##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-Q



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|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the period ended March 29,
    2003                                                     
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from          to                                              

Commission file number: 1-16447

Maxtor Corporation

(Exact name of registrant as specified in its
charter)


|                                                                                     |  |                                         
|------------------------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                                             |  | 77-0123732                              
|(State or other jurisdiction of
    incorporation or organization)                   |  | (I.R.S. Employer
    Identification No.)
|                                                                                    
|500 McCarthy Boulevard,
    Milpitas, CA(Address of principal executive
    offices) |  | 95035(Zip Code)                         

Registrants telephone number, including
area code:

(408) 894-5000


Indicate by checkmark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

As of May 6, 2003, 244,956,566 shares of the
registrants Common Stock, $.01 par value, were issued and
outstanding.



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TABLE OF CONTENTS



|                                                                        |                                                                                               |  |  |  |  |  |  | 
|----------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                          
|                                                                        | Item1. Condensed Consolidated Financial Statements                                           
|Condensed Consolidated Statements of Operations                        
|MAXTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|MAXTOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                                        | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                        | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                                                        | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                                             
|                                                                        | Item 1. Legal Proceedings                                                                    
|                                                                        | Item 2. Changes in Securities                                                                
|                                                                        | Item 3. Defaults Upon Senior Securities                                                      
|                                                                        | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                                        | Item 5. Other Information                                                                    
|                                                                        | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                             
|CERTIFICATIONS                                                         
|EXHIBIT 4.1                                                            
|EXHIBIT 4.2                                                            
|EXHIBIT 10.1                                                           
|EXHIBIT 10.2                                                           
|EXHIBIT 10.3                                                           
|EXHIBIT 99.1                                                           



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##### Table of Contents



MAXTOR CORPORATION

FORM 10-Q

March 29, 2003


INDEX

|                                   |  |                                                                                                                 |    |      |    | 
|---------------------------------- |  | --------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                   |  |                                                                                                                 |    | Page
|                                   |  |                                                                                                                 |    |     
|PART I.  FINANCIAL
    INFORMATION
|Item 1.                            |  | Condensed Consolidated Financial Statements                                                                     |    |      | 2  | 
|                                   |  | Condensed Consolidated Balance Sheets 
    March 29, 2003, and December 28, 2002                               |    |      | 2  | 
|                                   |  | Condensed Consolidated Statements of
    Operations  Three months ended March 29, 2003,
    and March 30, 2002 |    |      | 3  | 
|                                   |  | Condensed Consolidated Statements of Cash
    Flows  Three months ended March 29, 2003, and
    March 30, 2002 |    |      | 4  | 
|                                   |  | Notes to Condensed Consolidated Financial
    Statements                                                        |    |      | 5  | 
|Item 2.                            |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                       |    |      | 18 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                  |    |      | 40 | 
|Item 4.                            |  | Controls and Procedures                                                                                         |    |      | 40 | 
|PART II.  OTHER
    INFORMATION   
|Item 1.                            |  | Legal Proceedings                                                                                               |    |      | 41 | 
|Item 2.                            |  | Changes in Securities                                                                                           |    |      | 42 | 
|Item 3.                            |  | Defaults Upon Senior Securities                                                                                 |    |      | 42 | 
|Item 4.                            |  | Submission of Matters to a Vote of Security
    Holders                                                         |    |      | 42 | 
|Item 5.                            |  | Other Information                                                                                               |    |      | 42 | 
|Item 6.                            |  | Exhibits and Reports on Form 8-K                                                                                |    |      | 43 | 
|Signature Page                     |  |                                                                                                                 | 44 |     
|Certifications                     |  |                                                                                                                 | 45 |     

1



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##### Table of Contents






PART I.     FINANCIAL
INFORMATION






|        |                                                
|------- | -----------------------------------------------
|Item 1. | Condensed Consolidated Financial
    Statements

MAXTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE
SHEETS

|                                          |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |         |           | 
|----------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------------ | --------- |  | ---------- | ------- | --------- | 
|                                          |                                                                                                                                                                                                                                                    | March 29,                                  |            | December 28,
|                                          |                                                                                                                                                                                                                                                    | 2003                                       |            | 2002        
|                                          |                                                                                                                                                                                                                                                    |                                            |            |             
|                                          |                                                                                                                                                                                                                                                    |                                           
|                                          |                                                                                                                                                                                                                                                    | (Unaudited)                               
|                                          |                                                                                                                                                                                                                                                    |                                           
|                                          |                                                                                                                                                                                                                                                    | (In thousands, except share and           
|                                          |                                                                                                                                                                                                                                                    | per share amounts)                        
|ASSETS                                   
|Current assets:                           |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |        
|                                          | Cash and cash equivalents                                                                                                                                                                                                                          |                                            | $          | 328,666      |           |  | $          | 306,444 |          
|                                          | Restricted cash                                                                                                                                                                                                                                    |                                            |            | 54,008       |           |  |            | 56,747  |          
|                                          | Marketable securities                                                                                                                                                                                                                              |                                            |            | 83,722       |           |  |            | 87,507  |          
|                                          | Accounts receivable, net of allowance of doubtful
    accounts of $19,414 at March 29, 2003 and $18,320 at
    December 28, 2002                                                                                                                   |                                            |            | 320,245      |           |  |            | 363,664 |          
|                                          | Inventories                                                                                                                                                                                                                                        |                                            |            | 217,073      |           |  |            | 175,545 |          
|                                          | Prepaid expenses and other                                                                                                                                                                                                                         |                                            |            | 46,145       |           |  |            | 33,438  |          
|                                          |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                    | Total current assets                       |            |              | 1,049,859 |  |            |         | 1,023,345 | 
|Property, plant and equipment, net        |                                                                                                                                                                                                                                                    |                                            | 340,153    |              |           |  | 364,842    |        
|Goodwill                                  |                                                                                                                                                                                                                                                    |                                            | 813,951    |              |           |  | 813,951    |        
|Other intangible assets, net              |                                                                                                                                                                                                                                                    |                                            | 126,340    |              |           |  | 146,898    |        
|Other assets                              |                                                                                                                                                                                                                                                    |                                            | 10,108     |              |           |  | 11,798     |        
|                                          |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                    | Total assets                               |            | $            | 2,340,411 |  |            | $       | 2,360,834 | 
|                                          |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY 
|Current liabilities:                      |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |        
|                                          | Short-term borrowings, including current portion
    of long-term debt                                                                                                                                                                             |                                            | $          | 40,072       |           |  | $          | 41,042  |          
|                                          | Accounts payable                                                                                                                                                                                                                                   |                                            |            | 620,203      |           |  |            | 642,206 |          
|                                          | Accrued and other liabilities                                                                                                                                                                                                                      |                                            |            | 452,776      |           |  |            | 471,750 |          
|                                          | Liabilities of discontinued operations                                                                                                                                                                                                             |                                            |            | 6,902        |           |  |            | 11,646  |          
|                                          |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                    | Total current liabilities                  |            |              | 1,119,953 |  |            |         | 1,166,644 | 
|Deferred taxes                            |                                                                                                                                                                                                                                                    |                                            | 196,455    |              |           |  | 196,455    |        
|Long-term debt, net of current portion    |                                                                                                                                                                                                                                                    |                                            | 198,274    |              |           |  | 206,343    |        
|Other liabilities                         |                                                                                                                                                                                                                                                    |                                            | 195,151    |              |           |  | 199,071    |        
|                                          |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                    | Total liabilities                          |            |              | 1,709,833 |  |            |         | 1,768,513 | 
|Stockholders equity:                     |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |        
|                                          | Preferred stock, $0.01 par value, 95,000,000
    shares authorized; no shares issued or outstanding                                                                                                                                                |                                            |            |             |           |  |            |        |          
|                                          | Common stock, $0.01 par value,
    525,000,000 shares authorized; 249,815,926 shares
    issued and 244,815,926 shares outstanding at March 29,
    2003 and 247,507,244 shares issued and
    242,507,244 shares outstanding at December 28, 2002 |                                            |            | 2,498        |           |  |            | 2,475   |          
|Additional paid-in capital                |                                                                                                                                                                                                                                                    |                                            | 2,358,095  |              |           |  | 2,349,253  |        
|Deferred stock-based compensation         |                                                                                                                                                                                                                                                    |                                            | (920       | )            |           |  | (1,193     | )      
|Accumulated deficit                       |                                                                                                                                                                                                                                                    |                                            | (1,713,183 | )            |           |  | (1,740,591 | )      
|Cumulative other comprehensive income     |                                                                                                                                                                                                                                                    |                                            | 4,088      |              |           |  | 2,377      |        
|Treasury stock (5,000,000 shares) at cost |                                                                                                                                                                                                                                                    |                                            | (20,000    | )            |           |  | (20,000    | )      
|                                          |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                    | Total stockholders equity                 |            |              | 630,578   |  |            |         | 592,321   | 
|                                          |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                    | Total liabilities and stockholders equity |            | $            | 2,340,411 |  |            | $       | 2,360,834 | 
|                                          |                                                                                                                                                                                                                                                    |                                            |            |              |           |  |            |        

See accompanying notes to condensed consolidated
financial statements.

2



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##### Table of Contents






MAXTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                  |                                     |                                     |         |             |         |   |           |             |         |  
|----------------------------------------------------------------- | ----------------------------------- | ----------------------------------- | ------- | ----------- | ------- | - | --------- | ----------- | ------- | -
|                                                                  |                                     |                                    
|                                                                  |                                     | Three Months Ended                 
|                                                                  |                                     |                                    
|                                                                  |                                     | March 29,                           |         | March 30,  
|                                                                  |                                     | 2003                                |         | 2002       
|                                                                  |                                     |                                     |         |            
|                                                                  |                                     |                                    
|                                                                  |                                     | (Unaudited)                        
|                                                                  |                                     |                                    
|                                                                  |                                     | (In thousands, except share and per
|                                                                  |                                     | share amounts)                     
|Net revenues                                                      |                                     | $                                   | 938,889 |             |         | $ | 1,036,100 |            
|Cost of revenues                                                  |                                     |                                     | 767,042 |             |         |   | 922,334   |            
|                                                                  |                                     |                                     |         |             |         |   |           |            
|                                                                  | Gross profit                        |                                     |         | 171,847     |         |   |           | 113,766     |        
|Operating expenses:                                               |                                     |                                     |         |             |         |   |           |            
|                                                                  | Research and development            |                                     |         | 86,661      |         |   |           | 103,058     |        
|                                                                  | Selling, general and administrative |                                     |         | 31,932      |         |   |           | 41,352      |        
|                                                                  | Amortization of intangible assets   |                                     |         | 20,562      |         |   |           | 20,562      |        
|                                                                  |                                     |                                     |         |             |         |   |           |            
|                                                                  |                                     | Total operating expenses            |         |             | 139,155 |   |           |             | 164,972 |  
|                                                                  |                                     |                                     |         |             |         |   |           |            
|Income/ (loss) from operations                                    |                                     |                                     | 32,692  |             |         |   | (51,206   | )          
|Interest expense                                                  |                                     |                                     | (5,422  | )           |         |   | (6,546    | )          
|Interest and other income                                         |                                     |                                     | 1,327   |             |         |   | 3,029     |            
|Other gain                                                        |                                     |                                     | 88      |             |         |   |          |            
|                                                                  |                                     |                                     |         |             |         |   |           |            
|Income/ (loss) from continuing operations before
    income taxes |                                     |                                     | 28,685  |             |         |   | (54,723   | )          
|Provision for income taxes                                        |                                     |                                     | 1,277   |             |         |   | 654       |            
|                                                                  |                                     |                                     |         |             |         |   |           |            
|Income/ (loss) from continuing operations                         |                                     |                                     | 27,408  |             |         |   | (55,377   | )          
|Loss from discontinued operations                                 |                                     |                                     |        |             |         |   | (9,661    | )          
|                                                                  |                                     |                                     |         |             |         |   |           |            
|Net income/(loss)                                                 |                                     | $                                   | 27,408  |             |         | $ | (65,038   | )          
|                                                                  |                                     |                                     |         |             |         |   |           |            
|Net income/ (loss) per share  basic                              |                                     |                                     |         |             |         |   |           |            
|Continuing operations                                             |                                     | $                                   | 0.11    |             |         | $ | (0.23     | )          
|Discontinued operations                                           |                                     | $                                   |        |             |         | $ | (0.04     | )          
|                                                                  |                                     |                                     |         |             |         |   |           |            
|                                                                  |                                     | Total                               |         | $           | 0.11    |   |           | $           | (0.27   | )
|                                                                  |                                     |                                     |         |             |         |   |           |            
|Net income/ (loss) per share  diluted                            |                                     |                                     |         |             |         |   |           |            
|Continuing operations                                             |                                     | $                                   | 0.11    |             |         | $ | (0.23     | )          
|Discontinued operations                                           |                                     | $                                   |        |             |         | $ | (0.04     | )          
|                                                                  |                                     |                                     |         |             |         |   |           |            
|                                                                  |                                     | Total                               |         | $           | 0.11    |   |           | $           | (0.27   | )
|                                                                  |                                     |                                     |         |             |         |   |           |            
|                                                                  |  basic                             |                                     |         | 243,634,139 |         |   |           | 236,956,653 |        
|                                                                  |  diluted                           |                                     |         | 246,866,117 |         |   |           | 236,956,653 |        

See accompanying notes to condensed consolidated
financial statements.

3



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##### Table of Contents






MAXTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                                      |                                                                                     |                                   |                                                                                    |           |         |         |         |        |         |         |  
|------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------------- | ---------------------------------------------------------------------------------- | --------- | ------- | ------- | ------- | ------ | ------- | ------- | -
|                                                                                                                                      |                                                                                     |                                  
|                                                                                                                                      |                                                                                     | Three Months Ended               
|                                                                                                                                      |                                                                                     |                                  
|                                                                                                                                      |                                                                                     | March 29,                         |                                                                                    | March 30,
|                                                                                                                                      |                                                                                     | 2003                              |                                                                                    | 2002     
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |          
|                                                                                                                                      |                                                                                     |                                  
|                                                                                                                                      |                                                                                     | (Unaudited)                      
|                                                                                                                                      |                                                                                     |                                  
|                                                                                                                                      |                                                                                     | (In thousands)                   
|Cash Flows from Operating
    Activities:                                                                                             |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|Net income (loss) from continuing operations                                                                                          |                                                                                     | $                                 | 27,408                                                                             |           |         | $       | (55,377 | )     
|Adjustments to reconcile net income
    (loss) from continuing operations to net cash provided by
    (used in) operating activities: |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|                                                                                                                                      | Depreciation and amortization                                                       |                                   |                                                                                    | 41,942    |         |         |         | 35,826 |        
|                                                                                                                                      | Amortization of intangible assets                                                   |                                   |                                                                                    | 20,562    |         |         |         | 20,562 |        
|                                                                                                                                      | Amortization of deferred compensation related to
    Quantum                        |                                   |                                                                                    |          |         |         |         | 4,103  |        
|                                                                                                                                      | Stock-based compensation expense                                                    |                                   |                                                                                    | 273       |         |         |         | 1,491  |        
|                                                                                                                                      | Loss on sale of property, plant and equipment and
    other assets                  |                                   |                                                                                    | 2,308     |         |         |         | 1,026  |        
|                                                                                                                                      | Gain on retirement of bond                                                          |                                   |                                                                                    | (111      | )       |         |         | (1,035 | )      
|                                                                                                                                      | Change in assets and liabilities:                                                   |                                   |                                                                                    |           |         |         |         |        |        
|                                                                                                                                      |                                                                                     | Accounts receivable               |                                                                                    |           | 43,419  |         |         |        | 20,391  |        
|                                                                                                                                      |                                                                                     | Inventories                       |                                                                                    |           | (41,528 | )       |         |        | (10,224 | )      
|                                                                                                                                      |                                                                                     | Prepaid expenses and other assets |                                                                                    |           | (8,992  | )       |         |        | (3,497  | )      
|                                                                                                                                      |                                                                                     | Accounts payable                  |                                                                                    |           | (18,232 | )       |         |        | 28,977  |        
|                                                                                                                                      |                                                                                     | Accrued and other liabilities     |                                                                                    |           | (22,898 | )       |         |        | (53,910 | )      
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|                                                                                                                                      |                                                                                     |                                   | Net cash provided by (used in) operating
    activities from continuing operations |           |         | 44,151  |         |        |         | (11,667 | )
|                                                                                                                                      |                                                                                     |                                   | Net cash flow provided by (used in) discontinued
    operations                    |           |         | (4,744  | )       |        |         | 3,991   |  
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|                                                                                                                                      |                                                                                     |                                   | Net cash provided by (used in) operating
    activities                            |           |         | 39,407  |         |        |         | (7,676  | )
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|Cash Flows from Investing
    Activities:                                                                                             |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|Proceeds from sale of property, plant and
    equipment                                                                               |                                                                                     |                                   | 103                                                                                |           |         |         | 36      |       
|Purchase of property, plant and equipment                                                                                             |                                                                                     |                                   | (20,609                                                                            | )         |         |         | (23,573 | )     
|Decrease (Increase) in restricted cash                                                                                                |                                                                                     |                                   | 2,739                                                                              |           |         |         | (462    | )     
|Proceeds from sale of marketable securities                                                                                           |                                                                                     |                                   | 17,357                                                                             |           |         |         | 43,673  |       
|Purchase of marketable securities                                                                                                     |                                                                                     |                                   | (13,886                                                                            | )         |         |         | (18,678 | )     
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|                                                                                                                                      |                                                                                     |                                   | Net cash provided by (used in) investing
    activities                            |           |         | (14,296 | )       |        |         | 996     |  
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|Cash Flows from Financing
    Activities:                                                                                             |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|Principal payments of debt including short-term
    borrowings                                                                        |                                                                                     |                                   | (4,622                                                                             | )         |         |         | (12,535 | )     
|Principal payments under capital lease obligations                                                                                    |                                                                                     |                                   | (7,132                                                                             | )         |         |         | (5,803  | )     
|Repurchase of common stock                                                                                                            |                                                                                     |                                   |                                                                                   |           |         |         | (579    | )     
|Proceeds from issuance of common stock from
    employee stock purchase plan and stock options exercised                              |                                                                                     |                                   | 8,865                                                                              |           |         |         | 11,145  |       
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|                                                                                                                                      |                                                                                     |                                   | Net cash used in financing activities                                              |           |         | (2,889  | )       |        |         | (7,772  | )
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|Net change in cash and cash equivalents                                                                                               |                                                                                     |                                   | 22,222                                                                             |           |         |         | (14,452 | )     
|Cash and cash equivalents at beginning of period                                                                                      |                                                                                     |                                   | 306,444                                                                            |           |         |         | 379,927 |       
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|Cash and cash equivalents at end of year                                                                                              |                                                                                     | $                                 | 328,666                                                                            |           |         | $       | 365,475 |       
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|Supplemental Disclosures of Cash Flow
    Information:                                                                                |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|                                                                                                                                      | Cash paid during the period for:                                                    |                                   |                                                                                    |           |         |         |         |        |        
|                                                                                                                                      |                                                                                     | Interest                          |                                                                                    | $         | 7,370   |         |         | $      | 8,757   |        
|                                                                                                                                      |                                                                                     | Income taxes                      |                                                                                    | $         | 1,551   |         |         | $      | 4,817   |        
|Schedule of Non-Cash Investing and Financing
    Activities:                                                                          |                                                                                     |                                   |                                                                                    |           |         |         |         |       
|                                                                                                                                      | Purchase of property, plant and equipment
    financed by accounts payable          |                                   | $                                                                                  | 3,287     |         |         | $       | 5,184  |        
|                                                                                                                                      | Retirement of debt in exchange for bond redemption                                  |                                   | $                                                                                  | 5,000     |         |         | $       | 5,000  |        
|                                                                                                                                      | Change in unrealized gain (loss) on
    investments                                 |                                   | $                                                                                  | 1,711     |         |         | $       | (1,006 | )      
|                                                                                                                                      | Purchase of property, plant and equipment
    financed by capital lease obligations |                                   | $                                                                                  | 2,826     |         |         | $       |       |        

The accompanying notes are an integral part of
these financial statements.

