##### Table of Contents









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-Q



---

(Mark one)



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the period ended June 30,
2001

OR



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| | o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the transition period from 
_________ to

Commission file Number: 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.)
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|500 McCarthy Blvd., 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 o

The aggregate market value of the
registrants common stock, $.01 par value per share,
held by nonaffiliates of the registrant was $904,199,442 on
August 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 August 9, 2001, 237,709,336 shares of
the registrants Common Stock, $.01 par value, were issued
and outstanding.



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TABLE OF CONTENTS



|                              |                                                                                              |                                                           |  |  |  |  |  | 
|----------------------------- | -------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Condensed Consolidated Financial Statements                                         
|                              |                                                                                              | CONSOLIDATED BALANCE SHEETS                              
|                              |                                                                                              | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS          
|                              |                                                                                              | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
|                              |                                                                                              | 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 6.Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|EXHIBIT 10.83                
|EXHIBIT 10.84                
|EXHIBIT 10.85                



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##### Table of Contents



MAXTOR CORPORATION

FORM 10-Q

June 30, 2001


INDEX

|                                 |  |                                                                                                                |    |      |         | 
|-------------------------------- |  | -------------------------------------------------------------------------------------------------------------- | -- | ---- | ------- | 
|                                 |  |                                                                                                                |    | Page
|                                 |  |                                                                                                                |    |     
|PART I.   FINANCIAL
	INFORMATION
|                                
|Item  1.                         |  | Condensed Consolidated Financial Statements                                                                    |    |      |         | 
|                                
|                                
|                                
|                                
|                                 |  | Condensed Consolidated Balance
	Sheets  June 30, 2001, and
	December 30, 2000                                 |    |      | 3       | 
|                                
|                                
|                                
|                                
|                                 |  | Condensed Consolidated Statements of
	Operations  Three and six months ended
	June 30, 2001, and July 1, 2000 |    |      | 4       | 
|                                
|                                
|                                
|                                
|                                 |  | Condensed Consolidated Statements of Cash
	Flows  Six months ended June 30, 2001, and
	July 1, 2000           |    |      | 5       | 
|                                
|                                
|                                
|                                
|                                 |  | Notes to Condensed Consolidated Financial
	Statements                                                          |    |      | 6  13  | 
|                                
|                                
|                                
|                                
|Item  2.                         |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations                         |    |      | 14  30 | 
|                                
|                                
|                                
|                                
|Item  3.                         |  | Quantitative and Qualitative Disclosures about
	Market Risk                                                    |    |      | 32      | 
|                                
|                                
|                                
|                                
|PART II.   OTHER
	INFORMATION   
|                                
|                                
|                                
|                                
|                                
|Item  1.                         |  | Legal Proceedings                                                                                              |    |      | 33      | 
|                                
|                                
|                                
|                                
|Item  6.                         |  | Exhibits and Reports on Form 8-K                                                                               |    |      | 33      | 
|                                
|                                
|                                
|                                
|Signature Page                   |  |                                                                                                                | 34 |     

2



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##### 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

|                                                                                                                                                                                               |                                                                                                                         |                                            |            |              |           |  |           |         |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------------ | --------- |  | --------- | ------- | --------- | 
|                                                                                                                                                                                               |                                                                                                                         | June 30,                                   |            | December 30,
|                                                                                                                                                                                               |                                                                                                                         | 2001                                       |            | 2000        
|                                                                                                                                                                                               |                                                                                                                         |                                            |            |             
|                                                                                                                                                                                               |                                                                                                                         | (unaudited)                                |            |             
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Current assets:                                                                                                                                                                                |                                                                                                                         |                                            |            |              |           |  |           |        
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Cash and cash equivalents                                                                                               |                                            | $          | 372,739      |           |  | $         | 193,228 |          
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Restricted cash                                                                                                         |                                            |            | 93,909       |           |  |           |        |          
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Marketable securities                                                                                                   |                                            |            | 160,252      |           |  |           | 182,949 |          
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Accounts receivable, net of allowance of doubtful
	accounts $16,338 at June 30, 2001 and $15,148 at
	December  30, 2000 |                                            |            | 378,825      |           |  |           | 284,253 |          
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Inventories, net                                                                                                        |                                            |            | 268,137      |           |  |           | 106,405 |          
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Prepaid expenses and other                                                                                              |                                            |            | 66,819       |           |  |           | 34,577  |          
|                                                                                                                                                                                               |                                                                                                                         |                                            |            |              |           |  |           |        
|                                                                                                                                                                                               |                                                                                                                         | Total current assets                       |            |              | 1,340,681 |  |           |         | 801,412   | 
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Property, plant and equipment, net                                                                                                                                                             |                                                                                                                         |                                            | 328,724    |              |           |  | 165,926   |        
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Goodwill and other intangible assets, net                                                                                                                                                      |                                                                                                                         |                                            | 1,025,030  |              |           |  | 44,237    |        
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Other assets                                                                                                                                                                                   |                                                                                                                         |                                            | 32,348     |              |           |  | 13,344    |        
|                                                                                                                                                                                               |                                                                                                                         |                                            |            |              |           |  |           |        
|                                                                                                                                                                                               |                                                                                                                         | Total assets                               |            | $            | 2,726,783 |  |           | $       | 1,024,919 | 
|                                                                                                                                                                                               |                                                                                                                         |                                            |            |              |           |  |           |        
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|LIABILITIES AND STOCKHOLDERS
	EQUITY                                                                                                                                                         
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Current liabilities:                                                                                                                                                                           |                                                                                                                         |                                            |            |              |           |  |           |        
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Short-term borrowings, including current portion
	of long-term debt                                                     |                                            | $          | 14,508       |           |  | $         | 15,432  |          
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Accounts payable                                                                                                        |                                            |            | 513,675      |           |  |           | 421,338 |          
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Accrued and other liabilities                                                                                           |                                            |            | 415,934      |           |  |           | 192,152 |          
|                                                                                                                                                                                               |                                                                                                                         |                                            |            |              |           |  |           |        
|                                                                                                                                                                                               |                                                                                                                         | Total current liabilities                  |            |              | 944,117   |  |           |         | 628,922   | 
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Deferred taxes                                                                                                                                                                                 |                                                                                                                         |                                            | 196,218    |              |           |  |          |        
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Long-term debt, net of current portion                                                                                                                                                         |                                                                                                                         |                                            | 217,396    |              |           |  | 92,259    |        
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Other liabilities                                                                                                                                                                              |                                                                                                                         |                                            | 142,000    |              |           |  |          |        
|                                                                                                                                                                                               |                                                                                                                         |                                            |            |              |           |  |           |        
|                                                                                                                                                                                               |                                                                                                                         | Total liabilities                          |            |              | 1,499,731 |  |           |         | 721,181   | 
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Common stock, $0.01 par value, 250,000,000 shares
	authorized; 238,863,662 shares issued and outstanding at
	June 30, 2001 and 116,205,270 shares issued and outstanding
	at December 30, 2000 |                                                                                                                         |                                            | 2,389      |              |           |  | 1,162     |        
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Additional paid-in capital                                                                                                                                                                     |                                                                                                                         |                                            | 2,301,018  |              |           |  | 1,059,899 |        
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Accumulated deficit                                                                                                                                                                            |                                                                                                                         |                                            | (1,078,555 | )            |           |  | (760,126  | )      
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Cumulative other comprehensive income                                                                                                                                                          |                                                                                                                         |                                            | 2,200      |              |           |  | 2,803     |        
|                                                                                                                                                                                               |                                                                                                                         |                                            |            |              |           |  |           |        
|                                                                                                                                                                                               |                                                                                                                         | Total stockholders equity                 |            |              | 1,227,052 |  |           |         | 303,738   | 
|                                                                                                                                                                                               |                                                                                                                         |                                            |            |              |           |  |           |        
|                                                                                                                                                                                               |                                                                                                                         | Total liabilities and stockholders equity |            | $            | 2,726,783 |  |           | $       | 1,024,919 | 
|                                                                                                                                                                                               |                                                                                                                         |                                            |            |              |           |  |           |        

See accompanying notes to condensed consolidated
financial statements.

3



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##### Table of Contents



MAXTOR CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(In thousands except share and per share
amounts)


(Unaudited)


|                                                                        |                                                       |                          |           |                  |         |          |         |             |        |   |           |             |         |   |           |             |         | 
|----------------------------------------------------------------------- | ----------------------------------------------------- | ------------------------ | --------- | ---------------- | ------- | -------- | ------- | ----------- | ------ | - | --------- | ----------- | ------- | - | --------- | ----------- | ------- | 
|                                                                        |                                                       |                          |           |                 
|                                                                        |                                                       | Three Months Ended       |           | Six Months Ended
|                                                                        |                                                       |                          |           |                 
|                                                                        |                                                       | June 30,                 |           | July 1,          |         | June 30, |         | July 1,    
|                                                                        |                                                       | 2001                     |           | 2000             |         | 2001     |         | 2000       
|                                                                        |                                                       |                          |           |                  |         |          |         |            
|Net Revenues                                                            |                                                       | $                        | 1,041,567 |                  |         | $        | 667,074 |             |        | $ | 1,672,388 |             |         | $ | 1,358,360 |            
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Cost of revenues                                                        |                                                       |                          | 963,630   |                  |         |          | 567,757 |             |        |   | 1,505,435 |             |         |   | 1,150,213 |            
|                                                                        |                                                       |                          |           |                  |         |          |         |             |        |   |           |             |         |   |           |            
|                                                                        | Gross profit                                          |                          |           | 77,937           |         |          |         | 99,317      |        |   |           | 166,953     |         |   |           | 208,147     |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Operating expenses:                                                     |                                                       |                          |           |                  |         |          |         |             |        |   |           |             |         |   |           |            
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Research and development                              |                          |           | 139,277          |         |          |         | 61,198      |        |   |           | 198,297     |         |   |           | 116,560     |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Selling, general and administrative                   |                          |           | 107,873          |         |          |         | 26,677      |        |   |           | 135,339     |         |   |           | 51,995      |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Amortization of goodwill and other intangible
	assets |                          |           | 61,919           |         |          |         | 2,520       |        |   |           | 64,406      |         |   |           | 5,040       |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Purchased in-process research and development         |                          |           | 94,740           |         |          |         |            |        |   |           | 94,740      |         |   |           |            |        
|                                                                        |                                                       |                          |           |                  |         |          |         |             |        |   |           |             |         |   |           |            
|                                                                        |                                                       | Total operating expenses |           |                  | 403,809 |          |         |             | 90,395 |   |           |             | 492,782 |   |           |             | 173,595 | 
|                                                                        |                                                       |                          |           |                  |         |          |         |             |        |   |           |             |         |   |           |            
|Income (loss) from operations                                           |                                                       |                          | (325,872  | )                |         |          | 8,922   |             |        |   | (325,829  | )           |         |   | 34,552    |            
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Interest expense                                                        |                                                       |                          | (5,533    | )                |         |          | (3,107  | )           |        |   | (8,471    | )           |         |   | (6,970    | )          
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Interest and other income                                               |                                                       |                          | 12,885    |                  |         |          | 8,068   |             |        |   | 18,641    |             |         |   | 15,355    |            
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Other loss                                                              |                                                       |                          | (176      | )                |         |          |        |             |        |   | (1,462    | )           |         |   |          |            
|                                                                        |                                                       |                          |           |                  |         |          |         |             |        |   |           |             |         |   |           |            
|Income (loss) before provision for income taxes                         |                                                       |                          | (318,696  | )                |         |          | 13,883  |             |        |   | (317,121  | )           |         |   | 42,937    |            
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Provision for income taxes                                              |                                                       |                          | 1,072     |                  |         |          | 694     |             |        |   | 1,308     |             |         |   | 2,147     |            
|                                                                        |                                                       |                          |           |                  |         |          |         |             |        |   |           |             |         |   |           |            
|Net income (loss)                                                       |                                                       |                          | (319,768  | )                |         |          | 13,189  |             |        |   | (318,429  | )           |         |   | 40,790    |            
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Unrealized gain (loss) on investments in
	equity securities, net of tax |                                                       |                          | (531      | )                |         |          | 18      |             |        |   | (603      | )           |         |   | 4,869     |            
|                                                                        |                                                       |                          |           |                  |         |          |         |             |        |   |           |             |         |   |           |            
|Comprehensive income (loss)                                             |                                                       | $                        | (320,299  | )                |         | $        | 13,207  |             |        | $ | (319,032  | )           |         | $ | 45,659    |            
|                                                                        |                                                       |                          |           |                  |         |          |         |             |        |   |           |             |         |   |           |            
|Net income (loss) per share  basic                                     |                                                       | $                        | (1.35     | )                |         | $        | 0.11    |             |        | $ | (1.81     | )           |         | $ | 0.36      |            
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Net income (loss) per share  diluted                                   |                                                       | $                        | (1.35     | )                |         | $        | 0.11    |             |        | $ | (1.81     | )           |         | $ | 0.34      |            
|Shares used in per share calculation                                    |                                                       |                          |           |                  |         |          |         |             |        |   |           |             |         |   |           |            
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |  basic                                               |                          |           | 236,680,543      |         |          |         | 114,981,276 |        |   |           | 175,772,877 |         |   |           | 114,505,628 |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |  diluted                                             |                          |           | 236,680,543      |         |          |         | 120,820,584 |        |   |           | 175,772,877 |         |   |           | 119,428,895 |        

See accompanying notes to condensed consolidated
financial statements.

