##### Table of Contents



---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



---



FORM 10-Q/A



---



AMENDMENT NO. 1

(MARK ONE)

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[X]   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 
|     
|      |  | FOR THE PERIOD ENDED MARCH 31, 2001                                                     
|     
|      |  | OR                                                                                      
|     
|[   ] |  | 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: 0-14016

MAXTOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

|                                                                            |  |                                                
|--------------------------------------------------------------------------- |  | -----------------------------------------------
|DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION)     |  | 77-0123732
(I.R.S. EMPLOYER IDENTIFICATION NO.)
|                                                                           
|510 COTTONWOOD DRIVE, MILPITAS, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |  | 95035
(ZIP CODE)                               

REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 432-1700

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
5.75% CONVERTIBLE SUBORDINATED DEBENTURES, DUE MARCH 1, 2012

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 [X] No [   ]

The aggregate market value of the registrants common stock, $.01 par value
per share, held by nonaffiliates of the registrant was $872,921,237 on May 9,
2001 (based on the closing sales price of the registrants common stock on that
date). Shares of the registrants common stock held by each officer and director
and each person who owns more than 5% or more of the outstanding common stock of
the registrant have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily conclusive
determination for other purposes.

As of May 9, 2001, 238,386,671 shares of the registrants Common Stock,
$.01 par value, were issued and outstanding.



---

---





---

TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                          
|                              |                                                                                               | CONSOLIDATED BALANCE SHEETS                         
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | 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                           
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 4. Submission of Matters to a Vote of Security Holders                                  
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   



---



##### Table of Contents



MAXTOR CORPORATION

FORM 10-Q

MARCH 31, 2001

INDEX

|               |  |                                                                                                        |  |     
|-------------- |  | ------------------------------------------------------------------------------------------------------ |  | ----
|               |  |                                                                                                        |  | PAGE
|               |  |                                                                                                        |  |     
|               |  | PART I. FINANCIAL INFORMATION                                                                          |  |     
|Item 1.        |  | Condensed Consolidated Financial Statements                                                            |  |     
|               |  | Condensed Consolidated Balance Sheets  March 31, 2001, and
December 30, 2000                          |  | 1   
|               |  | Condensed Consolidated Statements of Operations  Three
months ended March 31, 2001, and April 1, 2000 |  | 2   
|               |  | Condensed Consolidated Statements of Cash Flows  Three
months ended March 31, 2001, and April 1, 2000 |  | 3   
|               |  | Notes to Condensed Consolidated Financial Statements                                                   |  | 4   
|Item 2.        |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations                  |  | 8   
|Item 3.        |  | Quantitative and Qualitative Disclosures about Market
Risk                                             |  | 21  
|               |  | PART II. OTHER INFORMATION                                                                             |  |     
|Item 1.        |  | Legal Proceedings                                                                                      |  | 22  
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                                    |  | 22  
|Item 6.        |  | Exhibits and Reports on Form 8-K                                                                       |  | 22  
|Signature Page |  | 24                                                                                                    

i



---



##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MAXTOR CORPORATION




CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

ASSETS

|                                                                                                                                                                                             |                                                                                                                       |                                            |           |             |         |              |           |         |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ----------- | ------- | ------------ | --------- | ------- | --------- | 
|                                                                                                                                                                                             |                                                                                                                       |                                            |           | MARCH 31,   |         | DECEMBER 30,
|                                                                                                                                                                                             |                                                                                                                       |                                            |           | 2001        |         | 2000        
|                                                                                                                                                                                             |                                                                                                                       |                                            |           |             |         |             
|                                                                                                                                                                                             |                                                                                                                       |                                            |           | (UNAUDITED) |         |              |           |        
|Current assets:                                                                                                                                                                              |                                                                                                                       |                                            |           |             |         |              |           |        
|                                                                                                                                                                                             | Cash and cash equivalents                                                                                             |                                            | $         | 180,178     |         |              | $         | 193,228 |          
|                                                                                                                                                                                             | Marketable securities                                                                                                 |                                            |           | 168,431     |         |              |           | 182,949 |          
|                                                                                                                                                                                             | Accounts receivable, net of allowance of doubtful accounts
$16,048 at March 31, 2001 and $15,148 at December 30,
2000 |                                            |           | 202,537     |         |              |           | 284,253 |          
|                                                                                                                                                                                             | Inventories, net                                                                                                      |                                            |           | 110,102     |         |              |           | 106,405 |          
|                                                                                                                                                                                             | Prepaid expenses and other                                                                                            |                                            |           | 39,744      |         |              |           | 34,577  |          
|                                                                                                                                                                                             |                                                                                                                       |                                            |           |             |         |              |           |        
|                                                                                                                                                                                             |                                                                                                                       | Total current assets                       |           |             | 700,992 |              |           |         | 801,412   | 
|Property, plant and equipment, net                                                                                                                                                           |                                                                                                                       |                                            | 188,508   |             |         |              | 165,926   |        
|Goodwill and other intangible assets, net                                                                                                                                                    |                                                                                                                       |                                            | 41,797    |             |         |              | 44,237    |        
|Other assets                                                                                                                                                                                 |                                                                                                                       |                                            | 14,041    |             |         |              | 13,344    |        
|                                                                                                                                                                                             |                                                                                                                       |                                            |           |             |         |              |           |        
|                                                                                                                                                                                             |                                                                                                                       | Total assets                               |           | $           | 945,338 |              |           | $       | 1,024,919 | 
|                                                                                                                                                                                             |                                                                                                                       |                                            |           |             |         |              |           |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                        
|Current liabilities:                                                                                                                                                                         |                                                                                                                       |                                            |           |             |         |              |           |        
|                                                                                                                                                                                             | Short-term borrowings, including current portion of
long-term debt                                                    |                                            | $         | 13,385      |         |              | $         | 15,432  |          
|                                                                                                                                                                                             | Accounts payable                                                                                                      |                                            |           | 390,589     |         |              |           | 421,338 |          
|                                                                                                                                                                                             | Accrued and other liabilities                                                                                         |                                            |           | 145,632     |         |              |           | 192,152 |          
|                                                                                                                                                                                             |                                                                                                                       |                                            |           |             |         |              |           |        
|                                                                                                                                                                                             |                                                                                                                       | Total current liabilities                  |           |             | 549,606 |              |           |         | 628,922   | 
|Long-term debt, net of current portion                                                                                                                                                       |                                                                                                                       |                                            | 85,522    |             |         |              | 92,259    |        
|                                                                                                                                                                                             |                                                                                                                       |                                            |           |             |         |              |           |        
|                                                                                                                                                                                             |                                                                                                                       | Total liabilities                          |           |             | 635,128 |              |           |         | 721,181   | 
|Common stock, $0.01 par value, 250,000,000 shares
authorized; 117,052,194 shares issued and outstanding at
March 31, 2001 and 116,205,270 shares issued and
outstanding at December 30, 2000 |                                                                                                                       |                                            | 1,170     |             |         |              | 1,162     |        
|Additional paid-in capital                                                                                                                                                                   |                                                                                                                       |                                            | 1,065,096 |             |         |              | 1,059,899 |        
|Accumulated deficit                                                                                                                                                                          |                                                                                                                       |                                            | (758,787  | )           |         |              | (760,126  | )      
|Cumulative other comprehensive income                                                                                                                                                        |                                                                                                                       |                                            | 2,731     |             |         |              | 2,803     |        
|                                                                                                                                                                                             |                                                                                                                       |                                            |           |             |         |              |           |        
|                                                                                                                                                                                             |                                                                                                                       | Total stockholders equity                 |           |             | 310,210 |              |           |         | 303,738   | 
|                                                                                                                                                                                             |                                                                                                                       |                                            |           |             |         |              |           |        
|                                                                                                                                                                                             |                                                                                                                       | Total liabilities and stockholders equity |           | $           | 945,338 |              |           | $       | 1,024,919 | 
|                                                                                                                                                                                             |                                                                                                                       |                                            |           |             |         |              |           |        

See accompanying notes to condensed consolidated financial statements.

