Steve Luczo - Chairman, Chief Executive Officer and President William Mosley - Executive Vice President of Sales & Marketing Patrick O’Malley - Chief Financial Officer and Executive Vice President of Finance

Richard Kugele - Needham & Company, LLC Keith Bachman - BMO Capital Markets U.S. Aaron Rakers - Stifel, Nicolaus & Co., Inc. Robert Cihra - Caris & Company Jayson Noland - Robert W. Baird & Co. Incorporated Ana Goshko - BofA Merrill Lynch Sherri Scribner - Deutsche Bank AG Kathryn Huberty - Morgan Stanley Mark Moskowitz - JP Morgan Chase & Co Richard Schutte

Good afternoon, ladies and gentlemen, and welcome to Seagate Technology's Fiscal Second Quarter 2011 Financial Results Conference Call. My name is Melanie, and I'll be your coordinator for today. [Operator Instructions] This conference call contains forward-looking statements, including, but not limited to statements related to the company's future operating and financial performance in the March 2011 quarter and thereafter, and includes statements regarding customer demand for disk drives and general market conditions. 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, Form 10-K/A and quarterly report on Form 10-Q as filed with the U.S. Securities and Exchange Commission on August 20, 2010; October 6, 2010; and November 3, 2010, respectively. These forward-looking statements should not be relied upon as representing the company’s views as of any subsequent date, and Seagate undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made. I would now like to turn the conference over to our host, Mr. Steve Luczo, CEO. Please go ahead.