4



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##### Table of Contents



MAXTOR CORPORATION






CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT)


(In thousands except share amounts)


|                           |                                                                 |                 |   |              |  |            |   |             |  |                  |             |               |  |        |       |        |  |   |           |           |   |   |            |          |   |   |       |      |   |   |           |           |  
|-------------------------- | --------------------------------------------------------------- | --------------- | - | ------------ |  | ---------- | - | ----------- |  | ---------------- | ----------- | ------------- |  | ------ | ----- | ------ |  | - | --------- | --------- | - | - | ---------- | -------- | - | - | ----- | ---- | - | - | --------- | --------- | -
|                           |                                                                 |                 |   |              |  |            |   |             |  |                  |             |              
|                           |                                                                 | Preferred Stock |   | Common Stock |  | Additional |   |             |  | Cumulative Other |             | Total        
|                           |                                                                 |                 |   |              |  | Paid-In    |   | Accumulated |  | Comprehensive    |             | Stockholders
|                           |                                                                 | Shares          |   | Amount       |  | Shares     |   | Amount      |  | Capital          |             | Deficit       |  | Income |       | Equity
|                           |                                                                 |                 |   |              |  |            |   |             |  |                  |             |               |  |        |       |       
|Balance, December 30, 2000 |                                                                 |                 |  |              |  | $          |  |             |  |                  | 116,205,270 |               |  | $      | 1,162 |        |  | $ | 1,059,899 |           |   | $ | (760,126   | )        |   | $ | 2,803 |      |   | $ | 303,738   |          
|                          
|                          
|                          
|                          
|                           | Issuance of stock under stock option plan and
	related benefits |                 |   |              |  |            |   |             |  |                  |             | 846,924       |  |        |       | 8      |  |   |           | 4,261     |   |   |            |          |   |   |       |      |   |   |           | 4,269     |  
|                          
|                          
|                          
|                          
|                           | Stock compensation                                              |                 |   |              |  |            |   |             |  |                  |             |               |  |        |       |        |  |   |           | 936       |   |   |            |          |   |   |       |      |   |   |           | 936       |  
|                          
|                          
|                          
|                          
|                           | Change in unrealized gain on investments in
	equity securities  |                 |   |              |  |            |   |             |  |                  |             |               |  |        |       |        |  |   |           |           |   |   |            |          |   |   |       | (72  | ) |   |           | (72       | )
|                          
|                          
|                          
|                          
|                           | Net income                                                      |                 |   |              |  |            |   |             |  |                  |             |               |  |        |       |        |  |   |           |           |   |   |            | 1,339    |   |   |       |      |   |   |           | 1,339     |  
|                          
|                          
|                          
|                          
|Balance, March 31, 2001    |                                                                 |                 |  |              |  | $          |  |             |  |                  | 117,052,194 |               |  | $      | 1,170 |        |  | $ | 1,065,096 |           |   | $ | (758,787   | )        |   | $ | 2,731 |      |   | $ | 310,210   |          
|                          
|                          
|                          
|                          
|                           | Issuance of stock under stock option plan and
	related benefits |                 |   |              |  |            |   |             |  |                  |             | 780,996       |  |        |       | 8      |  |   |           | 3,742     |   |   |            |          |   |   |       |      |   |   |           | 3,750     |  
|                          
|                          
|                          
|                          
|                           | Issuance of stock for acquisition of Quantum                    |                 |   |              |  |            |   |             |  |                  |             | 121,030,472   |  |        |       | 1,211  |  |   |           | 1,239,386 |   |   |            |          |   |   |       |      |   |   |           | 1,240,597 |  
|                          
|                          
|                          
|                          
|                           | Deferred compensation  Quantum HDD                             |                 |   |              |  |            |   |             |  |                  |             |               |  |        |       |        |  |   |           | (8,041    | ) |   |            |          |   |   |       |      |   |   |           | (8,041    | )
|                          
|                          
|                          
|                          
|                           | Stock compensation                                              |                 |   |              |  |            |   |             |  |                  |             |               |  |        |       |        |  |   |           | 835       |   |   |            |          |   |   |       |      |   |   |           | 835       |  
|                          
|                          
|                          
|                          
|                           | Change in unrealized gain on investments in
	equity securities  |                 |   |              |  |            |   |             |  |                  |             |               |  |        |       |        |  |   |           |           |   |   |            |          |   |   |       | (531 | ) |   |           | (531      | )
|                          
|                          
|                          
|                          
|                           | Net loss                                                        |                 |   |              |  |            |   |             |  |                  |             |               |  |        |       |        |  |   |           |           |   |   |            | (319,768 | ) |   |       |      |   |   |           | (319,768  | )
|                          
|                          
|                          
|                          
|Balance, June 30, 2001     |                                                                 |                 |  |              |  | $          |  |             |  |                  | 238,863,662 |               |  | $      | 2,389 |        |  | $ | 2,301,018 |           |   | $ | (1,078,555 | )        |   | $ | 2,200 |      |   | $ | 1,227,052 |          
|                           |                                                                 |                 |   |              |  |            |   |             |  |                  |             |               |  |        |       |        |  |   |           |           |   |   |            |          |   |   |       |      |   |   |           |          

5



---



##### Table of Contents



MAXTOR CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


(Unaudited)


|                                                                                                                        |                                                                                 |                               |                                                      |           |          |         |         |        |         |          |  
|----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------- | ---------------------------------------------------- | --------- | -------- | ------- | ------- | ------ | ------- | -------- | -
|                                                                                                                        |                                                                                 |                              
|                                                                                                                        |                                                                                 | Six Months Ended             
|                                                                                                                        |                                                                                 |                              
|                                                                                                                        |                                                                                 | June 30,                      |                                                      | July 1,  
|                                                                                                                        |                                                                                 | 2001                          |                                                      | 2000     
|                                                                                                                        |                                                                                 |                               |                                                      |          
|Cash Flows from Operating
	Activities:                                                                                  |                                                                                 |                               |                                                      |           |          |         |         |       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Net income (loss)                                                                                                       |                                                                                 | $                             | (318,429                                             | )         |          | $       | 40,790  |       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Adjustments to reconcile net income (loss) to net
	cash provided by (used in) operating activities:                     |                                                                                 |                               |                                                      |           |          |         |         |       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Depreciation and amortization                                                   |                               |                                                      | 56,244    |          |         |         | 39,441 |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Amortization of goodwill and other intangible
	assets                           |                               |                                                      | 64,406    |          |         |         | 5,040  |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Amortization of deferred compensation related to
	Quantum DSS restricted shares |                               |                                                      | 28,985    |          |         |         |       |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Purchased in-process research and development                                   |                               |                                                      | 94,740    |          |         |         |       |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Stock compensation expense                                                      |                               |                                                      | 3,650     |          |         |         | 2,769  |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Loss on sale of property, plant and equipment and
	other assets                 |                               |                                                      | 212       |          |         |         | 348    |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Gain on retirement of bond                                                      |                               |                                                      | (857      | )        |         |         |       |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Change in assets and liabilities:                                               |                               |                                                      |           |          |         |         |        |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        |                                                                                 | Accounts receivable           |                                                      |           | 152,707  |         |         |        | (16,631 | )       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        |                                                                                 | Inventories                   |                                                      |           | 19,995   |         |         |        | 5,171   |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        |                                                                                 | Other assets                  |                                                      |           | 75,108   |         |         |        | (3,124  | )       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        |                                                                                 | Accounts payable              |                                                      |           | (139,061 | )       |         |        | (16,324 | )       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        |                                                                                 | Accrued and other liabilities |                                                      |           | (74,239  | )       |         |        | 21,724  |         
|                                                                                                                        |                                                                                 |                               |                                                      |           |          |         |         |       
|                                                                                                                        |                                                                                 |                               | Net cash provided by (used in) operating
	activities |           |          | (36,539 | )       |        |         | 79,204   |  
|                                                                                                                        |                                                                                 |                               |                                                      |           |          |         |         |       
|Cash Flows from Investing
	Activities:                                                                                  |                                                                                 |                               |                                                      |           |          |         |         |       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Proceeds from sale of property, plant and
	equipment                                                                    |                                                                                 |                               | 148                                                  |           |          |         | 106     |       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Purchase of property, plant and equipment                                                                               |                                                                                 |                               | (89,630                                              | )         |          |         | (43,633 | )     
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Cash acquired from acquisition, net of merger
	related expenses                                                         |                                                                                 |                               | 375,838                                              |           |          |         |        |       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Restricted cash acquired from acquisition                                                                               |                                                                                 |                               | (93,909                                              | )         |          |         |        |       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Proceeds from (purchase of) marketable
	securities, net                                                                 |                                                                                 |                               | 24,090                                               |           |          |         | (58,715 | )     
|                                                                                                                        |                                                                                 |                               |                                                      |           |          |         |         |       
|                                                                                                                        |                                                                                 |                               | Net cash provided by (used in) investing
	activities |           |          | 216,537 |         |        |         | (102,242 | )
|                                                                                                                        |                                                                                 |                               |                                                      |           |          |         |         |       
|Cash Flows from Financing
	Activities:                                                                                  |                                                                                 |                               |                                                      |           |          |         |         |       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Principal payments of debt. including short-term
	borrowings                                                            |                                                                                 |                               | (8,503                                               | )         |          |         | (4,387  | )     
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Proceeds from issuance of common stock from
	public offering, employee stock purchase plan and stock options
	exercised |                                                                                 |                               | 8,016                                                |           |          |         | 8,132   |       
|                                                                                                                        |                                                                                 |                               |                                                      |           |          |         |         |       
|                                                                                                                        |                                                                                 |                               | Net cash provided by (used in) financing
	activities |           |          | (487    | )       |        |         | 3,745    |  
|                                                                                                                        |                                                                                 |                               |                                                      |           |          |         |         |       
|Net change in cash and cash equivalents                                                                                 |                                                                                 |                               | 179,511                                              |           |          |         | (19,293 | )     
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Cash and cash equivalents at beginning of period                                                                        |                                                                                 |                               | 193,228                                              |           |          |         | 240,357 |       
|                                                                                                                        |                                                                                 |                               |                                                      |           |          |         |         |       
|Cash and cash equivalents at end of period                                                                              |                                                                                 | $                             | 372,739                                              |           |          | $       | 221,064 |       
|                                                                                                                        |                                                                                 |                               |                                                      |           |          |         |         |       
|Supplemental Disclosures of Cash Flow
	Information:                                                                     |                                                                                 |                               |                                                      |           |          |         |         |       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Cash paid during the period for:                                                |                               |                                                      |           |          |         |         |        |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        |                                                                                 | Interest                      |                                                      | $         | 10,160   |         |         | $      | 8,035   |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        |                                                                                 | Income taxes                  |                                                      | $         | 1,357    |         |         | $      | 430     |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Schedule of Non-Cash Investing and Financing
	Activities:                                                               |                                                                                 |                               |                                                      |           |          |         |         |       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Purchase of property, plant and equipment
	financed by accounts payable         |                               | $                                                    | 10,160    |          |         | $       | 4,983  |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Retirement of debt in exchange for bond redemption                              |                               | $                                                    | 5,000     |          |         | $       | 5,000  |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Value of shares issued of Quantum HDD acquisition                               |                               | $                                                    | 1,241,600 |          |         | $       |       |        

See accompanying notes to condensed consolidated
financial statements.

6



---



##### Table of Contents



MAXTOR CORPORATION






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)


(amounts in thousands except share and per
share data)


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. Quantum HDD Acquisition

On April 2, 2001, Maxtor completed the
business combination transaction with the hard disk drive
business of Quantum Corporation (Quantum HDD). The
merger was approved by the stockholders of both companies on
March 30, 2001. The merger was accounted for as a purchase.
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
121.1 million shares of Maxtor common stock and assumed
options to purchase 13.1 million shares of Maxtor common
stock.

The total purchase cost of the Quantum HDD merger
is as follows (in millions):

|                                  |                   |                     |         |      |         | 
|--------------------------------- | ----------------- | ------------------- | ------- | ---- | ------- | 
|                                 
|                                 
|                                 
|                                 
|Value of securities issued        |                   | $                   | 1,133.5 |     
|                                 
|                                 
|                                 
|                                 
|Assumption of Quantum HDD options |                   |                     | 107.1   |     
|                                  |                   |                     |         |     
|                                  |                   |                     | 1,240.6 |     
|                                 
|                                 
|                                 
|                                 
|                                  | Transaction costs |                     |         | 28.8 |        
|                                  |                   |                     |         |     
|                                  |                   | Total purchase cost |         | $    | 1,269.4 | 
|                                  |                   |                     |         |     

7



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

(Unaudited)


(amounts in thousands except share and per
share data)


|                                       |                                     |                                            |                      |         |       |  |  |          |         |         | 
|-------------------------------------- | ----------------------------------- | ------------------------------------------ | -------------------- | ------- | ----- |  |  | -------- | ------- | ------- | 
|                                       |                                     |                                            |                      | Amount 
|                                       |                                     |                                            |                      |        
|Preliminary Purchase Price Allocation: |                                     |                                            |                      |         |       |  |  |         
|                                      
|                                      
|                                      
|                                      
|                                       | Tangible net assets                 |                                            | $                    | 1,219.3 |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       | Tangible assets:                    |                                            |                      |         |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Cash and cash equivalents                  |                      | $       | 315.3 |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Restricted cash                            |                      |         | 93.9  |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Accounts receivable                        |                      |         | 247.3 |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Inventories                                |                      |         | 181.7 |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Prepaids expenses and other current assets |                      |         | 82.2  |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Property, plant and equipment              |                      |         | 129.8 |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Other noncurrent assets                    |                      |         | 28.3  |  |  | $        | 1,078.5 |        
|                                       |                                     |                                            |                      |         |       |  |  |         
|                                       | Intangible assets acquired:         |                                            |                      |         |       |  |  |          |        
|                                       |                                     | Core and other existing technology         |                      |         |       |  |  |          | 286.1   |        
|                                       |                                     | Assembled workforce                        |                      |         |       |  |  |          | 43.0    |        
|                                       | Deferred compensation               |                                            |                      |         |       |  |  | 52.3     |        
|                                       | Goodwill                            |                                            |                      |         |       |  |  | 716.0    |        
|                                       | In-process research and development |                                            |                      |         |       |  |  | 94.7     |        
|                                      
|                                      
|                                      
|                                      
|                                       | Liabilities assumed                 |                                            |                      |         |       |  |  | (1,038.2 | )      
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts payable                    |                                            |                      | 231.4   |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       | Accruals and other liabilities      |                                            |                      | 195.4   |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred taxes                      |                                            |                      | 196.2   |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       | Long-term debt                      |                                            |                      | 132.4   |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       | Other long-term liabilities         |                                            |                      | 142.0   |       |  |  | (897.4   | )      
|                                       |                                     |                                            |                      |         |       |  |  |         
|                                       | Merger-related restructuring costs  |                                            |                      |         |       |  |  | (103.8   | )      
|                                       |                                     |                                            |                      |         |       |  |  |         
|                                       |                                     |                                            | Total purchase price |         |       |  |  |          | $       | 1,269.4 | 
|                                       |                                     |                                            |                      |         |       |  |  |         

The purchase price allocation is preliminary as
the Company is currently evaluating various matters related to
the acquisition including warranty provision, tax liabilities
and other accruals.