1



---



##### Table of Contents



MAXTOR CORPORATION




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

|                                                  |                                                      |              |                          |             |                    |        |          |             |         |        | 
|------------------------------------------------- | ---------------------------------------------------- | ------------ | ------------------------ | ----------- | ------------------ | ------ | -------- | ----------- | ------- | ------ | 
|                                                  |                                                      |              |                          |             | THREE MONTHS ENDED
|                                                  |                                                      |              |                          |             |                   
|                                                  |                                                      |              |                          |             | MARCH 31,          |        | APRIL 1,
|                                                  |                                                      |              |                          |             | 2001               |        | 2000    
|                                                  |                                                      |              |                          |             |                    |        |         
|Net revenues                                      |                                                      | $            | 630,821                  |             |                    | $      | 691,286  |            
|Cost of revenues                                  |                                                      |              | 541,805                  |             |                    |        | 582,456  |            
|                                                  |                                                      |              |                          |             |                    |        |          |            
|                                                  |                                                      | Gross profit |                          |             | 89,016             |        |          |             | 108,830 |       
|Operating expenses:                               |                                                      |              |                          |             |                    |        |          |            
|                                                  | Research and development                             |              |                          | 59,020      |                    |        |          | 55,362      |        
|                                                  | Selling, general and administrative                  |              |                          | 27,466      |                    |        |          | 25,318      |        
|                                                  | Amortization of goodwill and other intangible assets |              |                          | 2,487       |                    |        |          | 2,520       |        
|                                                  |                                                      |              |                          |             |                    |        |          |            
|                                                  |                                                      |              | Total operating expenses |             |                    | 88,973 |          |             |         | 83,200 | 
|                                                  |                                                      |              |                          |             |                    |        |          |            
|Income from operations                            |                                                      |              | 43                       |             |                    |        | 25,630   |            
|Interest expense                                  |                                                      |              | (2,938                   | )           |                    |        | (3,863   | )          
|Interest and other income                         |                                                      |              | 5,756                    |             |                    |        | 7,287    |            
|Other loss                                        |                                                      |              | (1,286                   | )           |                    |        |         |            
|                                                  |                                                      |              |                          |             |                    |        |          |            
|Income before provision for income taxes          |                                                      |              | 1,575                    |             |                    |        | 29,054   |            
|Provision for income taxes                        |                                                      |              | 236                      |             |                    |        | 1,453    |            
|                                                  |                                                      |              |                          |             |                    |        |          |            
|Net income                                        |                                                      |              | 1,339                    |             |                    |        | 27,601   |            
|Unrealized gain (loss) on investments, net of tax |                                                      |              | (72                      | )           |                    |        | 4,851    |            
|                                                  |                                                      |              |                          |             |                    |        |          |            
|Comprehensive income                              |                                                      | $            | 1,267                    |             |                    | $      | 32,452   |            
|                                                  |                                                      |              |                          |             |                    |        |          |            
|Net income per share  basic                      |                                                      | $            | 0.01                     |             |                    | $      | 0.24     |            
|Net income per share  diluted                    |                                                      | $            | 0.01                     |             |                    | $      | 0.23     |            
|Shares used in per share calculation              |                                                      |              |                          |             |                    |        |          |            
|                                                  |  basic                                              |              |                          | 114,865,211 |                    |        |          | 114,029,979 |        
|                                                  |  diluted                                            |              |                          | 118,901,084 |                    |        |          | 118,037,206 |        

See accompanying notes to condensed consolidated financial statements.

2



---



##### Table of Contents



MAXTOR CORPORATION




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

|                                                                                                     |                                                                        |                               |                                                     |        |                    |         |               |        |         |         |  
|---------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ----------------------------- | --------------------------------------------------- | ------ | ------------------ | ------- | ------------- | ------ | ------- | ------- | -
|                                                                                                     |                                                                        |                               |                                                     |        | THREE MONTHS ENDED
|                                                                                                     |                                                                        |                               |                                                     |        |                   
|                                                                                                     |                                                                        |                               |                                                     |        | MARCH 31, 2001     |         | APRIL 1, 2000
|                                                                                                     |                                                                        |                               |                                                     |        |                    |         |              
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                |                                                                        |                               |                                                     |        |                    |         |               |       
|Net income                                                                                           |                                                                        | $                             | 1,339                                               |        |                    | $       | 27,601        |       
|Adjustments to reconcile net income to net cash provided by
operating activities:                    |                                                                        |                               |                                                     |        |                    |         |               |       
|                                                                                                     | Depreciation and amortization                                          |                               |                                                     | 22,137 |                    |         |               | 20,017 |        
|                                                                                                     | Amortization of goodwill and other intangible assets                   |                               |                                                     | 2,486  |                    |         |               | 2,512  |        
|                                                                                                     | Stock compensation expense                                             |                               |                                                     | 936    |                    |         |               | 1,767  |        
|                                                                                                     | Loss on sale of property, plant and equipment and other
assets         |                               |                                                     | 89     |                    |         |               | 47     |        
|                                                                                                     | Gain on retirement of bond                                             |                               |                                                     | (857   | )                  |         |               |       |        
|                                                                                                     | Change in assets and liabilities:                                      |                               |                                                     |        |                    |         |               |        |        
|                                                                                                     |                                                                        | Accounts receivable           |                                                     |        | 81,716             |         |               |        | (20,935 | )      
|                                                                                                     |                                                                        | Inventories                   |                                                     |        | (3,697             | )       |               |        | (3,502  | )      
|                                                                                                     |                                                                        | Other assets                  |                                                     |        | (7,329             | )       |               |        | (5,149  | )      
|                                                                                                     |                                                                        | Accounts payable              |                                                     |        | (36,279            | )       |               |        | 6,823   |        
|                                                                                                     |                                                                        | Accrued and other liabilities |                                                     |        | (46,566            | )       |               |        | 5,648   |        
|                                                                                                     |                                                                        |                               |                                                     |        |                    |         |               |       
|                                                                                                     |                                                                        |                               | Net cash provided by operating activities           |        |                    | 13,975  |               |        |         | 34,829  |  
|                                                                                                     |                                                                        |                               |                                                     |        |                    |         |               |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                |                                                                        |                               |                                                     |        |                    |         |               |       
|Proceeds from sale of property, plant and equipment                                                  |                                                                        |                               | 57                                                  |        |                    |         | 25            |       
|Purchase of property, plant and equipment                                                            |                                                                        |                               | (39,335                                             | )      |                    |         | (14,049       | )     
|Proceeds (purchase of) from marketable securities                                                    |                                                                        |                               | 15,911                                              |        |                    |         | (3,399        | )     
|                                                                                                     |                                                                        |                               |                                                     |        |                    |         |               |       
|                                                                                                     |                                                                        |                               | Net cash used in investing activities               |        |                    | (23,367 | )             |        |         | (17,423 | )
|                                                                                                     |                                                                        |                               |                                                     |        |                    |         |               |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                |                                                                        |                               |                                                     |        |                    |         |               |       
|Principal payments of debt. including short-term
borrowings                                          |                                                                        |                               | (7,927                                              | )      |                    |         | (2,731        | )     
|Proceeds from issuance of common stock from employee stock
purchase plan and stock options exercised |                                                                        |                               | 4,269                                               |        |                    |         | 6,444         |       
|                                                                                                     |                                                                        |                               |                                                     |        |                    |         |               |       
|                                                                                                     |                                                                        |                               | Net cash used in (provided by) financing
activities |        |                    | (3,658  | )             |        |         | 3,713   |  
|                                                                                                     |                                                                        |                               |                                                     |        |                    |         |               |       
|Net change in cash and cash equivalents                                                              |                                                                        |                               | (13,050                                             | )      |                    |         | 21,119        |       
|Cash and cash equivalents at beginning of period                                                     |                                                                        |                               | 193,228                                             |        |                    |         | 240,357       |       
|                                                                                                     |                                                                        |                               |                                                     |        |                    |         |               |       
|Cash and cash equivalents at end of period                                                           |                                                                        | $                             | 180,178                                             |        |                    | $       | 261,476       |       
|                                                                                                     |                                                                        |                               |                                                     |        |                    |         |               |       
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                                   |                                                                        |                               |                                                     |        |                    |         |               |       
|                                                                                                     | Cash paid during the period for:                                       |                               |                                                     |        |                    |         |               |        |        
|                                                                                                     |                                                                        | Interest                      |                                                     | $      | 4,627              |         |               | $      | 6,008   |        
|                                                                                                     |                                                                        | Income taxes                  |                                                     | $      | 285                |         |               | $      | 67      |        
|SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                                             |                                                                        |                               |                                                     |        |                    |         |               |       
|                                                                                                     | Purchase of property, plant and equipment financed by
accounts payable |                               | $                                                   | 5,530  |                    |         | $             | 447    |        
|                                                                                                     | Retirement of debt in exchange for bond redemption                     |                               | $                                                   | 5,000  |                    |         | $             | 5,000  |        

See accompanying notes to condensed consolidated financial statements.

3



---



##### Table of Contents



MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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. It is
recommended that the interim financial statements be read in conjunction with
the Companys audited consolidated financial statements and notes thereto for
the fiscal year ended December 30, 2000 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.

2. INVENTORIES

|                                 |                 |   |                |        |                   |   |         |        | 
|-------------------------------- | --------------- | - | -------------- | ------ | ----------------- | - | ------- | ------ | 
|                                 |                 |   | MARCH 31, 2001 |        | DECEMBER 30, 2000
|                                 |                 |   |                |        |                  
|Inventories, net (in thousands): |                 |   |                |        |                   |   |         |       
|                                 | Raw materials   |   | $              | 27,078 |                   |   | $       | 34,164 | 
|                                 | Work-in-process |   |                | 7,731  |                   |   |         | 8,352  | 
|                                 | Finished goods  |   |                | 75,293 |                   |   |         | 63,889 | 
|                                 |                 |   |                |        |                   |   |         |       
|                                 |                 | $ | 110,102        |        |                   | $ | 106,405 |       
|                                 |                 |   |                |        |                   |   |         |       