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##### Table of Contents






MAXTOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

1.     Summary of
Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation

The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. The
consolidated financial statements include the accounts of Maxtor
Corporation (Maxtor or the Company) and
its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. All
adjustments of a normal recurring nature which, in the opinion
of management, are necessary for a fair statement of the results
for the interim periods have been made. The unaudited interim
financial statements should be read in conjunction with the
Companys audited consolidated financial statements and
notes thereto for the fiscal year ended December 28, 2002
incorporated in the Companys Annual Report on Form 10-K.
Interim results are not necessarily indicative of the operating
results expected for later quarters or the full fiscal year.



| |                 
| | ----------------
| | Use of Estimates

The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles in the United States requires management to make
estimates and assumptions that affect the amounts of assets and
liabilities and disclosure of contingent assets and liabilities
as of the date of the financial statements and reported amounts
of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.

Material differences may result in the amount and
timing of the Companys revenue for any period, if the
Companys management made different judgments or utilized
different estimates.

The actual results with regard to warranty
expenditures could have a material impact on Maxtor if the
actual rate of unit failure or the cost to repair a unit varies
significantly from what the Company has used in estimating its
warranty expense accrual.

Given the volatility of the market for disk
drives and for the Companys products, the Company makes
adjustments to the value of inventories based on estimates of
potentially excess and obsolete inventories and negative margin
products after considering forecasted demand and forecasted
average selling prices. However, forecasts are always subject to
revisions, cancellations, and rescheduling. Actual demand will
inevitably differ from such anticipated demand and such
differences may have a material impact on the financial
statements.

The actual results with regard to the useful
lives of property, plant and equipment may vary from their
estimated useful lives, which could have a material impact on
the Companys results of operations.



| |                
| | ---------------
| | Fiscal Calendar

The Company operates and reports financial
results on a fiscal year of 52 or 53 weeks ending on the
Saturday closest to December 31. As a result, the three
month period ended March 29, 2003 comprised 13 weeks,
as did the three month period ended March 30, 2002. All
references to years in these notes to consolidated financial
statements represent fiscal years unless otherwise noted.

2.     Discontinued
Operations

On August 15, 2002, the Company announced
its decision to shut down the manufacturing and sales of its
MaxAttachTM branded network attached storage products
of the Companys Network Systems Group (NSG).
The discontinuance of the NSG operations represents the
abandonment of a component of an entity as defined in paragraph
47 of Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. Accordingly, the Companys financial
statements have

5



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

been presented to reflect NSG as a discontinued
operation for all periods presented. Its liabilities (no
remaining assets) have been segregated from continuing
operations in the accompanying consolidated balance sheets and
its operating results have been segregated and reported as
discontinued operations in the accompanying consolidated
statements of operations.

Operating results of NSG are presented in the
following table (in millions):

|                                     |  |                    |   |           |  |   |      |  
|------------------------------------ |  | ------------------ | - | --------- |  | - | ---- | -
|                                     |  |                   
|                                     |  | Three Months Ended
|                                     |  |                   
|                                     |  | March 29,          |   | March 30,
|                                     |  | 2003               |   | 2002     
|                                     |  |                    |   |          
|Revenue from discontinued operations |  | $                  |  |           |  | $ | 8.6  |  
|Loss from discontinued operations    |  | $                  |  |           |  | $ | (9.7 | )

The following is a summary of the liabilities of
the NSG discontinued operations as of March 29, 2003 (in
millions):

|                                   |  |   |     | 
|---------------------------------- |  | - | --- | 
|Accounts payable                   |  | $ | 1.4 | 
|Payroll and other accrued expenses |  |   | 1.7 | 
|Warranty, returns and other        |  |   | 3.8 | 
|                                   |  |   |     | 
|Total                              |  | $ | 6.9 | 
|                                   |  |   |     | 

3.     Restructuring

During the year ended December 28, 2002, the
Company recorded a restructuring charge of $9.5 million
associated with closure of one of its facilities located in
California. The amount comprised $8.9 million of future
non-cancelable lease payments, which are expected to be paid
over several years based on the underlying lease agreement, and
the write-off of $0.6 million in leasehold improvements.
The restructuring accrual is included on the balance sheet
within accrued and other liabilities with the balance of
$8.5 million after cash payments of $0.4 million
during the three months ended March 29, 2003.

4.     Quantum HDD
Acquisition

On April 2, 2001, Maxtor acquired the hard
disk drive business of Quantum Corporation (Quantum
HDD). The acquisition was approved by the stockholders of
both companies on March 30, 2001 and was accounted for as a
purchase. The total purchase price of $1,269.4 million
included consideration of 121.0 million shares of our
common stock valued at an average of $9.40 per common share.

Under purchase accounting rules, the Company
recorded $29.2 million for estimated severance pay
associated with termination of approximately 700 employees in
the United States. In addition, the Company paid and expensed
$30.5 million for severance pay associated with termination
of approximately 600 Quantum Corporation (Quantum)
employees. As a result, total severance related costs amounted
to $59.7 million and the total number of terminated
employees, including Quantum transitional employees was
approximately 1,300. The Company also recorded a
$59.1 million liability for estimated facility exit costs
for the closure of three Quantum HDD offices and research and
development facilities located in Milpitas, California, and two
Quantum HDD office facilities located in Singapore. The Company
also recorded a $12.7 million liability for certain
non-cancelable adverse inventory and other purchase commitments.

6



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes the activity
related to the merger-related restructuring costs as of
March 29, 2003:

|                             |  |          |      |               |  |       |       |       |  |   |       |   |  |   |       |  
|---------------------------- |  | -------- | ---- | ------------- |  | ----- | ----- | ----- |  | - | ----- | - |  | - | ----- | -
|                             |  |          |      | Severance     |  |       |       |      
|                             |  | Facility |      | and           |  | Other |       |      
|                             |  | Costs    |      | Benefits      |  | Costs |       | Total
|                             |  |          |      |               |  |       |       |      
|                             |  |          |      |               |  |      
|                             |  |          |      | (In millions) |  |      
|Provision at April 2, 2001.  |  | $        | 59.1 |               |  | $     | 29.2  |       |  | $ | 12.7  |   |  | $ | 101.0 |  
|Amounts paid                 |  |          | (0.9 | )             |  |       | (15.5 | )     |  |   | (12.7 | ) |  |   | (29.1 | )
|                             |  |          |      |               |  |       |       |       |  |   |       |   |  |   |       |  
|Balance at December 29, 2001 |  |          | 58.2 |               |  |       | 13.7  |       |  |   |      |   |  |   | 71.9  |  
|Amounts paid                 |  |          | (4.5 | )             |  |       | (13.7 | )     |  |   |      |   |  |   | (18.2 | )
|                             |  |          |      |               |  |       |       |       |  |   |       |   |  |   |       |  
|Balance at December 28, 2002 |  |          | 53.7 |               |  |       |      |       |  |   |      |   |  |   | 53.7  |  
|Amounts paid                 |  |          | (2.6 | )             |  |       |      |       |  |   |      |   |  |   | (2.6  | )
|                             |  |          |      |               |  |       |       |       |  |   |       |   |  |   |       |  
|Balance at March 29, 2003.   |  | $        | 51.1 |               |  | $     |      |       |  | $ |      |   |  | $ | 51.1  |  
|                             |  |          |      |               |  |       |       |       |  |   |       |   |  |   |       |  

The balance remaining in the facilities exit
accrual is expected to be paid over several years based on the
underlying lease agreements. The merger-related restructuring
accrual is included on the balance sheet within Accrued and
other liabilities and Other liabilities.

5.     Restricted
Cash

The Companys restricted cash balance of
$54.0 million at March 29, 2003, is associated with
short-term letters of credit (LOCs), where the
Company has chosen to provide cash security in order to lower
the cost of the LOCs.

6.     Supplemental
Financial Statement Data

|                            |                                                 |           |         |              |  |   |         |         | 
|--------------------------- | ----------------------------------------------- | --------- | ------- | ------------ |  | - | ------- | ------- | 
|                            |                                                 | March 29, |         | December 28,
|                            |                                                 | 2003      |         | 2002        
|                            |                                                 |           |         |             
|Inventories:                |                                                 |           |         |              |  |   |         |        
|                            | Raw materials                                   |           | $       | 46,611       |  |   | $       | 40,209  | 
|                            | Work-in-process                                 |           |         | 32,943       |  |   |         | 25,523  | 
|                            | Finished goods                                  |           |         | 137,519      |  |   |         | 109,813 | 
|                            |                                                 |           |         |              |  |   |         |        
|                            |                                                 | $         | 217,073 |              |  | $ | 175,545 |        
|                            |                                                 |           |         |              |  |   |         |        
|Prepaid expenses and other: |                                                 |           |         |              |  |   |         |        
|                            | Investments in equity securities, at fair value |           | $       | 8,429        |  |   | $       | 6,589   | 
|                            | Prepaid expenses and other                      |           |         | 37,716       |  |   |         | 26,849  | 
|                            |                                                 |           |         |              |  |   |         |        
|                            |                                                 | $         | 46,145  |              |  | $ | 33,438  |        
|                            |                                                 |           |         |              |  |   |         |        

7



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                               |                                              |           |          |              |  |   |          |         | 
|---------------------------------------------- | -------------------------------------------- | --------- | -------- | ------------ |  | - | -------- | ------- | 
|                                               |                                              | March 29, |          | December 28,
|                                               |                                              | 2003      |          | 2002        
|                                               |                                              |           |          |             
|Property, plant and equipment, at cost:        |                                              |           |          |              |  |   |          |        
|                                               | Buildings                                    |           | $        | 138,901      |  |   | $        | 137,467 | 
|                                               | Machinery and equipment                      |           |          | 545,657      |  |   |          | 548,149 | 
|                                               | Software                                     |           |          | 75,565       |  |   |          | 75,284  | 
|                                               | Furniture and fixtures                       |           |          | 24,180       |  |   |          | 23,962  | 
|                                               | Leasehold improvements                       |           |          | 84,523       |  |   |          | 77,925  | 
|                                               |                                              |           |          |              |  |   |          |        
|                                               |                                              | $         | 868,826  |              |  | $ | 862,787  |        
|Less accumulated depreciation and amortization |                                              |           | (528,673 | )            |  |   | (497,945 | )      
|                                               |                                              |           |          |              |  |   |          |        
|Net property, plant and equipment              |                                              | $         | 340,153  |              |  | $ | 364,842  |        
|                                               |                                              |           |          |              |  |   |          |        
|Accrued and other liabilities:                 |                                              |           |          |              |  |   |          |        
|                                               | Income taxes payable                         |           | $        | 23,215       |  |   | $        | 22,183  | 
|                                               | Accrued payroll and payroll-related expenses |           |          | 64,150       |  |   |          | 76,876  | 
|                                               | Accrued warranty                             |           |          | 266,583      |  |   |          | 278,713 | 
|                                               | Restructuring liabilities, short-term        |           |          | 10,631       |  |   |          | 11,589  | 
|                                               | Accrued expenses                             |           |          | 88,197       |  |   |          | 82,389  | 
|                                               |                                              |           |          |              |  |   |          |        
|                                               |                                              | $         | 452,776  |              |  | $ | 471,750  |        
|                                               |                                              |           |          |              |  |   |          |        
|Other liabilities:                             |                                              |           |          |              |  |   |          |        
|                                               | Payable to Quantum Corporation               |           | $        | 137,242      |  |   | $        | 138,567 | 
|                                               | Restructuring liabilities, long-term         |           |          | 48,920       |  |   |          | 50,921  | 
|                                               | Other                                        |           |          | 8,989        |  |   |          | 9,583   | 
|                                               |                                              |           |          |              |  |   |          |        
|                                               |                                              | $         | 195,151  |              |  | $ | 199,071  |        
|                                               |                                              |           |          |              |  |   |          |        

7.     Accrued
Warranty

The Company records an accrual for estimated
warranty costs when revenue is recognized. Warranty covers cost
of repair of the hard drive and the warranty periods generally
range from one to five years. The Company has comprehensive
processes that it uses to estimate accruals for warranty
exposure. The processes include specific detail on hard drives
in the field by product type, estimated failure rates and costs
to repair. Although the Company believes it has the continued
ability to reasonably estimate warranty expenses, unforeseeable
changes in factors used to estimate the accrual for warranty
could occur. These unforeseeable changes could cause a material
change in the Companys warranty accrual estimate. Such a
change would be recorded in the period in which the change was
identified. Changes in the Companys product warranty
liability during the three months ended March 29, 2003 and
March 30, 2002 were as follows (in thousands):

|                                       |                                                             |           |          |           |   |   |          |         |  
|-------------------------------------- | ----------------------------------------------------------- | --------- | -------- | --------- | - | - | -------- | ------- | -
|                                       |                                                             | March 29, |          | March 30,
|                                       |                                                             | 2003      |          | 2002     
|                                       |                                                             |           |          |          
|Balance at the beginning of the period |                                                             | $         | (278,713 | )         |   | $ | (313,894 | )      
|                                       | Accruals for warranties issued during the period            |           |          | (30,296   | ) |   |          | (55,526 | )
|                                       | Settlements made (in cash or in kind) during the
    period |           |          | 42,426    |   |   |          | 68,133  |  
|                                       |                                                             |           |          |           |   |   |          |        
|Balance at the end of the period       |                                                             | $         | (266,583 | )         |   | $ | (301,287 | )      
|                                       |                                                             |           |          |           |   |   |          |        

8



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                         
|-- | ------------------------
|8. | Stock-Based Compensation

The Company accounts for non-cash stock-based
employee compensation in accordance with APB Opinion
No. 25 (APB 25), Accounting for
Stock Issued to Employees and Related Interpretations, and
complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123
(SFAS No. 123), Accounting for
Stock-Based Compensation and Statement of Financial
Accounting Standard No. 148 (SFAS 148),
Accounting for Stock-Based Compensation, Transition and
Disclosures. The Company adopted FASB Interpretation
No. 44 (FIN 44), Accounting for
Certain Transactions Involving Stock Compensation, an
Interpretation of APB 25 as of July 1, 2000.
FIN 44 provides guidance on the application of APB 25
for non-cash stock-based compensation to employees. For fixed
grants, under APB 25, compensation expense is based on the
excess of the fair value of the Companys stock over the
exercise price, if any, on the date of the grant and is recorded
on a straight-line basis over the vesting period of the options,
which is generally four years. For variable grants, compensation
expense is based on changes in the fair value of the
Companys stock and is recorded using the methodology set
out in FASB Interpretation No. 28
(FIN 28), Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans, an Interpretation of APB 15 and APB 25.

The Company accounts for non-cash stock-based
compensation issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task
Force No. 96-18, Accounting for Equity Investments
that are Issued to Non-Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.

The following pro forma net income (loss)
information for Maxtors stock options and employee stock
purchase plan has been prepared following the provisions of SFAS
No. 123 (in thousands, except per share data):

|                                                                                                              |                             |             |        |           |  |   |         |         |  
|------------------------------------------------------------------------------------------------------------- | --------------------------- | ----------- | ------ | --------- |  | - | ------- | ------- | -
|                                                                                                              |                             |            
|                                                                                                              |                             | Years Ended
|                                                                                                              |                             |            
|                                                                                                              |                             | March 29,   |        | March 30,
|                                                                                                              |                             | 2003        |        | 2002     
|                                                                                                              |                             |             |        |          
|Net income/(loss) applicable to common
    stockholders, as reported                                          |                             | $           | 27,408 |           |  | $ | (65,038 | )      
|Add: Stock-based employee compensation expense
    included in reported net income/(loss)                     |                             |             | 273    |           |  |   | 1,491   |        
|Deduct: Total stock-based employee compensation
    expense determined under fair value method for all awards |                             |             | 5,523  |           |  |   | 11,206  |        
|                                                                                                              | Pro forma net income/(loss) |             | $      | 22,158    |  |   | $       | (74,753 | )
|                                                                                                              |                             |             |        |           |  |   |         |        
|Net income/(loss) per share                                                                                   |                             |             |        |           |  |   |         |        
|                                                                                                              | As reported  basic         |             | $      | 0.11      |  |   | $       | (0.27   | )
|                                                                                                              | Pro forma  basic           |             | $      | 0.09      |  |   | $       | (0.32   | )
|                                                                                                              | As reported  diluted       |             | $      | 0.11      |  |   | $       | (0.27   | )
|                                                                                                              | Pro forma  diluted         |             | $      | 0.09      |  |   | $       | (0.32   | )

The fair value of option grants has been
estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions:

|                               |  |             |           |           |  |  |           | 
|------------------------------ |  | ----------- | --------- | --------- |  |  | --------- | 
|                               |  |            
|                               |  | Years Ended
|                               |  |            
|                               |  | March 29,   |           | March 30,
|                               |  | 2003        |           | 2002     
|                               |  |             |           |          
|Risk-free interest rate        |  |             | 2.88%     |           |  |  | 4.26%     | 
|Weighted average expected life |  |             | 4.5 years |           |  |  | 4.5 years | 
|Volatility                     |  |             | 75%       |           |  |  | 90%       | 
|Dividend yield                 |  |             |          |           |  |  |          | 

9



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The fair value of employee stock purchase plan
option grants has been estimated on the date of grant using the
Black-Scholes option-pricing model with the following
weighted-average assumptions:

|                               |  |             |           |           |  |  |           | 
|------------------------------ |  | ----------- | --------- | --------- |  |  | --------- | 
|                               |  |            
|                               |  | Years Ended
|                               |  |            
|                               |  | March 29,   |           | March 30,
|                               |  | 2003        |           | 2002     
|                               |  |             |           |          
|Risk-free interest rate        |  |             | 1.12%     |           |  |  | 1.73%     | 
|Weighted average expected life |  |             | 0.5 years |           |  |  | 0.5 years | 
|Volatility                     |  |             | 75%       |           |  |  | 90%       | 
|Dividend yield                 |  |             |          |           |  |  |          | 

No dividend yield is assumed as the Company has
not paid dividends and has no plans to do so.



|   |                            
|-- | ---------------------------
|9. | Net Income/(Loss) Per Share

