##### 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 March 30,
2002

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

Registrants telephone number, including
area code: (408) 894-5000

Indicate by checkmark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past 90 days.

Yes x
No o


As of May 8, 2002, 238,822,767 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                                          
|                              | MAXTOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS                                     
|                              | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                              
|                              | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                              
|                              | 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                   



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##### Table of Contents



MAXTOR CORPORATION

FORM 10-Q

March 30, 2002

INDEX

|                             |  |                                                                                                                 |    |      |    | 
|---------------------------- |  | --------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                             |  |                                                                                                                 |    | Page
|                             |  |                                                                                                                 |    |     
|PART I FINANCIAL INFORMATION
|Item 1.                      |  | Condensed Consolidated Financial Statements                                                                     |    |      |    | 
|                             |  | Condensed Consolidated Balance Sheets 
    March 30, 2002, and December 29, 2001                               |    |      | 3  | 
|                             |  | Condensed Consolidated Statements of
    Operations  Three months ended March 30, 2002,
    and March 31, 2001 |    |      | 4  | 
|                             |  | Condensed Consolidated Statements of Cash
    Flows  Three months ended March 30, 2002, and
    March 31, 2001 |    |      | 5  | 
|                             |  | Notes to Condensed Consolidated Financial
    Statements                                                        |    |      | 6  | 
|Item 2.                      |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                       |    |      | 18 | 
|Item 3.                      |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                  |    |      | 40 | 
|PART II OTHER INFORMATION   
|Item 1.                      |  | Legal Proceedings                                                                                               |    |      | 42 | 
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                                |    |      | 42 | 
|Signature Page               |  |                                                                                                                 | 43 |     

2



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##### Table of Contents






PART I.     FINANCIAL
INFORMATION




Item 1.     Condensed
Consolidated Financial Statements






MAXTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE
SHEETS

(In thousands, except share and per share
amounts)