Under purchase accounting rules, the Company also
recorded liabilities that include $26.5 million for
estimated severance pay associated with termination of
approximately 700 employees in the United States,
$64.6 million for estimated facility exit costs for the
closure of certain Quantum HDD offices and research and
development facilities located in Milpitas, California, and
$12.7 million for certain non-cancelable adverse inventory
and other purchase commitments. Payments related to the
non-cancellable adverse purchase commitments amounted to
$8.1 million at June 30, 2001. The remainder is
expected to be paid by the fourth quarter of fiscal year 2001.

A portion of the purchase price has been
allocated to developed technology and acquired in-process
research and development. Developed technology and in-process
research and development were identified and valued through
analysis of data provided by Quantum HDD concerning
developmental products, their stage of development, the time and
resources needed to complete them, if applicable, their expected
income generating ability, target markets and associated risks.
The income approach, which includes an analysis of the markets,
cash flows and risks associated with achieving such cash flows,
was the primary technique utilized in valuing the developed
technology and in-process research and development. Where
developmental projects had reached technological feasibility,
they were classified as developed technology, and the value
assigned to developed technology was capitalized. Where the
developmental projects had not reached technological

8



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

(Unaudited)


(amounts in thousands except share and per
share data)


feasibility and had no future alternative uses,
they were classified as in-process research and development and
were charged to expense upon closing of the merger.

At the time of the merger, Quantum HDD was
developing new products that qualify as in-process research and
development in multiple product areas. For the purposes of
determining which projects qualified as in-process research and
development, technological feasibility is defined as being
equivalent to completion of design verification testing, when
the design is finalized and ready for pilot manufacturing. The
following is a general description of in-process research and
development efforts: current engineering efforts are focused on
developing new products, integrating new technologies, improving
designs to enable manufacturing efficiencies, improving product
performance and integrating multiple functions into single
components and multiple components into modules. The principal
products to which research and development efforts are as
follows: Self-Servo Writer Technology, Desktop, High-end, Core
Technology and other identified projects. There is a risk that
these developments will not be competitive with other products
using alternative technologies that offer comparable
functionality. The analysis of research and development projects
was conducted as of April 2, 2001.

Self-Servo Writer Technology:Quantum HDDs Self-Servo Writer
technology was being developed to write servo tracks onto the
disk media during the manufacturing process, replacing the need
to purchase and use servo writer equipment. Quantum HDD expected
the development cycle for the current research and development
project with respect to the Self-Servo Writer technology to
continue for another 6 months, with expected completion
dates in the fourth quarter of the calendar year 2001. The
development cycle was approximately 85% complete with estimated
cost to complete to be incurred ratably over the remainder of
the development cycles.

High End:Quantum
HDDs High-End development efforts supported future
generation high-end hard disk drives. Quantum HDD expected the
development cycle for the current research and development
project with respect to the High-end technology to continue for
another 21 months, with expected completion dates in the
first quarter of the calendar year 2003. The development cycle
was approximately 40% complete with estimated cost to complete
to be incurred ratably over the remainder of the development
cycles.

Core Technology:Quantum HDDs Core technology
development efforts supported future generation hard disk
drives. Quantum HDD expected the development cycle for the
current research and development project with respect to these
products to continue for another 21 months with expected
completion dates in the first quarter of the calendar year 2003.
The development cycle was approximately 44% complete with
estimated cost to complete to be incurred ratably over the
remainder of the development cycle.

Desktop:Quantum
HDDs core technology development efforts supported the
development of 3.5 inch hard disk drives. Quantum HDD expected
the development cycle for the current research and development
project with respect to the Desktop technology to continue for
another 5 months, with expected completion dates in the
third quarter of the calendar year 2001. The development cycle
was approximately 75% complete with estimated cost to complete
to be incurred ratably over the remainder of the development
cycles.

The value assigned to in-process research and
development was determined by considering the importance of each
project to the overall development plan, estimating costs to
develop the purchased in-process research and development into
commercially viable products, estimating the resulting net cash
flows from the projects when completed and discounting the net
cash flows to their present value. The revenue estimates used to
value the purchased in-process research and development were
based on estimates of relevant market sizes and growth factors,
expected trends in technology and the nature and expected timing
of new product introductions by Quantum HDD and its competitors.
The rates utilized to discount the net cash flows to their
present value are based on Quantum HDD weighted average cost of
capital. Given the nature of

9



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

(Unaudited)


(amounts in thousands except share and per
share data)


the risks associated with the difficulties and
uncertainties in completing each project and thereby achieving
technological feasibility, anticipated market acceptance and
penetration, market growth rates and risks related to the impact
of potential changes in future target markets, the weighted
average cost of capital was adjusted. Based on these factors, a
discount rate of 23% for High-end and Desktop and other
identified projects and a discount rate of 28% for Core
Technology and Self Servo-Writer Technology were deemed
appropriate. The estimates used in valuing in-process research
and development were based upon assumptions believed to be
reasonable but which are inherently uncertain and unpredictable.
The assumptions may be incomplete or inaccurate, and no
assurance can be given that unanticipated events and
circumstances will not occur. Accordingly, actual results may
vary from the projected results. Following are the estimated
completion percentages with respect to the research and
development efforts and technology lives:

|                          |  |           |       |                 |  |  |         | 
|------------------------- |  | --------- | ----- | --------------- |  |  | ------- | 
|                          |  | Percent   |       | Expected       
|                          |  | Completed |       | Technology Life
|                          |  |           |       |                
|Self-servo Writer         |  |           | 85    | %               |  |  | 3 years | 
|                         
|                         
|                         
|                         
|High-end                  |  |           | 40    | %               |  |  | 4 years | 
|                         
|                         
|                         
|                         
|Core Technology           |  |           | 44    | %               |  |  | 6 years | 
|                         
|                         
|                         
|                         
|Desktop                   |  |           | 75    | %               |  |  | 4 years | 
|                         
|                         
|                         
|                         
|Other identified projects |  |           | 55-80 | %               |  |  | 4 years | 

The preliminary values assigned to each acquired
in-process research and development project were as follows (in
millions):

|                          |  |   |      | 
|------------------------- |  | - | ---- | 
|                         
|                         
|                         
|                         
|Self-servo Writer         |  | $ | 47.7 | 
|                         
|                         
|                         
|                         
|High-end                  |  |   | 18.2 | 
|                         
|                         
|                         
|                         
|Core Technology           |  |   | 16.0 | 
|                         
|                         
|                         
|                         
|Desktop                   |  |   | 8.9  | 
|                         
|                         
|                         
|                         
|Other identified projects |  |   | 3.9  | 
|                          |  |   |      | 
|                          |  | $ | 94.7 | 
|                          |  |   |      | 

The acquired existing technology, which comprises
products that are already technologically feasible, includes
products in most of Quantum HDDs product lines. The
Company is amortizing the acquired core and existing technology
of $286.1 million on a straight-line basis over an
estimated remaining useful lives of three to five years.

The acquired assembled workforce was composed of
approximately 1,650 skilled employees across
Quantum HDDs Executive, Research and Development,
Manufacturing, Supervisor/ Manager, and Sales and Marketing
groups. The Company is amortizing the value assigned to the
assembled workforce of $43 million on a straight-line basis
over an estimated remaining useful life of three years.

Goodwill, which represents the excess of the
purchase price of an investment in an acquired business over the
fair value of the underlying net identifiable assets, is being
amortized on a straight-line basis over its estimated remaining
useful life of five years.

The following unaudited pro forma summary
presents the consolidated results of operations of the Company,
excluding the charge for acquired in-process research and
development, as if the acquisition of Quantum HDD had
occurred at the beginning of each period and does not purport to
be indicative of what would have occurred had the acquisition
been made as of the beginning of each period or of results which
may occur in the future.

10



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

(Unaudited)


(amounts in thousands except share and per
share data)


|                                   |  |                      |         |         |  |   |         |  
|---------------------------------- |  | -------------------- | ------- | ------- |  | - | ------- | -
|                                   |  |                     
|                                   |  | For the Six Months  
|                                   |  | Ended               
|                                   |  |                     
|                                   |  | June 30,             |         | July 1,
|                                   |  | 2001                 |         | 2000   
|                                   |  |                      |         |        
|                                   |  |                     
|                                   |  | (in millions, except
|                                   |  | per share data)     
|                                  
|                                  
|                                  
|                                  
|Revenue                            |  | $                    | 2,323.0 |         |  | $ | 3,123.9 |  
|                                  
|                                  
|                                  
|                                  
|Net loss                           |  | $                    | (305.7  | )       |  | $ | (71.3   | )
|                                  
|                                  
|                                  
|                                  
|Loss per share  basic and diluted |  | $                    | (1.29   | )       |  | $ | (0.30   | )

3. Inventories

|                                 |                 |               |         |                   |  |   |         |        | 
|-------------------------------- | --------------- | ------------- | ------- | ----------------- |  | - | ------- | ------ | 
|                                 |                 | June 30, 2001 |         | December 30, 2000
|                                 |                 |               |         |                  
|                                 |                 | (unaudited)   |         |                  
|                                
|                                
|                                
|                                
|Inventories, net (in thousands): |                 |               |         |                   |  |   |         |       
|                                
|                                
|                                
|                                
|                                 | Raw materials   |               | $       | 27,033            |  |   | $       | 34,164 | 
|                                
|                                
|                                
|                                
|                                 | Work-in-process |               |         | 5,459             |  |   |         | 8,352  | 
|                                
|                                
|                                
|                                
|                                 | Finished goods  |               |         | 235,645           |  |   |         | 63,889 | 
|                                 |                 |               |         |                   |  |   |         |       
|                                 |                 | $             | 268,137 |                   |  | $ | 106,405 |       
|                                 |                 |               |         |                   |  |   |         |       

4. Net Income (loss) 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 (loss) per share calculations is provided as follows (in
thousands, except share and per share amounts):

|                                                   |                      |                    |             |                  |   |          |             |           |  |   |             |       |   |   |             |           | 
|-------------------------------------------------- | -------------------- | ------------------ | ----------- | ---------------- | - | -------- | ----------- | --------- |  | - | ----------- | ----- | - | - | ----------- | --------- | 
|                                                   |                      |                    |             |                 
|                                                   |                      | Three Months Ended |             | Six Months Ended
|                                                   |                      |                    |             |                 
|                                                   |                      | June 30,           |             | July 1,          |   | June 30, |             | July 1,  
|                                                   |                      | 2001               |             | 2000             |   | 2001     |             | 2000     
|                                                   |                      |                    |             |                  |   |          |             |          
|                                                   |                      |                    |             |                 
|                                                   |                      | (unaudited)        |             | (unaudited)     
|                                                  
|                                                  
|                                                  
|                                                  
|Numerator  Basic and
	diluted                     |                      |                    |             |                  |   |          |             |           |  |   |             |       |   |   |             |          
|                                                  
|                                                  
|                                                  
|                                                  
|Net income (loss)                                  |                      | $                  | (319,768    | )                |   | $        | 13,189      |           |  | $ | (318,429    | )     |   | $ | 40,790      |          
|                                                   |                      |                    |             |                  |   |          |             |           |  |   |             |       |   |   |             |          
|Net income (loss) available to common stockholders |                      | $                  | (319,768    | )                |   | $        | 13,189      |           |  | $ | (318,429    | )     |   | $ | 40,790      |          
|                                                   |                      |                    |             |                  |   |          |             |           |  |   |             |       |   |   |             |          
|Denominator                                        |                      |                    |             |                  |   |          |             |           |  |   |             |       |   |   |             |          
|                                                  
|                                                  
|                                                  
|                                                  
|Basic weighted average common shares outstanding   |                      |                    | 236,680,543 |                  |   |          | 114,981,276 |           |  |   | 175,772,877 |       |   |   | 114,505,628 |          
|                                                  
|                                                  
|                                                  
|                                                  
|Effect of dilutive securities:                     |                      |                    |             |                  |   |          |             |           |  |   |             |       |   |   |             |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Common stock options |                    |             |                 |   |          |             | 5,839,308 |  |   |             |      |   |   |             | 4,923,268 | 
|                                                   |                      |                    |             |                  |   |          |             |           |  |   |             |       |   |   |             |          
|Diluted weighted average common shares             |                      |                    | 236,680,543 |                  |   |          | 120,820,584 |           |  |   | 175,772,877 |       |   |   | 119,428,895 |          
|                                                   |                      |                    |             |                  |   |          |             |           |  |   |             |       |   |   |             |          
|Net income (loss) per share                        |                      |                    |             |                  |   |          |             |           |  |   |             |       |   |   |             |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Basic                |                    | $           | (1.35            | ) |          | $           | 0.11      |  |   | $           | (1.81 | ) |   | $           | 0.36      | 
|                                                   |                      |                    |             |                  |   |          |             |           |  |   |             |       |   |   |             |          
|                                                   | Diluted              |                    | $           | (1.35            | ) |          | $           | 0.11      |  |   | $           | (1.81 | ) |   | $           | 0.34      | 
|                                                   |                      |                    |             |                  |   |          |             |           |  |   |             |       |   |   |             |          

The number of basic weighted average common
shares does not include 1,598,563 contingently issuable shares
and 4,998,396 shares as their effect would be anti-dilutive.