In accordance with the disclosure requirements of
Statements of Financial Accounting Standards No. 128,
Earnings per Share a reconciliation of the numerator
and denominator of the basic and diluted net loss per share
calculations is provided as follows (in thousands, except share
and per share amounts):

|                                                   |                                         |                    |             |           |  |   |             |       |  
|-------------------------------------------------- | --------------------------------------- | ------------------ | ----------- | --------- |  | - | ----------- | ----- | -
|                                                   |                                         |                   
|                                                   |                                         | Three Months Ended
|                                                   |                                         |                   
|                                                   |                                         | March 29,          |             | March 30,
|                                                   |                                         | 2003               |             | 2002     
|                                                   |                                         |                    |             |          
|Numerator  Basic and
    Diluted                  |                                         |                    |             |           |  |   |             |      
|Income/(loss) from continuing operations           |                                         | $                  | 27,408      |           |  | $ | (55,377     | )    
|Loss from discontinued operations                  |                                         | $                  |            |           |  | $ | (9,661      | )    
|                                                   |                                         |                    |             |           |  |   |             |      
|Net income/(loss)                                  |                                         | $                  | 27,408      |           |  | $ | (65,038     | )    
|                                                   |                                         |                    |             |           |  |   |             |      
|Net income/(loss) available to common stockholders |                                         | $                  | 27,408      |           |  | $ | (65,038     | )    
|                                                   |                                         |                    |             |           |  |   |             |      
|Denominator                                        |                                         |                    |             |           |  |   |             |      
|Basic weighted average common shares outstanding   |                                         |                    | 243,634,139 |           |  |   | 236,956,653 |      
|Effect of dilutive securities:                     |                                         |                    |             |           |  |   |             |      
|                                                   | Common stock options                    |                    |             | 3,135,070 |  |   |             |      |  
|                                                   | Restricted shares subject to repurchase |                    |             | 96,908    |  |   |             |      |  
|                                                   |                                         |                    |             |           |  |   |             |      
|Diluted weighted average common shares             |                                         |                    | 246,866,117 |           |  |   | 236,956,653 |      
|                                                   |                                         |                    |             |           |  |   |             |      
|Net income/(loss) per share  basic                |                                         |                    |             |           |  |   |             |      
|Continuing operations                              |                                         | $                  | 0.11        |           |  | $ | (0.23       | )    
|Discontinued operations                            |                                         | $                  |            |           |  | $ | (0.04       | )    
|                                                   |                                         |                    |             |           |  |   |             |      
|                                                   | Total                                   |                    | $           | 0.11      |  |   | $           | (0.27 | )
|                                                   |                                         |                    |             |           |  |   |             |      
|Net income/(loss) per share  diluted              |                                         |                    |             |           |  |   |             |      
|Continuing operations                              |                                         | $                  | 0.11        |           |  |   | (0.23       | )    
|Discontinued operations                            |                                         | $                  |            |           |  |   | (0.04       | )    
|                                                   |                                         |                    |             |           |  |   |             |      
|                                                   | Total                                   |                    | $           | 0.11      |  |   | $           | (0.27 | )
|                                                   |                                         |                    |             |           |  |   |             |      

Common stock options outstanding as of
March 29, 2003 were excluded from the computation of
diluted earnings per share because the exercise price of the
options was greater than the average market price of the common
shares and the effect would have been antidilutive. Common stock
options and restricted shares

10



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

subject to repurchase as of March 30, 2002
were excluded from the computation of diluted net loss per share
as their effect would have been antidilutive.

|                                        |  |                    |            |           |  |  |            | 
|--------------------------------------- |  | ------------------ | ---------- | --------- |  |  | ---------- | 
|                                        |  |                   
|                                        |  | Three Months Ended
|                                        |  |                   
|                                        |  | March 29,          |            | March 30,
|                                        |  | 2003               |            | 2002     
|                                        |  |                    |            |          
|Common stock options                    |  |                    | 17,747,072 |           |  |  | 34,502,248 | 
|Restricted shares subject to repurchase |  |                    |           |           |  |  | 1,295,362  | 



|    |                                             
|--- | --------------------------------------------
|10. | Short-Term Borrowings and Long-Term
    Debt

Short-term borrowings and long-term debt consist
of the following (in thousands):

|                                                                                                   |  |           |         |              |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | --------- | ------- | ------------ |  | - | ------- | -
|                                                                                                   |  | March 29, |         | December 28,
|                                                                                                   |  | 2003      |         | 2002        
|                                                                                                   |  |           |         |             
|5.75% Subordinated Debentures due March 1,
    2012                                                |  | $         | 59,885  |              |  | $ | 60,427  |  
|Economic Development Board of Singapore Loan due
    March 2004                                    |  |           | 6,512   |              |  |   | 9,909   |  
|Pro rata portion of Quantum Corporations 7%
    Subordinated Convertible Notes due August 1, 2004 |  |           | 95,833  |              |  |   | 95,833  |  
|Mortgages                                                                                          |  |           | 35,260  |              |  |   | 35,609  |  
|Equipment Loans and Capital Leases                                                                 |  |           | 40,856  |              |  |   | 45,607  |  
|                                                                                                   |  |           |         |              |  |   |         |  
|                                                                                                   |  |           | 238,346 |              |  |   | 247,385 |  
|Less amounts due within one year                                                                   |  |           | (40,072 | )            |  |   | (41,042 | )
|                                                                                                   |  |           |         |              |  |   |         |  
|                                                                                                   |  | $         | 198,274 |              |  | $ | 206,343 |  
|                                                                                                   |  |           |         |              |  |   |         |  

The 5.75% Subordinated Debentures due
March 1, 2012 require semi-annual interest payments and
annual sinking fund payments of $5.0 million, which
commenced March 1, 1998. The Debentures are subordinated in
right to payment to all senior indebtedness. The Company has
fulfilled its sinking fund obligation until March 1, 2006.
During the quarter ended March 29, 2003, the Company
repurchased $0.5 million of debentures for
$0.4 million. Accordingly, a gain of $0.1 million was
recognized on the Companys income statement within the
caption of interest and other income.

In September 1999, Maxtor Peripherals
(S) Pte Ltd entered into a four-year Singapore dollar
denominated loan agreement with the Economic Development Board
of Singapore (the Board), which is being amortized
in seven equal semi-annual installments ending September 2003.
As of March 29, 2003, the balance was equivalent to
$6.5 million. The Board charges interest at 1% above the
prevailing Central Provident Fund lending rate, subject to a
minimum of 3.5% per year (3.5% as of March 29, 2003). This
loan is supported by a two-year guaranty from a bank. Cash is
currently provided as collateral for this guaranty but the
Company may, at its option, substitute other assets as security.
As part of this arrangement, the Company had been subject to two
financial covenants, the maintenance of minimum unrestricted
cash and a tangible net worth test. On January 29, 2003,
the loan agreement was amended to remove the tangible net worth
covenant. As of March 29, 2003, the Company was in
compliance with the covenant regarding maintenance of minimum
restricted cash.

Maxtor agreed to indemnify Quantum for the
Quantum HDD pro rata portion of Quantums outstanding
$287.5 million 7% convertible subordinated notes due
August 1, 2004, and accordingly the principal amount of
$95.8 million has been included in the Companys long
term debt. Quantum is required to pay interest semi-annually on
February 1 and August 1, and principal is payable on
maturity. The Company is required to reimburse Quantum for
interest or principal payments relating to the
$95.8 million representing Quantum HDDs pro rata
portion of such notes.

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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In connection with the merger with Quantum HDD,
the Company acquired real estate and related mortgage
obligations. The term of the mortgages is ten years, at an
interest rate of 9.2%, with monthly payments based on a
twenty-year amortization schedule, and a balloon payment at the
end of the 10-year term, which is September 2006. The
outstanding balance at March 29, 2003 was
$35.3 million.

As of March 29, 2003, the Company had
equipment loans and capital leases totaling $40.9 million.
These obligations include certain capital equipment loans and
leases assumed in connection with the acquisition of MMC, which
as of March 29, 2003 amounted to $30.4 million, having
maturity dates through October 2004 and interest rates averaging
9.9%.

In April 2003, the Company secured credit lines
with the Bank of China for up to $133 million to be used
for the construction and working capital requirements of the
manufacturing facility to be set up in Suzhou, China. These
lines of credit are U.S.-dollar-denominated and are drawable
until April 2007. Borrowings under these lines of credits are
collateralized by the facilities to be established in Suzhou,
China, bear interest at LIBOR plus 50 basis points (subject
to adjustments to 60 basis points) repayable in eight
semi-annual installments commencing October 2007, except for
$30 million repayable in April 2013.



|    |                            
|--- | ---------------------------
|11. | Comprehensive Income/(Loss)

Cumulative other comprehensive loss on the
consolidated balance sheets consists of unrealized loss on
investments. Total comprehensive income (loss) for the three
months ended March 29, 2003 and March 30, 2002, is
presented in the following table (in thousands):

|                                                                                     |  |                    |        |           |  |   |         |  
|------------------------------------------------------------------------------------ |  | ------------------ | ------ | --------- |  | - | ------- | -
|                                                                                     |  |                   
|                                                                                     |  | Three Months Ended
|                                                                                     |  |                   
|                                                                                     |  | March 29,          |        | March 30,
|                                                                                     |  | 2003               |        | 2002     
|                                                                                     |  |                    |        |          
|Net income/ (loss)                                                                   |  | $                  | 27,408 |           |  | $ | (65,038 | )
|Unrealized gain/ (loss) on investments in equity
    securities                      |  |                    | 1,799  |           |  |   | (2,292  | )
|Less: reclassification adjustment for gain (loss)
    included in net income/ (loss) |  |                    | 88     |           |  |   | (1,286  | )
|                                                                                     |  |                    |        |           |  |   |         |  
|Comprehensive income/ (loss)                                                         |  | $                  | 29,119 |           |  | $ | (66,044 | )
|                                                                                     |  |                    |        |           |  |   |         |  



|    |                                                       
|--- | ------------------------------------------------------
|12. | Segment, Geography and Major Customers
    Information

Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise
and Related Information, establishes annual and interim
reporting standards for an enterprises business segments
and related disclosures about its products, services, geographic
areas and major customers. The method for determining what
information to report is based upon the way management organizes
the operating segments within the Company for making operating
decisions and assessing financial performance. The
Companys chief operating decision-maker is considered to
be the Chief Executive Officer (CEO). The CEO
reviews financial information for purposes of making operational
decisions and assessing financial performance.

Subsequent to the decision to shut down its NSG
operations, the Company determined that it operates in one
reportable segment.

Sales of continuing operations to original
equipment manufacturers (OEMs) for the three months
ended March 29, 2003 represented 42.5% of total revenue,
compared to 43.2% of total revenue for the corresponding period
in fiscal year 2002. Sales to the distribution and retail
channels for the three months ended March 29, 2003
represented 57.5% of total revenue, compared to 56.8% of total
revenue in the corresponding period in fiscal year 2002.

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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company has a worldwide sales, service and
distribution network. Products are marketed and sold through a
direct sales force to computer equipment manufacturers,
distributors and retailers in the United States, Europe, Latin
America and Asia Pacific. Maxtor operations outside the United
States primarily consist of its manufacturing facilities in
Singapore that produce subassemblies and final assemblies for
the Companys disk drive products. Revenue from continuing
operations by destination for the three months ended
March 29, 2003 and March 30, 2002 and long-lived asset
information by geographic area as of March 29, 2003 and
December 28, 2002 are presented in the following table:

|                               |  |                    |         |                   |  |              |           |  |  |   |           |  |  |   |           | 
|------------------------------ |  | ------------------ | ------- | ----------------- |  | ------------ | --------- |  |  | - | --------- |  |  | - | --------- | 
|                               |  |                    |         |                  
|                               |  | Revenue            |         | Long-lived Assets
|                               |  |                    |         |                  
|                               |  |                    |         |                  
|                               |  | Three Months Ended |         | March 29,         |  | December 28,
|                               |  | March 29, 2003     |         | 2003              |  | 2002        
|                               |  |                    |         |                   |  |             
|United States and Canada       |  | $                  | 319,108 |                   |  | $            | 390,378   |  |  | $ | 1,173,171 |  |  | $ | 1,207,738 | 
|Asia Pacific and Japan         |  |                    | 283,327 |                   |  |              | 294,290   |  |  |   | 116,608   |  |  |   | 128,860   | 
|Europe, Middle East and Africa |  |                    | 330,593 |                   |  |              | 340,623   |  |  |   | 773       |  |  |   | 891       | 
|Latin America and other        |  |                    | 5,861   |                   |  |              | 10,809    |  |  |   |          |  |  |   |          | 
|                               |  |                    |         |                   |  |              |           |  |  |   |           |  |  |   |           | 
|Total                          |  | $                  | 938,889 |                   |  | $            | 1,036,100 |  |  | $ | 1,290,552 |  |  | $ | 1,337,489 | 
|                               |  |                    |         |                   |  |              |           |  |  |   |           |  |  |   |           | 

Long-lived assets located within the United
States consist primarily of goodwill and other intangible
assets, which amounted to $940.3 million and
$960.8 million as of March 29, 2003 and
December 28, 2002, respectively. Long-lived assets located
outside the United States consist primarily of the
Companys manufacturing operations located in Singapore,
which amounted to $114.3 million and $127.6 million as
of March 29, 2003 and December 28, 2002, respectively.

13.     Related Party
Transactions

In 1994, Hyundai Electronics Industries,
HEI, which subsequently changed its name to Hynix
Semiconductor, Inc. (HSI) and certain of its
affiliates purchased 40% of Maxtors outstanding common
stock for $150.0 million in cash. In early 1996, Hynix,
formerly Hyundai Electronics America, or HEA, acquired all of
the remaining shares of common stock of Maxtor in a tender offer
and merger for $215.0 million in cash and also acquired all
of Maxtors common stock held by HEI and its affiliates.
Maxtor operated as a wholly-owned subsidiary of Hynix until
completion of its initial public offering on July 31, 1998,
which reduced the ownership interest of Hynix to below 50%. In
April 2001 as a result of Maxtors acquisition of the
Quantum HDD business, Hynixs ownership in Maxtor was
reduced to approximately 17% of the outstanding common stock. As
described below, Hynix sold Maxtor shares to the public and to
Maxtor in October 2001, reducing Hynixs ownership to 5.17%
at December 29, 2001, and in February 2002, Hynix
distributed the balance of its Maxtor shares to the beneficial
owners of a trust and has ceased to be a stockholder of Maxtor.

Maxtors cost of revenue includes certain
DRAM chip purchases from HSI. HSI is treated identically to its
competitors in the process by which commodity electronics,
principally DRAMs, are selected, qualified, and purchased;
pricing is negotiated with selected suppliers on the basis of
suppliers bids and market information. Maxtors
purchases from HSI totaled $15.5 million from
January 1, 2002 through February 2002, the month in which
Hynix, HSIs affiliate, ceased to be a stockholder of
Maxtor.

Pursuant to a sublicense agreement with HSI,
Maxtor is obligated to pay a portion of an IBM license royalty
fee otherwise due from HSI. Such payments are due in annual
installments through 2007, and are based upon the license fee
separately negotiated on an arms length basis between HSI
and IBM. For the year ended December 28, 2002, Maxtor
recorded $1.6 million of expenses in connection with this
obligation.

13



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Hynix was an unconditional guarantor of one of
Maxtors facilities lease in Milpitas, California. The
aggregate rent under the lease was $3.24 million per annum
in each of the years ended December 30, 2000 and
December 29, 2001. The lease rate was established by
arms length negotiations with the lessor based on
applicable market rates. The lease expired on March 31,
2002 and was not extended.

14.     Contingencies

From time to time, the Company has been subject
to litigation including the pending litigations described below.
Because of the uncertainties related to both the amount and
range of loss on the remaining pending litigation, the Company
is unable to make a reasonable estimate of the liability that
could result from an unfavorable outcome. As additional
information becomes available, the Company will assess its
potential liability and revise its estimates. Pending or future
litigation could be costly, could cause the diversion of
managements attention and could upon resolution, have a
material adverse effect on its business, results of operations,
financial condition and cash flow.

In addition, the Company is engaged in certain
legal and administrative proceedings incidental to our normal
business activities and believes that these matters will not
have a material adverse effect on our financial position,
results of operations or cash flow.

Prior to the Companys acquisition of the
Quantum HDD business, the Company, on the one hand, and Quantum
and MKE, on the other hand, were sued by Papst Licensing, GmbH,
a German corporation, for infringement of a number of patents
that relate to hard disk drives. Papsts complaint against
Quantum and MKE was filed on July 30, 1998, and
Papsts complaint against Maxtor was filed on
March 18, 1999. Both lawsuits, filed in the United States
District Court for the Northern District of California, were
transferred by the Judicial Panel on Multidistrict Litigation to
the United States District Court for the Eastern District of
Louisiana for coordinated pre-trial proceedings with other
pending litigations involving the Papst patents (the MDL
Proceeding). The matters will be transferred back to the
District Court for the Northern District of California for
trial. Papsts infringement allegations are based on
spindle motors that Maxtor and Quantum purchased from third
party motor vendors, including MKE, and the use of such spindle
motors in hard disk drives. The Company purchased the
overwhelming majority of the spindle motors used in its hard
disk drives from vendors that were licensed under the Papst
patents. Quantum purchased many spindle motors used in its hard
disk drives from vendors that were not licensed under the Papst
patents, including MKE. As a result of the Companys
acquisition of the Quantum HDD business, the Company assumed
Quantums potential liabilities to Papst arising from the
patent infringement allegations Papst asserted against Quantum.
The Company filed a motion to substitute the Company for Quantum
in this litigation. The motion was denied by the Court presiding
over the MDL Proceeding, without prejudice to being filed again
in the future.

In February 2002, Papst and MKE entered into an
agreement to settle Papsts pending patent infringement
claims against MKE. That agreement includes a license of certain
Papst patents to MKE which might provide Quantum, and thus the
Company, with additional defenses to Papsts patent
infringement claims.

On April 15, 2002, the Judicial Panel on
Multidistrict Litigation ordered a separation of claims and
remand to the District of Columbia of certain claims between
Papst and another party involved in the MDL Proceeding. By order
entered June 4, 2002, the court stayed the MDL Proceeding
pending resolution by the District of Columbia court of the
remanded claims. These separated claims relating to the other
party are currently proceeding in the District Court for the
District of Columbia.

The results of any litigation are inherently
uncertain and Papst may assert other infringement claims
relating to current patents, pending patent applications, and/or
future patent applications or issued patents. Additionally,
there are no assurances that the Company will be able to
successfully defend itself against this or any other Papst
lawsuit. Because the Papst complaints assert claims to an
unspecified dollar amount of

14



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

damages, and because the Company was at an early
stage of discovery when the litigation was stayed, the Company
is unable to determine the possible loss, if any, that it may
incur as a result of an adverse judgment or a negotiated
settlement with respect to the claims against Maxtor. Management
made an estimate of the potential liabilities which might arise
from the Papst claims against Quantum at the time of the
acquisition of the Quantum HDD business. This estimate will be
revised as additional information becomes available. A favorable
outcome for Papst in these lawsuits could result in the issuance
of an injunction against the Company and its products and/or the
payment of monetary damages equal to a reasonable royalty. In
the case of a finding of a willful infringement, the Company
also could be required to pay treble damages and Papsts
attorneys fees. The litigation could result in significant
diversion of time by the Companys technical personnel, as
well as substantial expenditures for future legal fees.
Accordingly, although the Company cannot currently estimate
whether there will be a loss, or the size of any loss, a
litigation outcome favorable to Papst could have a material
adverse effect on the Companys business, financial
condition and operating results. Management believes that it has
valid defenses to the claims of Papst and is defending this
matter vigorously.

15.     Goodwill and
Other Intangible Assets

Commencing in fiscal 2002, the Company adopted
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). SFAS 142 requires goodwill to
be tested for impairment under certain circumstances, written
down when impaired, and requires purchased intangible assets
other than goodwill to be amortized over their useful lives
unless these lives are determined to be indefinite. Goodwill and
indefinite lived intangible assets will be subject to an
impairment test at least annually.

The Company ceased amortizing goodwill totaling
$846.0 million as of the adoption date, including
$31.1 million, net of accumulated amortization, of acquired
workforce intangibles previously classified as purchased
intangible assets. Subsequent to the decision to shut down the
manufacture and sales of NSG products, the Company wrote off
goodwill related to the NSG operations of $32.0 million. As
of March 29, 2002, goodwill amounted to $814.0 million.