|                                          |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |         |           | 
|----------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------------ | --------- |  | ---------- | ------- | --------- | 
|                                          |                                                                                                                                                                                                                                                | March 30,                                  |            | December 29,
|                                          |                                                                                                                                                                                                                                                | 2002                                       |            | 2001        
|                                          |                                                                                                                                                                                                                                                |                                            |            |             
|                                          |                                                                                                                                                                                                                                                |                                           
|                                          |                                                                                                                                                                                                                                                | (Unaudited)                               
|ASSETS                                    |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|Current assets:                           |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|                                          | Cash and cash equivalents                                                                                                                                                                                                                      |                                            | $          | 365,475      |           |  | $          | 379,927 |          
|                                          | Restricted cash                                                                                                                                                                                                                                |                                            |            | 99,091       |           |  |            | 98,629  |          
|                                          | Marketable securities                                                                                                                                                                                                                          |                                            |            | 141,476      |           |  |            | 167,217 |          
|                                          | Accounts receivable, net of allowance of doubtful
    accounts of $25,442 at March 30, 2002 and $21,638 at
    December 29, 2001                                                                                                               |                                            |            | 362,538      |           |  |            | 379,918 |          
|                                          | Inventories                                                                                                                                                                                                                                    |                                            |            | 193,920      |           |  |            | 185,556 |          
|                                          | Prepaid expenses and other                                                                                                                                                                                                                     |                                            |            | 46,702       |           |  |            | 45,606  |          
|                                          |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                | Total current assets                       |            |              | 1,209,202 |  |            |         | 1,256,853 | 
|Property, plant and equipment, net        |                                                                                                                                                                                                                                                |                                            | 358,416    |              |           |  | 366,786    |        
|Goodwill                                  |                                                                                                                                                                                                                                                |                                            | 814,863    |              |           |  | 814,863    |        
|Other intangible assets, net              |                                                                                                                                                                                                                                                |                                            | 241,225    |              |           |  | 262,552    |        
|Other assets                              |                                                                                                                                                                                                                                                |                                            | 13,081     |              |           |  | 14,410     |        
|                                          |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                | Total assets                               |            | $            | 2,636,787 |  |            | $       | 2,715,464 | 
|                                          |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY  |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|Current liabilities:                      |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|                                          | Short-term borrowings, including current portion
    of long-term debt                                                                                                                                                                         |                                            | $          | 44,608       |           |  | $          | 44,160  |          
|                                          | Accounts payable                                                                                                                                                                                                                               |                                            |            | 637,949      |           |  |            | 593,263 |          
|                                          | Accrued and other liabilities                                                                                                                                                                                                                  |                                            |            | 483,090      |           |  |            | 532,358 |          
|                                          |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                | Total current liabilities                  |            |              | 1,165,647 |  |            |         | 1,169,781 | 
|Deferred taxes                            |                                                                                                                                                                                                                                                |                                            | 196,479    |              |           |  | 196,455    |        
|Long-term debt, net of current portion    |                                                                                                                                                                                                                                                |                                            | 224,637    |              |           |  | 244,458    |        
|Other liabilities                         |                                                                                                                                                                                                                                                |                                            | 203,828    |              |           |  | 204,587    |        
|                                          |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                | Total liabilities                          |            |              | 1,790,591 |  |            |         | 1,815,281 | 
|Stockholders equity:                     |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|                                          | Preferred stock, $0.01 par value, 95,000,000
    shares authorized; no shares issued or outstanding                                                                                                                                            |                                            |            |             |           |  |            |        |          
|                                          | Common stock, $0.01 par value, 525,000,000 shares
    authorized; 244,532,249 shares issued and 239,532,249 shares
    outstanding at March 30, 2002 and 241,977,795 shares issued
    and 236,977,795 shares outstanding at December 29, 2001 |                                            |            | 2,445        |           |  |            | 2,420   |          
|Additional paid-in capital                |                                                                                                                                                                                                                                                |                                            | 2,335,098  |              |           |  | 2,323,885  |        
|Deferred stock-based compensation         |                                                                                                                                                                                                                                                |                                            | (2,990     | )            |           |  | (3,809     | )      
|Accumulated deficit                       |                                                                                                                                                                                                                                                |                                            | (1,471,562 | )            |           |  | (1,406,524 | )      
|Cumulative other comprehensive income     |                                                                                                                                                                                                                                                |                                            | 3,205      |              |           |  | 4,211      |        
|Treasury stock (5,000,000 shares) at cost |                                                                                                                                                                                                                                                |                                            | (20,000    | )            |           |  | (20,000    | )      
|                                          |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                | Total stockholders equity                 |            |              | 846,196   |  |            |         | 900,183   | 
|                                          |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                | Total liabilities and stockholders equity |            | $            | 2,636,787 |  |            | $       | 2,715,464 | 
|                                          |                                                                                                                                                                                                                                                |                                            |            |              |           |  |            |        

See accompanying notes to condensed consolidated
financial statements.

3



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MAXTOR CORPORATION




CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except share and per share
amounts)