11



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

(Unaudited)


(amounts in thousands except share and per
share data)


5. Short-Term Borrowings and
Long-Term Debt Consist of The Following:

|                                                                                                                                                                                  |  |               |         |                   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ----------------- |  | - | ------- | -
|                                                                                                                                                                                  |  | June 30, 2001 |         |                  
|                                                                                                                                                                                  |  | (unaudited)   |         | December 30, 2000
|                                                                                                                                                                                  |  |               |         |                  
|5.75% Subordinated Debentures due March 1,
	2012                                                                                                                                  |  | $             | 77,632  |                   |  | $ | 79,871  |  
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|4-year loan due to economic development of Board
	of Singapore; interest payable at 1% above prevailing Central
	Provident Fund lending rate, subject to minimum of 3.5% per year |  |               | 20,898  |                   |  |   | 27,818  |  
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|7% Subordinated Convertible Notes due
	August 1, 2004                                                                                                                             |  |               | 95,833  |                   |  |   |        |  
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Mortgage                                                                                                                                                                          |  |               | 37,541  |                   |  |   |        |  
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Other obligations, including capital leases                                                                                                                                       |  |               |        |                   |  |   | 2       |  
|                                                                                                                                                                                  |  |               |         |                   |  |   |         |  
|                                                                                                                                                                                  |  |               | 231,904 |                   |  |   | 107,691 |  
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Less amounts due within a year                                                                                                                                                    |  |               | (14,508 | )                 |  |   | (15,432 | )
|                                                                                                                                                                                  |  |               |         |                   |  |   |         |  
|                                                                                                                                                                                  |  | $             | 217,396 |                   |  | $ | 92,259  |  
|                                                                                                                                                                                  |  |               |         |                   |  |   |         |  

Quantum Corporation issued 7% subordinated
convertible notes due August 1, 2004 in the aggregate
principal amount of $287.5 million. Interest on the notes is
payable semi-annually each February 1 and August 1 and
principal is payable upon maturity of the notes. The assignment
agreement provides that, on each date upon which Quantum makes a
payment in respect of the notes, Maxtor will pay to Quantum, or
the trustee appointed under the indenture governing notes, the
Quantum HDD pro rata portion of that payment. Also under the
assignment agreement, at Quantums request, Maxtor will
cooperate in seeking to effectuate a split or similar change to
the indentures relating to such convertible notes, such that
Maxtor will be the sole obligor with respect to Quantum HDD pro
rata portion of such indentures, provided that such split or
similar change will not result in any increase in interest rate
or other change in terms adverse to Maxtor. As a result of the
acquisition of Quantum HDD, the Company has the obligation to
pay interest on debentures issued by Quantum Corporation and has
included its pro rata portion of debentures in long-term debt of
$95.8 million.

In connection with the acquisition of Quantum HDD
the Company acquired a real estate and related mortgage
obligation.

The term of the mortgage is ten years, with
monthly payments based on a 20 year amortization period, a
balloon payment at the end of the 10 year term which is
September 2006. The mortgage is [???collateralized] by the
specified real estate.

6. 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 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.

12



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

(Unaudited)


(amounts in thousands except share and per
share data)


The following table presents net revenue and net
income (loss) for groups of operating segments:

|                         |                            |                    |   |                  |           |               |   |              |         |  |   |           |           |   |   |           |           | 
|------------------------ | -------------------------- | ------------------ | - | ---------------- | --------- | ------------- | - | ------------ | ------- |  | - | --------- | --------- | - | - | --------- | --------- | 
|                         |                            |                    |   |                 
|                         |                            | Three Months Ended |   | Six Months Ended
|                         |                            |                    |   |                 
|                         |                            | June 30, 2001      |   | July 1, 2000     |           | June 30, 2001 |   | July 1, 2000
|                         |                            |                    |   |                  |           |               |   |             
|                         |                            |                   
|                         |                            | (in thousands)    
|                        
|                        
|                        
|                        
|Net revenue:             |                            |                    |   |                  |           |               |   |              |         |  |   |           |           |   |   |          
|                        
|                        
|                        
|                        
|                         | Hard Disk Drive Operations |                    | $ | 1,032,310        |           |               | $ | 665,966      |         |  | $ | 1,658,873 |           |   | $ | 1,355,123 |          
|                        
|                        
|                        
|                        
|                         | Network Systems Group      |                    |   | 9,257            |           |               |   | 1,108        |         |  |   | 13,515    |           |   |   | 3,237     |          
|                         |                            |                    |   |                  |           |               |   |              |         |  |   |           |           |   |   |          
|                         |                            | Total              |   | $                | 1,041,567 |               |   | $            | 667,074 |  |   | $         | 1,672,388 |   |   | $         | 1,358,360 | 
|                         |                            |                    |   |                  |           |               |   |              |         |  |   |           |           |   |   |          
|Operating income (loss): |                            |                    |   |                  |           |               |   |              |         |  |   |           |           |   |   |          
|                        
|                        
|                        
|                        
|                         | Hard Disk Drive Operations |                    | $ | (309,230         | )         |               | $ | 24,303       |         |  | $ | (295,656  | )         |   | $ | 60,445    |          
|                        
|                        
|                        
|                        
|                         | Network Systems Group      |                    |   | (10,538          | )         |               |   | (11,114      | )       |  |   | (22,773   | )         |   |   | (19,655   | )        
|                         |                            |                    |   |                  |           |               |   |              |         |  |   |           |           |   |   |          
|                         |                            | Total              |   | $                | (319,768  | )             |   | $            | 13,189  |  |   | $         | (318,429  | ) |   | $         | 40,790    | 
|                         |                            |                    |   |                  |           |               |   |              |         |  |   |           |           |   |   |          

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

Maxtor 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
information by geographic area for the three and six months
ended June 30, 2001 and July 1, 2000 is presented in
the following table:

|         |                         |                    |   |                  |           |          |   |         |         |  |   |         |           |  |   |         |           | 
|-------- | ----------------------- | ------------------ | - | ---------------- | --------- | -------- | - | ------- | ------- |  | - | ------- | --------- |  | - | ------- | --------- | 
|         |                         |                    |   |                 
|         |                         | Three Months Ended |   | Six Months Ended
|         |                         |                    |   |                 
|         |                         | June 30,           |   | July 1,          |           | June 30, |   | July 1,
|         |                         | 2001               |   | 2000             |           | 2001     |   | 2000   
|         |                         |                    |   |                  |           |          |   |        
|         |                         |                   
|         |                         | (in thousands)    
|        
|        
|        
|        
|Revenue: |                         |                    |   |                  |           |          |   |         |         |  |   |         |           |  |   |        
|        
|        
|        
|        
|         | United States           |                    | $ | 470,434          |           |          | $ | 291,893 |         |  | $ | 758,945 |           |  | $ | 600,225 |          
|        
|        
|        
|        
|         | Asia Pacific            |                    |   | 285,914          |           |          |   | 208,559 |         |  |   | 456,895 |           |  |   | 398,836 |          
|        
|        
|        
|        
|         | Europe                  |                    |   | 256,842          |           |          |   | 143,782 |         |  |   | 401,804 |           |  |   | 305,092 |          
|        
|        
|        
|        
|         | Latin America and other |                    |   | 28,377           |           |          |   | 22,840  |         |  |   | 54,744  |           |  |   | 54,207  |          
|         |                         |                    |   |                  |           |          |   |         |         |  |   |         |           |  |   |        
|         |                         | Total              |   | $                | 1,041,567 |          |   | $       | 667,074 |  |   | $       | 1,672,388 |  |   | $       | 1,358,360 | 
|         |                         |                    |   |                  |           |          |   |         |         |  |   |         |           |  |   |        

Long-lived asset information by geographic area
as of June 30, 2001 and December 30, 2000 is presented
in the following table:

|                   |               |                |   |              |         |  |   |         |         | 
|------------------ | ------------- | -------------- | - | ------------ | ------- |  | - | ------- | ------- | 
|                   |               | June 30,       |   | December 30,
|                   |               | 2001           |   | 2000        
|                   |               |                |   |             
|                   |               |               
|                   |               | (in thousands)
|                  
|                  
|                  
|                  
|Long-lived assets: |               |                |   |              |         |  |   |        
|                  
|                  
|                  
|                  
|                   | United States |                | $ | 187,469      |         |  | $ | 53,199  |        
|                  
|                  
|                  
|                  
|                   | Asia Pacific  |                |   | 139,743      |         |  |   | 111,859 |        
|                  
|                  
|                  
|                  
|                   | Europe        |                |   | 1,512        |         |  |   | 868     |        
|                   |               |                |   |              |         |  |   |        
|                   |               | Total          |   | $            | 328,724 |  |   | $       | 165,926 | 
|                   |               |                |   |              |         |  |   |        

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 for the three and six months ended
June 30, 2001 represented 60% and 63% of total revenue,
respectively, compared to 72% and 71%, respectively, for the
corresponding periods in fiscal year 2000.

13



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

(Unaudited)


(amounts in thousands except share and per
share data)


7. Concentration of Credit
Risk

As of June 30, 2001, included in the cash
and cash equivalents is $178.7 million of marketable
securities held by Maxtor subsidiary in Singapore. This balance
amounted to $155.6 million as of December 30, 2000.

8. Asset Securitization

$200 million asset securitization program with
Fleet National Bank, under which the Company sells its eligible
trade accounts receivable on a non-recourse basis through a
special purpose entity, was scheduled to expire on July 25,
2001, but has been extended through September 24, 2001. At
June 30, 2001, $150 million of accounts receivable was
securitized under the program and excluded from the accounts
receivable balance. The Company is in the process of negotiating
a new facility of between $200 and $350 million with
prospective lenders. Failure to secure this new facility prior
to the expiration of our current facility would require
repayment of at least $150 million to our lenders.

|                                       |                                     |                                            |                      |         |       |  |  |          |         |         | 
|-------------------------------------- | ----------------------------------- | ------------------------------------------ | -------------------- | ------- | ----- |  |  | -------- | ------- | ------- | 
|                                       |                                     |                                            |                      | Amount 
|                                       |                                     |                                            |                      |        
|Preliminary Purchase Price Allocation: |                                     |                                            |                      |         |       |  |  |         
|                                      
|                                      
|                                      
|                                      
|                                       | Tangible net assets                 |                                            | $                    | 1,219.3 |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       | Tangible assets:                    |                                            |                      |         |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Cash and cash equivalents                  |                      | $       | 315.3 |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Restricted cash                            |                      |         | 93.9  |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Accounts receivable                        |                      |         | 247.3 |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Inventories                                |                      |         | 181.7 |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Prepaids expenses and other current assets |                      |         | 82.2  |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Property, plant and equipment              |                      |         | 129.8 |  |  |          |         |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                     | Other noncurrent assets                    |                      |         | 28.3  |  |  | $        | 1,078.5 |        
|                                       |                                     |                                            |                      |         |       |  |  |         
|                                       | Intangible assets acquired:         |                                            |                      |         |       |  |  |          |        
|                                       |                                     | Core and other existing technology         |                      |         |       |  |  |          | 286.1   |        
|                                       |                                     | Assembled workforce                        |                      |         |       |  |  |          | 43.0    |        
|                                       | Deferred compensation               |                                            |                      |         |       |  |  | 52.3     |        
|                                       | Goodwill                            |                                            |                      |         |       |  |  | 716.0    |        
|                                       | In-process research and development |                                            |                      |         |       |  |  | 94.7     |        
|                                      
|                                      
|                                      
|                                      
|                                       | Liabilities assumed                 |                                            |                      |         |       |  |  | (1,038.2 | )      
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts payable                    |                                            |                      | 231.4   |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       | Accruals and other liabilities      |                                            |                      | 195.4   |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred taxes                      |                                            |                      | 196.2   |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       | Long-term debt                      |                                            |                      | 132.4   |       |  |  |          |        
|                                      
|                                      
|                                      
|                                      
|                                       | Other long-term liabilities         |                                            |                      | 142.0   |       |  |  | (897.4   | )      
|                                       |                                     |                                            |                      |         |       |  |  |         
|                                       | Merger-related restructuring costs  |                                            |                      |         |       |  |  | (103.8   | )      
|                                       |                                     |                                            |                      |         |       |  |  |         
|                                       |                                     |                                            | Total purchase price |         |       |  |  |          | $       | 1,269.4 | 
|                                       |                                     |                                            |                      |         |       |  |  |         

The purchase price allocation is preliminary as
the Company is currently evaluating various matters related to
the acquisition including warranty provision, tax liabilities
and other accruals.

14



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

(Unaudited)


(amounts in thousands except share and per
share data)


9. Related Party Transaction

The Company purchases certain component parts
from MMC Technology, Inc., a wholly owned subsidiary of Hynix
Semiconductor America Inc., which also own more than 10% of
Maxtors common stock. Cost of revenue includes
$34 million and $72 million for the three and six
months ended June 30, 2001, respectively, compared to
$40 million and $81 million, respectively, for the
corresponding periods in fiscal year 2000 for such purchase. The
cost of revenue also includes certain component parts purchased
from Hynix which to date have not been significant.

10. Contingencies

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
Corporation (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.
Papsts infringement allegations are based on spindle
motors that Maxtor and Quantum 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 assumed Quantums potential
liabilities to Papst.

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, there can be no assurance the Company will
be able to successfully defend itself 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 the Company and its products and/or the
payment of monetary damages equal to a reasonable royalty. In
the case of a finding of a willful infringement, the Company
could also be required to pay treble damages and Papsts
attorneys fees. Accordingly, a litigation outcome
favorable to Papst could harm the Companys business,
financial condition, and operating results.

On May 22, 2001, Maxtor was sued by Cambrian
Consultants, a California corporation, for patent infringement.
The complaint alleges infringement by both Maxtor and Quantum
products. An answer and counter-claim have been filed. The
matter is in the initial discovery stage. The Company does not
believe that this matter will have a material adverse impact on
the Companys financial statements.

While the Company believes it has valid defenses
to Cambrians claims, the results of any litigation are
inherently uncertain. Additionally, there can be no assurance
the Company will be able to successfully defend itself against
this lawsuit. The Cambrian complaint asserts claims to an
unspecified dollar amount of damages. A favorable outcome for
Cambrian in this lawsuit could result in the payment of monetary
damages equal to a reasonable royalty. In the case of a finding
of a willful infringement, the Company could also be required to
pay treble damages and Cambrians attorneys fees.
Accordingly, a litigation outcome favorable to Cambrian could
harm the Companys business, financial condition, and
operating results.