Thank you, Melanie. Good afternoon, everyone, and thank you for joining us today. On the call with me today are Pat O’Malley, our Chief Financial Officer; Bob Whitmore, our Chief Technology Officer and Head of Research & Development and Manufacturing Operations; and Dave Mosley, Executive Vice President of Sales, Marketing and Product Line Management. As we've done for the past two quarters, detailed supplemental information about the quarter has been posted on our Investor Relations website. In addition, we recently completed a number of studies that represent Seagate's point of view on tablets and mobility, SSDs and flash, cloud computing and the demand for storage over the next decade. In total, there are eight documents that provide an excellent basis for important emerging storage trends. You can find these documents now on Seagate's Investor Relations website on seagate.com. I will review the results for the December quarter, address a few of the questions that we know many of you have, and then we'll open up the call to question and answer. As you may recall, we've reported our second quarter business outlook in November, as opposed to providing it with our first quarter results in October. In our outlook for the December quarter, we noted the following: Demand for hard disk drives had improved from the summer early fall; expectations for the total available market was approximately 170 million units; and supply and demand appear to be well balanced with the company's inventory across all channels at or below targeted levels. As a result, we forecasted at least $2.7 billion in revenue and gross margins as a percent of revenue of at least 19.5%. While the total available market for the quarter was in line with expectations at approximately 168 million units, disk drive shipments had a greater than seasonal slowdown in the last two weeks of the quarter. In particular, Seagate experienced a slowing of demand in the Asia-Pacific distribution channel during the last two weeks of the quarter and elected to reduce shipments and maintain our pricing discipline. Seagate met its revenue and gross margin target of $2.7 billion and 19.5%, respectively, due primarily to a greater than expected increase in the average storage capacity per drive shipped in all markets. The December quarter results also included the impact of additional customer support costs associated with our long-term supply agreements. The negative impact to gross margin percentage was approximately 170 basis points, and we are confident that the impact is fully reflected and contained within the December quarter results. For the December quarter, we also reported non-GAAP diluted earnings per share of $0.33, even with a higher than anticipated provision for income tax. With respect to our capital structure, the focus of the board and management continues to be on regularly evaluating ways to optimize the balance sheet in light of current and future capital market conditions and the current and future operating environment. Importantly, Seagate continues to focus on maximizing shareholder returns, while maintaining the flexibility for continued investment in a broad range of storage technologies as required by our existing and evolving customers. Pursuant to this plan, the board in November authorized the company to repurchase an additional $2 billion of ordinary shares. In December, we used $305 million to purchase 21 million shares. Also during the quarter, we issued $750 million of senior unsecured notes. The board and management are continuing to evaluate alternatives beyond the stock buyback, including, for example, distribution of a quarterly dividend to increase shareholder value from our company's consistent and significant cash flow. This reflects our long-term confidence in the demand for disk drives in the Internet-based computing environment that is positively impacting both commercial and consumer storage demand. As an example, in the December 2010 quarter, Seagate experienced a 31% increase per drive average capacity shipped year-over-year. We believe this is further evidence of the need for the company's affordable mass storage products for the expanding user base that utilizes media and data-rich content. Cash, cash equivalents, short-term investments and restricted cash totaled $2.9 billion, and long-term debt including current portion also stood at $2.9 billion, with most maturity dates evenly distributed approximately every two years from 2014 to 2020. As we look forward to the next quarter and into calendar year 2010, we continue to strive to provide guidance that accounts for the global macroeconomic environment and the changing competitive dynamics in our industry. With that perspective, we expect the following conditions to shape the March quarter: The industry has marginal excess capacity; the industry has limited volume of new products; continued muted consumer demand for PCs; strengthening commercial demand for PCs against the backdrop of the typical seasonal patterns of a March quarter and strengthening enterprise demand. For the March quarter, we are planning for the industry TAM to be between 155 million and 165 million units. We expect revenue of $2.55 billion to $2.7 billion and gross margin of 18% to 19%. The outlook for the quarter is influenced by less visibility and demand post-Chinese New Year. In addition, gross margins remain under pressure as cost of many upstream materials have not declined at rates equal to the price erosion experienced in calendar 2010 and expected in calendar 2011. On a longer-term basis, we believe that the commercial and enterprise markets will be strong throughout calendar 2011, especially as the commercial refresh continues in large enterprises. In addition, we believe that the demand for consumer and commercial mass storage will continue to accelerate as required by the introduction of many more devices creating and consuming real-time data and rich content. Finally, we are encouraged with our new product offerings in every market we serve. And we expect those new products will contribute to margin expansion in the second half of calendar 2011. Before we open up the call for questions, we will address the questions I referenced earlier. The first is, when does the company return to its targeted gross margin range? There are three primary factors that will influence when we return to our targeted margin range: the timing of Seagate's transition to new products; the timing of component cost declines approximate to HDD price declines; and overall industry supply demand alignment. Since we have most direct control over our new product introductions and they are most likely to result in gross margin expansion, I will address the calendar year 2011 new product transitions for Seagate first. We are starting the qualification process with our customers for three new enterprise hard drives, including industry-leading products for both mission-critical and business-critical applications, as well as our second-generation SSD products. In addition to the adoption of our solid-state hybrid drives, we have a series of new client storage products coming to market this year in both the 2.5- and 3.5-inch form factors. And finally, we have just released the new line of GoFlex products designed for the Mac community and announced a Certified GoFlex Storage System, which provides a standard that allows device manufacturers to build a wide variety of consumer products such as media players, set-top boxes, computers and televisions, with a slot to support removable GoFlex external hard drives. We expect contributions from our new product transitions in the second half of calendar 2011. But with respect to the cost of supplied materials, we believe that the biggest opportunity for cost reduction occurs at the time of our product transition. Although based on yesterday's WD call, we clearly have work to do with respect to our supply base and calls to our suppliers as you might imagine began this morning. With respect to supply management against demand, we will note that in addition to consistently stating the need for industry to focus on this alignment, Seagate again demonstrated its focus on this alignment by having slightly lower shipments against a TAM that slightly increased. The second question is what is your view on tablets and how they may be impacting, negatively or positively, the HDD industry? Long term, we believe tablets and other mobile devices like Smart phones are and have been net positives for the hard drive industry. During the last 30 years, whenever new devices are introduced that consume or create a great deal of rich data like video, it has been a positive for the storage industry. In this case, Smart phones and tablets need to stream data, and a significant portion of that data will be consumer-generated content, mostly video. Therefore, as these new devices consume significant amount of data and content, users will expect the same experience that they've grown accustomed to with other consumption devices. It seems clear that in order to deliver that overall experience, the most affordable and proven solution is the utilization of disk drives as a caching device throughout the network. Whether the storage is in a NAS box in your home, in the cloud, or in a local cloud, Seagate provides products for all those markets. The final question is how aggressive will the company be buying stock back, given the outlook for the March quarter? The board authorized a share repurchase plan based on its confidence in the company's long-term prospects. Based on our current view of the March quarter, you can expect that at the current price range, the company will be actively repurchasing shares. Melanie, we're now ready to open up the call for questions.