|                                      |                                                             |                          |           |                |         |   |         |             |        | 
|------------------------------------- | ----------------------------------------------------------- | ------------------------ | --------- | -------------- | ------- | - | ------- | ----------- | ------ | 
|                                      |                                                             |                         
|                                      |                                                             | Three Months Ended      
|                                      |                                                             |                         
|                                      |                                                             | March 30, 2002           |           | March 31, 2001
|                                      |                                                             |                          |           |               
|                                      |                                                             |                         
|                                      |                                                             | (Unaudited)             
|Net Revenues                          |                                                             | $                        | 1,044,719 |                |         | $ | 630,821 |            
|Cost of revenues                      |                                                             |                          | 929,157   |                |         |   | 541,805 |            
|                                      |                                                             |                          |           |                |         |   |         |            
|                                      | Gross profit                                                |                          |           | 115,562        |         |   |         | 89,016      |       
|Operating expenses:                   |                                                             |                          |           |                |         |   |         |            
|                                      | Research and development                                    |                          |           | 109,002        |         |   |         | 59,020      |       
|                                      | Selling, general and administrative                         |                          |           | 46,097         |         |   |         | 27,466      |       
|                                      | Amortization of goodwill and other intangible
    assets(1) |                          |           | 21,330         |         |   |         | 2,487       |       
|                                      |                                                             |                          |           |                |         |   |         |            
|                                      |                                                             | Total operating expenses |           |                | 176,429 |   |         |             | 88,973 | 
|                                      |                                                             |                          |           |                |         |   |         |            
|Income (loss) from operations         |                                                             |                          | (60,867   | )              |         |   | 43      |            
|Interest expense                      |                                                             |                          | (6,546    | )              |         |   | (2,938  | )          
|Interest and other income             |                                                             |                          | 3,029     |                |         |   | 5,756   |            
|Other loss                            |                                                             |                          |          |                |         |   | (1,286  | )          
|                                      |                                                             |                          |           |                |         |   |         |            
|Income (loss) before income taxes     |                                                             |                          | (64,384   | )              |         |   | 1,575   |            
|Provision for income taxes            |                                                             |                          | 654       |                |         |   | 236     |            
|                                      |                                                             |                          |           |                |         |   |         |            
|Net income (loss)                     |                                                             | $                        | (65,038   | )              |         | $ | 1,339   |            
|                                      |                                                             |                          |           |                |         |   |         |            
|Net income (loss) per share  basic   |                                                             | $                        | (0.27     | )              |         | $ | 0.01    |            
|Net income (loss) per share  diluted |                                                             | $                        | (0.27     | )              |         | $ | 0.01    |            
|Shares used in per share calculation  |                                                             |                          |           |                |         |   |         |            
|                                      |  basic                                                     |                          |           | 236,956,653    |         |   |         | 114,865,211 |       
|                                      |  diluted                                                   |                          |           | 236,956,653    |         |   |         | 118,901,084 |       



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|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | The amount for three months ended March 30,
    2002 represents only amortization of other intangible assets.

See accompanying notes to condensed consolidated
financial statements.

4



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MAXTOR CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