Purchased intangible assets are carried at cost
less accumulated amortization. The Company evaluated its
intangible assets and determined that all such assets have
determinable lives. Amortization is computed over the estimated
useful lives of the respective assets, generally three to five
years. The Company expects amortization expense on purchased
intangible assets to be $61.7 million in remainder of 2003,
$37.0 million in 2004, $21.9 million in 2005, and
$5.8 million in 2006, at which time purchased intangible
assets will be fully amortized.

|                                        |                      |         |   |                |  |                   |         |        |  |          |          |              |   |     |         |        |  |   |         |        |  |   |          |         |   |   |         |        | 
|--------------------------------------- | -------------------- | ------- | - | -------------- |  | ----------------- | ------- | ------ |  | -------- | -------- | ------------ | - | --- | ------- | ------ |  | - | ------- | ------ |  | - | -------- | ------- | - | - | ------- | ------ | 
|                                        |                      |         |   |                |  |                  
|                                        |                      |         |   | March 29, 2003 |  | December 28, 2002
|                                        |                      |         |   |                |  |                  
|                                        |                      |         |   | Gross          |  |                   |         | Gross  |  |         
|                                        |                      | Useful  |   | Carrying       |  | Accumulated       |         |        |  | Carrying |          | Accumulated  |   |    
|                                        |                      | Life    |   | Amount         |  | Amortization      |         | Net    |  | Amount   |          | Amortization |   | Net
|                                        |                      |         |   |                |  |                   |         |        |  |          |          |              |   |    
|                                        |                      |         |   |                |  |                  
|                                        |                      | (Years) |   | (In thousands) |  | (In thousands)   
|Goodwill                                |                      |         |  |                |  | $                 | 813,951 |        |  | $        |         |              |   | $   | 813,951 |        |  | $ | 813,951 |        |  | $ |         |         |   | $ | 813,951 |       
|                                        |                      |         |   |                |  |                   |         |        |  |          |          |              |   |     |         |        |  |   |         |        |  |   |          |         |   |   |         |       
|Quantum HDD                             |                      |         |   |                |  |                   |         |        |  |          |          |              |   |     |         |        |  |   |         |        |  |   |          |         |   |   |         |       
|Existing technology
    Core technology |                      |         | 5 |                |  | $                 | 105,000 |        |  | $        | (42,000  | )            |   | $   | 63,000  |        |  | $ | 105,000 |        |  | $ | (36,750  | )       |   | $ | 68,250  |       
|                                        | Consumer electronics |         |   | 3              |  |                   |         | 8,900  |  |          |          | (5,933       | ) |     |         | 2,967  |  |   |         | 8,900  |  |   |          | (5,192  | ) |   |         | 3,708  | 
|                                        | High-end             |         |   | 3              |  |                   |         | 75,500 |  |          |          | (50,333      | ) |     |         | 25,167 |  |   |         | 75,500 |  |   |          | (44,042 | ) |   |         | 31,458 | 
|                                        | Desktop              |         |   | 3              |  |                   |         | 96,700 |  |          |          | (64,467      | ) |     |         | 32,233 |  |   |         | 96,700 |  |   |          | (56,408 | ) |   |         | 40,292 | 
|MMC Technology                          |                      |         |   |                |  |                   |         |        |  |          |          |              |   |     |         |        |  |   |         |        |  |   |          |         |   |   |         |       
|Existing technology                     |                      |         | 5 |                |  |                   | 4,350   |        |  |          | (1,377   | )            |   |     | 2,973   |        |  |   | 4,350   |        |  |   | (1,160   | )       |   |   | 3,190   |       
|                                        |                      |         |   |                |  |                   |         |        |  |          |          |              |   |     |         |        |  |   |         |        |  |   |          |         |   |   |         |       
|Total other intangible assets           |                      |         |   |                |  | $                 | 290,450 |        |  | $        | (164,110 | )            |   | $   | 126,340 |        |  | $ | 290,450 |        |  | $ | (143,552 | )       |   | $ | 146,898 |       
|                                        |                      |         |   |                |  |                   |         |        |  |          |          |              |   |     |         |        |  |   |         |        |  |   |          |         |   |   |         |       

15



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In accordance with SFAS No. 142, the
Company completed its impairment analysis as of January 1,
2002, upon the adoption of SFAS 142, and as of
December 28, 2002 for the purpose of the annual review. The
Company found no instances of impairment of the recorded
goodwill on both dates and accordingly no impairment was
recorded.

16.     Recent
Accounting Pronouncements

In December 2002, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 148,
Accounting for Stock-Based Compensation, Transition and
Disclosure. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
compensation. SFAS No. 148 also requires that
disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be
displayed more prominently and in a tabular format.
Additionally, SFAS No. 148 requires disclosure of the
pro forma effect in interim financial statements. The transition
and annual disclosure requirements of SFAS No. 148 are
effective for fiscal years ended after December 15, 2002.
The interim disclosure requirements are effective for interim
periods beginning after December 15, 2002.

In January 2003, the Financial Accounting
Standards Board issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities
(FIN 46). Under that interpretation, certain
entities known as Variable Interest Entities
(VIE) must be consolidated by the primary
beneficiary of the entity. The primary beneficiary is
generally defined as having the majority of the risks and
rewards arising from the VIE. For VIEs in which a
significant (but not majority) variable interest is held,
certain disclosures are required. FIN 46 requires
disclosure of Variable Interest Entities in financial statements
issued after January 31, 2003, if it is reasonably possible
that as of the transition date: (1) the Company will be the
primary beneficiary of an existing VIE that will require
consolidation or, (2) the Company will hold a significant
variable interest in, or have significant involvement with, an
existing VIE. Any VIEs created after January 31, 2003, are
immediately subject to the consolidation guidance in
FIN 46. The measurement principles of this interpretation
will be effective for the Companys 2003 financial
statements. The Company does not have any entities that require
disclosure or new consolidation as a result of adopting the
provisions of FIN 46.

17.     Subsequent
Event

On May 7, 2003, the Company sold
$230 million in aggregate principal amount of convertible
senior notes due 2010 to qualified institutional buyers pursuant
to Rule 144A under the Securities Act of 1933, as amended.
The amount sold reflects the exercise in full by the initial
purchasers of the notes of their option to purchase up to an
additional $30 million aggregate principal amount of the
notes. The principal amount of convertible senior notes due 2010
will be recorded as long-term debt on the Companys
consolidated balance sheet.

The notes bear interest at a rate of
6.80 percent per annum and are convertible into the
Companys common stock at a conversion rate of 81.5494
shares per $1,000 principal amount of the notes, or an aggregate
of 18,756,362 shares, subject to adjustment in certain
circumstances (equal to an initial conversion price of $12.2625
per share). The initial conversion price represents a
125 percent premium over the closing price of our common
stock on May 1, 2003, which was $5.45 per share. The
Company is obligated to file with the Securities and Exchange
Commission a registration statement registering the notes and
the shares underlying the notes within 90 days after
May 7, 2003 and to have that registration statement
declared effective within 180 days after May 7, 2003.
For so long as the Company has not satisfied its registration
obligations and the notes are not tradeable under
Rule 144(k), the Company is subject to certain liquidated
damages in the form of additional interest on the notes and if
the Company fails to register the underlying shares into which
the notes are convertible, in the event a holder elects to
convert the notes during a period when the notes or the

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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

underlying shares are not registered or tradeable
under Rule 144(k) and the Company has not satisfied its
registration obligations, the conversion rate will be increased
by 3%.

The Company may not redeem the notes prior to
May 5, 2008. Thereafter, it may redeem the notes at 100% of
their principal amount, plus accrued and unpaid interest, if the
closing price of its common stock for 20 trading days within a
period of 30 consecutive trading days ending on the trading
day before the date of mailing of the redemption notice exceeds
130% of the conversion price on such trading day.

In connection with the sale of the notes, on
May 7, 2003, the Company also repurchased from an affiliate
of one of the initial purchasers of the notes 8,245,738 shares
of its common stock for an aggregate purchase price of
$44.9 million, at $5.45 per share, the closing price of its
common stock on May 1, 2003, plus commissions. These
repurchased shares will be recorded as treasury stock in the
three month period ended June 28, 2003.

On May 9, 2003, the Company entered into a
two-year asset backed securitization facility of up to
$100 million with certain financial institutions. The
facility will use a special purpose subsidiary to purchase and
hold all of the Companys U.S. and Canadian accounts
receivable and will borrow up to $100 million secured by
the purchased receivables. This special purpose subsidiary will
be consolidated for financial reporting purposes, and its
resulting liabilities will appear on the consolidated balance
sheet as short-term debt.

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Item 2.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion should be read in
conjunction with the condensed consolidated financial statements
and the accompanying notes included in Part I. Financial
Information, Item 1. Condensed Consolidated Financial
Statements of this report.

This report contains forward-looking statements
within the meaning of the U.S. federal securities laws that
involve risks and uncertainties. The statements contained in
this report that are not purely historical, including, without
limitation, statements regarding our expectations, beliefs,
intentions or strategies regarding the future, are
forward-looking statements. Examples of forward-looking
statements in this report include statements regarding our
expectations as to average selling prices, demand for our
products, capital expenditures, completion of our manufacturing
facility in China, liquidity, litigation, and our relationships
with vendors. In this report, the words anticipates,
believe, expect, intend,
may, will, should,
plan, estimate, predict,
potential, future, continue,
or similar expressions also identify forward-looking statements.
These statements are only predictions. We make these
forward-looking statements based upon information available on
the date hereof, and we have no obligation (and expressly
disclaim any such obligation) to update or alter any such
forward-looking statements, whether as a result of new
information, future events, or otherwise. Our actual results
could differ materially from those anticipated in this report as
a result of certain factors including, but not limited to, those
set forth in the following section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Certain Factors
Affecting Future Performance and elsewhere in this report.

Overview

Maxtor Corporation (Maxtor or the
Company) was founded in 1982 and completed an
initial public offering of common stock in 1986. In 1994, we
sold 40% of our outstanding common stock to Hyundai Electronics
Industries (now Hynix Semiconductors Inc. 
HSI) and its affiliates. In early 1996, Hyundai
Electronics America (now Hynix Semiconductor America
Inc.  Hynix) acquired all of the
remaining publicly held shares of our common stock as well as
all of our common stock, then held by Hynix Semiconductor, Inc.
and its affiliates. In July 1998, we completed a public offering
of 49.7 million shares of our common stock, receiving net
proceeds of approximately $328.8 million from the offering.
In February 1999, we completed a public offering of
7.8 million shares of our common stock with net proceeds to
us of approximately $95.8 million.

On April 2, 2001, we acquired Quantum
Corporations Hard Disk Drive Group (Quantum
HDD). The primary reason for our acquisition of Quantum
HDD was to create a stronger, more competitive company, with
enhanced prospects for continued viability in the storage
industry. For additional information regarding the Quantum HDD
acquisition, see note 4 of the Notes to Consolidated
Financial Statements.

On September 2, 2001, we completed the
acquisition of MMC Technology, Inc. (MMC), a
wholly-owned subsidiary of Hynix. MMC, based in San Jose,
California, designs, develops and manufactures media for hard
disk drives. Prior to the acquisition, sales to Maxtor comprised
95% of MMCs annual revenues. The primary reason for our
acquisition of MMC was to provide us with a reliable source of
supply of media.

On October 9, 2001, Hynix sold 23,329,843
shares (including exercise of the underwriters
over-allotment) of Maxtor common stock in a registered public
offering. Maxtor did not receive any proceeds from Hynixs
sale of Maxtor stock to the public. In addition, at the same
time and on the same terms as Hynixs sale of Maxtor stock
to the public, we repurchased 5.0 million shares from Hynix
for an aggregate purchase price of $20.0 million. These
repurchased shares are being held as treasury shares. In
February 2002, Hynix distributed the balance of its Maxtor
shares to the beneficial owners of a trust and has ceased to be
a stockholder of Maxtor.

On August 15, 2002 we announced our decision
to shut down the manufacturing and sale of our
MaxAttachTM branded network attached storage products
of our Network Systems Group (NSG). We worked with
NSG customers for an orderly wind down of the business. The
network attached storage market had fragmented since our
entrance in 1999, with one segment of the NAS market becoming
more

18



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##### Table of Contents



commoditized and the other segment placing us in
competition with some of our hard disk drive customers. The shut
down of the operations of our NSG business allowed us to focus
on our core hard disk drive market and further reduce expenses.
The NSG business was accounted for as a discontinued operation
and therefore, results of operations and cash flows have been
removed from our results of continuing operations for all
periods presented in this report. For additional information
regarding the NSG discontinued operations, see note 2 of
the Notes to Consolidated Financial Statements.


On May 7, 2003, we sold $230 million in
aggregate principal amount of convertible senior notes due 2010
to qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended. The amount sold
reflects the exercise in full by the initial purchasers of the
notes of their option to purchase up to an additional
$30 million aggregate principal amount of the notes. For
additional information regarding the convertible senior notes,
see the discussion below under the heading Liquidity and
Capital Resources.

Critical Accounting Policies

Our discussion and analysis of the companys
financial condition and results of operations are based upon
Maxtors consolidated financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires management to make estimates and
judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we
evaluate our estimates. We base our estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.

We believe the following critical accounting
policies represent our significant judgments and estimates used
in the preparation of the companys consolidated financial
statements:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | revenue recognition;                                                              
|
| |  | sales returns, other sales allowances and the
    allowance for doubtful accounts;
|
| |  | valuation of intangibles, long-lived assets and
    goodwill;                     
|
| |  | warranty;                                                                         
|
| |  | inventory reserves;                                                               
|
| |  | income taxes; and                                                                 
|
| |  | restructuring liabilities, litigation and other
    contingencies.                

For additional information regarding the
Companys critical accounting policies mentioned above, see
Managements Discussion and Analysis of Financial
Condition and Results of Operation in our Annual Report on
Form 10-K for the fiscal year ended December 28, 2002.

19



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##### Table of Contents



Results of Operations



| |                         
| | ------------------------
| | Revenue and Gross Profit

|                                         |  |                    |       |           |  |        |         |   |  |   |       |  
|---------------------------------------- |  | ------------------ | ----- | --------- |  | ------ | ------- | - |  | - | ----- | -
|                                         |  |                    |       |          
|                                         |  | Three Months Ended |       |          
|                                         |  |                    |       |          
|                                         |  | March 29,          |       | March 30, |  |       
|                                         |  | 2003               |       | 2002      |  | Change
|                                         |  |                    |       |           |  |       
|                                         |  |                   
|                                         |  | (Unaudited)       
|                                         |  |                   
|                                         |  | (In millions)     
|Total revenue from continuing operations |  | $                  | 938.9 |           |  | $      | 1,036.1 |   |  | $ | (97.2 | )
|Gross profit                             |  | $                  | 171.8 |           |  | $      | 113.8   |   |  | $ | 58.0  |  
|Income/(loss) from continuing operations |  | $                  | 27.4  |           |  | $      | (55.4   | ) |  | $ | 82.8  |  
|As a percentage of revenue:              |  |                    |       |           |  |        |         |   |  |   |       |  
|Total revenue from continuing operations |  |                    | 100.0 | %         |  |        | 100.0   | % |  |   |       |  
|Gross profit                             |  |                    | 18.3  | %         |  |        | 11.0    | % |  |   |       |  
|Income/(loss) from continuing operations |  |                    | 2.9   | %         |  |        | -5.3    | % |  |   |       |  



| |        
| | -------
| | Revenue

Revenue in the three months ended
March 29,2003 was $938.9 million, compared to
$1,036.1 million in the three months ended March 30,
2002, a decrease of 9.4%. Total shipments for the three months
ended March 29, 2003 were 12.4 million units, which
was 1.3 million units, or 9.5%, lower as compared to the
three months ended March 30, 2002. Although the decrease in
unit volume during the three months ended March 29, 2003
primarily reflected the ramp of our 80GB per platter areal
density hard disk drives and the transition to the 36GB per
platter Atlas SCSI drives, we continue to mature the supply
chain for these products. During the three months ended
March 29, 2003, we increased shipments of our desktop
drives at the 80GB areal density point. This improvement from
the three months ended December 28, 2002 was consistent
with our expectations. As a result of the reduction in unit
shipments, revenues declined during the three months ended
March 29, 2003. The decline was offset by a slight increase
in average selling price resulting from an increase in average
gigabytes shipped.

Revenue from sales to original equipment
manufacturers (OEMs) represented 42.5% and 43.2% of
revenue in the three months ended March 29, 2003 and
March 30, 2002, respectively. The decline in the percentage
of revenue from OEMs was a result of the ramp of our 80GB per
platter areal density hard disk drives and the transition to the
36GB per platter Atlas SCSI drives. Revenue from sales to the
distribution channel and retail customers represented 57.5% and
56.8% of revenue in the three months ended March 29, 2003
and March 30, 2002, respectively. The overall increase
reflected a 3.4% increase from sales to retail customers due to
growth in sales of our personal storage products, offset by a
2.7% decrease from sales to the distribution channel, reflecting
the ramp of our 80GB per platter areal density hard disk drives.
Sales to the top five customers represented 28.7% and 33.2% of
revenue in the three months ended March 29, 2003 and
March 30, 2002, respectively.

Domestic revenue represented 34.0% and 37.8% of
total sales in the three months ended March 29, 2003 and
March 30, 2002, respectively. International revenue
represented 66.0% and 62.2% of total sales in the three months
ended March 29, 2003 and March 30, 2002, respectively.
Revenue from international sales increased compared to the
corresponding period in fiscal year 2002, primarily as a result
of the growth of sales to the non-branded customers who are
primarily located outside the United States and Canada. In
absolute terms, international sales decreased 4.0% in the three
months ended March 29, 2003, compared to the corresponding
period in fiscal year 2002, as a function of the overall
reduction in shipment volume during the three months ended
March 29, 2003.

Sales to Europe in the three months ended
March 29, 2003 and March 30, 2002 represented 35.2%
and 32.9% of total revenue, respectively. In absolute terms,
European sales decreased 2.9% compared to the corresponding
period in fiscal year 2002. Sales to Asia Pacific in the three
months ended March 29, 2003 represented 30.2%, or an
absolute decrease of 3.7% of total revenue, compared to 28.4% of
total revenue for

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the corresponding period in fiscal year 2002. The
decline in sales to Europe and Asia resulted from the overall
reduction in shipment volume during the three months ended
March 29, 2002.




| |                               
| | ------------------------------
| | Cost of Revenues; Gross Profit

Gross profit increased to $171.8 million in
the three months ended March 29, 2003, compared to
$113.8 million for the corresponding period in fiscal year
2002. As a percentage of revenue, gross profit increased to
18.3% in the three months ended March 29, 2003 from 11.0%
in the corresponding period of fiscal year 2002. The increase in
gross profit as a percentage of revenue and actual terms was
primarily due to our progress on the 80GB per platter areal
density, manufacturing efficiencies, which resulted in reduced
costs associated with drive components and a more favorable
product mix. Our cost of goods sold includes depreciation and
amortization of property, plan and equipment.



| |                   
| | ------------------
| | Operating Expenses

|                                    |  |                    |      |           |  |        |       |   |  |   |       |  
|----------------------------------- |  | ------------------ | ---- | --------- |  | ------ | ----- | - |  | - | ----- | -
|                                    |  |                    |      |          
|                                    |  | Three Months Ended |      |          
|                                    |  |                    |      |          
|                                    |  | March 29,          |      | March 30, |  |       
|                                    |  | 2003               |      | 2002      |  | Change
|                                    |  |                    |      |           |  |       
|                                    |  |                   
|                                    |  | (Unaudited)       
|                                    |  |                   
|                                    |  | (In millions)     
|Research and development            |  | $                  | 86.7 |           |  | $      | 103.1 |   |  | $ | (16.4 | )
|Selling, general and administrative |  | $                  | 31.9 |           |  | $      | 41.3  |   |  | $ | (9.4  | )
|Amortization of intangible assets   |  | $                  | 20.6 |           |  | $      | 20.6  |   |  | $ |      |  
|                                   
|As a percentage of revenue:         |  |                    |      |           |  |        |       |   |  |   |       |  
|Research and development            |  |                    | 9.2  | %         |  |        | 9.9   | % |  |   |       |  
|Selling, general and administrative |  |                    | 3.4  | %         |  |        | 4.0   | % |  |   |       |  
|Amortization of intangible assets   |  |                    | 2.2  | %         |  |        | 2.0   | % |  |   |       |  



| |                                     
| | ------------------------------------
| | Research and Development
    (R&D)

R&D expense in the three months ended
March 29, 2003 was $86.7 million, or 9.2% of revenue
compared to $103.1 million, or 9.9% of revenue in the
corresponding period in fiscal year 2002. The decrease in
absolute dollars and as a percentage of revenue was primarily
due to reduced compensation expense associated with our
reductions in force in 2002. Additionally, in the three months
ended March 29, 2003 there was no longer any amortization
of deferred stock-based compensation required for DSS restricted
shares from our acquisition of the Quantum HDD business as the
amortization period had been completed.