[Operator Instructions] And our first question comes from the line of Sherri Scribner with Deutsche Bank. Sherri Scribner - Deutsche Bank AG: I wanted to get a sense of what you felt like the operating expenses would do in some of the other lines. And if you'd be willing to give an EPS number? I'm coming out somewhere around, I don't know, $0.22 as a midpoint, but I wanted to make sure I was in the right ballpark.

I'll let Pat respond on that. Patrick O’Malley: Sherri, our model has been – I think Steve gave all the elements to it. I wouldn't expect a major change in your operating expense. Though, given the taxes, I won't discount your model – on the margin may be slightly different but I think you're using the right data elements. Sherri Scribner - Deutsche Bank AG: And then Steve, I was hoping you could give us an outlook for the full year. I think Western Digital commented last night that they thought the industry units would be a little below $700 million, which doesn't seem like very strong growth. It's, I don't know, 6% or 7%. Do you guys have similar views on growth this year or do you think it will be closer to something like 10%?

I think it's too early to say, really. I mean, I think there's a lot of variability around calendar 2011 that runs probably in a few different vectors. One clearly is when and if and how strong the consumer demand picks up, and I think that's just a function of overall economic environment. I think the refresh cycle that's occurring in the enterprise has the potential for remaining at the pace today or potentially accelerating. You know, we're seeing strength in the enterprise market, and we have, and it seems to be building. So I just think depending on how those things play out through the summer, it's just hard to make a call here in January what 2011 looks like, given the dynamics at the macro level that are still present in the world. I think the way I think about it is visibility has probably gotten better, but most of the OEMs are still – they're pretty nervous and if they see any sort of slowdown, they pretty much cut back on the supply chain quickly. So I think until we get a lot more confidence that there's a sustained recovery, it's really hard to make a 2011 projection. And right now, we would probably look more towards the Gartners of the world and see what they're saying and probably play our planning off of that.

Our next question comes from the line of Rick Kugele of Needham & Company. Richard Kugele - Needham & Company, LLC: First, when it comes to hybrid drives in particular, what do you see is the market opportunity now that you've had a product out there for a bit? And what percentage of your mix do you think ultimately is appropriate for hybrids just in general?

Well, I think clearly, the experience that we've had with the devices to date has been very favorable, ahead of expectations, the interest by a wide breadth of OEMs is fairly substantial, and that goes in a wide variety of devices, whether or not it's notebook or desktop or even tablet or even external. So I think the issue around delivering performance that has kind of SSD performance but just drive cost and capacity is a pretty compelling proposition. And I think the second generations of products that we'll be launching in the future will probably close that gap substantially and maybe even have it be at parity. What's interesting about hybrids is you can actually get performance that exceeds SSD with cooperation on the OS level or system level with some of the hardware or systems companies, and that's starting to develop as well. So I think longer-term, Rich, you're going to see that in five years or seven years or something like that, probably more than 80% of our products are going to be some form of hybrid drive. And that, by the way, isn't just driven by a need for the user experience but there's a lot of advantages from an aerial density perspective that have us pursuing that technology as well. Richard Kugele - Needham & Company, LLC: And then in that vein, you've highlighted a lot of detail on your new product introductions for later this year. Can you give a sense on what you think maybe the merchant supply market is able to deliver relative to your technologies? And any thoughts on the timing of the rest of the space? And whether or not that's going to lead to a greater period of margin expansion for you for a period of time?

Merchant, meaning the competitors? Mark Moskowitz - JP Morgan Chase & Co: Yes, I guess there's just one, right?