|                                                                                                         |                                                                                                      |                               |                                                         |           |         |        |         |        |         |         |  
|-------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ----------------------------- | ------------------------------------------------------- | --------- | ------- | ------ | ------- | ------ | ------- | ------- | -
|                                                                                                         |                                                                                                      |                              
|                                                                                                         |                                                                                                      | Three Months Ended           
|                                                                                                         |                                                                                                      |                              
|                                                                                                         |                                                                                                      | March 30,                     |                                                         | March 31,
|                                                                                                         |                                                                                                      | 2002                          |                                                         | 2001     
|                                                                                                         |                                                                                                      |                               |                                                         |          
|                                                                                                         |                                                                                                      |                              
|                                                                                                         |                                                                                                      | (Unaudited)                  
|Cash Flows from Operating
    Activities:                                                                |                                                                                                      |                               |                                                         |           |         |        |         |       
|Net income (loss)                                                                                        |                                                                                                      | $                             | (65,038                                                 | )         |         | $      | 1,339   |       
|Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:          |                                                                                                      |                               |                                                         |           |         |        |         |       
|                                                                                                         | Depreciation and amortization                                                                        |                               |                                                         | 35,826    |         |        |         | 22,137 |        
|                                                                                                         | Amortization of goodwill and other intangible
    assets                                             |                               |                                                         | 21,330    |         |        |         | 2,487  |        
|                                                                                                         | Amortization of deferred and prepaid stock-based
    compensation related to Quantum HDD acquisition |                               |                                                         | 4,103     |         |        |         |       |        
|                                                                                                         | Stock-based compensation expense                                                                     |                               |                                                         | 1,491     |         |        |         | 936    |        
|                                                                                                         | Loss on sale of property, plant and equipment and
    other assets                                   |                               |                                                         | 1,026     |         |        |         | 89     |        
|                                                                                                         | Gain on retirement of bond                                                                           |                               |                                                         | (1,035    | )       |        |         | (857   | )      
|                                                                                                         | Change in assets and liabilities:                                                                    |                               |                                                         |           |         |        |         |        |        
|                                                                                                         |                                                                                                      | Accounts receivable           |                                                         |           | 17,380  |        |         |        | 81,716  |        
|                                                                                                         |                                                                                                      | Inventories                   |                                                         |           | (8,364  | )      |         |        | (3,697  | )      
|                                                                                                         |                                                                                                      | Other assets                  |                                                         |           | (4,130  | )      |         |        | (7,329  | )      
|                                                                                                         |                                                                                                      | Accounts payable              |                                                         |           | 39,695  |        |         |        | (36,279 | )      
|                                                                                                         |                                                                                                      | Accrued and other liabilities |                                                         |           | (50,006 | )      |         |        | (46,567 | )      
|                                                                                                         |                                                                                                      |                               |                                                         |           |         |        |         |       
|                                                                                                         |                                                                                                      |                               | Net cash provided by (used in) operating
    activities |           |         | (7,722 | )       |        |         | 13,975  |  
|                                                                                                         |                                                                                                      |                               |                                                         |           |         |        |         |       
|Cash Flows from Investing
    Activities:                                                                |                                                                                                      |                               |                                                         |           |         |        |         |       
|Proceeds from sale of property, plant and
    equipment                                                  |                                                                                                      |                               | 36                                                      |           |         |        | 57      |       
|Purchase of property, plant and equipment                                                                |                                                                                                      |                               | (23,527                                                 | )         |         |        | (39,335 | )     
|Increase in restricted cash                                                                              |                                                                                                      |                               | (462                                                    | )         |         |        |        |       
|Proceeds from marketable securities                                                                      |                                                                                                      |                               | 43,673                                                  |           |         |        | 65,505  |       
|Purchase of marketable securities                                                                        |                                                                                                      |                               | (18,678                                                 | )         |         |        | (49,594 | )     
|                                                                                                         |                                                                                                      |                               |                                                         |           |         |        |         |       
|                                                                                                         |                                                                                                      |                               | Net cash provided by (used in) investing
    activities |           |         | 1,042  |         |        |         | (23,367 | )
|                                                                                                         |                                                                                                      |                               |                                                         |           |         |        |         |       
|Cash Flows from Financing
    Activities:                                                                |                                                                                                      |                               |                                                         |           |         |        |         |       
|Principal payments of debt including short-term
    borrowings                                           |                                                                                                      |                               | (12,535                                                 | )         |         |        | (7,927  | )     
|Principal payments under capital lease obligations                                                       |                                                                                                      |                               | (5,803                                                  | )         |         |        |        |       
|Repurchase of common stock                                                                               |                                                                                                      |                               | (579                                                    | )         |         |        |        |       
|Proceeds from issuance of common stock from
    employee stock purchase plan and stock options exercised |                                                                                                      |                               | 11,145                                                  |           |         |        | 4,269   |       
|                                                                                                         |                                                                                                      |                               |                                                         |           |         |        |         |       
|                                                                                                         |                                                                                                      |                               | Net cash used in financing activities                   |           |         | (7,772 | )       |        |         | (3,658  | )
|                                                                                                         |                                                                                                      |                               |                                                         |           |         |        |         |       
|Net change in cash and cash equivalents                                                                  |                                                                                                      |                               | (14,452                                                 | )         |         |        | (13,050 | )     
|Cash and cash equivalents at beginning of period                                                         |                                                                                                      |                               | 379,927                                                 |           |         |        | 193,228 |       
|                                                                                                         |                                                                                                      |                               |                                                         |           |         |        |         |       
|Cash and cash equivalents at end of period                                                               |                                                                                                      | $                             | 365,475                                                 |           |         | $      | 180,178 |       
|                                                                                                         |                                                                                                      |                               |                                                         |           |         |        |         |       
|Supplemental Disclosures of Cash Flow
    Information:                                                   |                                                                                                      |                               |                                                         |           |         |        |         |       
|                                                                                                         | Cash paid during the period for:                                                                     |                               |                                                         |           |         |        |         |        |        
|                                                                                                         |                                                                                                      | Interest                      |                                                         | $         | 8,757   |        |         | $      | 4,627   |        
|                                                                                                         |                                                                                                      | Income taxes                  |                                                         | $         | 4,817   |        |         | $      | 285     |        
|Schedule of Non-Cash Investing and Financing
    Activities:                                             |                                                                                                      |                               |                                                         |           |         |        |         |       
|                                                                                                         | Purchase of property, plant and equipment
    financed by accounts payable                           |                               | $                                                       | 5,184     |         |        | $       | 5,530  |        
|                                                                                                         | Retirement of debt in exchange for bond redemption                                                   |                               | $                                                       | 5,000     |         |        | $       | 5,000  |        
|                                                                                                         | Change in unrealized loss on investments                                                             |                               | $                                                       | (1,006    | )       |        | $       | (72    | )      