As a result our acquisition of the Quantum HDD
business, R&D expense includes stock-based compensation
charges of $0.2 million and $0.6 million in the three
months ended March 29, 2003 and March 30, 2002,
respectively, resulting from options we issued to Quantum
employees who joined Maxtor in connection with the acquisition
on April 2, 2001. R&D expense in the three months ended
March 29, 2003 and March 30, 2002 includes $0 and
$2.8 million, respectively, of stock-based compensation
amortization for Quantum DSS restricted shares issued to Quantum
employees who joined Maxtor in connection with the acquisition.
The following table summarizes the effect of these
acquisition-related charges:

|                                              |  |                    |      |           |  |   |       |  
|--------------------------------------------- |  | ------------------ | ---- | --------- |  | - | ----- | -
|                                              |  |                   
|                                              |  | Three Months Ended
|                                              |  |                   
|                                              |  | March 29,          |      | March 30,
|                                              |  | 2003               |      | 2002     
|                                              |  |                    |      |          
|                                              |  |                   
|                                              |  | (In millions)     
|R&D expense                                   |  | $                  | 86.7 |           |  | $ | 103.1 |  
|Stock-based compensation expense              |  |                    | (0.2 | )         |  |   | (0.6  | )
|Amortization related to DSS restricted shares |  |                    |     |           |  |   | (2.8  | )
|                                              |  |                    |      |           |  |   |       |  
|                                              |  | $                  | 86.5 |           |  | $ | 99.7  |  
|                                              |  |                    |      |           |  |   |       |  

For further information, see discussion below
under the section Stock-based Compensation.

21



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| |                                                 
| | ------------------------------------------------
| | Selling, General and Administrative
    (SG&A)

SG&A expense in the three months ended
March 29, 2003 was $31.9 million, or 3.4% of revenue
compared to $41.3 million, or 4.0% of revenue in the
corresponding period in fiscal year 2002. SG&A expense
decreased in absolute dollars and as a percentage of revenue
primarily due to reduced compensation expense associated with
our reductions in force in 2002 coupled with overall reduced
spending on facilities and other services.

As a result of our acquisition of the Quantum HDD
business, SG&A expense includes stock-based compensation
charges of $0.1 million and $0.2 million in the three
months ended March 29, 2003 and March 30, 2002,
respectively, resulting from options we issued to Quantum
employees who joined Maxtor in connection with the acquisition
on April 2, 2001. SG&A expense in the three months
ended March 29, 2003 and March 30, 2002 includes $0
and $1.0 million, respectively, of stock-based compensation
amortization for Quantum DSS restricted shares issued to Quantum
employees who joined Maxtor in connection with the acquisition.
The following table summarizes the effect of these
acquisition-related charges:

|                                              |  |                    |      |           |  |   |      |  
|--------------------------------------------- |  | ------------------ | ---- | --------- |  | - | ---- | -
|                                              |  |                   
|                                              |  | Three Months Ended
|                                              |  |                   
|                                              |  | March 29,          |      | March 30,
|                                              |  | 2003               |      | 2002     
|                                              |  |                    |      |          
|                                              |  |                   
|                                              |  | (In millions)     
|SG&A expense                                  |  | $                  | 31.9 |           |  | $ | 41.3 |  
|Stock-based compensation expense              |  |                    | (0.1 | )         |  |   | (0.2 | )
|Amortization related to DSS restricted shares |  |                    |     |           |  |   | (1.0 | )
|                                              |  |                    |      |           |  |   |      |  
|                                              |  | $                  | 31.8 |           |  | $ | 40.1 |  
|                                              |  |                    |      |           |  |   |      |  

For further information, see discussion below
under the section Stock-based Compensation.



| |                         
| | ------------------------
| | Stock-based Compensation

On April 2, 2001, as part of our acquisition
of the Quantum HDD business, we assumed the following options
and restricted stock:



| |   |                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | All Quantum HDD options and Quantum HDD
    restricted stock held by employees who accepted offers of
    employment with Maxtor, or transferred employees,
    whether or not options or restricted stock have vested;
|
| |  | Vested Quantum HDD options and vested Quantum HDD
    restricted stock held by Quantum employees whose employment is
    terminated prior to the separation, or former service
    providers; and                      
|
| |  | Vested Quantum HDD restricted stock held by any
    other individual.                                                                                                                                                    

In addition, Maxtor assumed vested Quantum HDD
options held by Quantum employees who continued to provide
services during a transitional period, or transitional
employees. The outstanding options to purchase Quantum HDD
common stock held by transferred employees and vested options to
purchase Quantum HDD common stock held by former Quantum
employees, consultants and transition employees were assumed by
Maxtor and converted into options to purchase Maxtor common
stock according to the exchange ratio of 1.52 shares of
Maxtor common stock for each share of Quantum HDD common stock.
Vested and unvested options for Quantum HDD common stock assumed
in the acquisition represented options for 7,650,965 shares and
4,655,236 shares of Maxtor common stock, respectively.

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Included in R&D expenses and SG&A
expenses are charges for amortization of stock-based
compensation resulting from both Maxtor options and options
issued by Quantum to employees who joined Maxtor in connection
with the acquisition on April 2, 2001. Stock compensation
charges were as follows:

|                                       |  |                    |     |           |  |   |     | 
|-------------------------------------- |  | ------------------ | --- | --------- |  | - | --- | 
|                                       |  |                   
|                                       |  | Three Months Ended
|                                       |  |                   
|                                       |  | March 29,          |     | March 30,
|                                       |  | 2003               |     | 2002     
|                                       |  |                    |     |          
|                                       |  |                   
|                                       |  | (In millions)     
|Cost of revenues                       |  | $                  |    |           |  | $ | 0.1 | 
|Research and development               |  |                    | 0.2 |           |  |   | 0.7 | 
|Selling, general and administrative    |  |                    | 0.1 |           |  |   | 0.7 | 
|                                       |  |                    |     |           |  |   |     | 
|Total stock-based compensation expense |  | $                  | 0.3 |           |  | $ | 1.5 | 
|                                       |  |                    |     |           |  |   |     | 

As of March 29, 2003, $0.9 million of
stock-based compensation associated with our acquisition of the
Quantum HDD business remains to be amortized, based on vesting
schedules, and this amortization is expected to be completed
early in fiscal year 2004.

In addition, Quantum Corporation issued
restricted DSS shares to Quantum employees who joined Maxtor in
connection with the acquisition in exchange for the fair value
of DSS options held by such employees. A portion of the
acquisition purchase price has been allocated to this deferred
stock-based compensation, recorded as prepaid expense, and is
amortized to expenses over the vesting period as the vesting of
the shares are subject to continued employment with Maxtor.
Amortization as of March 29, 2003 was as follows:

|                                                        |  |                    |   |           |  |   |     | 
|------------------------------------------------------- |  | ------------------ | - | --------- |  | - | --- | 
|                                                        |  |                   
|                                                        |  | Three Months Ended
|                                                        |  |                   
|                                                        |  | March 29,          |   | March 30,
|                                                        |  | 2003               |   | 2002     
|                                                        |  |                    |   |          
|                                                        |  |                   
|                                                        |  | (In millions)     
|Cost of revenues                                        |  | $                  |  |           |  | $ | 0.3 | 
|Research and development                                |  |                    |  |           |  |   | 2.8 | 
|Selling, general and administrative                     |  |                    |  |           |  |   | 1.0 | 
|                                                        |  |                    |   |           |  |   |     | 
|Total amortization related to DSS restricted
    shares |  | $                  |  |           |  | $ | 4.1 | 
|                                                        |  |                    |   |           |  |   |     | 



| |                                  
| | ---------------------------------
| | Amortization of Intangible Assets

Amortization of other intangible assets
represents the amortization of existing technology, arising from
our acquisitions of the Quantum HDD business in April 2001 and
MMC in September 2001. The net book value of these intangibles
at March 29, 2003 was $126.3 million. Amortization of
other intangible assets was $20.6 million for the three
months ended March 29, 2003 and March 30, 2002.

Amortization of other intangible assets is
computed over the estimated useful lives of the respective
assets, generally three to five years. The Company expects
amortization expense on intangible assets to be
$61.7 million in the remainder of 2003, $37.0 million
in fiscal 2004, $21.9 million in 2005, and
$5.8 million in 2006, at which time the intangible assets
will be fully amortized.

23



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##### Table of Contents





| |                                                
| | -----------------------------------------------
| | Interest Expense, Interest and Other
    Income

|                            |  |                    |     |           |  |        |     |   |  |   |      |  
|--------------------------- |  | ------------------ | --- | --------- |  | ------ | --- | - |  | - | ---- | -
|                            |  |                    |     |          
|                            |  | Three Months Ended |     |          
|                            |  |                    |     |          
|                            |  | March 29,          |     | March 30, |  |       
|                            |  | 2003               |     | 2002      |  | Change
|                            |  |                    |     |           |  |       
|                            |  |                    |     |          
|                            |  | (Unaudited)        |     |          
|                            |  |                    |     |          
|                            |  | (In millions)      |     |          
|Interest expense            |  | $                  | 5.4 |           |  | $      | 6.5 |   |  | $ | (1.1 | )
|Interest and other income   |  | $                  | 1.3 |           |  | $      | 3.0 |   |  | $ | (1.7 | )
|Other gain                  |  | $                  | 0.1 |           |  | $      |    |   |  | $ | 0.1  |  
|                           
|As a percentage of revenue: |  |                    |     |           |  |        |     |   |  |   |      |  
|Interest expense            |  |                    | 0.6 | %         |  |        | 0.6 | % |  |   |      |  
|Interest and other income   |  |                    | 0.1 | %         |  |        | 0.3 | % |  |   |      |  
|Other gain                  |  |                    | 0.0 | %         |  |        | 0.0 | % |  |   |      |  



| |                 
| | ----------------
| | Interest Expense

Interest expense decreased $1.1 million in
the three months ended March 29, 2003 compared to the
corresponding period in 2002. The decrease was due to the
termination of our asset securitization program on
December 30, 2002. Total short-term and long-term
outstanding borrowings were $238.3 million as of
March 29, 2003 compared to $269.2 million as of
March 30, 2002.



| |                          
| | -------------------------
| | Interest and Other Income

Interest and other income decreased $1.7 in the
three months ended March 29, 2003 compared to the
corresponding period in 2002. The decrease was due to reduced
interest income from our investment portfolios as a result of
lower short-term interest rates and a reduction in the size of
our investment portfolios. Total cash and cash equivalents,
restricted cash and marketable securities were
$466.4 million as of March 29, 2003 compared to
$606.0 million as of March 30, 2002. See the
Liquidity and Capital Resources discussion for
further information.



| |                           
| | --------------------------
| | Provision for Income Taxes

|                                                |  |                    |      |           |  |        |       |   |  |   |      | 
|----------------------------------------------- |  | ------------------ | ---- | --------- |  | ------ | ----- | - |  | - | ---- | 
|                                                |  |                    |      |          
|                                                |  | Three Months Ended |      |          
|                                                |  |                    |      |          
|                                                |  | March 29,          |      | March 30, |  |       
|                                                |  | 2003               |      | 2002      |  | Change
|                                                |  |                    |      |           |  |       
|                                                |  |                    |      |          
|                                                |  | (Unaudited)        |      |          
|                                                |  |                    |      |          
|                                                |  | (In millions)      |      |          
|Income/(loss) before provision for income taxes |  | $                  | 28.7 |           |  | $      | (54.7 | ) |  | $ | 83.4 | 
|Provision for income taxes                      |  | $                  | 1.3  |           |  | $      | 0.6   |   |  | $ | 0.7  | 

The provision for income taxes consists primarily
of state and foreign taxes. Due to our net operating losses
(NOL), NOL carryforwards and favorable tax status in
Singapore and Switzerland, we have not incurred any significant
foreign, U.S. federal, state or local income taxes for the
current or prior fiscal periods. We have not recorded a tax
benefit associated with our loss carry-forward because of the
uncertainty of realization.

We were part of the HEA consolidated group for
federal income tax returns for periods from early 1996 to August
1998 (the Affiliation Period). As a member of the
HEA consolidated group, the Company was subject to a tax
allocation agreement. During the Affiliation Period, for
financial reporting purposes, our tax loss was computed on a
separate tax return basis and, as such, we did not record any
tax benefit in our financial statements for the amount of the
net operating loss included in the HEA consolidated income tax
return.

We ceased to be a member of the HEA consolidated
group as of August 1998. We remain liable for our share of the
total consolidated or combined tax return liability of the HEA
consolidated group prior to August

24



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##### Table of Contents



1998. We have agreed to indemnify or reimburse
HEA if there is any increase in our share of the HEA
consolidated or combined tax return liability resulting from
revisions to our taxable income.


Pursuant to a Tax Sharing and Indemnity
Agreement entered into in connection with the
Companys merger with Quantum HDD, Maxtor, as successor to
Quantum HDD, and Quantum are allocated their share of
Quantums income tax liability for periods before the
split-off, consistent with past practices and as if the Quantum
HDD and Quantum DSS business divisions had been separate and
independent corporations. To the extent that the income tax
liability attributable to one business division is reduced by
using NOLs and other tax attributes of the other business
division, the business division utilizing the attributes must
pay the other for the use of those attributes. We must also
indemnify Quantum for additional taxes related to the Quantum
DSS business for all periods before Quantums issuance of
tracking stock and additional taxes related to the Quantum HDD
business for all periods before the split-off, limited in the
aggregate to $142.0 million plus 50% of any excess over
$142.0 million, excluding any required gross-up payment.
Management has determined that, based on the facts available at
this time, the likelihood that the payment will exceed
$142.0 million is remote. As of March 29, 2003, the
Company has reimbursed $4.8 million to Quantum Corporation
leaving a balance of $137.2 million on the original
indemnity.

We purchased a $340 million insurance policy
covering the risk that the split-off of Quantum HDD from Quantum
DSS could be determined to be subject to federal income tax or
state income or franchise tax. Under the Tax Sharing and
Indemnity Agreement, the Company agreed to indemnify
Quantum for the amount of any tax payable by Quantum as a result
of the split-off to the extent such tax is not covered by such
insurance policy, unless imposition of the tax is the result of
Quantums actions, or acquisitions of Quantum stock, after
the split-off. The amount of the tax not covered by insurance
could be substantial. In addition, if it is determined that
Quantum owes federal or state tax as a result of the split-off
and the circumstances giving rise to the tax are covered by our
indemnification obligations, the Company will be required to pay
Quantum the amount of the tax at that time, whether or not
reimbursement may be allowed under our tax insurance policy.

We recorded approximately $196.4 million of
deferred tax liabilities in connection with the acquisition of
Quantum HDD in April 2001. The deferred taxes were recorded
principally to reflect the taxes which would become payable upon
the repatriation of the cash which was invested abroad by
Quantum HDD as of April 1, 2001.



| |                                  
| | ---------------------------------
| | Loss from Discontinued Operations

On August 15, 2002, we announced our
decision to shut down the manufacturing and sales of our
MaxAttachTM branded network attached storage products
(NSG). The discontinuance of our NSG operations
represents the disposal of a component of an entity as defined
in Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. Accordingly, our financial statements have been
presented to reflect NSG as a discontinued operations for all
periods presented. Our liabilities (no remaining assets) have
been segregated from continuing operations in the accompanying
consolidated balance sheet as of December 28, 2002 and our
operating results have been segregated and reported as
discontinued operations in the accompanying consolidated
statement of operations.

Operating results of the NSG discontinued
operations for the three months ended March 29, 2003 and
March 30, 2002 are as follows (in millions):

|                                     |  |                    |   |           |  |   |      |  
|------------------------------------ |  | ------------------ | - | --------- |  | - | ---- | -
|                                     |  |                   
|                                     |  | Three Months Ended
|                                     |  |                   
|                                     |  | March 29,          |   | March 30,
|                                     |  | 2003               |   | 2002     
|                                     |  |                    |   |          
|Revenue from discontinued operations |  | $                  |  |           |  | $ | 8.6  |  
|Loss from discontinued operations    |  | $                  |  |           |  | $ | (9.7 | )

25



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Liquidity and Capital Resources



| |                          
| | -------------------------
| | Cash and Cash Equivalents

At March 29, 2003, we had
$328.7 million in cash and cash equivalents,
$54.0 million in restricted cash and $83.7 million in
marketable securities, for a combined total of
$466.4 million. In comparison, at December 28, 2002 we
had $306.5 million in cash and cash equivalents,
$56.7 million in restricted cash and $87.5 million in
marketable securities, for a combined total of
$450.7 million. The restricted cash balance was pledged as
collateral for certain stand-by letters of credit issued by
commercial banks. We have a net deferred tax liability amounting
to $196.4 million, which could become payable upon
repatriation of the earnings invested abroad.

Operating activities provided cash of
$39.4 million in the three months ended March 29,
2003, which includes $44.1 million provided from continuing
operations and $4.7 million used in the discontinued NSG
operations. Sources of cash from operating activities reflect
our net income from continuing operations of $27.4 million,
non-cash adjustments for depreciation and amortization of
$41.9 million, amortization of intangible assets of
$20.6 million, and $2.5 million of other non-cash
items. Sources of cash from operating activities also included a
decrease in accounts receivable of $43.4 million due to a
decline in sales activity and increased collections, offset by
an increase of inventory of $41.5 million due to an
increase in factory volumes in our Singapore manufacturing
facility to ramp our high-end products, an increase of prepaid
and other assets of $9.0 million, decrease of accounts
payable of $18.2 million resulting from the timing of
vendor payments for material intake, and a decrease of accrued
and other liabilities of $22.9 million.

Cash used in investing activities was
$14.3 million for the three months ended March 29,
2003, primarily reflecting investments of property, plant and
equipment of $20.6 million, offset by sales (net of
purchases) of marketable securities of $3.5 million and a
decrease in restricted cash of $2.7 million.

Cash used in financing activities was
$2.9 million for the three months ended March 29,
2003, primarily due to the repayment of debt and lease
obligations of $11.8 million, offset by proceeds of
$8.9 million issuance of common stock through the
Companys employee stock purchase plan and stock option
exercises.