Well, I think the trick on hybrid, which once you start using these systems and integrating them, it's not as simple as obviously as just putting a piece of silicon between the DRAM and the HDD. There's a lot of work that has to do with how you manage what happens with the flash and how data's handled between the various levels of caching in the drive. And frankly, you've been in the system as we get into this with some people that control OSs or at more of the system level. So we've been at this for a few years. So while I would expect our competition will likely introduce some sort of product to take advantage of the performance attributes of hybrid, we feel pretty good about our technical lead right now. So I don't know that we see a big competitive threat on the horizon. On the other hand, I'll tell you that we're approaching this market in a way that makes it attractive for our customers to utilize the technology, because as I said, there's lots of advantages from an aerial density perspective as well. So point being that there's not markup on top of markup in terms of the cost associated with these drives. It's basically an opportunity for us to just increase the user experience as opposed to expanding overall margin. Richard Kugele - Needham & Company, LLC: Can you elaborate a little bit around the long-term supply arrangement hit to gross margins, which looks one-time in nature? I don't know how The Street's going to deal with it, but any color that you could provide?

I'll let Dave – you want to go into that little bit more detail?

Sorry, Richard, talking about the. . . Richard Kugele - Needham & Company, LLC: The additional customer support costs that dinged gross margins.

Yes, I'd say the vast majority of these additional support costs relate to certain customers with whom we have long-term supply arrangements and who are not satisfied with performance of a limited portion of a drive family shipped over two years ago, when we've accrued for these costs associated with this issue and it's all focused on keeping that high level of customer support. So that's why we're fairly confident as Steve said in his comments about it being contained in the last quarter. Richard Kugele - Needham & Company, LLC: So it's really almost just a warranty expense.

More reverse logistics expense, I would say.

Our next question comes from the line of Katy Huberty with Morgan Stanley. Kathryn Huberty - Morgan Stanley: Just to start, can you go into a little more detail, Steve, around what drove the demand shortfall late in the quarter?

I'll let Dave talk to that. Again, we kind of pointed out that we seem to feel it mostly in Asia. And I'll let kind of Dave talk to it and in the channel.

Yes, I'd say that first of all, October and November were fairly strong. Seasonally, we could get into arguments about calendar Q4 and how they usually end relative to the next calendar Q1. But what I would say is that our view is the channel continued to move fairly well in the Americas and in EMEA. But in the Asia-Pacific region, the channel slowed down. And I don't think that's long-term demand but I do think there's some temporary issues that people are getting through in that region around Chinese New Year and how much do we have to build around some competitive positioning, not just in hard drives but in other components as well. And I think the industry is going to have to get through that with a, frankly, larger than what we would desire inventory in the channel in Asia. It may blow through in three weeks. It may take a little bit longer than that, but there's certainly that uncertainty now. We're less exposed to that because of our OEM share than maybe some other people, but it's certainly something that we noticed started in early December. I don't think it's long-term demand in Asia. I mean, you've got to subscribe to a really different thesis if you think that this goes out six to nine months in APAC demand. Kathryn Huberty - Morgan Stanley: And it's consistent with the IDC, Gartner commentary about the fourth quarter as well.

Yes. Kathryn Huberty - Morgan Stanley: And then just a follow-up for Pat, as it relates to the lower declines for upstream components, is that a function of tight supply? Or is it just a limited ability to write down the cost curve this late in your product cycles? Patrick O’Malley: It's the second. That's what I'm saying, the bigger opportunity obviously for us is, as we transition our new products, that's obviously when: one, those are designed as cost-reduced products to begin with; and then of course, as you ramp volume and yield, you have the opportunity to obviously to move down price groups, that notwithstanding. Apparently, we have work to do in the quarter on our current cost of supplies as well. Kathryn Huberty - Morgan Stanley: And as we go – just as a follow-up to that, as we get into the calendar fourth quarter, any estimates for what percentage of the products you ship will be the new products?