See accompanying notes to condensed consolidated
financial statements.

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MAXTOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

1.     Summary of
Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. The
consolidated financial statements include the accounts of Maxtor
Corporation (Maxtor or the Company) and
its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. All
adjustments of a normal recurring nature which, in the opinion
of management, are necessary for a fair statement of the results
for the interim periods have been made. 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 29, 2001
incorporated in the Companys Annual Report on
Form 10-K. Interim results are not necessarily indicative
of the operating results expected for later quarters or the full
fiscal year.

Use of Estimates

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

Fiscal Calendar

The Company operates and reports financial
results on a fiscal year of 52 or 53 weeks ending on the
Saturday closest to December 31.

2.     Acquisitions

a.     Quantum
HDD

On April 2, 2001, Maxtor acquired the hard
disk drive business of Quantum Corporation (Quantum
HDD). The acquisition was approved by the stockholders of
both companies on March 30, 2001 and was accounted for as a
purchase. 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.
The total purchase price of $1,269.4 million included
consideration of 121.0 million shares of Maxtors
common stock valued at an average price of $9.40 per common
share. The average market price was based on the average closing
price for two trading days prior and two trading days subsequent
to October 4, 2000, the announcement date of the terms of
the merger.

The total purchase price was determined 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 price |   | $       | 1,269.4 | 
|                                  |                      |   |         |        

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The purchase price allocation was as follows (in
millions):