We believe that our existing cash and cash
equivalents, short term investment and capital resources,
together with cash generated from operations and available
borrowing capacity will be sufficient to fund our operations
through at least the next twelve months. We require substantial
working capital to fund our business, particularly to finance
accounts receivable and inventory, and to invest in property,
plant and equipment. During 2003, capital expenditures are
expected to be in the range of $150 million to
$175 million, primarily used for manufacturing upgrades and
expansion, product development, and updating our information
technology systems. We intend to seek financing arrangements to
fund our future capacity expansion and working capital, as
necessary. Our ability to generate cash will depend on, among
other things, demand in the hard disk drive market and pricing
conditions. If we need additional capital, there can be no
assurance that such additional financing can be obtained, or
that it will be available on satisfactory terms. See discussion
below under the heading Certain Factors Affecting Future
Performance.



| |                             
| | ----------------------------
| | Certain Financing Activities

Future payments due under lease and long-term
obligations as of March 29, 2003 are reflected in the
following table (in thousands):

|                          |  |       |         |           |  |           |        |           |  |           |         |  |  |   |        |  |  |   |         | 
|------------------------- |  | ----- | ------- | --------- |  | --------- | ------ | --------- |  | --------- | ------- |  |  | - | ------ |  |  | - | ------- | 
|                          |  |       |         |           |  |           |        |           |  | More Than
|                          |  |       |         | Less Than |  |           |        | 3-5 Years |  | 5 Years  
|                          |  | Total |         | 1 Year    |  | 1-3 Years |        | (1)(2)    |  | (1)(2)(3)
|                          |  |       |         |           |  |           |        |           |  |          
|Debt                      |  | $     | 200,155 |           |  | $         | 14,766 |           |  | $         | 110,116 |  |  | $ | 40,388 |  |  | $ | 34,885  | 
|Capital Lease Obligations |  |       | 38,191  |           |  |           | 25,306 |           |  |           | 12,857  |  |  |   | 28     |  |  |   |        | 
|Operating Leases(4)       |  |       | 276,748 |           |  |           | 27,078 |           |  |           | 60,331  |  |  |   | 52,342 |  |  |   | 136,997 | 
|                          |  |       |         |           |  |           |        |           |  |           |         |  |  |   |        |  |  |   |         | 
|Total                     |  | $     | 515,094 |           |  | $         | 67,150 |           |  | $         | 183,304 |  |  | $ | 92,758 |  |  | $ | 171,882 | 
|                          |  |       |         |           |  |           |        |           |  |           |         |  |  |   |        |  |  |   |         | 



---



|    |                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include $103 million which may be
    borrowed under a facility in a U.S.-dollar-denominated loan, to
    be secured by our facilities in Suzhou, China, drawable until
    April 2007, and repayable in eight semi-

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|    |                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | annual installments commencing October 2007; the
    borrowings under this facility will bear interest at LIBOR plus
    50 basis points (subject to adjustment to 60 basis points).                                                                                                                                                                               
|   
|(2) | Does not include $30 million which may be
    borrowed under a facility in a U.S.-dollar-denominated loan to
    be secured by our facilities in Suzhou, China, drawable until
    April 2007, and repayable in April 2013; the borrowings under
    this facility will bear interest at LIBOR plus 50 basis
    points (subject to adjustment to 60 basis points).
|   
|(3) | Does not include $67 million which we are
    obligated to contribute to our China subsidiary to allow
    drawdowns under the facilities described under footnotes
    (1) and (2).                                                                                                                                                                               
|   
|(4) | Includes future minimum annual rental
    commitments, including amounts accrued as restructuring
    liabilities as of March 29, 2003.                                                                                                                                                                                                                            

We have agreed to invest $200 million over
the next five years to establish a manufacturing facility in
Suzhou, China, and we have secured credit lines with the Bank of
China for up to $133 million to be used for the
construction and working capital requirements of this operation.
The remainder of our commitment will be satisfied primarily with
the transfer of manufacturing assets from Singapore or from our
other manufacturing sites.

On May 9, 2003, we entered into a two-year
asset backed securitization facility of up to $100 million
with certain financial institutions. The facility will use a
special purpose subsidiary to purchase and hold all of our U.S.
and Canadian accounts receivable. This special purpose
subsidiary will borrow up to $100 million secured by the
purchased receivables and will use such borrowed funds and
collections from the receivables to purchase additional
receivables from us and to make other permitted distributions to
us. This special purpose subsidiary will be consolidated for
financial reporting purposes, and its resulting liabilities will
appear on our consolidated balance sheet as short-term debt. The
terms of the facility require compliance with operational
covenants and financial covenants, including a liquidity
covenant and an operating cash flow to long-term debt ratio. A
violation of these covenants will result in an early
amortization event that will cause a prohibition on further
payments and distributions to us from the special purpose
subsidiary until the facility has been repaid in full. However,
early amortization events under the facility generally will not
cause an event of default under the convertible senior notes due
2010. We do not believe that the lack of borrowing availability
under the facility would have a material adverse effect on our
liquidity.

On May 7, 2003, we sold $230 million in
aggregate principal amount of convertible senior notes due 2010
to qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended. The amount sold
reflects the exercise in full by the initial purchasers of their
option to purchase up to an additional $30 million
aggregate principal amount of the notes. The notes bear interest
at a rate of 6.80 percent per annum and are convertible
into our common stock at a conversion rate of 81.5494 shares per
$1,000 principal amount of the notes, or an aggregate of
18,756,362 shares, subject to adjustment in certain
circumstances (equal to an initial conversion price of $12.2625
per share). The initial conversion price represents a 125
percent premium over the closing price of our common stock on
May 1, 2003, which was $5.45 per share. We are obligated to
file with the Securities and Exchange Commission a registration
statement registering the notes and the shares underlying the
notes within 90 days after May 7, 2003 and to have
that registration statement declared effective within
180 days after May 7, 2003. For so long as we have not
satisfied our registration obligations and the notes are not
tradeable under Rule 144(k), we are subject to certain
liquidated damages in the form of additional interest on the
notes and if we fail to register the underlying shares into
which the notes are convertible, in the event a holder elects to
convert the notes during a period when the notes or the
underlying shares are not registered or tradeable under
Rule 144(k) and we have not satisfied our registration
obligations, the conversion rate will be increased by 3%. We may
not redeem the notes prior to May 5, 2008. Thereafter, we
may redeem the notes at 100% of their principal amount, plus
accrued and unpaid interest, if the closing price of its common
stock for 20 trading days within a period of 30 consecutive
trading days ending on the trading day before the date of
mailing of the redemption notice exceeds 130% of the conversion
price on such trading day. In connection with our sale of the
notes, on May 7, 2003, we

27



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##### Table of Contents



also repurchased from an affiliate of one of the
initial purchasers of the notes 8,245,738 shares of our common
stock for an aggregate purchase price of $44.9 million, or
$5.45 per share, the closing price of our common stock on
May 1, 2003, plus commissions. The Company will use the
balance of the net proceeds of the offering for repayment of
indebtedness, investments, acquisitions, general corporate
purposes and working capital.


Recent Accounting Pronouncements

In December 2002, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 148,
Accounting for Stock-Based Compensation, Transition and
Disclosure. SFAS No. 148 provides alternative methods
of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS
No. 148 also requires that disclosures of the pro forma
effect of using the fair value method of accounting for
stock-based employee compensation be displayed more prominently
and in a tabular format. Additionally, SFAS No. 148
requires disclosure of the pro forma effect in interim financial
statements. The transition and annual disclosure requirements of
SFAS No. 148 are effective for fiscal years ended after
December 15, 2002. The interim disclosure requirements are
effective for interim periods beginning after December 15,
2002.

In January 2003, the Financial Accounting
Standards Board issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN
46). Under that interpretation, certain entities known as
Variable Interest Entities (VIE) must be
consolidated by the primary beneficiary of the
entity. The primary beneficiary is generally defined as having
the majority of the risks and rewards arising from the VIE. For
VIEs in which a significant (but not majority) variable
interest is held, certain disclosures are required. FIN 46
requires disclosure of Variable Interest Entities in financial
statements issued after January 31, 2003, if it is
reasonably possible that as of the transition date: (1) the
Company will be the primary beneficiary of an existing VIE that
will require consolidation or, (2) the Company will hold a
significant variable interest in, or have significant
involvement with, an existing VIE. Any VIEs created after
January 31, 2003, are immediately subject to the
consolidation guidance in FIN 46. The measurement
principles of this interpretation will be effective for the
Companys 2003 financial statements. The Company does not
have any entities that require disclosure or new consolidation
as a result of adopting the provisions of FIN 46.

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CERTAIN FACTORS AFFECTING FUTURE
PERFORMANCE

We have a history of losses and may not
maintain profitability.

We have a history of significant losses and may
not maintain profitability. In the last five fiscal years, we
were profitable in only fiscal years 1998 and 2000. For the
quarter ended March 29, 2003, we had net income of
$27.4 million, including a charge of $20.6 million for
the amortization of intangible assets and $0.3 million in
stock compensation expense. For the year ended December 28,
2002, our net loss was $334.1 million, which included
$82.2 million for the amortization of intangible assets,
charges of $5.6 million for stock-based compensation
related to our acquisition of the Quantum HDD business,
severance charges of $12.3 million, restructuring charges
related to facilities closures of $9.5 million and losses
of $73.5 million related to the discontinuation of our
network attached storage business in the quarter ended
September 28, 2002. As of March 29, 2003, we had an
accumulated deficit of $1,713.2 million. Although we were
profitable in the quarter ended March 29, 2003, we have a
history of losses and may not maintain profitability.

The decline of average selling prices in the
hard disk drive industry could cause our operating results to
suffer and make it difficult for us to achieve
profitability.

It is very difficult to achieve and maintain
profitability and revenue growth in the hard disk drive industry
because the average selling price of a hard disk drive rapidly
declines over its commercial life as a result of technological
enhancement, productivity improvement and increases in supply.
End-user demand for the computer systems that contain our hard
disk drives has historically been subject to rapid and
unpredictable fluctuations. In addition, intense price
competition among personal computer manufacturers and
Intel-based server manufacturers may cause the price of hard
disk drives to decline. As a result, the hard disk drive market
tends to experience periods of excess capacity and intense price
competition. Competitors attempts to liquidate excess
inventories, restructure, or gain market share also tend to
cause average selling prices to decline. This excess capacity
and intense price competition caused us in the first three
quarters of fiscal 2002, and will likely continue to cause us in
future quarters, to lower prices, which has the effect of
reducing margins, causing operating results to suffer and making
it difficult for us to achieve or maintain profitability. If we
are unable to lower the cost of producing our hard disk drives
to be consistent with the decline of average selling prices, we
will not be able to compete effectively and our operating
results will suffer.

Intense competition in the hard disk drive
market could reduce the demand for our products or the prices of
our products, which could adversely affect our operating
results.

The desktop computer market segment and the
overall hard disk drive market are intensely competitive even
during periods when demand is stable. We compete primarily with
manufacturers of 3.5 inch hard disk drives, including Fujitsu,
Hitachi Global Storage, Samsung, Seagate Technology, and Western
Digital. Hitachi and IBM have recently completed the merger of
their hard disk drive businesses into a single joint venture,
Hitachi Global Storage Technologies. Many of our competitors
historically have had a number of significant advantages,
including larger market shares, a broader product line,
preferred vendor status with customers, extensive name
recognition and marketing power, and significantly greater
financial, technical and manufacturing resources. Some of our
competitors make many of their own components, which may provide
them with benefits including lower costs. Our competitors may
also:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | consolidate or establish strategic relationships
    to lower their product costs or to otherwise compete more
    effectively against us;                
|
| |  | lower their product prices to gain market share;                                                                                                          
|
| |  | bundle their products with other products to
    increase demand for their products;                                                                      
|
| |  | develop new technology which would significantly
    reduce the cost of their products; or                                                                
|
| |  | offer more products than we do and therefore
    enter into agreements with customers to supply hard disk drives
    as part of a larger supply agreement.

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Increasing competition could reduce the demand
for our products and/or the prices of our products as a result
of the introduction of technologically better and cheaper
products, which could reduce our revenues. In addition, new
competitors could emerge and rapidly capture market share. If we
fail to compete successfully against current or future
competitors, our business, financial condition and operating
results will suffer.

Our quarterly operating results have
fluctuated significantly in the past and are likely to fluctuate
in the future.

Our quarterly operating results have fluctuated
significantly in the past and may fluctuate significantly in the
future. Our future performance will depend on many factors,
including:



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the average selling price of our products;                                                                                                                                                                           
|
| |  | fluctuations in the demand for our products as a
    result of the seasonal nature of the desktop computer industry
    and the markets for our customers products, as well as the
    overall economic environment;
|
| |  | market acceptance of our products;                                                                                                                                                                                   
|
| |  | our ability to qualify our products successfully
    with our customers;                                                                                                                                             
|
| |  | changes in purchases by our primary customers,
    including the cancellation, rescheduling or deferment of orders;                                                                                                  
|
| |  | changes in product and customer mix;                                                                                                                                                                                 
|
| |  | actions by our competitors, including
    announcements of new products or technological innovations;                                                                                                                
|
| |  | our ability to execute future product development
    and production ramps effectively;                                                                                                                              
|
| |  | the availability, and efficient use, of
    manufacturing capacity;                                                                                                                                                  
|
| |  | our inability to reduce a significant portion of
    our fixed costs due, in part, to our ongoing capital expenditure
    requirements; and                                                                          
|
| |  | our ability to procure and purchase critical
    components at competitive prices.                                                                                                                                   

Many of our expenses are relatively fixed and
difficult to reduce or modify. The fixed nature of our operating
expenses will magnify any adverse effect of a decrease in
revenue on our operating results. Because of these and other
factors, period to period comparisons of our historical results
of operations are not a good predictor of our future
performance. If our future operating results are below the
expectations of stock market analysts, our stock price may
decline. Due to current economic conditions and their impact on
information technology spending, particularly desktop computer
sales, our ability to predict demand for our products and our
financial results for current and future periods may be severely
diminished. This may adversely affect both our ability to adjust
production volumes and expenses and our ability to provide the
financial markets with forward-looking information.

If we fail to qualify as a supplier to
computer manufacturers or their subcontractors for a future
generation of hard disk drives, then these manufacturers or
subcontractors may not purchase any units of an entire product
line, which will have a significant adverse impact on our
sales.

Most of our products are sold to desktop computer
and Intel-based server manufacturers or to their subcontractors.
These manufacturers select or qualify their hard disk drive
suppliers, either directly or through their subcontractors,
based on quality, storage capacity, performance and price.
Manufacturers typically seek to qualify two or more suppliers
for each hard disk drive product generation. To qualify
consistently, and thus succeed in the desktop and Intel-based
server hard disk drive industry, we must consistently be among
the first-to-market introduction and first-to-volume production
at leading storage capacities per disk, offering competitive
prices and high quality. Once a manufacturer or subcontractor
has chosen its hard disk drive suppliers for a given desktop
computer or Intel-based server product, it often will purchase
hard disk drives from those suppliers for the commercial
lifetime of that product line. If we miss a qualification
opportunity, we may not have another opportunity to do business
with that manufacturer or subcontractor until it introduces its

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next generation of products. The effect of
missing a product qualification opportunity is magnified by the
limited number of high-volume manufacturers of personal
computers and Intel-based servers. If we do not reach the market
or deliver volume production in a timely manner, we may lose
opportunities to qualify our products and may need to deliver
lower margin, older products than required in order to meet our
customers demands. In such case, our business, financial
condition and operating results would be adversely affected.


Because we are substantially dependent on
desktop computer drive sales, a decrease in the demand for
desktop computers could reduce demand for our
products.

Our revenue growth and profitability depend
significantly on the overall demand for desktop computers and
related products and services. In recent quarters, demand for
desktop computers has been adversely affected by unfavorable
economic conditions. If the economic conditions in the United
States and globally do not improve, or if we experience a
worsening in the global economic slowdown, we may experience a
further decrease in demand for desktop computers. Because we
sell a significant portion of our products to the desktop
segment of the personal computer industry, we will be affected
more by changes in market conditions for desktop computers than
a company with a broader range of products. Any decrease in the
demand for desktop computers could reduce the demand for our
products, harming our business, financial condition and
operating results.

The loss of one or more significant customers
or a decrease in their orders of products would cause our
revenues to decline.

We sell most of our products to a limited number
of customers. For the fiscal year ended December 28, 2002,
one customer, Dell Computer Corporation, accounted for
approximately 11.5% of our total revenue, and our top five
customers accounted for approximately 31.8% of our revenue. For
the quarter ended March 29, 2003, no customer accounted for
more than 10% of our total revenue. We expect that a relatively
small number of customers will continue to account for a
significant portion of our revenue, and the proportion of our
revenue from these customers could continue to increase in the
future. These customers have a wide variety of suppliers to
choose from and therefore can make substantial demands on us.
Even if we successfully qualify a product for a given customer,
the customer generally will not be obligated to purchase any
minimum volume of product from us and generally will be able to
terminate its relationship with us at any time. Our ability to
maintain strong relationships with our principal customers is
essential to our future performance. If we lose a key customer
or if any of our key customers reduce their orders of our
products or require us to reduce our prices before we are able
to reduce costs, our business, financial condition and operating
results could suffer. Mergers, acquisitions, consolidations or
other significant transactions involving our significant
customers may adversely affect our business and operating
results.

If we fail to develop and maintain
relationships with our key distributors, if we experience
problems associated with distribution channels, or if our key
distributors favor our competitors products over ours, our
operating results could suffer.

We sell a significant amount of our hard disk
drive products through a limited number of key distributors. If
we fail to develop, cultivate and maintain relationships with
our key distributors, or if these distributors are not
successful in their sales efforts, sales of our products may
decrease and our operating results could suffer. As our sales
through these distribution channels continue to increase, we may
experience problems typically associated with these distribution
channels such as unstable pricing, increased return rates and
other logistical difficulties. Our distributors also sell
products manufactured by our competitors. If our distributors
favor our competitors products over our products for any
reason, they may fail to market our products effectively or
continue to devote the resources necessary to provide us with
effective sales and, as a result, our operating results could
suffer.

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If we do not expand into new hard drive market
segments, and maintain our presence in the hard disk drive
market, our revenues will suffer.

To remain a significant supplier of hard disk
drives to major manufacturers of personal computers and
Intel-based servers, we will need to offer a broad range of hard
disk drive products to our customers. Although almost all of our
current products are designed for the desktop computer and the
Intel-based server markets, demand in these segments may shift
to products we do not offer or volume demand may shift to other
segments. Such segments may include the laptop computer or
handheld consumer product segments, which none of our products
currently serves. Products using alternative technologies, such
as optical storage, semiconductor memory and other storage
technologies, may also compete with our hard disk drive
products. While we continually develop new products, the success
of our new product introductions is dependent on a number of
factors, including market acceptance, our ability to manage the
risks associated with product transitions, the effective
management of inventory levels in line with product demand, and
the risk that our new products will have quality problems or
other defects in the early stages of introduction that were not
anticipated in the design of those products. We will need to
successfully develop and manufacture new products that address
additional hard disk drive market segments or competitors
technology or feature development to remain competitive in the
hard disk drive industry. We cannot assure you that we will
successfully or timely develop and market any new hard disk
drives in response to technological changes or evolving industry
standards. We also cannot assure you that we will avoid
technical or other difficulties that could delay or prevent the
successful development, introduction or marketing of new hard
disk drives. Any failure to successfully develop and introduce
new products for our existing customers or to address additional
market segments could result in loss of customer business or
require us to deliver product not targeted effectively to
customer requirements, which in turn could adversely affect our
business, financial condition and operating results.

Our customers have adopted a subcontractor
model that increases our credit risk and could result in an
increase in our operating costs.