Yes, not until the second half of 2011. We're in qualification in a lot of the portfolio right now, and that continues through the first six months of this year. But in terms of starting to really ramp across the portfolio, it's really the second half of the calendar year. Again, it's kind of Seagate's strength is the ability to really ramp across an entire portfolio that expands all the markets that we do. Some of it comes now, some of it comes in the June quarter, but until it's really hitting on all cylinders, it's the second half of the year. Kathryn Huberty - Morgan Stanley: And could you be 50% plus of shipments in December kind of platform? Patrick O’Malley: It's akin to what we talked about a couple of years ago where we called the desktop transition, for example, quarter-over-quarter in these calls, we would tell you how much of the products have transitioned. To Steve's point, we won't begin that until probably late second or third calendar quarter.

But either all our products, all our products will at least be in qualification. All our new products by that time and the vast majority will be in volume shipments by the fourth quarter of '11.

Our next question comes from the line of Mark Moskowitz with JPMorgan. Mark Moskowitz - JP Morgan Chase & Co: Steve, can you talk a little about how should we think about the March quarter in terms of is it going to be more front-end loaded? I heard you talk about Chinese New Year. So could you just talk about if it's more front-end loaded than the usual? And how should we think about that?

I think how we're thinking of it is it feels more front-end loaded because we don't have a lot of post-Chinese New Year's visibility. Whether or not it ends up being front-end loaded or not, hard to say, right? But right now, I would say, it feels more front-end loaded. Mark Moskowitz - JP Morgan Chase & Co: And with that said, how are the fulfillment rates in terms of customer A1s, the 100 drives? Are they taking 100 drives? Are they taking less or are they asking for more, actually?

Not sure I understand the question. Mark Moskowitz - JP Morgan Chase & Co: Just in terms of when you say it's front-end loaded, I'm just trying to get a sense of current demand, are you seeing any structural nuances or changes to your fulfillment rates in terms of, let's say, a major OEM tells you six weeks ago, they wanted to get 100 disk drives, for example, in the third week of January. When the third week of January comes around, are they taking 100 disk drives or they're asking for less?

It really depends on which product we're talking about, Mark. This is Dave, by the way. I would say broadly in enterprise and business-critical, the answer to your question is yes, the polls are very strong. I think as we go into notebook, there are other dynamics up against building out – and by the way, Chinese New Year's is three weeks earlier than it was last year, relative to the quarter. So we have to watch those dynamics as people do builds and then, frankly, line changeovers during the time that the downtime in Chinese New Year, if you will. There's a lot of dynamics around that. I think notebooks' probably less predictable there. And the PS OEM poll rates are about what we expected. So January's coming in at the same predictable clip, I'll say, with one caveat on the upside and one caveat to watch for. Mark Moskowitz - JP Morgan Chase & Co: And then the longer-term question, we're getting a lot of questions from investors around enterprise, particularly business-critical, not so much mission-critical but business-critical, in terms of the opportunity to move more and more away from Fibre Channel to SATA or SAS. Can you talk a little about how investors think about the competitive dynamics potentially changing here where Seagate's had the runway for a long time? Can you still run the table going forward?

Yes, it's a good question. I'm going to let Dave answer, but I think what we've seen in the last couple of quarters, we feel pretty good about in terms of the transition, I would say, to SAS, I think versus SATA. And I'll let Dave talk to it but we're encouraged by the trends because SAS obviously is an interface where we have a lot of expertise.

I mean, obviously, we led Fibre Channel, we led SAS, we led the 2.5-inch transition from 3.5-inch and so we have this history of leading products in the enterprise. I feel really good about the diversity of our portfolio and that's needed, I think, to play across a large scale in the enterprise, not just form factor or interface, but also spin speed and things like this. Relative to SATA versus SAS, I would say that people get confused by the quality of service of the drive, the expectations of the end user, not just the interface so there's a lot of people that see the difference on the spec sheet of the interface but they need to see what are the expectations for the drives and its duty cycle, if you will, over a long period out in the field and that's something to watch out for. We feel pretty good about our portfolio right now. We think we're launching leading products all the way across the portfolio, 15K, 10K products. We feel really good about our business-critical offerings as well in 2.5 and 3.5 on SAS already, there's other people who've announced, but we're basically the only person shipping SAS in large volume across business-critical. So it's not to discount any competition, but we know we've made the investments and we feel really good about the new products we're launching.