3. NET INCOME PER SHARE

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

|                                                 |                              |           |             |                    |      |               |             |           |      | 
|------------------------------------------------ | ---------------------------- | --------- | ----------- | ------------------ | ---- | ------------- | ----------- | --------- | ---- | 
|                                                 |                              |           |             | THREE MONTHS ENDED
|                                                 |                              |           |             |                   
|                                                 |                              |           |             | MARCH 31, 2001     |      | APRIL 1, 2000
|                                                 |                              |           |             |                    |      |              
|NUMERATOR  BASIC AND DILUTED                    |                              |           |             |                    |      |               |             |          
|Net income                                       |                              | $         | 1,339       |                    |      | $             | 27,601      |          
|                                                 |                              |           |             |                    |      |               |             |          
|Net income available to common stockholders      |                              | $         | 1,339       |                    |      | $             | 27,601      |          
|                                                 |                              |           |             |                    |      |               |             |          
|DENOMINATOR                                      |                              |           |             |                    |      |               |             |          
|Basic weighted average common shares outstanding |                              |           | 114,865,211 |                    |      |               | 114,029,979 |          
|Effect of dilutive securities:                   |                              |           |             |                    |      |               |             |          
|                                                 | Common stock options         |           |             | 2,268,373          |      |               |             | 4,007,227 |     
|                                                 | Contingently issuable shares |           |             | 1,767,500          |      |               |             |          |     
|                                                 |                              |           |             |                    |      |               |             |          
|Diluted weighted average common shares           |                              |           | 118,901,084 |                    |      |               | 118,037,206 |          
|                                                 |                              |           |             |                    |      |               |             |          
|Net income per share                             |  basic                      |           | $           | 0.01               |      |               | $           | 0.24      |     
|                                                 |                              |           |             |                    |      |               |             |          
|                                                 |                              |  diluted |             | $                  | 0.01 |               |             | $         | 0.23 | 
|                                                 |                              |           |             |                    |      |               |             |          

4. SEGMENT AND MAJOR CUSTOMERS INFORMATION

Based on the criteria set forth in SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, the Company has determined
that it has two reportable segments; hard disk drive

4



---



##### Table of Contents



MAXTOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

operations and the network systems group. The Company has a worldwide sales,
service and distribution network. Products are marketed and sold through a
direct sales force to OEMs, distributors and retailers in the United States,
Europe and Asia Pacific.

The following table presents net revenue and net income (loss) for groups
of similar products:

|                   |                            |       |   |                    |         |               |   |         |         | 
|------------------ | -------------------------- | ----- | - | ------------------ | ------- | ------------- | - | ------- | ------- | 
|                   |                            |       |   | THREE MONTHS ENDED
|                   |                            |       |   |                   
|                   |                            |       |   | MARCH 31, 2001     |         | APRIL 1, 2000
|                   |                            |       |   |                    |         |              
|                   |                            |       |   | (IN THOUSANDS)    
|Net revenues:      |                            |       |   |                    |         |               |   |        
|                   | Hard Disk Drive Operations |       | $ | 626,563            |         |               | $ | 689,157 |        
|                   | Network Systems Group      |       |   | 4,258              |         |               |   | 2,129   |        
|                   |                            |       |   |                    |         |               |   |        
|                   |                            | Total |   | $                  | 630,821 |               |   | $       | 691,286 | 
|                   |                            |       |   |                    |         |               |   |        
|Net income (loss): |                            |       |   |                    |         |               |   |        
|                   | Hard Disk Drive Operations |       | $ | 13,574             |         |               | $ | 36,142  |        
|                   | Network Systems Group      |       |   | (12,235            | )       |               |   | (8,541  | )      
|                   |                            |       |   |                    |         |               |   |        
|                   |                            | Total |   | $                  | 1,339   |               |   | $       | 27,601  | 
|                   |                            |       |   |                    |         |               |   |        

Assets of the segment groups are not meaningful for management of the
business or for disclosure.

Operations outside the United States primarily consist of the manufacturing
plant in Singapore that produces subassemblies and final assemblies for the
Companys disk drive products. Revenue by destination and long-lived asset
information by geographic area for the three months ended March 31, 2001 and
April 1, 2000 is presented in the following table:

|                        |       |   |                    |         |                    |   |            |         |        |   |         |         |            |   |        |         | 
|----------------------- | ----- | - | ------------------ | ------- | ------------------ | - | ---------- | ------- | ------ | - | ------- | ------- | ---------- | - | ------ | ------- | 
|                        |       |   | THREE MONTHS ENDED |         | THREE MONTHS ENDED
|                        |       |   | MARCH 31, 2001     |         | APRIL 1, 2000     
|                        |       |   |                    |         |                   
|                        |       |   |                    |         |                    |   | LONG-LIVED |         |        |   |         |         | LONG-LIVED
|                        |       |   | REVENUE            |         | ASSETS             |   | REVENUE    |         | ASSETS
|                        |       |   |                    |         |                    |   |            |         |       
|                        |       |   | (IN THOUSANDS)    
|United States           |       | $ | 288,511            |         |                    | $ | 58,692     |         |        | $ | 308,332 |         |            | $ | 52,317 |        
|Asia Pacific            |       |   | 170,981            |         |                    |   | 128,819    |         |        |   | 190,277 |         |            |   | 72,710 |        
|Europe                  |       |   | 144,962            |         |                    |   | 997        |         |        |   | 161,310 |         |            |   | 1,022  |        
|Latin America and other |       |   | 26,367             |         |                    |   | 0          |         |        |   | 31,367  |         |            |   | 0      |        
|                        |       |   |                    |         |                    |   |            |         |        |   |         |         |            |   |        |        
|                        | Total |   | $                  | 630,821 |                    |   | $          | 188,508 |        |   | $       | 691,286 |            |   | $      | 126,049 | 
|                        |       |   |                    |         |                    |   |            |         |        |   |         |         |            |   |        |        

Revenues are substantially originated from the United States. No individual
foreign countrys revenue is material to the Company as a whole. Long-lived
assets located outside the United States consist primarily of the Companys
manufacturing operations located in Singapore.

Sales to OEMs represented 70% of total revenue for both the three months
ended March 31, 2001 and April 1, 2000.

5. CONCENTRATION OF CREDIT RISK

As of March 31, 2001, included in the cash and cash equivalents is an
amount of $167.4 million that relates to marketable securities held by Maxtor
subsidiary in Singapore. This balance amounted to $155.6 million as of December
30, 2000.

5



---



##### Table of Contents



MAXTOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

6. RELATED PARTY TRANSACTION

The Company had cost of revenue that included certain component parts
purchased from MMC Technology, Inc., a wholly owned subsidiary of HEA, amounting
to $38 million for the quarter ended March 31, 2001 and $41 million during the
comparable quarter of fiscal 2000. The cost of revenue also includes certain
component parts purchased from Hynix Semiconductor America (HSA) which to date
have not been significant.

7. CONTINGENCIES

The Company was previously involved in a dispute with StorMedia
Incorporated, which arose out of an agreement among Maxtor, StorMedia and Hynix
Semiconductor Inc., formerly Hyundai Electronics Industries Co. Ltd. (HSI). On
February 8, 2001, the Bankruptcy Court for the Northern District of California,
San Jose Division, entered an order implementing and approving as fair and
reasonable the terms of a settlement agreement pursuant to which HSI., and
Maxtor paid to StorMedia an aggregate of $9.7 million in settlement of the
parties dispute. This settlement amount is accrued in Maxtors fiscal year 2000
financial statements. The settlement is now final and all cases relating to this
matter have been dismissed.

The Company also has been in litigation with Magnetic Media Development,
LLC, or MMD, in the United States District Court for the Central District of
California, over assertions that Maxtor infringed certain patents owned by MMD.
The patents relate to magnetic media that Maxtor purchases from third party
media vendors for use in its hard disk drives. The Company made a settlement
payment on March 26, 2001 to MMD and obtained a release from MMD of all claims
asserted or that could have been asserted against Maxtor. Additionally, the
Company has obtained a paid-up license for any future activities that may come
within the scope of the MMD patents. The pending lawsuit was dismissed on March
28, 2001 with prejudice.

On March 18, 1999, Maxtor was sued by Papst Licensing, GmbH, a German
corporation, for infringement of a number of patents that relate to hard disk
drives. Quantum had also been sued by Papst prior to the merger. Both lawsuits,
filed in the United States District Court for the Northern District of
California, were transferred by the Judicial Panel on Multidistrict to the
United States District Court for the Eastern District of Louisiana for
coordinated pre-trial proceedings with several other pending litigations
involving the Papst patents. Papsts infringement allegations are based on
spindle motors that Maxtor and Quantum had purchased from third party motor
vendors, and the use of such spindle motors in hard disk drives. Maxtor
purchased the overwhelming majority of the spindle motors used in its hard disk
drives from vendors that were licensed under Papsts patents. Quantum purchased
many spindle motors used in its hard disk drives from vendors that were not
licensed under Papsts patents. As part of the Quantum/Maxtor merger, Maxtor
will assume Quantums potential liabilities to Papst. A motion to substitute
Maxtor for Quantum in this litigation will be presented to the court.

While the Company believes it has valid defenses to Papsts claims, the
results of any litigation are inherently uncertain and other infringement claims
relating to current patents, pending patent applications, and/or future patent
applications or issued patents could be asserted by Papst. Additionally, we
cannot assure you that we will be able to successfully defend ourselves against
this or any other Papst lawsuit. The Papst complaint asserts claims to an
unspecified dollar amount of damages. A favorable outcome for Papst in this
lawsuit 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. Accordingly, a litigation
outcome favorable to Papst could harm our business, financial condition, and
operating results.

8. RECLASSIFICATIONS

Certain reclassifications have been made to prior quarter balances to
conform to current quarter classifications.