15



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

(Unaudited)


(amounts in thousands except share and per
share data)


11. Pending Acquisition of MMC
Technology

The Company entered into a non-binding letter of
intent for the purchase of MMC Technology, Inc.,
(MMC) a wholly-owned subsidiary of Hynix
Semiconductor America or HSA, for a purchase price of
$1 million in cash. MMC, based in San Jose, California,
manufactures media for hard disk drives. At least 95% of
MMCs revenues come from the sale of media to Maxtor. The
acquisition is subject to customary conditions and is expected
to close no later than September 2, 2001.

12. 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 June 30,
2001.

In June 2001, the EITF issued EITF Issue
No. 00-25, Vendor Income Statement Characterization
of Consideration Paid to a Reseller of the Vendors
Products. EITF Issue No. 00-25 addresses whether
consideration from a vendor to a reseller is (a) an
adjustment of the selling prices of the vendors products
and, therefore, should be deducted from revenue when recognized
in the vendors income statement or (b) a cost
incurred by the vendor for assets or services received from the
reseller and, therefore, should be included as a cost or expense
when recognized in the vendors income statement.
EITF 00-25 is effective for the interim and year end
periods beginning after December 15, 2001. The Company
believes that the adoption of EITF 00-25 will not have a
significant impact on its financial statements.

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 141 (SFAS 141),
Business Combinations. SFAS 141 requires the
purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company believes that the
adoption of SFAS 141 will not have a significant impact on
its financial statements.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible
Assets, which is effective for fiscal years beginning
after December 15, 2001. SFAS 142 requires, among
other things, the discontinuance of goodwill amortization. In
addition, the standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles
out of previously reported goodwill and the testing for
impairment of existing goodwill and other intangibles. The
Company will adopt SFAS 142 effective January 1, 2002
which will result in the Company no longer amortizing it
existing goodwill. At June 30, 2001, goodwill approximated
$715.0 million and goodwill amortization approximated
$2.5 million and $38.3 million for the three and
six-months ended June 30, 2001, respectively. In addition,
the Company will be required to measure goodwill for impairment
as part of the transition provisions. The Company is required to
complete transition impairment tests no later than
December 31, 2002. Any impairment resulting from these
transition tests will be recorded as of January 1, 2002 and
will be recognized as of the cumulative effect of a change in
accounting principle. The Company will not be able to determine
if an impairment will be required until completion of such
impairment tests. Furthermore, if the Company acquires MMC
Technology Inc. as anticipated, the adoption of SFAS 142
will cause there to be no amortization of the goodwill resulting
from that acquisition.

16



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##### 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.

MaxtorTM, DiamondMax®, and
Maxfax® are registered trademarks and No Quibble
Service® is a registered servicemark of Maxtor. The Maxtor
logo, MaxAttachTM and ReflectIt are trademarks
of Maxtor. All other brand names and trademarks appearing in
this report are the property of their respective holders.

Quantum HDD Acquisition

On April 2, 2001, we have completed our
acquisition of Quantum HDD. The merger agreement provided for
the exchange of 1.52 shares of our common stock and options
to purchase shares of our common stock for each common share and
outstanding option of Quantum HDD, respectively. The total
purchase price of $1,269.4 million included consideration
of 121.1 million shares of our common stock valued at an
average of $9.40 per common share. The average market price
is based on the average closing price for two trading days prior
and two trading days subsequent to October 4, 2000, the
announcement date which established the terms of the merger. The
value of the options, as well as estimated direct transaction
costs of $135.9 million, have been included as part of
total purchase costs. The purchase price allocation is
preliminary as the Company is currently evaluating various
matters related to the acquisition, including warranty
provision, tax liabilities and other accruals.

For a summary of the purchase price allocation
for the acquisition, see note 2 of the Notes to Condensed
Consolidated Financial Statements.

Revenue and Gross Profit

|                            |                   |                    |         |         |   |                  |       |          |   |         |        |        |  |   |         |       |   |   |         |       |   |   |        |   | 
|--------------------------- | ----------------- | ------------------ | ------- | ------- | - | ---------------- | ----- | -------- | - | ------- | ------ | ------ |  | - | ------- | ----- | - | - | ------- | ----- | - | - | ------ | - | 
|                            |                   |                    |         |         |   |                  |       |         
|                            |                   | Three Months Ended |         |         |   | Six Months Ended |       |         
|                            |                   |                    |         |         |   |                  |       |         
|                            |                   | June 30,           |         | July 1, |   |                  |       | June 30, |   | July 1, |        |       
|                            |                   | 2001               |         | 2000    |   | Change           |       | 2001     |   | 2000    |        | Change
|                            |                   |                    |         |         |   |                  |       |          |   |         |        |       
|                            |                   |                    |         |         |   |                  |       |         
|                            |                   | (unaudited)        |         |         |   | (unaudited)      |       |         
|                            |                   |                   
|                            |                   | (In millions)     
|                           
|                           
|                           
|                           
|Total revenue               |                   | $                  | 1,041.6 |         |   | $                | 667.1 |          |   | $       | 374.5  |        |  | $ | 1,672.4 |       |   | $ | 1,358.4 |       |   | $ | 314.0  |  
|                           
|                           
|                           
|                           
|Gross profit                |                   | $                  | 77.9    |         |   | $                | 99.3  |          |   | $       | (21.4  | )      |  | $ | 167.0   |       |   | $ | 208.1   |       |   | $ | (41.1  | )
|                           
|                           
|                           
|                           
|Net income (loss)           |                   | $                  | (319.8  | )       |   | $                | 13.2  |          |   | $       | (333.0 | )      |  | $ | (318.4  | )     |   | $ | 40.8    |       |   | $ | (359.2 | )
|                           
|                           
|                           
|                           
|As a percentage of revenue: |                   |                    |         |         |   |                  |       |          |   |         |        |        |  |   |         |       |   |   |         |       |   |   |        |  
|                           
|                           
|                           
|                           
|                            | Total revenue     |                    |         | 100.0   | % |                  |       | 100.0    | % |         |        |        |  |   |         | 100.0 | % |   |         | 100.0 | % |   |        |   | 
|                           
|                           
|                           
|                           
|                            | Gross profit      |                    |         | 7.5     | % |                  |       | 14.9     | % |         |        |        |  |   |         | 10.0  | % |   |         | 15.3  | % |   |        |   | 
|                           
|                           
|                           
|                           
|                            | Net income (loss) |                    |         | 30.7    | % |                  |       | 2.0      | % |         |        |        |  |   |         | 19.0  | % |   |         | 3.0   | % |   |        |   | 

17



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##### Table of Contents



Revenue

Total revenue for the second quarter of fiscal
year 2001 increased 56.1% compared to the same quarter in fiscal
year 2000 primarily reflecting the acquisition of Quantum HDD.
The slowdown in demand for hard disk drives resulted in lower
unit volume and more severe pricing pressure than expected.
Total shipments for the second fiscal quarter 2001 were
12.1 million units, which was 5.6 million units or
86.0% higher compared to the second fiscal quarter a year ago.
Revenue from the Original Equipment Manufacturer
(OEM) channel for the quarter ended June 30, 2001
represented 59.7% of total revenue compared to 71.9% for the
corresponding quarter in fiscal year 2000. Revenue from the
distribution and retail channels represented 40.3% of total
revenue for the quarter ended June 30, 2001 compared to 28.1%
for the corresponding quarter in fiscal year 2000. Sales to Dell
were 11.4% and 13.8% of total revenue in the three and six
months ended June 30, 2001, respectively, compared to 13.0%
and 12.9% of total revenue in the corresponding periods of
fiscal year 2000.

Gross Profit

Gross profit as a percentage of revenue decreased
to 7.5% in the second quarter of 2001 from 14.9% 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. Competitive pricing pressures contributed to
the overall decrease in average selling price and gross margin.

Operating expenses

|                                                      |                                                       |                    |       |         |   |                  |      |          |   |         |      |        |  |   |       |      |   |   |       |     |   |   |      |  | 
|----------------------------------------------------- | ----------------------------------------------------- | ------------------ | ----- | ------- | - | ---------------- | ---- | -------- | - | ------- | ---- | ------ |  | - | ----- | ---- | - | - | ----- | --- | - | - | ---- |  | 
|                                                      |                                                       |                    |       |         |   |                  |      |         
|                                                      |                                                       | Three Months Ended |       |         |   | Six Months Ended |      |         
|                                                      |                                                       |                    |       |         |   |                  |      |         
|                                                      |                                                       | June 30,           |       | July 1, |   |                  |      | June 30, |   | July 1, |      |       
|                                                      |                                                       | 2001               |       | 2000    |   | Change           |      | 2001     |   | 2000    |      | Change
|                                                      |                                                       |                    |       |         |   |                  |      |          |   |         |      |       
|                                                      |                                                       |                    |       |         |   |                  |      |         
|                                                      |                                                       | (unaudited)        |       |         |   | (unaudited)      |      |         
|                                                      |                                                       |                   
|                                                      |                                                       | (In millions)     
|                                                     
|                                                     
|                                                     
|                                                     
|Research and development                              |                                                       | $                  | 139.3 |         |   | $                | 61.2 |          |   | $       | 78.1 |        |  | $ | 198.3 |      |   | $ | 116.6 |     |   | $ | 81.7 | 
|                                                     
|                                                     
|                                                     
|                                                     
|Selling, general and administrative                   |                                                       | $                  | 107.9 |         |   | $                | 26.7 |          |   | $       | 81.2 |        |  | $ | 135.4 |      |   | $ | 52.0  |     |   | $ | 83.4 | 
|                                                     
|                                                     
|                                                     
|                                                     
|Amortization of goodwill and other intangible
	assets |                                                       | $                  | 61.9  |         |   | $                | 2.5  |          |   | $       | 59.4 |        |  | $ | 64.4  |      |   | $ | 5.0   |     |   | $ | 59.4 | 
|                                                     
|                                                     
|                                                     
|                                                     
|Purchased in-process research and development         |                                                       | $                  | 94.7  |         |   | $                |     |          |   | $       | 94.7 |        |  | $ | 94.7  |      |   | $ |      |     |   | $ | 94.7 | 
|                                                     
|                                                     
|                                                     
|                                                     
|As a percentage of revenue:                           |                                                       |                    |       |         |   |                  |      |          |   |         |      |        |  |   |       |      |   |   |       |     |   |   |      | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Research and development                              |                    |       | 13.4    | % |                  |      | 9.2      | % |         |      |        |  |   |       | 11.9 | % |   |       | 8.6 | % |   |      |  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Selling, general and administrative                   |                    |       | 10.4    | % |                  |      | 4.0      | % |         |      |        |  |   |       | 8.1  | % |   |       | 3.8 | % |   |      |  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Amortization of goodwill and other intangible
	assets |                    |       | 5.9     | % |                  |      | 0.4      | % |         |      |        |  |   |       | 3.9  | % |   |       | 0.4 | % |   |      |  | 

Research and Development
(R&D)

R&D expense as a percentage of revenue
increased to 13.4% in the second quarter of 2001 compared to
9.2% for the same quarter in 2000. The absolute dollar level of
R&D expenditures was $139.2 million in the second
quarter of 2001 compared to $61.2 million in the first
quarter of 2000. R&D expense for the six months ended
June 30, 2001 as a percentage of revenue increased to 11.9%
compared to 8.6% for the same period a year ago. The increase in
R&D percentage of revenue and in absolute dollars was
primarily due to the inclusion of Quantum HDD expenses during
the three months ended June 30, 2001. Also contributing is
our continued effort to maintain leadership products and address
the requirements of the desktop PC market as well as continued
investments in the Network Systems Group.

Selling, General and
Administrative (SG&A)

SG&A expense as a percentage of revenue
increased to 10.4% in the second 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 the inclusion of
Quantum HDD and other merger-related expenses during the three
months ended June 30, 2001, our costs

18



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##### Table of Contents



associated with supporting Maxtors higher
sales volume and increased emphasis in the distribution and
retail markets.