Our next question comes from the line of Ana Goshko with Bank of America Merrill Lynch. Ana Goshko - BofA Merrill Lynch: I wanted to ask you for your updated thoughts on capital structure and capital structure strategy. I know in the past, particularly after the kind of events of 2009, you had talked about the target leverage as being a total dollar amount of debt, given the cyclical nature of the business and the industry. So wondering where you are now in terms of thinking of how leveraged you're willing to take the company? And how much cash you believe you need to keep on hand?

Sure, I think in terms of how much leverage, I mean, obviously, it's a function of outlook and performance and so on and so forth. But I think $1 billion in cash is what we feel is more than adequate to have on hand to run the business and whether actually, not just short-term downturns or probably even longer than the short-term downturn. I think in terms of the debt level that the company can carry, I think there's no question that the company, at today's interest rates, that the company could carry $3 billion to $4 billion of debt, depending on maturity structure. And so I think – today we’re at $2.9 billion with $560 million coming due in November of next year. It means we have debt capacity if we feel that the debt markets are attractive and if we can finance it in a way that we don't have a wall of debt. So the issue that we ran into in 2008, when we stopped our dividend and scrambled pretty hard was really more a function, not really of our view on long-term cash flow as much as there was just big slugs of debt coming due in very short periods of time. Obviously, done against a backdrop of not a lot of liquidity debt or equity in the world. Today, I think we've done a lot of work over the last two years to restructure the balance sheet. I mentioned the maturities extend every two years starting in 2014. There's no massive wall of debt. The debt markets certainly are healthy. I learned that through our privatization exercise. And I think we feel good about being able to manage what we have and opportunistically doing more if we feel like we have to. Ana Goshko - BofA Merrill Lynch: Just on the comment on considering the recurring dividend. Obviously, the downside to that is, it's more difficult to dial up and dial down depending upon interest rate conditions. So just wondering how advanced you are in your potential commitment to recurring dividend? And if so, kind of what size or magnitude you've considered?

Well, I've been doing a lot of work on this, and it just seems again, if you believe that the company has the ability to consistently generate cash flow, which if you look at us over the last five or 10 years, on any kind of quarter-to-quarter or rolling four quarter basis, I mean, the company generates a lot of cash through, by the way, a couple of pretty hairy downturns and a couple of acquisitions that ate up a lot of capital. And a lot of what it seems that investors are asking for is that if companies have free cash flow that is consistent even against their investments that they need to make in capital and technology, that some decent percentage of that we should probably return to shareholders, and that's what we're investigating. What is the current research saying? It kind of gets somewhere between 25% and 50% of free cash flow is what shareholders would like to see returned. We're not saying that we're going to come out at the high-end of that range, but I think this is under consideration and I know I mentioned it in the call, and we feel pretty confident that we can return to shareholders in various ways. Whether or not it comes in a dividend or not, we're not prepared to state just yet, but it's certainly on the table and we think it's an attractive alternative.

Our next question comes from the line of Bill Shute with Goldman Sachs.

I have a quick cash question as well. WD is obviously talking about potentially using their cash for strategic purposes or strategic acquisition, and you guys are obviously clearly focusing on returning cash to shareholders with leverage. Are there potentially strategic opportunities for Seagate to use their cash for? Or do you feel your current R&D pool is pretty much adequate for your long-term goal?

No, I mean, I think there could be. I think the point is we feel that we have a lot of usable cash. We have the capacity to raise money through the debt markets and we generate cash. So I don't think we're limiting any alternative that we have strategically. Whether or not that's investing in the company or acquiring other technologies, it's just that I think that when you take all that into consideration, there's still the potential for return to shareholders. That being said, I guess that's all I'm saying then.

And maybe I missed this earlier, but can you comment on what you're seeing with HDD inventory management amongst your TLEM partners?

Yes. We were not going to comment on our customers.

