their hands that have 16 or 32 gigs of storage that gets probably backed up three different ways on disc drives. I think the application set has changed dramatically in both commercial and consumer environments and I think clearly the entire supply chain has changed. Then the technology is getting harder. So if you don’t have big resources to put in advancing the technology you are not going to stay in business. I think that is what has happened and gets termed as consolidation. Thanks everyone. Thanks for joining us on the call. We look forward to speaking with you next quarter.

Thank you for joining the call today. We look forward to speaking with you next quarter.