6



---



##### Table of Contents



MAXTOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

9. QUANTUM HDD ACQUISITION

On April 2, 2001, Maxtor completed the business combination transaction
with the hard disk drive business (HDD) of Quantum Corporation (Quantum).
The merger was effected in accordance with the Amended and Restated Agreement
and Plan of Merger and Reorganization (the Merger Agreement), dated as of
October 3, 2000, by and among Quantum, Insula Corporation, a Delaware
corporation and a wholly owned subsidiary of Quantum (Insula), Maxtor, and
Hawaii Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of Maxtor. Pursuant to the Merger Agreement, Quantum split off HDD
into Insula and redeemed the Quantum HDD common stock in exchange for Insula
stock. Immediately thereafter, Insula was merged with and into Maxtor, with
Maxtor continuing after the merger as the surviving corporation. The merger was
approved by the stockholders of both companies on March 30, 2001. The merger is
intended to qualify as a tax-free reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended and will be accounted for
as a purchase. A full description of the transaction is contained in the joint
proxy statement/prospectus of Maxtor and Quantum dated March 1, 2001.

As of the effective time of the merger, each share of Quantum HDD common
stock was converted into 1.52 shares of Maxtor common stock, and each
outstanding Quantum HDD option assumed by Maxtor was converted into an option to
purchase Maxtor common stock, with appropriate adjustment to the exercise price
and share numbers in accordance with the exchange ratio.

As a result of the Merger, Maxtor issued 121,060,500 shares of Maxtor
common stock and assumed options to purchase 13,142,573 shares of Maxtor common
stock.

10. RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities  Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133, and Statement of
Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133 (referred to hereafter as FAS 133), on January 1, 2001. There is no
material impact to the financial statements that results from the adoption of
FAS 133 as of March 31, 2001.

In September 2000, the Financial Accounting Standards Board (FASB) issued
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which replaces SFAS No. 125 Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
It revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but it
carries over most of provisions in SFAS 125 without reconsideration. SFAS No.
140 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. SFAS 140 is effective for recognition and reclassification
of collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. Disclosures about
securitization and collateral accepted need not be reported for periods ending
on or before December 15, 2000, for which financial statements are presented for
comparative purposes.

This Statement is to be applied prospectively with certain exceptions. The
Company has adopted the provisions of SFAS No. 140 without significant impact on
the Companys financial statements.

7



---



##### Table of Contents






|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|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 including
those discussed in Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations: Results of Operations; Liquidity and
Capital Resources; Certain Factors Affecting Future Performance; and
elsewhere in this report. In this report, the words anticipate, believe,
expect, intend, future, may, will, should, plan, estimate,
predict, potential, continue, and 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 risk factors and
elsewhere in this report.

Maxtor®, DiamondMax®, Formula 4®, and Maxfax® are registered
trademarks and NoQuibble® is a registered servicemark of Maxtor. The Maxtor
logo, MaxAttach and ReflectIt are trademarks of Maxtor. All other brand
names and trademarks appearing in this report are the property of their
respective holders.

ACQUISITION OF QUANTUM HDD

On April 2, 2001, Maxtor completed the business combination transaction
with the hard disk drive business (HDD) of Quantum Corporation (Quantum).
The merger was effected in accordance with the Amended and Restated Agreement
and Plan of Merger and Reorganization (the Merger Agreement), dated as of
October 3, 2000, by and among Quantum, Insula Corporation, a Delaware
corporation and a wholly owned subsidiary of Quantum (Insula), Maxtor, and
Hawaii Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of Maxtor. Pursuant to the Merger Agreement, Quantum split off HDD
into Insula and redeemed the Quantum HDD common stock in exchange for Insula
stock. Immediately thereafter, Insula was merged with and into Maxtor, with
Maxtor continuing after the merger as the surviving corporation. The merger was
approved by the stockholders of both companies on March 30, 2001. The merger is
intended to qualify as a tax-free reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended and will be accounted for
as a purchase. A full description of the transaction is contained in the joint
proxy statement/prospectus of Maxtor and Quantum dated March 1, 2001.

As of the effective time of the merger, each share of Quantum HDD common
stock was converted into 1.52 shares of Maxtor common stock, and each
outstanding Quantum HDD option assumed by Maxtor was converted into an option to
purchase Maxtor common stock, with appropriate adjustment to the exercise price
and share numbers in accordance with the exchange ratio.

As a result of the Merger, Maxtor issued 121,060,500 shares of Maxtor
common stock and assumed options to purchase 13,142,573 shares of Maxtor common
stock.

8



---



##### Table of Contents



REVENUE AND GROSS PROFIT

|                            |  |                    |       |               |  |        |       |   |  |   |       |  
|--------------------------- |  | ------------------ | ----- | ------------- |  | ------ | ----- | - |  | - | ----- | -
|                            |  | THREE MONTHS ENDED |       |               |  |       
|                            |  |                    |       |               |  |       
|                            |  | MARCH 31, 2001     |       | APRIL 1, 2000 |  | CHANGE
|                            |  |                    |       |               |  |       
|                            |  | (UNAUDITED)        |       |               |  |       
|                            |  | (IN MILLIONS)      |       |               |  |       
|Total revenue               |  | $                  | 630.8 |               |  | $      | 691.3 |   |  | $ | (60.5 | )
|Gross profit                |  | $                  | 89.0  |               |  | $      | 108.8 |   |  | $ | (19.8 | )
|Net income                  |  | $                  | 1.3   |               |  | $      | 27.6  |   |  | $ | (26.3 | )
|As a percentage of revenue: |  |                    |       |               |  |        |       |   |  |   |       |  
|Total revenue               |  |                    | 100.0 | %             |  |        | 100.0 | % |  |   |       |  
|Gross profit                |  |                    | 14.1  | %             |  |        | 15.7  | % |  |   |       |  
|Net income                  |  |                    | 0.2   | %             |  |        | 4.0   | % |  |   |       |  

Revenues

Total revenue for the first quarter of fiscal year 2001 decreased 8.7%
compared to the same quarter in fiscal year 2000 primarily due to the decrease
in average selling price. Total shipments for the first fiscal quarter 2001 were
6.7 million units, which was .2 million units or .3% higher compared to the
first fiscal quarter a year ago. Revenue from the Original Equipment
Manufacturer (OEM) channel for the quarter ended March 31, 2001 represented
69.5% of total revenue compared to 70.4% for the corresponding quarter in 2000.
Revenue from the distribution and retail channels represented 30.5% of total
revenue for the first quarter in 2001 compared to 29.6% for the same quarter in
fiscal year 2000.

Softening demand for PC systems affected the demand for hard drives and
made inventory management especially critical. Despite the environment, Maxtor
experienced unit volume growth in the first quarter of 2001.

Gross Profit

Gross profit as a percentage of revenue decreased to 14.1% in the first
quarter of 2001 from 15.7% in the same quarter of 2000. The decrease in gross
profit is due, overall, to the decrease in the average selling price compared to
the average unit cost.

OPERATING EXPENSES

|                                                     |  |                    |      |               |  |        |      |   |  |   |     | 
|---------------------------------------------------- |  | ------------------ | ---- | ------------- |  | ------ | ---- | - |  | - | --- | 
|                                                     |  | THREE MONTHS ENDED |      |               |  |       
|                                                     |  |                    |      |               |  |       
|                                                     |  | MARCH 31, 2001     |      | APRIL 1, 2000 |  | CHANGE
|                                                     |  |                    |      |               |  |       
|                                                     |  | (UNAUDITED)        |      |               |  |       
|                                                     |  | (IN MILLIONS)      |      |               |  |       
|Research and development                             |  | $                  | 59.0 |               |  | $      | 55.4 |   |  | $ | 3.6 | 
|Selling, general and administrative                  |  | $                  | 27.5 |               |  | $      | 25.3 |   |  | $ | 2.2 | 
|Amortization of goodwill and other intangible
assets |  | $                  | 2.5  |               |  | $      | 2.5  |   |  | $ |    | 
|As a percentage of revenue:                          |  |                    |      |               |  |        |      |   |  |   |     | 
|Research and development                             |  |                    | 9.4  | %             |  |        | 8.0  | % |  |   |     | 
|Selling, general and administrative                  |  |                    | 4.4  | %             |  |        | 4.0  | % |  |   |     | 
|Amortization of goodwill and other intangible
assets |  |                    | 0.4  | %             |  |        | 0.3  | % |  |   |     | 

Research and Development (R&D)

R&D expense as a percentage of revenue increased to 9.4% in the first
quarter of 2001 compared to 8.0% for the same quarter in 2000. The absolute
dollar level of R&D expenditures was $59.0 million in the first quarter of 2001
compared to $55.4 million in the first quarter of 2000. The increase in R&D
percentage of revenue and in absolute dollars was due to our continued efforts
to maintain leadership products that address the requirements of the desktop PC
market, as well as continued investments in the Network Systems Group targeting
higher functionality products.

9



---



##### Table of Contents



Selling, General and Administrative (SG&A)

SG&A expense as a percentage of revenue increased to 4.4% in the first
quarter of 2001 compared to 4.0% for the same quarter in 2000. The increase in
absolute dollars for SG&A is primarily due to our costs associated with
supporting Maxtors higher sales volume and increased emphasis in the
distribution and retail markets, as well as support for a broader Network
Systems Group product portfolio.