Our significant OEM customers have adopted a
subcontractor model that requires us to contract directly with
companies that provide manufacturing services for personal
computer manufacturers. This exposes us to increased credit risk
because these subcontractors are generally not as well
capitalized as personal computer manufacturers, and our
agreements with our customers may not permit us to increase our
prices to compensate for this increased credit risk. Any credit
losses would increase our operating costs, which could cause our
operating results to suffer.

If we fail to match production with product
demand or to manage inventory, our operating results could
suffer.

We base our inventory purchases and commitments
on forecasts from our customers, who are not obligated to
purchase the forecast amounts. If actual orders do not match our
forecasts, or if any products become obsolete between order and
delivery time, we may have excess or inadequate inventory of our
products. In addition, our significant OEM customers have
adopted build-to-order manufacturing models or just-in-time
inventory management processes that require component suppliers
to maintain inventory at or near the customers production
facility. These policies, combined with continued compression of
product life cycles, have complicated inventory management
strategies that make it more difficult to match manufacturing
plans with projected customer demand and cause us to carry
inventory for more time and to incur additional costs to manage
inventory which could cause our operating results to suffer. If
we fail to manage inventory of older products as we or our
competitors introduce new products with higher areal density, we
may have excess inventory. Excess inventory could materially
adversely affect our operating results and cause our operating
results to suffer.

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Because we purchase a significant portion of
our parts from a limited number of third party suppliers, we are
subject to the risk that we may be unable to acquire quality
components in a timely manner, or effectively integrate parts
from different suppliers, and these component shortages or
integration problems could result in delays of product shipments
and damage our business and operating results.

Unlike some of our competitors, we do not
manufacture any of the parts used in our products, other than
media as a result of our acquisition of MMC Technologies Inc.,
or MMC. Instead, our products incorporate parts and components
designed by and purchased from third party suppliers. Both we
and Matsushita-Kotobuki Electronics Industries, Ltd., or MKE,
depend on a limited number of qualified suppliers for components
and subassemblies, including recording heads, media and
integrated circuits. Currently, we purchase recording heads from
three sources, digital signal processors/ controllers from one
source and spin/servo integrated circuits from two sources.
Although our acquisition of our primary media supplier, MMC, has
reduced our dependence on outside suppliers for this component,
MMC cannot supply all of our media needs, and therefore we are
still required to purchase media from two outside sources. As we
have experienced in the past, some required parts may be
periodically in short supply. As a result, we will have to allow
for significant ordering lead times for some components. In
addition, we may have to pay significant cancellation charges to
suppliers if we cancel orders for components because we reduce
production due to market oversupply, reduced demand, transition
to new products or technologies or for other reasons. We order
the majority of our components on a purchase order basis and we
have limited long-term volume purchase agreements with only some
of our existing suppliers. In the event that these suppliers
cannot qualify to new leading-edge technology specifications,
our ramp up of production for the new products will be delayed,
and our business, operating results and financial condition will
be adversely affected.

If we cannot obtain sufficient quantities of
high-quality parts when needed, product shipments would be
delayed and our business, financial condition and operating
results could suffer. We cannot assure you that we will be able
to obtain adequate supplies of critical components in a timely
and economic manner, or at all.

The success of our products also depends on our
ability to effectively integrate parts and components that use
leading-edge technology. If we are unable to successfully manage
the integration of parts obtained from third party suppliers,
our business, financial condition and operating results could
suffer.

If we are unable to acquire needed additional
manufacturing capacity, or MKE does not meet our manufacturing
requirements or a disaster occurs at one of our or MKEs
plants, our growth will be adversely impacted and our business,
financial condition and operating results could
suffer.

Our Maxtor-owned facilities in Singapore and our
relationship with MKE for the manufacture of 10,000 RPM
hard disk drives for the enterprise market are currently our
only sources of production for our hard disk drive products. MKE
manufactures a substantial portion of our enterprise hard disk
drives pursuant to a master agreement and a purchase agreement
that has been extended through March 31, 2004. If, for any
reason, we are unable in some quarters to make purchases in
adequate volumes or on terms advantageous to us, our revenue may
be lower or our costs may be higher than projected and our
operating results would suffer.

We negotiate pricing arrangements with MKE on a
quarterly basis. Any failure to reach an agreement on
competitive pricing arrangements would also negatively impact
our operating results.

If, at the time of termination of our current
agreement with MKE we are unable to extend the agreement on
mutually acceptable terms, we will need to arrange for
alternative manufacturing capacity for our enterprise hard disk
drive products. If we fail to make such arrangements in a timely
manner, for adequate volumes or on acceptable terms, our revenue
might be lower than projected and our business, financial
condition and operating results would suffer.

We will need to acquire additional manufacturing
capacity in the future. Our inability to add capacity to allow
us to meet customers demands in a timely manner may limit
our future growth and could harm our business, financial
condition and operating results. We have begun construction of a
manufacturing facility in China that will provide us with a
low-cost facility to accommodate anticipated future growth. We
anticipate that the facility will become operational in the
second half of 2004, however, the recent outbreak of severe

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acute respiratory syndrome (SARS) could disrupt
the construction of the facility. Any significant disruption in
the construction of the facility could delay the time at which
the facility could come online, which could harm our business,
financial condition and operating results.


In addition, our entire volume manufacturing
operations are based in Singapore. Our MKE-manufactured server
products are manufactured in Japan. A flood, earthquake,
political instability, act of terrorism or other disaster or
condition in Singapore or Japan that adversely affects our
facilities or ability to manufacture our hard disk drive
products could significantly harm our business, financial
condition and operating results.

The recent outbreak of SARS may harm our
business, financial condition and operating results.

The recent outbreak of SARS in Asia, and
particularly in China and Singapore, and concerns over its
spread in Asia and elsewhere could have a negative impact on
commerce, travel, and general economic and industry conditions.
Given the importance of our Asia sales, our manufacturing
operations in Singapore, and the manufacturing facility we have
under construction in China, our business may be more exposed to
this risk than the global economy generally. For example, the
SARS outbreak could result in quarantines or closures of our
manufacturing facilities in Singapore or delays in the
construction of our planned manufacturing facility in China. The
SARS outbreak may also adversely impact our ability to purchase
goods from suppliers in Asia. As a result of the SARS outbreak,
our business, financial condition and operating results could be
materially adversely affected.

We are subject to risks related to product
defects, which could subject us to warranty claims in excess of
our warranty provision or which are greater than anticipated due
to the unenforceability of liability limitations.

Our products may contain defects. We generally
warrant our products for one to five years and prior to the
acquisition, Quantum HDD generally warranted its products for
one to five years. We assumed Quantum HDDs warranty
obligations as a result of the acquisition. The standard
warranties used by us and Quantum HDD contain limits on damages
and exclusions of liability for consequential damages and for
negligent or improper use of the products. We generally
establish and, prior to the acquisition, Quantum HDD
established, a warranty provision at the time of product
shipment in an amount equal to estimated warranty expenses. We
determined that there were issues with certain Quantum HDD
products that we acquired in the acquisition, and which are no
longer being manufactured. We have established a warranty
provision for these products and have increased goodwill
associated with the acquisition to reflect pre-acquisition
contingencies related to these issues. We may incur additional
operating expenses if these steps do not reflect the actual cost
of resolving these issues, and if any resulting expenses are
significant, our business, financial condition and results of
operations will suffer.

We have asserted claims against Quantum, and
Quantum has asserted claims against us, for payment under
agreements entered into in connection with our acquisition of
the Quantum HDD business. In the event these claims are not
resolved favorably in the aggregate, our business, financial
condition and operating results could be harmed.

We have asserted multiple claims against Quantum,
and Quantum has asserted multiple claims against us, for payment
under agreements entered into in connection with our acquisition
of the Quantum HDD business, including a tax sharing and
indemnity agreement, which provides for the allocation of
certain liabilities related to taxes. We disagree with Quantum
about the amounts owed by each party under the agreements and we
are in negotiations with Quantum to resolve the claims. The
parties have commenced dispute resolution procedures under the
tax sharing and indemnity agreement. Although we believe that we
will be successful in asserting and defending these claims, an
unfavorable resolution of these claims in the aggregate could
harm our business, financial condition and operating results.

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If Quantum incurs non-insured tax as a result
of its split-off of Quantum HDD, our financial condition and
operating results could be negatively affected.

In connection with our acquisition of the Quantum
HDD business, we agreed to indemnify Quantum for the amount of
any tax payable by Quantum as a result of the separation of the
Quantum HDD business from Quantum Corporation (referred to as a
split-off) to the extent such tax is not covered by
insurance, unless imposition of the tax is the result of
Quantums actions, or acquisitions of Quantum stock, after
the split-off. The amount of the tax not covered by insurance
could be substantial. In addition, if it is determined that
Quantum owes federal or state tax as a result of the split-off
and the circumstances giving rise to the tax are covered by our
indemnification obligations, we will be required to pay Quantum
the amount of the tax at that time, whether or not reimbursement
may be allowed under the insurance policy. Even if a claim is
available, made and pending under the tax opinion insurance
policy, there may be a substantial period after we pay Quantum
for the tax before the outcome of the insurance claim is finally
known, particularly if the claim is denied by the insurance
company and the denial is disputed by us and/or Quantum.
Moreover, the insurance company could prevail in a coverage
dispute. In any of these circumstances, we would have to either
use our existing cash resources or borrow money to cover our
obligations to Quantum. In either case, our payment of the tax,
whether covered by insurance or not, could harm our business,
financial condition, operating results and cash flows.

Any failure to adequately protect and enforce
our intellectual property rights could harm our
business.

Our protection of our intellectual property is
limited. For example, we have patent protection on only some of
our technologies. We may not receive patents for our pending or
future patent applications, and any patents that we own or that
are issued to us may be invalidated, circumvented or challenged.
In the case of products offered in rapidly emerging markets,
such as consumer electronics, our competitors may file patents
more rapidly or in greater numbers resulting in the issuance of
patents that may result in unexpected infringement assertions
against us. Moreover, the rights granted under any such patents
may not provide us with any competitive advantages. Finally, our
competitors may develop or otherwise acquire equivalent or
superior technology. We also rely on trade secret, copyright and
trademark laws as well as the terms of our contracts to protect
our proprietary rights. We may have to litigate to enforce
patents issued or licensed to us, to protect trade secrets or
know-how owned by us or to determine the enforceability, scope
and validity of our proprietary rights and the proprietary
rights of others. Enforcing or defending our proprietary rights
could be expensive and might not bring us timely and effective
relief. We may have to obtain licenses of other parties
intellectual property and pay royalties. If we are unable to
obtain such licenses, we may have to stop production of our
products or alter our products. In addition, the laws of certain
countries in which we sell and manufacture our products,
including various countries in Asia, may not protect our
products and intellectual property rights to the same extent as
the laws of the United States. Our remedies in these countries
may be inadequate to protect our proprietary rights. Any failure
to enforce and protect our intellectual property rights could
harm our business, financial condition and operating results.

We are subject to existing infringement claims
which are costly to defend and may harm our business.

Prior to our acquisition of the Quantum HDD
business, we, on the one hand, and Quantum and MKE, on the other
hand, were sued by Papst Licensing, GmbH, a German corporation,
for infringement of a number of patents that relate to hard disk
drives. Papsts complaint against Quantum and MKE was filed
on July 30, 1998, and Papsts complaint against Maxtor
was filed on March 18, 1999. Both lawsuits, filed in the
United States District Court for the Northern District of
California, were transferred by the Judicial Panel on
Multidistrict Litigation to the United States District Court for
the Eastern District of Louisiana for coordinated pre-trial
proceedings with other pending litigations involving the Papst
patents (the MDL Proceeding). The matters will be
transferred back to the District Court for the Northern District
of California for trial. Papsts infringement allegations
are based on spindle motors that Maxtor and Quantum purchased
from third party motor vendors, including MKE, and the use of
such spindle motors in hard disk drives. We purchased the
overwhelming majority of the spindle motors used in our hard
disk drives from vendors that were licensed under the Papst
patents. Quantum purchased many spindle motors used in its hard

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disk drives from vendors that were not licensed
under the Papst patents, including MKE. As a result of our
acquisition of the Quantum HDD business, we assumed
Quantums potential liabilities to Papst arising from the
patent infringement allegations Papst asserted against Quantum.
We filed a motion to substitute Maxtor for Quantum in this
litigation. The motion was denied by the Court presiding over
the MDL Proceeding, without prejudice to being filed again in
the future.


In February 2002, Papst and MKE entered into
an agreement to settle Papsts pending patent infringement
claims against MKE. That agreement includes a license of certain
Papst patents to MKE, which might provide Quantum, and thus us,
with additional defenses to Papsts patent infringement
claims.

On April 15, 2002, the Judicial Panel on
Multidistrict Litigation ordered a separation of claims and
remand to the District of Columbia of certain claims between
Papst and another party involved in the MDL Proceeding. By order
entered June 4, 2002, the court stayed the MDL Proceeding
pending resolution by the District of Columbia court of the
remanded claims. These separated claims relating to the other
party are currently proceeding in the District Court for the
District of Columbia.

The results of any litigation are inherently
uncertain and Papst may assert other infringement claims
relating to current patents, pending patent applications, and/or
future patent applications or issued patents. Additionally, we
cannot assure you we will be able to successfully defend
ourselves against this or any other Papst lawsuit. Because the
Papst complaints assert claims to an unspecified dollar amount
of damages, and because we were at an early stage of discovery
when the litigation was stayed, we are unable to determine the
possible loss, if any, that we may incur as a result of an
adverse judgment or a negotiated settlement. A favorable outcome
for Papst in these lawsuits could result in the issuance of an
injunction against us and our products and/or the payment of
monetary damages equal to a reasonable royalty. In the case of a
finding of a willful infringement, we also could be required to
pay treble damages and Papsts attorneys fees. The
litigation could result in significant diversion of time by our
technical personnel, as well as substantial expenditures for
future legal fees. Accordingly, although we cannot currently
estimate whether there will be a loss, or the size of any loss,
a litigation outcome favorable to Papst could have a material
adverse effect on our business, financial condition and
operating results. Management believes that it has valid
defenses to the claims of Papst and is defending this matter
vigorously.

We face risks from our substantial
international operations and sales.

We conduct most of our manufacturing and testing
operations and purchase a substantial portion of our key parts
outside the United States. In particular, manufacturing
operations for our products are concentrated in Singapore, where
our principal manufacturing operations are located, and in
Japan, where MKEs manufacturing operations are located.
Such concentration of operations in Singapore and Japan will
likely magnify the effects on us of any disruptions or disasters
relating to Singapore and Japan. In addition, we also sell a
significant portion of our products to foreign distributors and
retailers. As a result, we will be dependent on revenue from
international sales. Inherent risks relating to our overseas
operations include:



| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties with staffing and managing
    international operations;                                                                                                                                               
|
| |  | transportation and supply chain disruptions as a
    result of epidemics, terrorist activity, acts of war or
    hostility;                                                                                         
|
| |  | economic slowdown and/or downturn in foreign
    markets;                                                                                                                                                           
|
| |  | international currency fluctuations;                                                                                                                                                                                
|
| |  | political and economic uncertainty caused by
    epidemics, terrorism or acts of war or hostility;                                                                                                                  
|
| |  | legislative and regulatory responses to terrorist
    activity such as increased restrictions on cross-border movement
    of products and technology;                                                              
|
| |  | legislative, regulatory, police, or civil
    responses to epidemics or other outbreaks of infectious diseases
    such as quarantines, factory closures, or increased restrictions
    on transportation or travel;
|
| |  | general strikes or other disruptions in working
    conditions;                                                                                                                                                     

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| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | labor shortages;                                                             
|
| |  | political instability;                                                       
|
| |  | changes in tariffs;                                                          
|
| |  | generally longer periods to collect receivables;                             
|
| |  | unexpected legislative or regulatory requirements;                           
|
| |  | reduced protection for intellectual property
    rights in some countries;   
|
| |  | significant unexpected duties or taxes or other
    adverse tax consequences;
|
| |  | difficulty in obtaining export licenses and other
    trade barriers;        
|
| |  | seasonality;                                                                 
|
| |  | increased transportation/shipping costs; and                                 
|
| |  | credit and access to capital issues faced by our
    international customers.

The specific economic conditions in each country
impact our international sales. For example, our international
contracts are denominated primarily in U.S. dollars.
Significant downward fluctuations in currency exchange rates
against the U.S. dollar could result in higher product
prices and/or declining margins and increased manufacturing
costs. In addition, we attempt to manage the impact of foreign
currency exchange rate changes by entering into short-term,
foreign exchange contracts. If we do not effectively manage the
risks associated with international operations and sales, our
business, financial condition and operating results could suffer.

We significantly increased our leverage as a
result of the sale of convertible senior notes.

In connection with our sale of convertible senior
notes on May 7 2003, we incurred $230 million of
indebtedness, set to mature in April 2010. We will require
substantial amounts of cash to fund semi-annual interest
payments on the notes, payment of the principal amount of the
notes upon maturity (or earlier upon a mandatory or voluntary
redemption or if we elect to satisfy a conversion of the notes,
in whole or in part, with cash rather than shares of our common
stock), as well as future capital expenditures, investments and
acquisitions, payments on our leases and loans, and any
increased working capital requirements. If we are unable to meet
our cash requirements out of available funds, we may need be to
obtain alternative financing, which may not be available on
favorable terms or at all. The degree to which we are
financially leveraged could materially and adversely affect our
ability to obtain additional financing for working capital,
acquisitions or other purposes and could make us more vulnerable
to industry downturns and competitive pressures. In the absence
of such financing, our ability to respond to changing business
and economic conditions, to make future acquisitions, to absorb
adverse operating results or to fund capital expenditures or
increased working capital requirements would be significantly
reduced. Our ability to meet our debt service obligations will
be dependent upon our future performance, which will be subject
to financial, business and other factors affecting our
operations, some of which are beyond our control. If we do not
generate sufficient cash flow from operations to repay the notes
at maturity, we could attempt to refinance the notes; however,
no assurance can be given that such a refinancing would be
available on terms acceptable to us, if at all. Any failure by
us to satisfy our obligations under the notes or the indenture
could cause a default under agreements governing our other
indebtedness.

We entered into a new asset securitization
facility of up to $100 million which has certain financial
covenants with which we will have to comply to use the
facility.

On May 9, 2003, we entered into a two-year
asset backed securitization facility for up to $100 million
with certain financial institutions. The facility will use a
special purpose subsidiary to purchase and hold all of our U.S.
and Canadian accounts receivable. This special purpose
subsidiary will borrow up to $100 million secured by the
purchased receivables and will use such borrowed funds and
collections from the receivables to

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purchase additional receivables from us and to
make other permitted distributions to us. This special purpose
subsidiary will be consolidated for financial reporting
purposes, and its resulting liabilities will appear on our
consolidated balance sheet as short-term debt. The terms of the
facility require compliance with operational covenants and
financial covenants, including a liquidity covenant and an
operating cash flow to long-term debt ratio. A violation of
these covenants will result in an early amortization event that
will cause a prohibition on further payments and distributions
to us from the special purpose subsidiary until the facility has
been repaid in full. However, early amortization events under
the facility generally will not cause an event of default under
the convertible senior notes due 2010. We do not believe that
the lack of borrowing availability under the facility would have
a material adverse effect on our liquidity.


The loss of key personnel could harm our
business.