Stock Compensation

Included in Selling, General and Administrative
expenses and Research and Development expenses are charges for
amortization of stock compensation resulting from both Maxtor
options and options issued by Quantum to employees who joined
Maxtor in connection with the merger on April 2, 2001.
Stock compensation charges were as follows:

|                                    |  |                    |         |                  |  |          |         |         |  |   |         |  |  |   |         | 
|----------------------------------- |  | ------------------ | ------- | ---------------- |  | -------- | ------- | ------- |  | - | ------- |  |  | - | ------- | 
|                                    |  |                    |         |                 
|                                    |  | Three months ended |         | Six months ended
|                                    |  |                    |         |                 
|                                    |  | June 30,           |         | July 1,          |  | June 30, |         | July 1,
|                                    |  | 2001               |         | 2000             |  | 2001     |         | 2000   
|                                    |  |                    |         |                  |  |          |         |        
|                                    |  |                    |         |                 
|                                    |  | (unaudited)        |         | (unaudited)     
|(In millions)                       |  |                    |         |                  |  |          |         |         |  |   |         |  |  |   |         | 
|                                   
|                                   
|                                   
|                                   
|Cost of Sales                       |  | $                  | 186.9   |                  |  | $        | 37.8    |         |  | $ | 244.6   |  |  | $ | 75.6    | 
|                                   
|                                   
|                                   
|                                   
|Selling, General and Administrative |  |                    | 1,039.5 |                  |  |          | 896.80  |         |  |   | 1,772.7 |  |  |   | 1,727.2 | 
|                                   
|                                   
|                                   
|                                   
|Research and Development            |  |                    | 1,486.6 |                  |  |          | 145.1   |         |  |   | 1,632.7 |  |  |   | 966.8   | 
|                                    |  |                    |         |                  |  |          |         |         |  |   |         |  |  |   |         | 
|Total Stock Compensation Expense    |  | $                  | 2,713.0 |                  |  | $        | 1,079.7 |         |  | $ | 3,650.0 |  |  | $ | 2,769.6 | 
|                                    |  |                    |         |                  |  |          |         |         |  |   |         |  |  |   |         | 

In addition, Quantum Corporation issued
restricted DSS shares to Quantum employees who joined Maxtor in
connection with the merger in exchange for the fair value of DSS
options held by such employees. A portion of the acquisition
purchase price has been allocated to this deferred compensation,
recorded as prepaid expense, and is amortized to expenses over
the vesting period as the vesting of the shares are subject to
continued employment with Maxtor. Amortization as of
June 30, 2001 was as follows:

|                                    |  |              |          |            |  |              |          |            |  |  |   |  |  |  |   | 
|----------------------------------- |  | ------------ | -------- | ---------- |  | ------------ | -------- | ---------- |  |  | - |  |  |  | - | 
|                                    |  | Three months |          | Six months |  | Three months |          | Six months
|                                    |  | ended        |          | ended      |  | ended        |          | ended     
|                                    |  | June 30,     |          | June 30,   |  | July 1,      |          | July 1,   
|                                    |  | 2001         |          | 2001       |  | 2000         |          | 2000      
|                                    |  |              |          |            |  |              |          |           
|Cost of Sales                       |  |              | 2,331.1  |            |  |              | 2,331.1  |            |  |  |  |  |  |  |  | 
|                                   
|                                   
|                                   
|                                   
|Selling, General and Administrative |  |              | 7,039.6  |            |  |              | 7,039.6  |            |  |  |  |  |  |  |  | 
|                                   
|                                   
|                                   
|                                   
|Research and Development            |  |              | 19,614.3 |            |  |              | 19,614.3 |            |  |  |  |  |  |  |  | 
|                                    |  |              |          |            |  |              |          |            |  |  |   |  |  |  |   | 
|                                    |  |              | 28,985.0 |            |  |              | 28,985.0 |            |  |  |  |  |  |  |  | 
|                                    |  |              |          |            |  |              |          |            |  |  |   |  |  |  |   | 

Purchased In-process Research and
Development (IPR&D)

The Company expensed purchased in-process
research and development costs of $94.7 million as a result
of the business combination transaction with the hard disk drive
business of Quantum Corporation. The Company expensed purchased
in-process research and development costs of $94.7 million
on the acquisition date as a result of the business combination
transaction with Quantum HDD. These amounts were expensed
because the acquired technology had not yet reached
technological feasibility and had no future alternative uses.
There can be no assurance that acquisitions of businesses,
products or technologies by us in the future will not result in
substantial charges for acquired in-process research and
development that may cause fluctuations in our quarterly or
annual operating results. For additional information regarding
the Quantum HDD acquisition and the costs associated with
purchased in-process research and development, see Note 8
of the Notes to Condensed Consolidated Financial Statements.

Pending Acquisition of MMC
Technology

The Company entered into a non-binding letter of
intent for the purchase of MMC Technology, Inc., a wholly-owned
subsidiary of Hynix Semiconductor America, or HSA, for a
purchase price of $1 million in cash. MMC, based in San
Jose, California, manufactures media for hard disk drives. At
least 95% of MMCs revenues come from the sale of media to
Maxtor. The acquisition is subject to customary conditions and
is expected to close no later than September 2, 2001.

19



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##### Table of Contents



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 and Quantum HDD in April
2001.

Interest Expense and Interest
Income

|                            |                           |                    |      |         |   |                  |     |          |   |         |     |        |  |   |      |     |   |   |      |     |   |   |      |   | 
|--------------------------- | ------------------------- | ------------------ | ---- | ------- | - | ---------------- | --- | -------- | - | ------- | --- | ------ |  | - | ---- | --- | - | - | ---- | --- | - | - | ---- | - | 
|                            |                           |                    |      |         |   |                  |     |         
|                            |                           | Three Months Ended |      |         |   | Six Months Ended |     |         
|                            |                           |                    |      |         |   |                  |     |         
|                            |                           | June 30,           |      | July 1, |   |                  |     | June 30, |   | July 1, |     |       
|                            |                           | 2001               |      | 2000    |   | Change           |     | 2001     |   | 2000    |     | Change
|                            |                           |                    |      |         |   |                  |     |          |   |         |     |       
|                            |                           |                    |      |         |   |                  |     |         
|                            |                           | (unaudited)        |      |         |   | (unaudited)      |     |         
|                            |                           |                   
|                            |                           | (In millions)     
|                           
|                           
|                           
|                           
|Interest expense            |                           | $                  | 5.5  |         |   | $                | 3.1 |          |   | $       | 2.4 |        |  | $ | 8.5  |     |   | $ | 7.0  |     |   | $ | 1.5  |  
|                           
|                           
|                           
|                           
|Interest and other income   |                           | $                  | 12.9 |         |   | $                | 8.1 |          |   | $       | 4.8 |        |  | $ | 18.6 |     |   | $ | 15.4 |     |   | $ | 3.2  |  
|                           
|                           
|                           
|                           
|Other loss                  |                           | $                  |     |         |   | $                |    |          |   | $       |    |        |  | $ | (1.5 | )   |   | $ |     |     |   | $ | (1.5 | )
|                           
|                           
|                           
|                           
|As a percentage of revenue: |                           |                    |      |         |   |                  |     |          |   |         |     |        |  |   |      |     |   |   |      |     |   |   |      |  
|                           
|                           
|                           
|                           
|                            | Interest expense          |                    |      | 0.5     | % |                  |     | 0.5      | % |         |     |        |  |   |      | 0.5 | % |   |      | 0.5 | % |   |      |   | 
|                           
|                           
|                           
|                           
|                            | Interest and other income |                    |      | 1.2     | % |                  |     | 1.2      | % |         |     |        |  |   |      | 1.1 | % |   |      | 1.1 | % |   |      |   | 
|                           
|                           
|                           
|                           
|                            | Other loss                |                    |      | 0.0     | % |                  |     | 0.0      | % |         |     |        |  |   |      | 0.1 | % |   |      | 0.0 | % |   |      |   | 

Interest Expense

Interest expense as a percentage of revenue was
0.5% in the second quarter of 2000 and 2001. In absolute dollar
terms, interest expense decreased by $2.4 million in the
second quarter of 2001 and increased by $1.5 million for
the first six months of fiscal year 2001. Total short-term and
long-term outstanding borrowings were $112.7 million as of
July 1, 2000 and $231.9 million as of June 30,
2001, primarily reflecting the acquisition of Quantum HDD.

Interest and Other
Income

Interest and other income in the second quarter
of 2001 increased in absolute dollar when compared to the second
quarter of 2000. Total cash and cash equivalents and marketable
securities were $393.3 million as of July 1, 2000
compared to $626.9 million as of June 30, 2001,
primarily reflecting the acquisition of Quantum HDD.

Provision for income
taxes

|                                                |  |                    |        |         |  |                  |      |          |  |         |        |        |  |   |        |   |  |   |      |  |  |   |        |  
|----------------------------------------------- |  | ------------------ | ------ | ------- |  | ---------------- | ---- | -------- |  | ------- | ------ | ------ |  | - | ------ | - |  | - | ---- |  |  | - | ------ | -
|                                                |  |                    |        |         |  |                  |      |         
|                                                |  | Three Months Ended |        |         |  | Six Months Ended |      |         
|                                                |  |                    |        |         |  |                  |      |         
|                                                |  | June 30,           |        | July 1, |  |                  |      | June 30, |  | July 1, |        |       
|                                                |  | 2001               |        | 2000    |  | Change           |      | 2001     |  | 2000    |        | Change
|                                                |  |                    |        |         |  |                  |      |          |  |         |        |       
|                                                |  |                    |        |         |  |                  |      |         
|                                                |  | (unaudited)        |        |         |  | (unaudited)      |      |         
|                                                |  |                   
|                                                |  | (In millions)     
|                                               
|                                               
|                                               
|                                               
|Income (loss) before provision for income taxes |  | $                  | (318.7 | )       |  | $                | 13.9 |          |  | $       | (332.6 | )      |  | $ | (317.1 | ) |  | $ | 42.9 |  |  | $ | (360.0 | )
|                                               
|                                               
|                                               
|                                               
|Provision for income taxes                      |  | $                  | 1.1    |         |  | $                | 0.7  |          |  | $       | 0.4    |        |  | $ | 1.3    |   |  | $ | 2.1  |  |  | $ | (0.8   | )

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 and Switzerland, we have not incurred any
significant foreign, U.S. federal, state or local income taxes
for the current or prior fiscal periods. We have not recorded a
tax benefit associated with our loss carry-forward because of
the uncertainty of realization.

Liquidity and Capital Resources

As of June 30, 2001, we had
$626.9 million in cash, and cash equivalents and marketable
securities as compared to $376.2 million at
December 30, 2000.

20



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Operating activities used cash of
$36.5 million for the six-month period ended June 30,
2001. The cash used from operating activities as due from a net
loss after adjustment for depreciation and amortization, and a
decrease in accounts payable and accrued liabilities. This was
partially offset by decreases in of accounts receivable,
inventory, and other assets.

Investing activities generated cash of
$216.5 million during the first six months of 2001,
principally from cash acquired from an acquisition, offset in
part by purchases of property, plant and equipment.

As of June 30, 2001, our outstanding debt
comprised of $77.6 million of publicly-traded subordinated
debentures, due March 1, 2012, and a Singapore dollar
denominated loan equivalent to $20.9 million from the
Economic Board of Development of Singapore, which is guaranteed
by a bank. As a result of the acquisition of Quantums hard
drive business, the Company has assumed a mortgage of
$37.5 million due October 31, 2006. In addition, the
Company has indemnified Quantum Corporation for one-third of its
outstanding $287.5 million convertible subordinated issue
due August 1, 2004. 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.

Quantum issued 7% subordinated convertible notes
due August 1, 2004 in the aggregate principal amount of
$287.5 million. Interest on the notes is payable semi-annually
each February 1 and August 1 and principal is payable
upon maturity of the notes. The assignment agreement provides
that, on each date upon which Quantum makes a payment in respect
of the notes, Maxtor will pay to Quantum, or the trustee
appointed under the indenture governing notes, the Quantum HDD
pro rata portion of that payment. Also under the assignment
agreement, at Quantums request, Maxtor will cooperate in
seeking to effectuate a split or similar change to the
indentures relating to such convertible notes, such that Maxtor
will be the sole obligor with respect to Quantum HDD pro rata
portion of such indentures, provided that such split or similar
change will not result in any increase in interest rate or other
change in terms adverse to Maxtor. As a result of the
acquisition of Quantum HDD, we also have the obligation to pay
interest on debentures issued by Quantum of $2.8 million
and have included our pro rata portion of debentures in
long-term debt of $95.8 million.

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 June 30, 2001,
$150 million of accounts receivable was securitized under
the program and excluded from our accounts receivable balance.
The Company has received a sixty-day extension for its asset
securitization program, and the Company is currently negotiating
with its banks to replace the existing facility with a larger
asset securitization program. 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 approximately $170.0 million and
$190.0 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.

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

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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 June 30, 2001.


In June 2001, the EITF issued EITF Issue
No. 00-25, Vendor Income Statement Characterization
of Consideration Paid to a Reseller of the Vendors
Products. EITF Issue No. 00-25 addresses whether
consideration from a vendor to a reseller is (a) an
adjustment of the selling prices of the vendors products
and, therefore, should be deducted from revenue when recognized
in the vendors income statement or (b) a cost
incurred by the vendor for assets or services received from the
reseller and, therefore, should be included as a cost or expense
when recognized in the vendors income statement.
EITF 00-25 is effective for the interim and year end
periods beginning after December 15, 2001. We believe that
the adoption of EITF 00-25 will not have a significant
impact on our financial statements.

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 141 (SFAS 141),
Business Combinations. SFAS 141 requires the
purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the
pooling-of-interests method. We believe that the adoption of
SFAS 141 will not have a significant impact on our
financial statements.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible
Assets, which is effective for fiscal years beginning
after December 15, 2001. SFAS 142 requires, among
other things, the discontinuance of goodwill amortization. In
addition, the standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles
out of previously reported goodwill and the testing for
impairment of existing goodwill and other intangibles. We have
assessed and determined the impact of SFAS on its financial
position and result of operations and will adopt SFAS 142
on January 1, 2002 for goodwill associated with the Quantum
HDD acquisition and other goodwill acquired prior to
July 1, 2001. Furthermore, if we acquire MMC Technology
Inc. as anticipated, we will adopt SFAS 142 as of
July 1, 2001 and therefore, there will be no amortization
with respect to the goodwill of that acquisition.

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CERTAIN FACTORS AFFECTING FUTURE
PERFORMANCE

-MAXTOR INTERNAL LEGAL TO REVIEW


We Have A History Of Losses And May Not
Achieve Profitability.

We have a history of significant losses. In the
last five fiscal years, we were profitable in only fiscal years
1998 and 2000 and Quantum HDD was profitable only in fiscal year
1997. On a pro forma basis, the combined company was not
profitable in any of the last three fiscal years ending
December 31, 2000 or in the quarter ending March 31,
2001. In the quarter ending June 30, 2001, the first
quarter of operations of the combined company, we incurred a net
loss of $319.8 million. We cannot assure you that the
combined company will ever achieve profitability.

A Number Of Factors, Including The Failure To
Retain Existing Customers Of Both Businesses And The Failure To
Retain Key Employees, Could Prevent Us From Being Able To
Successfully Integrate The Business Of Quantum HDD With Us,
Which Could Harm Our Business, Financial Condition And Operating
Results.

Having acquired Quantum HDD in April 2001, we
need to integrate the two operations. The integration has
required, and will continue to require, significant efforts from
our management, including the coordination of product plans,
research and development and sales and marketing efforts. The
combined company has a large number of employees in widely
dispersed operations in California, Colorado, Massachusetts,
Singapore, Ireland and other locations, which will increase the
difficulty of integrating operations. Employees of the combined
company may leave because of the merger. In addition, customers,
distributors or suppliers may terminate their arrangements with
the combined company, or demand amended terms to these
arrangements.