Stock Compensation

In 1996, we adopted the 1996 Stock Option Plan (the Plan), pursuant to
which substantially all of our domestic employees and certain international
employees received options that were required to be accounted for as variable
options. These options, which were granted between May 1996 and October 1997,
required remeasurement of any intrinsic compensation element at each reporting
date determined by the difference between the estimated current fair value of
our stock and the exercise price of the options. In the first quarter of 1998,
we amended and restated the Plan to remove the variable features and all grants
subsequent to October 1997 have been subject to fixed terms. In the second
quarter of 1998, we offered and re-issued new fixed-award options in exchange
for options previously issued under variable terms, thereby eliminating the
requirement to remeasure these options in subsequent periods. In connection
therewith, we recorded compensation expense related to the difference between
the estimated fair market value of our stock as of March 28, 1998 and the stated
value of our options. Compensation cost was reflected in accordance with
Financial Accounting Standards Board Interpretation No. 28, Accounting for
Stock Appreciation Rights and Other Variable Stock Option or Award Plans.
Accordingly, we recorded non-cash compensation expense of $0.1 million in the
first three months of 2001 and $0.3 million in the first three months of 2000.
The remaining unrecognized compensation element will be reflected in quarterly
charges, decreasing sequentially through the second quarter of 2001 with an
adjustment relating to forfeitures of employee stock options for which
compensation charges had previously been recorded.

Amortization of Goodwill and Other Intangible Assets

Amortization of goodwill and other intangible assets represents the
amortization of workforce, customer list and other current products and
technology, arising from our acquisition of CDS in September 1999.

Interest Expense and Interest Income

|                            |  |                    |     |               |  |        |     |   |  |   |      |  
|--------------------------- |  | ------------------ | --- | ------------- |  | ------ | --- | - |  | - | ---- | -
|                            |  | THREE MONTHS ENDED |     |               |  |       
|                            |  |                    |     |               |  |       
|                            |  | MARCH 31, 2001     |     | APRIL 1, 2000 |  | CHANGE
|                            |  |                    |     |               |  |       
|                            |  | (UNAUDITED)        |     |               |  |       
|                            |  | (IN MILLIONS)      |     |               |  |       
|Interest expense            |  | $                  | 2.9 |               |  | $      | 3.9 |   |  | $ | (1.0 | )
|Interest and other income   |  | $                  | 5.8 |               |  | $      | 7.3 |   |  | $ | (1.5 | )
|Other loss                  |  | $                  | 1.3 |               |  | $      |    |   |  | $ | 1.3  |  
|As a percentage of revenue: |  |                    |     |               |  |        |     |   |  |   |      |  
|Interest expense            |  |                    | 0.5 | %             |  |        | 0.6 | % |  |   |      |  
|Interest and other income   |  |                    | 0.9 | %             |  |        | 1.1 | % |  |   |      |  
|Other loss                  |  |                    | 0.2 | %             |  |        | 0.0 | % |  |   |      |  

Interest Expense

Interest expense as a percentage of revenue decreased from 0.6% in the
first quarter of 2000 to 0.5% in the first quarter of fiscal year 2001. In
absolute dollar terms, interest expense decreased by $1.0 million in the first
quarter of 2001. Our total short-term and long-term outstanding borrowings were
$113.0 million as of April 1, 2000 and $98.9 million as of March 31, 2001.

10



---



##### Table of Contents



Interest and Other Income

Interest and other income in the first quarter of 2001 decreased in both
absolute dollar amount and as a percentage of revenue when compared to the first
quarter of 2000. Our total cash and cash equivalents and marketable securities
were $378.4 million as of April 1, 2000 compared to $348.6 million as of March
31, 2001.

Other loss relates to an impairment of an investment in marketable
securities.

Provision for Income Taxes

|                                         |  |                    |     |               |  |        |      |  |  |   |       |  
|---------------------------------------- |  | ------------------ | --- | ------------- |  | ------ | ---- |  |  | - | ----- | -
|                                         |  | THREE MONTHS ENDED |     |               |  |       
|                                         |  |                    |     |               |  |       
|                                         |  | MARCH 31, 2001     |     | APRIL 1, 2000 |  | CHANGE
|                                         |  |                    |     |               |  |       
|                                         |  | (UNAUDITED)        |     |               |  |       
|                                         |  | (IN MILLIONS)      |     |               |  |       
|Income before provision for income taxes |  | $                  | 1.6 |               |  | $      | 29.1 |  |  | $ | (27.5 | )
|Provision for income taxes               |  | $                  | 0.2 |               |  | $      | 1.5  |  |  | $ | (1.3  | )

The provision for income taxes consists primarily of federal alternative
minimum tax and foreign taxes. Due to our net operating losses (NOL), NOL
carryforwards and favorable tax status in Singapore, we have not incurred any
significant foreign, U.S. federal, state or local income taxes for the current
or prior fiscal periods.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2001, we had $348.6 million in cash, and cash equivalents
and marketable securities as compared to $376.2 million at December 30, 2000.

Operating activities provided net cash of $13.9 million for the three month
period ended March 31, 2001. The cash provided from operating activities was
generated from net income after adjustment for depreciation and amortization,
and from a reduction of accounts receivable, which was partially offset by the
decrease in accounts payable and accrued and other liabilities.

Investing activities used cash of $23.4 million during the first three
months of 2001, principally for the purchase of property, plant and equipment
partially offset by the proceeds from marketable securities of $64.1 million.
Financing activities used cash of $3.7 million, due to the repayment of debt,
net of proceeds from the sale of common stock through employee purchase plans
and exercised stock options.

As of March 31, 2001, our outstanding debt comprised $77.7 million of
publicly-traded subordinated debentures, due March 1, 2012 and a Singapore
dollar denominated loan equivalent to $21.2 million from the Economic Board of
Development of Singapore, which is guaranteed by a bank. Our outstanding
subordinated debentures are entitled to annual sinking fund payments of $5.0
million, which commenced March 1, 1998. These debentures no longer are
convertible into our common stock or any other security of Maxtor. The Singapore
dollar denominated loan has seven consecutive semi-annual installment payments,
which commenced on March 1, 2001. This resulted in a foreign exchange gain of
$0.8 million for the first three months of 2001.

We also have a $200.0 million asset securitization program with Fleet
National Bank under which we sell our eligible trade accounts receivable on a
non-recourse basis through a special purpose entity. At March 31, 2001, $90.0
million of accounts receivable was securitized under the program and excluded
from our accounts receivable balance. This securitization program is scheduled
to expire in July 2001 and the Company is currently negotiating a new facility
of between $200 million to $350 million with prospective lenders. The Company
expects to have a replacement facility in place prior to the expiration of the
facility.

We believe the existing capital resources, together with cash generated
from operations and 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 2001, capital
expenditures are expected to be between

11



---



##### Table of Contents



approximately $170.0 million and $195.0 million, primarily used for
manufacturing upgrades, 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. However, our ability to
generate cash will depend on, among other things, demand in the desktop 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, if
obtained, that it will be available on satisfactory terms. See discussion below
under the heading Certain Factors Affecting Future Performance.

CERTAIN FACTORS AFFECTING FUTURE PERFORMANCE

WE HAVE A HISTORY OF LOSSES AND MAY NOT SUSTAIN PROFITABILITY.

We have a history of significant losses. In the last five fiscal years, we
have been profitable in only fiscal years 1998 and 2000. Although we achieved
profitability in the most recent fiscal year, we cannot assure you that we will
sustain profitability. During the quarter ended March 31, 2001 the Company had
net income of $1.3 million as compared to $27.6 during the same quarter of
fiscal 2000.

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 increase in the industry
supply. End-user demand for the computer systems that contain our hard disk
drives has historically been subject to rapid and unpredictable fluctuations. As
a result, the hard disk drive market tends to experience periods of excess
capacity and intense price competition. When competitors lower prices to
liquidate excess inventories, restructure, or attempt to gain market share,
average selling prices also decline. This intense price competition could force
us to lower prices, which would reduce margins, cause operating results to
suffer and make it difficult for us to achieve or maintain profitability. In
addition, the growth of the lower priced personal computer market has forced the
cost of desktop hard disk drives to decline. If we are unable to lower the cost
of our hard disk drives for the lower-priced personal computer market, we will
not be able to compete effectively and our operating results would 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 SUCH AS 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 such as Dell, Compaq or IBM;                                                    
|
| |  |  | changes in stock market analysts estimates;                                                                             
|
| |  |  | the presence or absence of short-selling of our common stock;                                                            
|
| |  |  | events affecting other companies that the market deems comparable to
Maxtor;                                             
|
| |  |  | general conditions in the semiconductor and electronic systems
industries; and                                           
|
| |  |  | general economic conditions in the United States and abroad.                                                             

12



---



##### Table of Contents



OUR QUARTERLY OPERATING RESULTS HAVE FLUCTUATED SUBSTANTIALLY 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 cyclical
and seasonal nature of the desktop computer industry;
|
| |  |  | the availability, and efficient use, of manufacturing capacity;                                                              
|
| |  |  | competitors introducing better products at competitive prices before we
do;                                                  
|
| |  |  | new competitors entering our market;                                                                                         
|
| |  |  | our ability to successfully qualify our products with our customers;                                                         
|
| |  |  | our customers canceling, rescheduling or deferring orders;                                                                   
|
| |  |  | our ability to purchase components at competitive prices;                                                                    
|
| |  |  | the availability of adequate capital resources; and                                                                          
|
| |  |  | other general economic and competitive factors.                                                                              

Many of our expenses are relatively fixed and difficult to reduce or
modify. As a result, the fixed nature of our operating expenses will magnify any
adverse effect of a decrease in revenue on our operating results. If our future
operating results are below the expectations of stock market analysts, our stock
price may decline.

OUR STOCK PRICE MAY BE AFFECTED BY SALES OF OUR COMMON STOCK BY HYNIX
SEMICONDUCTOR AMERICA.