Our success depends upon the continued
contributions of key employees, many of whom would be extremely
difficult to replace. Like many other technology companies, we
have implemented workforce reductions that have in some cases
resulted in the termination of key employees who have
substantial knowledge of our business. These and any future
workforce reductions may also adversely affect the morale of,
and our ability to retain, employees who have not been
terminated, which may result in the further loss of key
employees. We do not have key person life insurance on any of
our personnel. Worldwide competition for skilled employees in
the hard disk drive industry is extremely intense. If we are
unable to retain existing employees or to hire and integrate new
employees, our business, financial condition and operating
results could suffer. In addition, companies in the hard disk
drive industry whose employees accept positions with competitors
often claim that the competitors have engaged in unfair hiring
practices. We may be the subject of such claims in the future as
we seek to hire qualified personnel and we could incur
substantial costs defending ourselves against those claims.

We could be subject to environmental
liabilities which could increase our expenses and harm our
business, financial condition and results of
operations.

Because of the chemicals we use in our
manufacturing and research operations, we are subject to a wide
range of environmental protection regulations in the United
States and Singapore. While we do not believe our operations to
date have been harmed as a result of such laws, future
regulations may increase our expenses and harm our business,
financial condition and results of operations. Even if we are in
compliance in all material respects with all present
environmental regulations, in the United States environmental
regulations often require parties to fund remedial action
regardless of fault. As a consequence, it is often difficult to
estimate the future impact of environmental matters, including
potential liabilities. Moreover, we may be subject to liability
in connection with our acquisition of the Quantum HDD and MMC
businesses to the extent that contamination requiring
remediation at our expense is present on properties currently or
formerly occupied by those businesses, or those businesses sent
wastes to sites at which remediation is required. If we have to
make significant capital expenditures or pay significant expense
in connection with future remedial actions or to continue to
comply with applicable environmental laws, our business,
financial condition and operating results could suffer.

The market price of our common stock
fluctuated substantially in the past and is likely to fluctuate
in the future as a result of a number of factors, including the
release of new products by us or our competitors, the loss or
gain of significant customers or changes in stock market
analysts estimates.

The market price of our common stock and the
number of shares traded each day have varied greatly. Such
fluctuations may continue due to numerous factors, including:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | quarterly fluctuations in operating results;                                                                                     
|
| |  | announcements of new products by us or our
    competitors such as products that address additional hard disk
    drive segments;
|
| |  | gains or losses of significant customers;                                                                                        

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| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | changes in stock market analysts estimates;                                       
|
| |  | the presence of short-selling of our common stock;                                 
|
| |  | sales of a high volume of shares of our common
    stock by our large stockholders;
|
| |  | events affecting other companies that the market
    deems comparable to us;       
|
| |  | general conditions in the semiconductor and
    electronic systems industries; and 
|
| |  | general economic conditions in the United States
    and abroad.                   

Anti-takeover provisions in our certificate of
incorporation could discourage potential acquisition proposals
or delay or prevent a change of control.

We have a number of protective provisions in
place designed to provide our board of directors with time to
consider whether a hostile takeover is in our best interests and
that of our stockholders. These provisions could discourage
potential acquisition proposals and could delay or prevent a
change in control of the company and also could diminish the
opportunities for a holder of our common stock to participate in
tender offers, including offers at a price above the
then-current market price for our common stock. These provisions
also may inhibit fluctuations in our stock price that could
result from takeover attempts.

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Item 3.Quantitative
and Qualitative Disclosures about Market Risk

Derivatives

We enter into foreign exchange forward contracts
to manage foreign currency exchange risk associated with our
operations primarily in Singapore, Switzerland and Japan. The
foreign exchange forward contracts we enter into generally have
original maturities ranging from one to three months. We do
not enter into foreign exchange forward contracts for trading
purposes. We do not expect gains or losses on these contracts to
have a material impact on our financial results.

Investments

We maintain an investment portfolio of various
holdings, types and maturities. These marketable securities are
generally classified as available for sale and, consequently,
are recorded on the balance sheet at fair value with unrealized
gains or losses reported as a separate component of accumulated
other comprehensive income. Part of this portfolio includes
investments in bank issues, corporate bonds and commercial
papers. For additional information regarding our impairment
policy, see note 1 of the Notes to Consolidated Financial
Statements.

The following table presents the hypothetical
changes in fair values in the financial instruments held at
March 29, 2003 that are sensitive to changes in interest
rates. These instruments are not leveraged and are held for
purposes other than trading. The hypothetical changes assume
immediate shifts in the U.S. Treasury yield curve of plus
or minus 50 basis points (bps), 100 bps,
and 150 bps.

|                      |  |          |        |          |  |         |        |            |  |         |        |          |  |          |        |  |  |   |        |   |  |   |        |   |  |   |        |  
|--------------------- |  | -------- | ------ | -------- |  | ------- | ------ | ---------- |  | ------- | ------ | -------- |  | -------- | ------ |  |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                      |  |          |        |          |  |         |        | Fair Value |  |         |        |          |  |         
|                      |  |          |        |          |  |         |        | as of      |  |         |        |          |  |         
|                      |  |          |        |          |  |         |        | March 29,  |  |         |        |          |  |         
|                      |  |          |        |          |  |         |        | 2003       |  |         |        |          |  |         
|                      |  | +150 bps |        | +100 bps |  | +50 bps |        | ($000)     |  | 50 bps |        | 100 bps |  | 150 bps
|                      |  |          |        |          |  |         |        |            |  |         |        |          |  |         
|Financial Instruments |  | $        | 82,484 |          |  | $       | 82,892 |            |  | $       | 83,301 |          |  | $        | 83,722 |  |  | $ | 84,098 |   |  | $ | 84,552 |   |  | $ | 84,877 |  
|% Change              |  |          | (1.48  | )%       |  |         | (0.99  | )%         |  |         | (0.50  | )%       |  |          |        |  |  |   | 0.45   | % |  |   | 0.99   | % |  |   | 1.38   | %

We are exposed to certain equity price risks on
our investments in common stock. These equity securities are
held for purposes other than trading. The following table
presents the hypothetical changes in fair values of the public
equity investments that are sensitive to changes in the stock
market. The modeling technique used measures the hypothetical
change in fair value arising from selected hypothetical changes
in the stock price. Stock price fluctuations of plus or minus
15 percent, plus or minus 25 percent, and plus or
minus 50 percent were selected based on the probability of
their occurrence.

|                             |  |                          |       |           |  |                          |       |            |  |   |       |    |  |   |       |  |  |   |       |   |  |   |        |   |  |   |        |  
|---------------------------- |  | ------------------------ | ----- | --------- |  | ------------------------ | ----- | ---------- |  | - | ----- | -- |  | - | ----- |  |  | - | ----- | - |  | - | ------ | - |  | - | ------ | -
|                             |  |                          |       |           |  |                          |       | Fair Value |  |   |       |    |  |  
|                             |  |                          |       | as of     |  |                         
|                             |  | Valuation of Security    |       | March 29, |  | Valuation of Security   
|                             |  | Given X% Decrease in the |       | 2003      |  | Given X% Increase in the
|                             |  | Security Price           |       | ($000)    |  | Security Price          
|                             |  |                          |       |           |  |                         
|                             |  |                          |       |           |  |                          |       |            |  |  
|Corporate equity investments |  | $                        | 4,215 |           |  | $                        | 6,322 |            |  | $ | 7,165 |    |  | $ | 8,429 |  |  | $ | 9,693 |   |  | $ | 10,536 |   |  | $ | 12,644 |  
|% Change                     |  |                          | (50   | )%        |  |                          | (25   | )%         |  |   | (15   | )% |  |   |       |  |  |   | 15    | % |  |   | 25     | % |  |   | 50     | %




Item 4.     Controls
and Procedures

(a) Under the supervision and with the
participation of our management, including our principal
President, Chief Executive Officer and Acting Chief Financial
Officer, we conducted an evaluation of our disclosure controls
and procedures, as such term is defined under
Rule 13a-14(c) promulgated under the Securities Exchange
Act of 1934, as amended (the Exchange Act), within
the 90 day period prior to the filing date of this report.
Based on this evaluation, our President, Chief Executive Officer
and Acting Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of that date.

(b) There have been no significant changes
(including corrective actions with regard to significant
deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in paragraph
(a) above.

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PART II.     OTHER
INFORMATION




Item 1.     Legal
Proceedings

Prior to our acquisition of the Quantum HDD
business, we, on the one hand, and Quantum and MKE, on the other
hand, were sued by Papst Licensing, GmbH, a German corporation,
for infringement of a number of patents that relate to hard disk
drives. Papsts complaint against Quantum and MKE was filed
on July 30, 1998, and Papsts complaint against Maxtor
was filed on March 18, 1999. Both lawsuits, filed in the
United States District Court for the Northern District of
California, were transferred by the Judicial Panel on
Multidistrict Litigation to the United States District Court for
the Eastern District of Louisiana for coordinated pre-trial
proceedings with other pending litigations involving the Papst
patents (the MDL Proceeding). The matters will be
transferred back to the District Court for the Northern District
of California for trial. Papsts infringement allegations
are based on spindle motors that Maxtor and Quantum purchased
from third party motor vendors, including MKE, and the use of
such spindle motors in hard disk drives. We purchased the
overwhelming majority of the spindle motors used in our hard
disk drives from vendors that were licensed under the Papst
patents. Quantum purchased many spindle motors used in its hard
disk drives from vendors that were not licensed under the Papst
patents, including MKE. As a result of our acquisition of the
Quantum HDD business, we assumed Quantums potential
liabilities to Papst arising from the patent infringement
allegations Papst asserted against Quantum. We filed a motion to
substitute the Company for Quantum in this litigation. The
motion was denied by the Court presiding over the MDL
Proceeding, without prejudice to being filed again in the future.

In February 2002, Papst and MKE recently entered
into an agreement to settle Papsts pending patent
infringement claims against MKE. That agreement includes a
license of certain Papst patents to MKE which might provide
Quantum, and thus us, with additional defenses to Papsts
patent infringement claims.

On April 15, 2002, the Judicial Panel on
Multidistrict Litigation ordered a separation of claims and
remand to the District of Columbia of certain claims between
Papst and another party involved in the MDL Proceeding. By order
entered June 4, 2002, the court stayed the MDL Proceeding
pending resolution by the District of Columbia court of the
remanded claims. These separated claims relating to the other
party are currently proceeding in the District Court for the
District of Columbia.

The results of any litigation are inherently
uncertain and Papst may assert other infringement claims
relating to current patents, pending patent applications, and/or
future patent applications or issued patents. Additionally, we
cannot assure you we will be able to successfully defend
ourselves against this or any other Papst lawsuit. Because the
Papst complaints assert claims to an unspecified dollar amount
of damages, and because we were at an early stage of discovery
when the litigation was stayed, we are unable to determine the
possible loss, if any, that we may incur as a result of an
adverse judgment or a negotiated settlement with respect to the
claims against Maxtor. We made an estimate of the potential
liabilities, which might arise from the Papst claims against
Quantum at the time of our acquisition of the Quantum HDD
business. Our estimate will be revised as additional information
becomes available. A favorable outcome for Papst in these
lawsuits could result in the issuance of an injunction against
us and our products and/or the payment of monetary damages equal
to a reasonable royalty. In the case of a finding of a willful
infringement, we also could be required to pay treble damages
and Papsts attorneys fees. The litigation could
result in significant diversion of time by our technical
personnel, as well as substantial expenditures for future legal
fees. Accordingly, although we cannot currently estimate whether
there will be a loss, or the size of any loss, a litigation
outcome favorable to Papst could have a material adverse effect
on our business, financial condition and operating results.
Management believes that it has valid defenses to the claims of
Papst and is defending this matter vigorously.

In addition to the Papst lawsuit, on
June 13, 2002, we filed suit against Koninklijke Philips
Electronics N.V. and several other Philips-related companies in
the Superior Court of California, County of Santa Clara. On
June 26, 2002, we filed a First Amended Complaint. The
lawsuit alleges that an integrated circuit chip supplied by
Philips was defective and caused significant levels of failure
of the Quantum HDD Corona Plus, Eagle, and Eagle Plus products,
each of which is a product line we acquired as part of our
acquisition of the Quantum HDD business. Philips
subsequent motions to dismiss were withdrawn or denied. Philips
answered

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##### Table of Contents



the complaint on March 13, 2003. Discovery
is ongoing. On April 25, 2003, the Philips-related
companies brought cross-complaints against a number of
Sumitomo-related companies and a number of Amkor-related
companies. In the lawsuit, we are claiming damages of at least
$77 million, however, the results of litigation are
inherently uncertain and we cannot assure you that we will
achieve a favorable outcome.





Item 2.     Changes
in Securities

On May 7, 2003, we sold $230 million in
aggregate principal amount of convertible senior notes due 2010
to qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended. The amount sold
reflects the exercise in full by the initial purchasers of the
notes of their option to purchase up to an additional
$30 million aggregate principal amount of the notes.

The notes bear interest at a rate of
6.80 percent per annum and are convertible into our common
stock at a conversion rate of 81.5494 shares per $1,000
principal amount of the notes, or an aggregate of
18,756,362 shares subject to adjustment in certain
circumstances (equal to an initial conversion price of $12.2625
per share). The initial conversion price represents a
125 percent premium over the closing price of our common
stock on May 1, 2003, which was $5.45 per share. We are
obligated to file with the Securities and Exchange Commission a
registration statement registering the notes and the shares
underlying the notes within 90 days after May 7, 2003
or that registration statement declared effective within
180 days after May 7, 2003. For so long as we have not
satisfied our registration obligations and the notes are not
tradeable under Rule 144(k), we are subject to certain
liquidated damages in the form of additional interest on the
notes and if we fail to register the underlying shares into
which the notes are convertible, in the event a holder elects to
convert the notes during a period when the notes or the
underlying shares are not registered or tradeable under
Rule 144(k), and we have not satisfied our registration
obligations, the conversion rate will be increased by 3%.

We may not redeem the notes prior to May 5,
2008. Thereafter, we may redeem the notes at 100% of their
principal amount, plus accrued and unpaid interest, if the
closing price of its common stock for 20 trading days within a
period of 30 consecutive trading days ending on the trading day
before the date of mailing of the redemption notice exceeds 130%
of the conversion price on such trading day.

In connection with our sale of the notes, on
May 7, 2003, we also repurchased from an affiliate of one
of the initial purchasers of the notes 8,245,738 shares of
our common stock for an aggregate purchase price of
$44.9 million, at $5.45 per share, the closing price of our
common stock on May 1, 2003, plus commissions.

The Company will use the balance of the net
proceeds of the offering for repayment of indebtedness,
investments, acquisitions, general corporate purposes and
working capital.




Item 3.     Defaults
Upon Senior Securities

None




Item 4.Submission
of Matters to a Vote of Security Holders

None




Item 5.     Other
Information

None

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Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits.

| |      |     |  |                                                                                                                                                                                                                                                                                                                            
| | ---- | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1  | (1) |  | Certificate of Merger and Restated Certificate of
    Incorporation.                                                                                                                                                                                                                                                       
| | 4.1  |     |  | Indenture between Registrant and U.S. Bank
    National Association, dated May 7, 2003.                                                                                                                                                                                                                                    
| | 4.2  |     |  | Registration Rights Agreement between Registrant,
    Banc of America Securities LLC and Merrill Lynch, Pierce,
    Fenner & Smith Incorporated, dated May 7, 2003.                                                                                                                                                        
| | 10.1 |     |  | Employment Offer Letter from Registrant to
    Paul J. Tufano, dated February 24, 2003.*                                                                                                                                                                                                                                   
| | 10.2 |     |  | Master Financing Agreement between Maxtor
    Technology (Suzhou) Co., Ltd., Bank of China Suzhou Branch and
    Bank of China Suzhou Industrial Park Sub-branch, dated as of
    April 15, 2003.                                                                                                                          
| | 10.3 |     |  | Contract for Transfer of the Right to the Use of
    Land in Respect to 222,700.82 Square Meters of Land Located at
    Su Hong Dong Road, Suzhou Industrial Park between
    China-Singapore Suzhou Industrial Park Development Co., Ltd. and
    Maxtor Technology (Suzhou) Co., Ltd., dated as of
    February 12, 2003.
| | 99.1 |     |  | Certification of Paul J. Tufano, President,
    Chief Executive Officer and Acting Chief Financial Officer of
    the Registrant pursuant to 18 U.S.C. § 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.                                                                               






| |   |                                                              
| | - | -------------------------------------------------------------
| | * | Management contract, or compensatory plan or
    arrangement.



|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(1) | Incorporated by reference to exhibits of
    Form 8-K filed April 17, 2001.

(b) Reports on Form 8-K.

Maxtor filed a Current Report on Form 8-K on
January 8, 2003, in which it reported that Michael Cannon
had resigned as President and Chief Executive Officer and that
Paul Tufano had been named as Acting President and Chief
Executive Officer.

Maxtor filed a Current Report on Form 8-K on
January 14, 2003, in which it reported that Charles M.
Boesenberg had been appointed to the Board of Directors.

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SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.



| |                   
| | ------------------
| | MAXTOR CORPORATION



| |    |                   
| | -- | ------------------
| | By | /s/ PAUL J. TUFANO

| |                                   
| | ----------------------------------
| |                                   
| | Paul J. Tufano                    
| | President, Chief Executive Officer
| | and Acting Chief Financial Officer

Date: May 12, 2003

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CERTIFICATIONS

I, Paul J. Tufano, certify that:

1.     I have reviewed
this quarterly report on Form 10-Q of Maxtor Corporation;

2.     Based on my
knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this annual report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;

4.     The
registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this quarterly report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5.     The
registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of
registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6.     The
registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.



| |                                   
| | ----------------------------------
| | /s/ PAUL J. TUFANO                
| |                                   
| | Paul J. Tufano                    
| | President, Chief Executive Officer
| | and Acting Chief Financial Officer

Date: May 12, 2003

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EXHIBIT INDEX

|        |        |             |  |                                                                                                                                                                                                                                                                                                                            
|------- | ------ | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 3.1(1) |             |  | Certificate of Merger and Restated Certificate of
    Incorporation.                                                                                                                                                                                                                                                       
|        | 4.1    |             |  | Indenture between Registrant and U.S. Bank
    National Association, dated May 7, 2003.                                                                                                                                                                                                                                    
|        | 4.2    |             |  | Registration Rights Agreement between Registrant,
    Banc of America Securities LLC and Merrill Lynch, Pierce,
    Fenner & Smith Incorporated, dated May 7, 2003.                                                                                                                                                        
|        | 10.1   |             |  | Employment Offer Letter from Registrant to
    Paul J. Tufano, dated February 24, 2003.*                                                                                                                                                                                                                                   
|        | 10.2   |             |  | Master Financing Agreement between Maxtor
    Technology (Suzhou) Co., Ltd., Bank of China Suzhou Branch and
    Bank of China Suzhou Industrial Park Sub-branch, dated as of
    April 15, 2003.                                                                                                                          
|        | 10.3   |             |  | Contract for Transfer of the Right to the Use of
    Land in Respect to 222,700.82 Square Meters of Land Located at
    Su Hong Dong Road, Suzhou Industrial Park between
    China-Singapore Suzhou Industrial Park Development Co., Ltd. and
    Maxtor Technology (Suzhou) Co., Ltd., dated as of
    February 12, 2003.
|        | 99.1   |             |  | Certification of Paul J. Tufano, President,
    Chief Executive Officer and Acting Chief Financial Officer of
    the Registrant pursuant to 18 U.S.C. § 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.                                                                               






| |   |                                                              
| | - | -------------------------------------------------------------
| | * | Management contract, or compensatory plan or
    arrangement.



|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(1) | Incorporated by reference to exhibits of
    Form 8-K filed April 17, 2001.