The challenges involved in integrating the two
businesses include, but are not limited to, the following:



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | retaining existing customers of each business;                                                                                                                                     
|
| |  | retaining and integrating management and other
	key employees of each of Maxtor and Quantum HDD;                                                                                   
|
| |  | utilizing and 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 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 the combined company;                                                                                     
|
| |  | 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.                                                                                                                                 

It is not certain we and Quantum HDD will be
successfully integrated in a timely manner or at all or that any
of the anticipated benefits will be realized. The risks of
unsuccessful integration of the companies include:



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | impairment and/or loss of relationships with
	employees, customers and/or suppliers;                            
|
| |  | disruption of the combined companys
	business;                                                                 
|
| |  | distraction of management; and                                                                                  
|
| |  | adverse financial results related to
	unanticipated expenses associated with integration of the two
	businesses.

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The combined company may not succeed in
addressing these risks. Both we and Quantum HDD have
incurred significant losses from operations in prior reporting
periods and the hard disk drive business is fiercely competitive
and has significant capital requirements. Moreover, we expect
average selling prices to continue to decline, demand for hard
disk drive products to continue to be volatile and industry
margins to continue to be tight, all of which heighten the
potential risks of a failure to achieve successful integration
or expected expense reductions. Further, the growth rate of the
combined company may not equal the historical growth rates
experienced by us or Quantum HDD considered separately.

Failure Of The Merger To Achieve Beneficial
Synergies, Such As Expense Reductions, Could Harm The Business
And Operating Results Of The Combined Company.

We expect the recently completed combination of
Maxtor and Quantum HDD will result in beneficial synergies
for the combined company. Achieving these anticipated synergies
and the potential benefits underlying our reasons for entering
into the merger will depend on a number of factors, some of
which include:



| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the ability of the combined company to reduce
	expenses through elimination of redundancies in sales, marketing
	and administrative services and overhead expenses;         
|
| |  | the ability of the combined company to take
	advantage of complementary products, channels, partners,
	technology, logistics, critical skills and manufacturing
	approaches;
|
| |  | the ability of the combined company to explore
	and pursue emerging and higher-profit storage opportunities;                                                                
|
| |  | the ability of the combined company to migrate to
	a common product platform in the future;                                                                                 
|
| |  | the ability of the combined company to
	manufacture both through Matsushita-Kotobuki Electronics
	Industries, Ltd., or MKE, and in our own facilities;                      
|
| |  | the ability to manage inventory for multiple
	products; and                                                                                                                 
|
| |  | the combined companys ability to execute
	successfully in time-to-market introduction and time-to-volume
	production of high quality products at competitive prices.       

Even if we are able to integrate the operations
of Quantum HDD, the anticipated beneficial synergies may
not be achieved. The failure to achieve anticipated synergies
could harm our business, financial condition and operating
results.

Our Financial Results Will Suffer As A Result
Of Purchase Accounting Treatment Of Our Merger With Quantum HDD.
The Accounting Charges Attributable To Amortization Of Goodwill
And To Other Intangible Assets In The Merger Will Amount To
Approximately $35.8 Million And $23.6 Million,
Respectively, Per Fiscal Quarter In Fiscal Year 2001.

As a result of the merger, we allocated
approximately $716.0 million and $329.1 million of
purchase consideration to goodwill and to other intangible
assets, respectively. We will amortize approximately
$35.8 million of goodwill per fiscal quarter until the end
of fiscal year 2001, at which time we will discontinue
amortizing goodwill in accordance with Statement of Financial
Accounting Standards No. 142 (Goodwill and other
Intangible Assets). We will amortize approximately
$23.6 million of other intangible assets per fiscal quarter
in fiscal year 2001 and will continue to do so over the
remainder of their estimated useful lives. As a result, purchase
accounting treatment of the merger will result in reduction in
earnings and earnings per share for the foreseeable future. This
charge could cause the market price of our common stock to
decline.

If Quantum Incurs Non-Insured Tax As A Result
Of Its Split-Off Of Quantum HDD, Our Financial Condition,
Operating Results, And Cash Flows Could Be Negatively
Affected.

In connection with our merger with
Quantum HDD, we agreed to indemnify Quantum for the amount
of any tax payable by Quantum as a result of the split-off of
Quantum HDD from Quantum DSS to the extent such tax is
not covered by insurance, unless imposition of the tax is the
result of Quantums actions, or

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


Because We Have To Abide By Potentially
Significant Restrictions With Respect To Our Equity Securities
For Two Years After The Merger In Order To Mitigate The Risk Of
Triggering A Tax Obligation Of Quantum As A Result Of The
Split-Off, Our Ability To Attract And Retain Key Personnel Or Be
Acquired Could Be Harmed.

Under the federal tax rules applicable to the
split-off, the following events occurring during the two-year
period after the merger may cause the split-off to become
taxable to Quantum under circumstances in which the tax opinion
insurance policy will not cover the tax:



| |   |                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we issue our equity securities to acquire other
	companies or businesses or to raise financing for our operations
	or other business purposes;                                                                                                             
|
| |  | we issue our equity securities as equity
	compensation, such as the grant of options or restricted stock,
	other than in the ordinary course of business consistent with
	past practices; or a 50% or greater interest in us is acquired
	by another party.

Because of the foregoing restrictions, we may be
at a competitive disadvantage in attracting and retaining key
personnel because:



| |   |                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may have to forego significant growth and
	other business opportunities;                                                                                                                                                                                            
|
| |  | we may not be deemed an attractive acquisition
	target, reducing opportunities for our stockholders to sell or
	exchange their shares in attractive transactions which might
	otherwise be proposed; and                                                               
|
| |  | we will be restricted in our ability to initiate
	a business combination that our board of directors might wish to
	pursue because we will not be able to structure the transaction
	as an acquisition, even if that would otherwise be the most
	attractive structure.

If we are unable to attract and retain key
personnel, our business, financial condition and operating
results could suffer. In addition, the restrictions relating to
our securities under which we must operate could discourage
potential acquisition proposals, could delay or prevent a change
of control of the company and also could diminish the
opportunities for a holder of our common stock to participate in
tender others, including others at a price above the
then-current market price for our common stock.

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. Competitors attempts to
liquidate excess inventories, restructure, or gain market share
also tend to cause average selling prices to decline. This
intense price competition could

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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, intense price competition among
personal computer manufacturers may cause the price 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. We have only recently developed
products that we believe can be produced at low enough costs to
be successfully sold to the consumer electronics market. We
anticipate the cost of consumer electronics products will also
decline over time. If this decline occurs and we are unable to
continue to lower the cost of our hard disk drives for the
lower-priced consumer electronics market, we will not be able to
compete effectively in this market, which may harm our operating
results.

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, including Fujitsu,
Hitachi, 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. 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;                                                                                                     
|
| |  | bundle their products with other products to
	increase demand for their products; or                                                                 
|
| |  | develop new technology which would significantly
	reduce the cost of their products.                                                                 

Although we are the largest hard disk drive
manufacturer, based on units shipped by Maxtor and Quantum HDD
combined in 2000, we are not the largest in terms of revenue and
our size alone will not eliminate all of the advantages of our
competitors. 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.

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 as well as the
	overall economic environment of the desktop computer industry
	and the markets for Intel-based servers, consumer electronics
	applications and NAS devices;
|
| |  | 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;                                                                                                                                                                                                   

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| |   |                                                            
| | - | -----------------------------------------------------------
| |  | our customers canceling, rescheduling or
	deferring orders;
|
| |  | our ability to purchase components at competitive
	prices; 
|
| |  | our ability to manage inventory;                           
|
| |  | 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. Because of these
and other factors, we believe that period to period comparisons
of our and Quantum HDDs combined historical results of
operations are not a good predictor of our future performance.
If our future operating results are below the expectations of
stock market analysts, our stock price may decline.

We Depend On MKE To Manufacture A Significant
Portion Of Our Hard Disk Drives And Adverse Developments In Our
Relationship With MKE Could Lead To Inventory Shortages Or
Surpluses.

We have entered into a master agreement and a
hard disk drives purchase agreement with MKE governing our
relationship. The purchase agreement expires on November 2,
2001. We expect to negotiate a new purchase agreement prior to
expiration. If we are not able to negotiate a mutually
acceptable replacement purchase agreement, we will likely be
able to continue to purchase by purchase order, but such
purchases may not be in adequate volumes or on terms
advantageous to us. In these cases, our revenue may be lower
than projected or may not be sufficient to cover the costs
associated with the Quantum HDD business and our operating
results would suffer.

We will have to negotiate pricing arrangements
with MKE on a quarterly basis. Because pricing may be fixed for
a quarter, intra quarter improvements in MKEs costs may
not be shared with us as they occur, which would negatively
impact our operating results. Any failure to reach an agreement
on competitive pricing arrangements would also negatively impact
our operating results.

We rely on MKE to quickly achieve volume
production of new hard disk drives at competitive costs, to meet
our quality requirements and to respond quickly to product
delivery schedules. If MKE fails to meet these requirements, our
operating results could suffer. In addition, MKEs
production schedule is based on forecasts of purchase
requirements. We may have limited rights to modify short-term
purchase orders. Our failure to accurately forecast our
requirements or successfully adjust MKEs production
schedule could lead to inventory shortages or surpluses, which
could cause our operating results to suffer.

If We Purchase MMC Technology, Inc., or MMC,
We May Experience Additional Costs And Risks.

We have entered into a nonbinding letter of
intent for the purchase of MMC. If we complete the acquisition
of MMC and MMC becomes a component source internal to us, we may
incur additional risks, including the risks that:



| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may not have sufficient media supply sources
	in the event that the MMC component supply is inadequate;                                                                                                      
|
| |  | competing media suppliers may not deal with us or
	may not deal with us on the same terms and conditions we have
	previously enjoyed;                                                                           
|
| |  | component suppliers of MMC may not deal with us
	on favorable terms;                                                                                                                                            
|
| |  | patent infringement that might be committed or
	alleged to be committed by MMC would no longer be indemnified,
	and we would be responsible for past infringements committed or
	alleged to be committed by MMC;
|
| |  | MMCs costs of operations may exceed the
	prices we have historically paid for components or the prices
	that might be otherwise available to us from other vendors; and                                        

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| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | we may be distracted by management of the MMC
	operations, which are not in our core business.

In any of these cases, our profit margins or
revenue may be lower and our operating results would suffer. In
addition, capital expenditures and working capital investments
required for MMCs business will utilize additional cash.

If We Do Not Have Adequate Manufacturing
Capacity In The Future Because Of A Disaster At One Of Our
Plants, Or An Inability To Acquire Needed Additional
Manufacturing Capacity, or MKEs Inability Or Unwillingness
To Meet Our Manufacturing Requirements, Our Growth Will Be
Adversely Impacted And Our Business Could Suffer.

Both our and MKEs volume manufacturing
operations are based primarily in Singapore. A flood,
earthquake, political instability or other disaster or condition
that adversely affects our or MKE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. Our future
growth will also require that MKE continue to devote substantial
financial resources to property, plant and equipment to support
the manufacture of a significant portion of our products. If MKE
is unable or unwilling to meet our manufacturing requirements,
an alternative manufacturing source may not be available in the
near term and our business, financial condition and operating
results would suffer.

If We Fail To Qualify As A Supplier To Desktop
Computer Manufacturers or Subcontractors For The Future
Generation Of Hard Disk Drives, Then These Manufacturers or
Subcontractors May Not Purchase Any Units Of An Entire Product
Line Which Will Have A Significant Impact On Our
Sales.

Most of our products are sold to desktop computer
manufacturers or to subcontractors of the desktop computer
manufacturers. These manufacturers select or qualify their hard
disk drive suppliers, either directly with us or through their
subcontractors, 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 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 business, financial
condition and operating results would be adversely affected.

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.
Such segments may include laptop personal computers, which none
of our products currently serves. 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;

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| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 additional
market segments could harm our business, financial condition and
operating results.

Because We Are Substantially Dependent On
Desktop Computer Drive Sales, A Decrease In The Demand For
Desktop Computers Could Reduce Demand For Our
Products.

Our revenue growth and profitability depend
significantly on the overall demand for desktop computers and
related products and services. TRENDFOCUS, an independent
research group, estimates the growth rate in desktop computer
sales has slowed in recent quarters. Declining economic
conditions worldwide, including a possible recession in the
United States or worldwide, may further decrease demand for
desktop computers. Because we 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. Because we 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.

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 six months ended June 30, 2001, one
customer, Dell, accounted for approximately 13.8% of our
revenue, and our top five customers accounted for approximately
36% of our revenue. We expect 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 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 Have
Increased The Risk Of Inventory Obsolescence And Could Result In
An Increase In Our Operating Costs And A Decline In Average
Selling Prices.

Our customers have adopted more sophisticated
business models that place additional strains on our business.
For example, nearly all personal computer manufacturers have
adopted a subcontractor model that requires us to contract
directly with companies that provide manufacturing services for
the personal computer manufacturers. This exposes us to
increased credit risk because these subcontractors are generally
less well capitalized than the personal computer manufacturers
themselves, and presents greater inventory and other logistical
challenges because each personal computer manufacturer may
require us to deal with several separate subcontractors. Some
personal computer manufacturers have adopted 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. Finally, our
manufacturing customers have adopted just-in-time

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inventory management processes that require
component suppliers to maintain inventory at or near the
customers production facility. These policies have
complicated inventory management strategies and made it more
difficult to match manufacturing plans with projected customer
demand. As a result, there is an increased risk that our
inventory could become obsolete, our operating costs could
increase or our average selling prices could decline, any of
which could cause our operating results to suffer.


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.

Both we and MKE depend on a limited number of
qualified suppliers for components and subassemblies, including
recording heads, media and integrated circuits. Currently, we
purchase recording heads from three sources, media from two
sources, digital signal processor/ controllers from two sources
and spin/ servo integrated circuits from one source. MKE is also
dependent on a limited number of suppliers for its components.
We require parts provided to us by only one supplier be produced
in two separate locations. As we have experienced in the past,
some required parts may be periodically in short supply. As a
result, we will have to allow for significant ordering lead
times for some components. In addition, we may have to pay
significant cancellation charges to suppliers if we cancel
orders for components because we reduce production due to market
oversupply, reduced demand, transition to new products or
technologies or for other reasons. We order the majority of our
components on a purchase order basis and we have limited
long-term volume purchase agreements with only some of our
existing suppliers. 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. In addition, our historical relationship
with our suppliers may suffer as a result of our new
relationship with MKE.