Our next question comes from the line of Keith Bachman with Bank of Montreal. Keith Bachman - BMO Capital Markets U.S.: Pat, could you comment on the inventory levels that you guys think is out there, both at the channel as well as the OEMs? I know the OEMs is a bit murky but I just want to get your thoughts there, particularly against some of the comments that WD made last night and I have follow-ups, please. Patrick O’Malley: We generally manage our channel in a tight range, so we feel fairly comfortable with where that is as Steve and Dave both eluded. We actually slowed down our push into the end of December, channel inventory in Asia-Pac, to manage it as opposed to going after our pricing to maintain our discipline, our supply chain management. But we've monitored that and we feel that the channel level's appropriate. Could it come down? Obviously, its run lower but we don't think it's in a danger zone that would impact our ability to manage that channel reasonably well. On the OEMs, many of them have hubs in front of them [ph] and we monitor that very closely. So that part, we feel very comfortable. Now they're holding it on the back end. Don't really get all that visibility, but we do get signals from our OEMs, and as Steve said, they're cautious, but we're tied into their supply chain, and we work that fairly aggressively with them. So if folks are holding excess inventory, there’s going to be issued an in marginal manifested, but from our standpoint, we keep a pretty tight eye on what they have or believe they have and stay very close to them to make sure we're lined up with them.

Maybe to state it a little clearer with respect to the OEMs, and we don't see an OEM situation of some millions of units of PCs of excess inventory. We don't see that. Keith Bachman - BMO Capital Markets U.S.: And how about – I don't think you talked about what your pricing considerations are or your anticipated pricing for the March quarter, and I just want to get your thoughts there.

Clearly, it has muted from where it's been so that's the good news. And I think that lines up with the supply and demand getting better, but obviously, it's on the backdrop of two heavier than usual pricing quarters in front of us that's typically slower. It goes back to Steve's comment of, you still have marginal [ph] pressure where raw materials and not being able aggressively to cost out, but it has muted down and it's probably a seasonal average.

Yes, I think that the analyst community just has to take a hard look at what happened last summer still in terms of the quarter-to-quarter price takedowns and what that would've been relative to “more typical price takedowns. ” So that even if you have things flattening, if you have them flattening after three quarters of 6% versus 3%, you're still fighting an uphill battle and against the backdrop of no new products really that the industry is offering. So against the TAM that's flat and no new products, it's just tough to be looking at share gains. People should obviously be managing their P&Ls to keep their factories as full as possible, watch capital, and it's going to – until we get to the next set of products, it's going to be tough to see big margin expansion. Keith Bachman - BMO Capital Markets U.S.: Can I sneak in one more just on CapEx. Pat, is how should we be thinking about it? Usually, you guys provide some ranges of CapEx. I just wanted to hear your thoughts, if not for the first half of the year, maybe just for the March quarter. Patrick O’Malley: I think our models 6% to 8% is still intact. That's how we try to manage the business. And obviously with some of the lack of visibility Steve talked about, we'll be a little tighter on that, but we'll certainly monitor to grow where appropriate but we're keeping in that range of 6% to 8% – is still our model.

Our next question comes from the line of Rob Cihra with Caris & Company. Robert Cihra - Caris & Company: It seems like there've been some CapEx cuts, there are a lot or a little, including on the component side ever since really, I don't know, I guess, summer. Do you think there's a chance that even with the soft PC market by the second half this calendar year, you actually see the industry back to being pretty tight, just given the CapEx cuts? Or do you think CapEx has been cutting off or that's too optimistic?

It's a really good question, and it's kind of one of the reasons that I said the industry is, I guess, it has marginal excess capacity. I think that there's probably too much focus on an assumed drive capacity by the industry as opposed to what's really going on at the component level. And when you think about, at least, our experience of 30% increase in average capacity of drives shipped, that means a lot of heads and disk had to go into that. And so to your point, a lot of capacity is being utilized at the component level. And if we have a continuation of that type of capacity growth against even some marginal end demand growth in units, it's going to strain, I think, the component area quicker than people probably have modeled.