Our stock price may be affected by sales of our common stock by Hynix
Semiconductor America (HSA) or the perception that such sales may occur due to
the financial condition of (HSI) affiliates or otherwise. On May 7, 2001, HSA
requested registration of approximately 28.3 million shares of Maxtor common
stock pursuant to its rights under the stockholders agreement between Maxtor,
HSA and HSI dated June 25, 1998, as amended on October 3, 2000, and advised that
it intends to sell shares in a firm underwritten offering. There can be no
assurance that a registration statement will be filed or that, if filed, shares
will be sold.

In February 1999, DECS Trust IV, a newly formed trust, sold 12,500,000 DECS
to several institutional investors in a registered public offering. It is
anticipated that these would be included in the registration requested by HSA.
The DECS are securities that represent all of the beneficial interest in DECS
Trust IV, which owns U.S. treasury securities and a prepaid forward contract to
purchase Maxtor common stock from HSA. The trust will terminate on or shortly
after February 15, 2002, or upon earlier liquidation of DECS Trust IV under
certain circumstances. When the trust terminates, HSA will deliver, at its
option, either cash or Maxtor common stock to the trust. If holders of DECS
receive shares of Maxtor common stock at the termination of the trust, such
holders may sell those shares distributed to them in the open market at or after
the distribution occurs. We cannot predict whether HSA will deliver shares of
Maxtor stock to the trust on its termination or when or whether holders of the
DECS will resell any shares of Maxtor stock they receive. Further, any market
that develops for the DECS could reduce the demand for our common stock or
otherwise negatively impact the market price of our common stock.

IF WE FAIL TO QUALIFY AS A SUPPLIER TO DESKTOP COMPUTER MANUFACTURERS, THEN
THESE MANUFACTURERS MAY NOT PURCHASE ANY UNITS OF AN ENTIRE PRODUCT LINE WHICH
WILL HAVE A SIGNIFICANT IMPACT ON OUR SALES.

Most of our products are sold to desktop computer manufacturers. These
manufacturers select or qualify their hard disk drive supplies based on quality,
storage capacity, performance and price. Manufacturers typically seek to qualify
three or four suppliers for each hard disk drive product generation. To qualify

13



---



##### Table of Contents



consistently with these manufacturers and thus succeed in the desktop hard disk
drive industry, we must consistently be among the first-to-market introduction
and first-to-volume production at leading storage capacity per disk, offering
competitive prices and high quality. Once a manufacturer has chosen its hard
disk drive suppliers for a given desktop computer 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 until it introduces
its 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. If we do not reach the market or deliver volume production
in a timely manner, we may lose opportunities to qualify our products. In such
case, our gross margins would decline due to rapidly declining average selling
prices, and we would lose market share. Loss of market share would have a
negative impact on our business, financial condition and operating results.

BECAUSE WE WILL BE SUBSTANTIALLY DEPENDENT ON DESKTOP COMPUTER DRIVE SALES, A
DECREASE IN THE DEMAND FOR DESKTOP COMPUTERS COULD REDUCE DEMAND FOR OUR
PRODUCTS.

Although there has been significant growth in the demand for desktop
computers over the past several years, according to International Data
Corporation, the growth rate in desktop computer sales has slowed in recent
fiscal quarters. Because we will rely substantially on 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.

IF WE DO NOT DIVERSIFY OUR OPERATIONS, EXPAND INTO NEW HARD DRIVE MARKET
SEGMENTS, OR CONTINUE TO MAINTAIN OUR PRESENCE IN THE DESKTOP MARKET, OUR
REVENUES WILL SUFFER.

To remain a significant supplier of hard disk drives to major manufacturers
of personal computers, we will need to offer a broad range of hard disk drive
products to our customers. Although our current products are designed for the
largest segment of the hard disk drive industry, the desktop computer area,
demand may shift to other segments over time. None of our products yet serve the
laptop personal computer segment. Accordingly, we will need to develop and
manufacture new products that address additional hard disk drive segments and
emerging technologies to remain competitive in the hard disk drive industry. We
cannot assure you that we will:



| |  |  | successfully or timely develop or market any new hard disk drives in
response to technological changes or evolving industry standards;                    
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | avoid technical or other difficulties that could delay or prevent the
successful development, introduction or marketing of new hard disk
drives;          
|
| |  |  | successfully qualify new hard disk drives, particularly high-end hard
disk drives, with customers by meeting their performance and quality
specifications;
|
| |  |  | quickly achieve high volume production of new hard disk drives; or                                                                                        
|
| |  |  | achieve market acceptance of our new products.                                                                                                            

Any failure to successfully develop and introduce new products for our
existing customers or to address specifically additional market segments could
harm our business, financial condition and operating results.

THE LOSS OF ONE OR MORE OF OUR 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
quarter ended March 31, 2001, one customer, Dell, accounted for approximately
18% of our revenue, and our top five customers accounted for approximately 40%
of our revenue. It is expected that a relatively small number of customers will
continue to account for a significant portion of our revenue after the merger,
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

14



---



##### Table of Contents



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 products 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 revenue would decline, which would cause our
business, financial condition and operating results to suffer.

COSTLY NEW DEMANDS BY OUR CUSTOMERS ARE INCREASING THE RISK OF INVENTORY
OBSOLESCENCE AND DECLINING AVERAGE SELLING PRICES.

Our customers are adopting more sophisticated business models that place
additional strains on our business. For example, many personal computer
manufacturers, including some of the largest personal computer manufacturing
customers, may adopt build-to-order manufacturing models that reduce their
component inventories and related costs and enable them to tailor their products
more specifically to the needs of consumers.

Some of our personal computer manufacturing customers also are considering
or have implemented a channel assembly model in which the manufacturer ships a
minimal computer system to the dealer or other assembler, and component
suppliers (including hard disk drive manufacturers) ship parts directly to the
dealer or other assembler for installation at its location. Finally, some of our
manufacturing customers have adopted just-in-time inventory management processes
that require component suppliers to maintain inventory at or near the customers
production facility. These new business models require us to hold products in
inventory longer. These changing policies also increase our capital requirements
and costs, complicate inventory management strategies and make it difficult to
match manufacturing plans with projected customer demand. As a result, there is
an increased risk that inventory will become obsolete or average selling price
could decline, either of which could cause our operating results to suffer.

INTENSE COMPETITION IN THE HARD DISK DRIVE SEGMENT COULD REDUCE THE DEMAND FOR
OUR PRODUCTS OR THE PRICES OF OUR PRODUCTS WHICH COULD REDUCE OUR REVENUES.

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 for the personal
computer industry, including Fujitsu, IBM, Samsung, Seagate Technology and
Western Digital. Many of our competitors historically have had a number of
significant advantages, including larger market shares, a broader array of
product lines, preferred vendor status with customers, extensive name
recognition and marketing power, and significantly greater financial, technical
and manufacturing resources.

Although we are expected to be one of the largest hard disk drive
manufacturers after the merger, our size alone will not eliminate all of the
advantages of our competitors. 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 among themselves to
lower their product costs or to otherwise compete more effectively
against us;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | lower their product prices to gain market share; or                                                                                                
|
| |  |  | bundle their products with other products to increase demand for their
products.                                                                   

Competition could reduce the demand for our products and/or the prices of
our 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.

15



---



##### Table of Contents



POWER OUTAGES WHICH CURRENTLY IMPACT COMPANIES WITH FACILITIES IN CALIFORNIA MAY
ADVERSELY EFFECT OUR CALIFORNIA FACILITIES.

We conduct substantial operations in the state of California and rely on a
continuous power supply to conduct operations. Californias current energy
crisis could substantially disrupt our operations and increase our expenses. In
the event of an acute power shortage, that is, when power reserves for the state
of California fall below 1.5%, California has on some occasions implemented, and
may in the future continue to implement, rolling blackouts throughout the state.
Although state lawmakers are working to minimize the impact, if blackouts
interrupt our power supply, we may be temporarily unable to continue operations
at our facilities. Any such interruption in our ability to continue operations
at our facilities could delay the development of our products and disrupt
communications with our customers, suppliers or our manufacturing operations.
Future interruptions could damage our reputation and could result in lost
revenue, either of which could substantially harm our business and results of
operations. Furthermore, the deregulation of the energy industry instituted in
1996 by the California government and shortages in wholesale electricity
supplies have caused power prices to increase. If wholesale prices continue to
increase, our operating expenses will likely increase which will have a negative
effect on our operating results.

IF WE DO NOT HAVE ADEQUATE MANUFACTURING CAPACITY IN THE FUTURE BECAUSE OF A
NATURAL DISASTER AT ONE OF OUR PLANTS OR AN INABILITY TO ACQUIRE NEEDED
ADDITIONAL MANUFACTURING CAPACITY, OUR GROWTH WILL BE ADVERSELY IMPACTED AND OUR
BUSINESS COULD SUFFER.

Our volume manufacturing operations are based primarily in Singapore. A
flood, earthquake, political instability or other disaster or condition after
the merger affecting eithers facilities or ability to manufacture could harm
our business, financial condition and operating results. In addition, 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.

BECAUSE WE ARE DEPENDENT ON A LIMITED NUMBER OF SUPPLIERS, COMPONENT SHORTAGES
COULD RESULT IN DELAYS OF PRODUCT SHIPMENTS AND DAMAGE OUR BUSINESS AND
OPERATING RESULTS.

A number of the components used in our products are available from a
limited number of suppliers. Currently, we purchase digital signal
processor/controller and spin/servo integrated circuits only from Texas
Instruments, Inc. and purchase channel integrated circuits only from Lucent
Technologies Inc. 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. 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.