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 product, although this
will change in part if we acquire MMC. 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;
|
| |  | 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.
Former employees of Quantum HDD may terminate their employment
with us as a result of our integration with the Quantum HDD
business. 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

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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 And Our
Ability to Issue Equity Securities Has Been Severely Limited By
Our Merger With Quantum HDD.

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.                                               

In addition, our ability to raise capital has
been affected as a result of our merger with Quantum HDD.
To mitigate the risk of triggering a tax obligation of Quantum
as a result of the split-off of Quantum HDD from
Quantum DSS and the merger of Quantum HDD with Maxtor,
we are restricted in our ability to issue additional equity
securities to raise capital for two years after the split-off
and merger. In the event we decide to nevertheless raise capital
by issuing equity securities, such 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 Failure To Renew Our Asset Securitization
Program May Hurt Our Business And Financial Condition.

Our $200 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, was scheduled to expire on
July 25, 2001, but has been extended through
September 24, 2001. At June 30, 2001,
$150 million of accounts receivable was securitized under
the program and excluded from our accounts receivable balance.
We are in the process of negotiating a new facility of between
$200 and $350 million with prospective lenders. Our failure
to secure this new facility prior to the expiration of our
current facility will require us to pay at least
$150 million to our lenders. This may hurt our business and
financial condition.

Protection Of Our Intellectual Property Is
Limited And It Is Exposed To Third Party Claims Of
Infringement.

Any failure to adequately protect and enforce our
intellectual property rights could harm our business. Our
protection of our intellectual property is limited. For example,
we have patent protection on only some of our technologies. We
may not receive patents for our pending or future patent
applications, and any patents that we own or that are issued to
us may be invalidated, circumvented or challenged. 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,

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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.


We Are Subject To Existing Infringement Claims
Which Are Costly To Defend And May Harm Our Business.

Prior to our merger with Quantum HDD, we, on
the one hand, and Quantum and MKE, on the other hand, each were
sued by Papst Licensing, GmbH, a German corporation, for
infringement of a number of patents that relate to hard disk
drives. 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 purchased from third party motor vendors, including
MKE, and the use of such spindle motors in hard disk drives.
Maxtor purchased the overwhelming majority of the spindle motors
used in our 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 the Papst patents, including MKE. As a result of
the merger with Quantum HDD, we assumed Quantums
potential liabilities to Papst. The results of any litigation
are inherently uncertain and Papst may assert other infringement
claims relating to current patents, pending patent applications,
and/or future patent applications or issued patents.
Additionally, we cannot assure you we will be able to
successfully defend ourselves against this or any other Papst
lawsuit. 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, a complaint was filed by Cambrian Consultants on
May 22,2001 in the United States District Court for the
Central District of California against us, alleging infringement
of U.S. Patent No. 4,371,903. We answered the complaint and
filed counter-claims on June 18, 2001. Investigation and
analysis of the claims is ongoing and discovery has commenced.
The results of any litigation are inherently uncertain and we
cannot assure you that we will be able to successfully defend
ourselves against this lawsuit. The Cambrian complaint asserts
claims to an unspecified dollar amount of damages. A favorable
outcome for Cambrian in this lawsuit could result in 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 Cambrians
attorneys fees. Accordingly, a litigation outcome
favorable to Cambrian could harm our business, financial
conditions and operating results.

We Face Risks From Our Substantial
International Operations And Sales.

We conduct most of our manufacturing and testing
operations and purchase a substantial portion of our key parts
outside the United States. In particular, manufacturing
operations for our products are concentrated in Singapore, where
both our and MKEs principal manufacturing operations are
located, with management oversight of MKE from Japan. 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;                                                         

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| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | 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. We generally
warrant our products for one to three years whereas prior to the
merger, Quantum HDD generally warranted its products for
one to five years. We assumed Quantum HDDs warranty
obligation as a result of the merger. The standard warranties
used by us and Quantum HDD contain limits on damages and
exclusions of liability for consequential damages and for
negligent or improper use of the products. We establish and,
prior to the merger, Quantum HDD established, a warranty
provision at the time of product shipment in an amount equal to
estimated warranty expenses. Although we believe the warranty
provision of the combined company will be sufficient, if the
provision is not sufficient, or if our efforts to lower our
liability are unenforceable our business, financial condition
and operating results could be harmed.

We Could Be Subject To Environmental
Liabilities Which Could Increase Our Expenses And Subject Us To
Liabilities.

Because of the chemicals we use in our
manufacturing and research operations, we are subject to a wide
range of environmental protection regulations in the United
States and Singapore. While we do not believe our operations to
date have been harmed as a result of such laws, future
regulations may increase our expenses and harm our business,
financial condition and results of operations. Even if we are in
compliance in all material respects with all present
environmental regulations, in the United States 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.

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The Market Price Of Our Common Stock
Fluctuated Substantially In The Past And Is Likely To Fluctuate
In The Future As A Result Of A Number Of Factors, Including The
Release Of New Products By Us Or Our Competitors, The Loss Or
Gain Of Significant Customers Or Changes In Stock Market
Analysts Estimates.

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



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | quarterly fluctuations in operating results;                                                                                                
|
| |  | announcements of new products by us or our
	competitors such as products that address additional hard disk
	drive and NAS products segments;
|
| |  | gains or losses of significant customers such as
	Dell or IBM;                                                                              
|
| |  | changes in stock market analysts estimates;                                                                                                
|
| |  | the presence or absence of short-selling of our
	common stock;                                                                              
|
| |  | sales of a high volume of shares of our common
	stock by our large stockholders;                                                            
|
| |  | events affecting other companies that the market
	deems comparable to us;                                                                   
|
| |  | general conditions in the semiconductor and
	electronic systems industries; and                                                             
|
| |  | general economic conditions in the United States
	and abroad.                                                                               

Our Stock Price May Be Affected By Sales Of
Our Common Stock By Hynix Semiconductor America Inc., or Hynix,
Or Holders of DECS Securities.

Pursuant to the Form S-3 registration
statement as filed with the Securities and Exchange Commission
May 29, 2001 and our possible repurchase of up to
$50 million of shares of our common stock from Hynix, Hynix
may sell all of its up to 28,329,850 shares of our common stock.
The remaining 12.5 million shares of our common stock held
by Hynix are pledged to secure its obligations to DECS
Trust IV. In February 1999, DECS Trust IV, a newly
formed trust, sold 12.5 million DECS in a registered public
offering. 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
up to 12.5 million shares of our common stock from Hynix.
These shares are not being registered in connection with our
Form S-3 registration statement. Hynix could sell these
12.5 million shares by substituting other collateral in
accordance with the terms of its agreement with the trust. Our
stock price may be affected if Hynix sells all or part of such
12.5 million shares, which Hynix has informed us that it
may consider selling at a time it deems appropriate.

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, Hynix will deliver, at its option, either cash or
our common stock to the trust. If holders of DECS receive shares
of our common stock at the termination of the trust, they may
sell those shares in the open market. If Hynix delivers cash
instead, the 12.5 million shares it has pledged to secure
its obligations to the trust will be released from the pledge
and may be resold by it without substituting any other
collateral. We cannot predict whether Hynix will deliver shares
of our stock to the trust on its termination or when or whether
holders of the DECS will resell any shares of our 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.

Our Stock Price May Be Affected By Sales Of
Our Common Stock By Stockholders Who Received Our Common Stock
In Our Merger With Quantum HDD.

In connection with our merger with
Quantum HDD, we issued 121,060,500 shares of common stock
to former Quantum HDD stockholders. Because these
stockholders were not originally holders of our common stock,
they may be less inclined to hold our stock than those persons
who owned our stock prior to the merger.

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In the event the former Quantum HDD
stockholders sell a significant volume of our stock, the price
of our common stock may decline.


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.

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. For example, in connection with our
merger with Quantum HDD, we amended our certificate of
incorporation to eliminate temporarily the requirement that our
three classes of directors be reasonably equal in number. As a
result of this amendment, a person could not take control of the
board until the third annual meeting after the closing of the
merger, since a majority of our directors will not stand for
election until that third annual meeting. This and other
provisions could discourage potential acquisition proposals and
could delay or prevent a change in control of the company and
also could diminish the opportunities for a holder of our common
stock to participate in tender offers, including offers at a
price above the then-current market price for our common stock.
These provisions also may inhibit fluctuations in our stock
price that could result from takeover attempts.




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
June 30, 2001 that are sensitive to changes in interest
rates. These instruments are not leveraged and are held

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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 |         | June 30, 2001    |  | -50 BPS |         | -100 BPS |  | -150 BPS
|                      |  |          |         |          |  |         |         |                  |  |         |         |          |  |         
|Financial Instruments |  |          | 158,332 |          |  |         | 158,976 |                  |  |         | 159,612 |          |  |          | 160,252 |  |  |  | 160,899 |   |  |  | 161,551 |   |  |  | 162,209 |  
|                     
|                     
|                     
|                     
|% Change              |  |          | -1.20   | %        |  |         | -0.80   | %                |  |         | -0.40   | %        |  |          |         |  |  |  | 0.40    | % |  |  | 0.81    | % |  |  | 1.22    | %

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

|                                       |  |                       |       |                  |  |                       |       |   |  |  |       |   |  |  |       |  |  |  |       |   |  |  |       |   |  |  |       |  
|-------------------------------------- |  | --------------------- | ----- | ---------------- |  | --------------------- | ----- | - |  |  | ----- | - |  |  | ----- |  |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                       |  |                       |       |                  |  |                      
|                                       |  | Valuation of Security |       |                  |  | Valuation of Security
|                                       |  | Given X% Decrease     |       | Fair Value as of |  | Given X% Increase    
|                                       |  | in the Security Price |       | June 30, 2001    |  | in the Security Price
|                                       |  |                       |       |                  |  |                      
|                                       |  |                       |       |                  |  |                       |       |   |  | 
|                                      
|                                      
|                                      
|                                      
|% Change                               |  |                       | 50    | %                |  |                       | 25    | % |  |  | 15    | % |  |  |       |  |  |  | -15   | % |  |  | -25   | % |  |  | -50   | %
|                                      
|                                      
|                                      
|                                      
|Corporate equity investment            |  |                       | 1,776 |                  |  |                       | 1,480 |   |  |  | 1,362 |   |  |  | 1,184 |  |  |  | 1,006 |   |  |  | 888   |   |  |  | 592   |  
|                                      
|                                      
|                                      
|                                      
|Corporate equity investment(TiVo Inc.) |  |                       | 6,750 |                  |  |                       | 5,625 |   |  |  | 5,175 |   |  |  | 4,500 |  |  |  | 3,825 |   |  |  | 3,375 |   |  |  | 2,250 |  

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.






PART II. OTHER INFORMATION







Item 1. Legal
Proceedings


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 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. Papsts infringement allegations are based
on spindle motors that Maxtor and Quantum 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 assumed Quantums potential
liabilities to Papst.

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.

36



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On May 22, 2001, Maxtor was sued by Cambrian
Consultants, a California corporation, for patent infringement.
The complaint alleges infringement by both Maxtor and Quantum
products. An answer and counter-claim have been filed. The
matter is in the initial discovery stage. The Company does not
believe that this matter will have a material adverse impact on
the Companys financial statements.

While the Company believes it has valid defenses
to Cambrians claims, the results of any litigation are
inherently uncertain. Additionally, we cannot assure you that we
will be able to successfully defend ourselves against this
lawsuit. The Cambrian complaint asserts claims to an unspecified
dollar amount of damages. A favorable outcome for Cambrian in
this lawsuit could result in 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 Cambrians attorneys fees. Accordingly, a
litigation outcome favorable to Cambrian could harm our
business, financial condition, and operating results.




Item 6. Exhibits and Reports on
Form 8-K

(a)  Exhibits.

| |          |  |  |                                                                                                                                                          
| | -------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.83[1] |  |  | Master Agreement between Matsushita Kotobuki
	Industries Ltd., and Maxtor Corporation dated April 2, 2001.                                               
| | 10.84[1] |  |  | Purchase Agreement between Matsushita Kotobuki
	Electronics Industries, Ltd., and Maxtor Corporation dated
	April 2, 2001.                               
| | 10.85    |  |  | Amendment to Liquidity Agreement dated
	June 30, 2001, among the Registrant, Blue Keel Funding,
	LLC, the Liquidity Institutions and Fleet National Bank.




|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[1] | The Company has requested confidential treatment
	for certain portions of this agreement. The confidential
	portions have been separately filed with the
	Securities & Exchange Commission.

(b)  Reports on Form 8-K.

Maxtor filed an Amended Current Report on
Form 8-K/ A on May 29, 2001, pursuant to which it
amended its Current Report on Form 8-K filed on
April 17, 2001, to include required Item 7 financial
statements of Quantum HDD and pro forma financial
information.

Maxtor filed a Current Report on Form 8-K on
June 29, 2001, setting forth in Item 5 a press release
dated June 21, 2001, announcing a work force reduction at
its domestic and Singapore facilities.

37



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SIGNATURES

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



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



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

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

Date: August 14, 2001

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EXHIBIT INDEX

|                        |          |                                                                                                            |  |                                                                                                                           
|----------------------- | -------- | ---------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------
|                        |          |                                                                                                            |  | Description                                                                                                               
|Exhibit Number 10.83[1] |          | Master Agreement between Matsushita Kotobuki
	Industries Ltd., and Maxtor Corporation dated April 2, 2001.
|                        | 10.84[1] |                                                                                                            |  | Purchase Agreement between Matsushita Kotobuki
	Electronics Industries, Ltd., and Maxtor Corporation dated
	April 2, 2001.
|                        | 10.85    |                                                                                                            |  | Amendment to Asset Securitization Agreement                                                                               




|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[1] | The Company has requested confidential treatment
	for certain portions of this agreement. The confidential
	portions have been separately filed with the
	Securities & Exchange Commission.