Our next question comes from the line of Jayson Noland with Robert Baird. Jayson Noland - Robert W. Baird & Co. Incorporated: Steve, any more color you can give regarding a commercial refresh? I think you said it could accelerate this year 2011.

I mean, I think just in general, I think we started talking about it in the fall quarter or even maybe a touch even in the June quarter that we saw a pick up as the commercial refresh expanded into the server market and storage. And we're starting to see more evidence of it even on the client side, both desktop and notebook. And there just seems to be no indication right now that, that's slowing down, or if anything, maybe budgets are getting a little freer on the IT side, and people are starting to do kind of full company deployment of new assets under IT infrastructure.

I'd say that as we go through year-end budgets, the spend was based on 2010 budgets, and now, we've got a good look into the new year of what 2011 IT budgets are, for what that's going to be for enterprise systems and so on. I think on the PC side, the notebook side, the commercial refresh there as we've commented before, it's always ongoing to some extent. There's ancillary data out there that says it's accelerating, and I think everyone likes to believe that because the new systems are compelling price points and capabilities with the operating system refreshes and so on, and a lot of people are running on older PCs, but I would say quantitatively, it's really hard to pin that one, the PC one down in particular. We hear the same ancillary data that other people do. Jayson Noland - Robert W. Baird & Co. Incorporated: And last question for me on aerial density. Is it fair to say you guys are comfortable with a 30% to 40% annual gain if you look out three to five years plus without a transformational CapEx investment?

Yes.

Our next question comes from the line of Aaron Rakers with Stifel, Nicolaus. Aaron Rakers - Stifel, Nicolaus & Co., Inc.: First question for me would be on the gross margin line. I just want to be clear. You guys are talking about a 170 basis point impact that will be contained in this quarter, but you're guiding to an 18% to 19%, so at the midpoint, you're effectively guiding close to a 300 basis-point drop on a like-for-like basis on gross margin into the March quarter. I'd like to understand if that's how you want us to see that, in particular, what the puts and takes are in particular to that level of a decline on gross margin, like-for-like.

I think that is a fair way to look at it, and where the vast majority of that erosion comes from on the margin impression, really is almost all prices falling into the bottom line as we have very limited ability to continue to mix up. We mix up very strong already and also cost takedowns. As Steve said, we'll continue to push that and see what we can get out of that, but that's the large vast majority, over 2/3 of the compression.

Maybe just stated this a different way, that outlook is with a view of not a lot of takedowns in cost of supplies and not a view of continued mix-up in capacity. If even one of those things happen then obviously, then that would change the margin structure. Aaron Rakers - Stifel, Nicolaus & Co., Inc.: And the final question, the follow-up for me, I know you guys talked about a slowdown in the final couple of weeks to the quarter and a conscious effort to not participate in some market segments. So one thing that sticks out for me is that you guys have falling down to a six-year, even depending on what math you use, a sub-60% share position in the enterprise, mission-critical space. Is that a space that you guys actually decided constantly to step out of some opportunity? Or is there another competitive dynamic going on in that enterprise market?

Aaron, we didn't step back from it. I think the competitive dynamics is about the same as it has been for the prior couple of quarters. I think if you go back all the way to the front of last year, we had some competitive stumbles that caused us to be way above profile. I think we're kind of at profile right now. Again, the products are getting – the entire products that, not just the Seagate products, but the entire products that are getting longer than the two that need these refreshes.

I think we've been pretty consistent saying that we think our enterprise market share our – given the nature of our customer base and our product offering, is probably in the 58% to 62% range. And if it gets way above that, it's usually because of an execution issue on behalf of our competitors. And if it gets way below that, it's probably an execution issue on us. So we feel that we're kind of in our range, and we might even argue – there's a lot of confusion about what the right TAM was for mission-critical enterprise’s last quarter. So I think we still feel we're in the 60% range and we feel comfortable in that range. Okay, I'd like to thank our employees for their ongoing commitment and hard work, and also of course, our customers, our suppliers and our partners for their ongoing support and confidence in Seagate. Thank you all for joining us on the call today, and we look forward to speaking with you next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the presentation. You may disconnect. Have a wonderful day.