BECAUSE WE PURCHASE ALL OF OUR PARTS FROM 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
PROBLEMS WOULD CAUSE OUR BUSINESS TO SUFFER.

Unlike some of our competitors, we do not manufacture any of the parts used
in our products. Instead, our products incorporate parts designed by and
purchased from third party suppliers. Consequently, the success of our products
depends on our ability to gain access to and integrate parts that use
leading-edge technology. To successfully manage the integration of parts, we
must:



| |  |  | obtain high quality parts;                                        
| | - |  | ------------------------------------------------------------------
|
| |  |  | hire skilled personnel;                                           
|
| |  |  | effectively integrate different parts from a variety of suppliers;

16



---



##### Table of Contents





| |  |  | manage difficult scheduling and delivery problems; and
| | - |  | ------------------------------------------------------
|
| |  |  | develop and maintain relationships with key suppliers.

If we are unable to successfully integrate parts obtained from third party
suppliers, our business would suffer.

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. 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 ourself
against those claims.

WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE WHICH MAY NOT BE AVAILABLE ON
FAVORABLE TERMS OR AT ALL.

Our business is capital intensive and we may need more capital in the
future. Our future capital requirements will depend on many factors, including:



| |  |  | the rate of our sales growth;                                                                                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the level of our profits or losses;                                                                                                 
|
| |  |  | the timing and extent of our spending to expand manufacturing capacity,
support facilities upgrades and product development efforts;
|
| |  |  | the timing and size of business or technology acquisitions; and                                                                     
|
| |  |  | the timing of introductions of new products and enhancements to our
existing products.                                              

Any future equity financing will decrease the percentage equity ownership
of our stockholders and may, depending on the price at which the equity is sold,
result in significant economic dilution to them. Our board of directors will be
authorized under our charter documents to issue preferred stock with rights,
preferences or privileges senior to those of the common stock without
stockholder approval. Our recent merger with Quantum HDD limits the Companys
ability to conduct any equity financing until the second quarter of 2003.

PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED AND IT IS EXPOSED TO THIRD
PARTY CLAIMS OF INFRINGEMENT.

We have patent protection on some of our technologies. After the merger, 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. 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,

17



---



##### Table of Contents



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.

We have been sued by Papst Licensing, GmbH, a German corporation, for
infringement of a number of patents that relate to hard disk drives. Quantum had
also been sued by Papst prior to the merger. 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 several other pending litigations involving the Papst patents.
Papsts infringement allegations are based on spindle motors that Maxtor and
Quantum had purchased from third party motor vendors, and the use of such
spindle motors in hard disk drives. Maxtor purchased the overwhelming majority
of the spindle motors used in its hard disk drives from vendors that were
licensed under Papsts patents. Quantum purchased many spindle motors used in
its hard disk drives from vendors that were not licensed under Papsts patents.
As part of the Quantum/Maxtor merger, Maxtor will assume Quantums potential
liabilities to Papst. A motion to substitute Maxtor for Quantum in this
litigation will be presented to the court.

While we believe that we have valid defenses to Papsts claims, the results
of any litigation are inherently uncertain and other infringement claims
relating to current patents, pending patent applications, and/or future patent
applications or issued patents could be asserted by Papst. Additionally, we
cannot assure you that we will be able to successfully defend ourselves against
this or any other Papst lawsuit. The Papst complaint asserts claims to an
unspecified dollar amount of damages. A favorable outcome for Papst in this
lawsuit 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. Accordingly, a litigation
outcome favorable to Papst could harm our business, financial condition, and
operating results.

In addition to the Papst lawsuit, other claims of infringement have been
made against us which have not been fully assessed and which could be material.
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 alter or
stop production of our products. There can be no assurance that such licenses
can be obtained on favorable terms and conditions and failure to obtain such
licenses or unfavorable terms and conditions for such licenses could harm our
business, financial condition, and operating results.

WE WILL FACE RISKS FROM OUR SUBSTANTIAL INTERNATIONAL OPERATIONS AND SALES.

We will conduct most of our manufacturing and testing operations and will
purchase a substantial portion of our key parts outside the United States. In
particular, our manufacturing operations will be concentrated in Singapore,
where our manufacturing operations are located. Such concentration of
manufacturing operations in Singapore will likely magnify the effects on us of
any labor shortages, political disruption, trade or tariff treaty changes, or
natural disasters relating to Singapore. 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 associated with staffing and managing international
operations;  
| | - |  | ------------------------------------------------------------------------------
|
| |  |  | economic slowdown and/or downturn in the computer industry in foreign
markets;
|
| |  |  | international currency fluctuations;                                          
|
| |  |  | general strikes or other disruptions in working conditions;                   
|
| |  |  | political instability;                                                        

18



---



##### Table of Contents





| |  |  | trade restrictions;                                                                                           
| | - |  | --------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in tariffs;                                                                                           
|
| |  |  | generally longer periods to collect receivables;                                                              
|
| |  |  | unexpected changes in or impositions of legislative or regulatory
requirements;                               
|
| |  |  | reduced protection for intellectual property rights in some countries;                                        
|
| |  |  | potentially adverse taxes; and                                                                                
|
| |  |  | delays resulting from difficulty in obtaining export licenses for certain
technology and other trade barriers.

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 WILL BE 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. The standard warranties used by us
contain limits on damages and exclusions of liability for consequential damages
and for negligent or improper use of the products. We have established a
warranty provision, at the time of product shipment, in an amount equal to our
estimated warranty expenses. Although we believe that the warranty provision
will be sufficient, the failure to maintain a sufficient warranty provision or
the unenforceability of any liability limitations could harm our business,
financial condition and operating results.

WE COULD BE SUBJECT TO ENVIRONMENTAL LIABILITIES WHICH COULD INCREASE OUR
EXPENSES AND SUBJECT US TO LIABILITIES.

Although we use a limited variety of chemicals in its 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 environment 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. 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.

ANTITAKEOVER 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, however, 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 Maxtor common stock. These provisions
also may inhibit fluctuations in our stock price that could result from takeover
attempts.

19



---



##### Table of Contents



WE ARE SUBJECT TO NUMEROUS RISKS RELATED TO THE MERGER WITH QUANTUM HDD.

In addition to the general operational and financial risk factors stated
above, we are subject to a number of risks specifically related to the recently
completed merger with Quantum HDD. These risks include, but are not limited to,
the following:

| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | We may be unsuccessful in integrating Quantum HDDs business operations
with our own. The challenges involved in integrating the two businesses
include, but are not limited to, the following:                                                                                                                                                                                                                                                                                                             
|
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | retaining the existing customers and employees of each business;                                                                                                  
|
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | coordinating research and development activities to permit efficient
time-to-market introductions and time-to-volume production for new
products and technologies;
|
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | coordinating manufacturing operations in an optimum manner;                                                                                                       
|
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | integrating purchasing and procurement operations in multiple worldwide
locations;                                                                                
|
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | combining product offerings and product lines in a common platform and
incorporating acquired technology into new products effectively and
quickly;               
|
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | integrating sales efforts so that customers can do business easily with
us;                                                                                       
|
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | transitioning all world-wide facilities to common accounting and
information technology systems;                                                                  
|
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | developing and maintaining uniform standards, controls, procedures and
policies; and                                                                              
|
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | controlling the costs associated with integration.                                                                                                                
|
| |  |  | We may fail to achieve the anticipated beneficial synergies such as cost
reductions.                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | The equity interests of our stockholders may be diluted as a result of
the exercise after the closing of Quantum HDD options assumed at the
closing.                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | Our financial results will be adversely affected due to the costs of the
merger, which are expected to be between $80 million and $150 million;
amortization of goodwill and other intangibles and also due to the
liabilities of Quantum HDD assumed by us in the merger, such as any
liability incurred by Quantum HDD in connection with the Papst litigation
in which it also is a named defendant.                                                                                                     
|
| |  |  | We may be unable to enter into manufacturing and purchase agreements
with MKE, which could result in our not having a source of supply for an
adequate volume of some of our products.                                                                                                                                                                                                                                                                                                                      
|
| |  |  | We indemnified Quantum for the amount of any tax payable by Quantum as a
result of the split-off to the extent the 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 merger).                                                                                                                                                                                                                                   
|
| |  |  | In order to avoid the risk of triggering a tax obligation of Quantum, we
will be required to abide by potentially significant restrictions with
respect to our equity securities for two years after the merger which
could harm our ability to attract and retain key personnel. These same
restrictions will likely render us a less attractive acquisition
candidate for at least two years after the merger, and will also
adversely affect our ability to raise capital for two years after the
merger.

A more complete discussion of the risks relevant to the merger is found in
the proxy statement-prospectus included as part of the Form S-4 registration
statement as filed by Maxtor with the Securities and Exchange Commission on
February 28, 2001.

20



---



##### Table of Contents






ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INVESTMENT

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. Investments in both fixed rate
and floating rate interest earning instruments carry a degree of interest rate
risk. Fixed rate securities may have their fair market value adversely impacted
due to a rise in interest rates, while floating rate securities may produce less
income than expected if interest rates fall. Due in part to these factors, the
Companys future investment income may fall short of expectations due to changes
in interest rates or the Company may suffer losses in principal if forced to
sell securities which have declined in market value due to changes in interest
rates. We do not currently hedge these interest rate exposures.

The following table presents the hypothetical changes in fair values in the
financial instruments held at March 31, 2001 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
yield curve as measured by the Federal Funds Rate of plus or minus 50 basis
points (bps), 100 BPS, and 150 BPS.

|                      |  |          |         |          |  |         |         |                |  |         |         |          |  |                  |         |  |  |  |         |   |  |  |         |   |  |  |         |  
|--------------------- |  | -------- | ------- | -------- |  | ------- | ------- | -------------- |  | ------- | ------- | -------- |  | ---------------- | ------- |  |  |  | ------- | - |  |  | ------- | - |  |  | ------- | -
|                      |  |          |         |          |  |         |         |                |  |         |         |          |  | FAIR VALUE AS OF |         |  |  |  |         |   |  |  |         |   |  | 
|INVESTMENT PORTFOLIO  |  | +150 BPS |         | +100 BPS |  | +50 BPS |         | MARCH 31, 2001 |  | -50 BPS |         | -100 BPS |  | -150 BPS        
|                      |  |          |         |          |  |         |         |                |  |         |         |          |  |                 
|Financial Instruments |  |          | 166,168 |          |  |         | 166,784 |                |  |         | 167,394 |          |  |                  | 168,431 |  |  |  | 168,615 |   |  |  | 169,234 |   |  |  | 169,858 |  
|% Change              |  |          | -1.34   | %        |  |         | -0.98   | %              |  |         | -0.62   | %        |  |                  |         |  |  |  | 0.11    | % |  |  | 0.48    | % |  |  | 0.85    | %

The following table presents the hypothetical changes in the fair value of
a public equity investment that is sensitive to changes in the stock market.
This equity security is held for purposes other than trading. 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 35 percent, and plus or minus 50 percent
were selected based on the probability of their occurrence.

|                            |  |                       |       |                  |  |                       |       |                       |  |  |       |   |  |  |       |  |  |  |       |   |  |  |     |   |  |  |     |  
|--------------------------- |  | --------------------- | ----- | ---------------- |  | --------------------- | ----- | --------------------- |  |  | ----- | - |  |  | ----- |  |  |  | ----- | - |  |  | --- | - |  |  | --- | -
|                            |  | VALUATION OF SECURITY |       |                  |  |                       |       | VALUATION OF SECURITY
|                            |  | GIVEN X% DECREASE     |       | FAIR VALUE AS OF |  | GIVEN X% INCREASE    
|                            |  | IN THE SECURITY PRICE |       | MARCH 31, 2001   |  | IN THE SECURITY PRICE
|                            |  |                       |       |                  |  |                      
|% Change                    |  |                       | 50    | %                |  |                       | 25    | %                     |  |  | 15    | % |  |  |       |  |  |  | -15   | % |  |  | -25 | % |  |  | -50 | %
|Corporate equity investment |  |                       | 1,872 |                  |  |                       | 1,560 |                       |  |  | 1,435 |   |  |  | 1,248 |  |  |  | 1,061 |   |  |  | 936 |   |  |  | 624 |  

FOREIGN CURRENCY FORWARD CONTRACT

We enter into foreign exchange forward contracts to manage foreign currency
exchange risk associated with its manufacturing operations in Singapore and
sales taxes in 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 for trading purposes. We do not expect gains
or losses on these contracts to have a material impact on our financial results

21



---



##### Table of Contents






PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

The Company was previously involved in a dispute with StorMedia
Incorporated, which arose out of an agreement among Maxtor, StorMedia and Hynix
Semiconductor Inc., formerly Hyundai Electronics Industries Co. Ltd. (HSI). On
February 8, 2001, the Bankruptcy Court for the Northern District of California,
San Jose Division, entered an order implementing and approving as fair and
reasonable the terms of a settlement agreement pursuant to which HSI., and
Maxtor paid to StorMedia an aggregate of $9.7 million in settlement of the
parties dispute. This settlement amount is accrued in Maxtors fiscal year 2000
financial statements. The settlement is now final and all cases relating to this
matter have been dismissed.

The Company also has been in litigation with Magnetic Media Development,
LLC, or MMD, in the United States District Court for the Central District of
California, over assertions that Maxtor infringed certain patents owned by MMD.
The patents relate to magnetic media that Maxtor purchases from third party
media vendors for use in its hard disk drives. The Company made a settlement
payment on March 26, 2001 to MMD and obtained a release from MMD of all claims
asserted or that could have been asserted against Maxtor. Additionally, the
Company has obtained a paid-up license for any future activities that may come
within the scope of the MMD patents. The pending lawsuit was dismissed with
prejudice on March 28, 2001.

On March 18, 1999, Maxtor was sued by Papst Licensing, GmbH, a German
corporation, for infringement of a number of patents that relate to hard disk
drives. Quantum had also been sued by Papst prior to the merger. Both lawsuits,
filed in the United States District Court for the Northern District of
California, were transferred by the Judicial Panel on Multidistrict to the
United States District Court for the Eastern District of Louisiana for
coordinated pre-trial proceedings with several other pending litigations
involving the Papst patents. Papsts infringement allegations are based on
spindle motors that Maxtor and Quantum had purchased from third party motor
vendors, and the use of such spindle motors in hard disk drives. Maxtor
purchased the overwhelming majority of the spindle motors used in its hard disk
drives from vendors that were licensed under Papsts patents. Quantum purchased
many spindle motors used in its hard disk drives from vendors that were not
licensed under Papsts patents. As part of the Quantum/Maxtor merger, Maxtor
will assume Quantums potential liabilities to Papst. A motion to substitute
Maxtor for Quantum in this litigation will be presented to the court.

While the Company believes it has valid defenses to Papsts claims, the
results of any litigation are inherently uncertain and other infringement claims
relating to current patents, pending patent applications, and/or future patent
applications or issued patents could be asserted by Papst. Additionally, we
cannot assure you that we will be able to successfully defend ourselves against
this or any other Papst lawsuit. The Papst complaint asserts claims to an
unspecified dollar amount of damages. A favorable outcome for Papst in this
lawsuit 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. Accordingly, a litigation
outcome favorable to Papst could harm our business, financial condition, and
operating results.




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

A special meeting of the stockholders of Maxtor was held on March
30, 2001. Following are the matters voted upon at the meeting, and the number of
votes cast for or against, as well as the number of abstentions and broker
non-votes for each such matter:

Matter 1. Proposal to adopt the Amended and Restated Agreement
and Plan of Merger and Reorganization, dated as of October 3, 2000, with Quantum
Corporation, as provided in the proxy statement/prospectus.

|                                  |  |                                     
|--------------------------------- |  | ------------------------------------
|For: 88,742,186
Abstained: 31,430 |  | Against: 179,145
Broker non-votes: 0

Matter 2. Proposal to approve the amendment of the Maxtor
Corporation Amended and Restated 1996 Stock Option Plan.

|                                   |  |                                        
|---------------------------------- |  | ---------------------------------------
|For: 64,717,456
Abstained: 574,134 |  | Against: 23,661,171
Broker non-votes: 0

Matter 3. Proposal to approve the amendment of the Maxtor
Corporation 1998 Employee Stock Purchase Plan.

|                                   |  |                                       
|---------------------------------- |  | --------------------------------------
|For: 86,817,588
Abstained: 567,867 |  | Against: 1,567,306
Broker non-votes: 0




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits.

|      |  |                                                                                                                                                                                                                                                                                               
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.80 |  | Forms of Executive Retention Incentive Agreement and
Promissory Note, each dated November 19, 1999, between
Registrant and the following executives: Pantelis
Alexopoulos, Michael D. Cordano, Phillip C. Duncan, Misha
Rozenberg, Glenn H. Stevens, K.H. Teh and Michael J.
Wingert.(**)(***)



---

|(**)  |  | Management contract, or compensatory plan or arrangement.               
|----- |  | ------------------------------------------------------------------------
|     
|     
|     
|     
|(***) |  | Incorporated by reference to
exhibits of Form 10-K filed March 29, 2000.

22



---



##### Table of Contents



(b)  Reports on Form 8-K.

Maxtor filed a Current Report on Form 8-K on April 17, 2001 in which it
reported in Item 2 that Maxtor had completed the business combination
transaction with the hard disk drive business of Quantum Corporation (Quantum
HDD), and setting forth in Item 7 the following exhibits: the General
Assignment and Assumption Agreement dated as of April 2, 2001 among Quantum
Corporation, Insula Corporation and Maxtor; the Separation and Redemption
Agreement dated April 2, 2001 among Quantum Corporation, Insula Corporation and
Maxtor; the Tax Sharing and Indemnity Agreement dated as of April 2, 2001 among
Quantum Corporation, Insula Corporation and Maxtor; the Transitional Services
Agreement dated April 2, 2001 among Quantum Corporation, Insula Corporation and
Maxtor; the Intellectual Property Agreement dated April 2, 2001 among Quantum
Corporation and Insula Corporation; the Indemnification Agreement dated April 2,
2001 among Quantum Corporation, Insula Corporation and Maxtor; the Real Estate
Matters Agreement dated April 2, 2001 among Quantum Corporation, Insula
Corporation and Maxtor; the Certificate of Merger as filed with the Secretary of
State of Delaware on April 2, 2001; and a press release dated April 2, 2001
announcing that the stockholders of both companies have approved Maxtors
proposed business combination with Quantum HDD.

23



---



##### Table of Contents






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
Executive Vice President, Finance,
Chief Financial Officer, Chief
Operating Officer,
and Principal Accounting Officer

Date: October 12, 2001

24