|                                    |                                           |                           |       |       |  |  |       |       |          |  
|----------------------------------- | ----------------------------------------- | ------------------------- | ----- | ----- |  |  | ----- | ----- | -------- | -
|Tangible assets:                    |                                           |                           |       |       |  |  |       |      
|                                    | Cash and cash equivalents                 |                           | $     | 315.3 |  |  |       |       |         
|                                    | Restricted cash                           |                           |       | 93.9  |  |  |       |       |         
|                                    | Accounts receivable                       |                           |       | 249.1 |  |  |       |       |         
|                                    | Inventories                               |                           |       | 181.7 |  |  |       |       |         
|                                    | Prepaid expenses and other current assets |                           |       | 120.9 |  |  |       |       |         
|                                    | Property, plant and equipment             |                           |       | 126.4 |  |  |       |       |         
|                                    | Other noncurrent assets                   |                           |       | 21.1  |  |  |       |       |         
|                                    |                                           |                           |       |       |  |  |       |      
|                                    |                                           | Total tangible assets     |       |       |  |  |       | $     | 1,108.4  |  
|                                    |                                           |                           |       |       |  |  |       |      
|Intangible assets acquired:         |                                           |                           |       |       |  |  |       |      
|                                    | Core and other existing technology        |                           |       |       |  |  |       | 286.1 |         
|                                    | Assembled workforce                       |                           |       |       |  |  |       | 43.0  |         
|Deferred stock-based compensation   |                                           |                           |       |       |  |  | 6.8   |      
|Goodwill                            |                                           |                           |       |       |  |  | 896.3 |      
|In-process research and development |                                           |                           |       |       |  |  | 94.7  |      
|Liabilities assumed:                |                                           |                           |       |       |  |  |       |      
|                                    | Accounts payable                          |                           |       | 230.0 |  |  |       |       |         
|                                    | Accruals and other liabilities            |                           |       | 364.3 |  |  |       |       |         
|                                    | Deferred taxes                            |                           |       | 196.2 |  |  |       |       |         
|Long-term debt                      |                                           |                           | 132.4 |       |  |  |       |      
|Other long-term liabilities         |                                           |                           | 142.0 |       |  |  |       |      
|Merger-related restructuring costs  |                                           |                           | 101.0 |       |  |  |       |      
|                                    |                                           |                           |       |       |  |  |       |      
|                                    |                                           | Total liabilities assumed |       |       |  |  |       |       | (1,165.9 | )
|                                    |                                           |                           |       |       |  |  |       |      
|                                    |                                           | Total purchase price      |       |       |  |  |       | $     | 1,269.4  |  
|                                    |                                           |                           |       |       |  |  |       |      

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

The following table summarizes the activity
related to the merger-related restructuring costs as of
March 30, 2002:

|                             |  |               |      |           |  |       |       |       |  |   |       |   |  |   |       |  
|---------------------------- |  | ------------- | ---- | --------- |  | ----- | ----- | ----- |  | - | ----- | - |  | - | ----- | -
|                             |  |               |      | Severance |  |       |       |      
|                             |  | Facility      |      | and       |  | Other |       |      
|                             |  | Costs         |      | Benefits  |  | Costs |       | Total
|                             |  |               |      |           |  |       |       |      
|                             |  |              
|                             |  | (In millions)
|Provision at April 2, 2001   |  | $             | 59.1 |           |  | $     | 29.2  |       |  | $ | 12.7  |   |  | $ | 101.0 |  
|Cash Payments                |  |               | (0.9 | )         |  |       | (15.5 | )     |  |   | (12.7 | ) |  |   | (29.1 | )
|                             |  |               |      |           |  |       |       |       |  |   |       |   |  |   |       |  
|Balance at December 29, 2001 |  | $             | 58.2 |           |  | $     | 13.7  |       |  | $ |      |   |  | $ | 71.9  |  
|Cash Payments                |  |               | (2.7 | )         |  |       | (7.7  | )     |  |   |      |   |  |   | (10.4 | )
|                             |  |               |      |           |  |       |       |       |  |   |       |   |  |   |       |  
|Balance at March 30, 2002    |  | $             | 55.5 |           |  | $     | 6.0   |       |  | $ |      |   |  | $ | 61.5  |  
|                             |  |               |      |           |  |       |       |       |  |   |       |   |  |   |       |  

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The unpaid portion of the severance accrual is
expected to be paid during 2002. The balance remaining in the
facilities exit accrual is expected to be paid over several
years based on the underlying lease agreements.

b.     MMC
Technology, Inc.

On September 2, 2001, Maxtor completed the
acquisition of MMC Technology, Inc. (MMC), a
wholly-owned subsidiary of Hynix Semiconductor America Inc.
(Hynix). MMC, based in San Jose, California,
designs, develops and manufactures media for hard disk drives.
Prior to the acquisition, sales to Maxtor comprised 95% of
MMCs annual revenues. The primary reason for Maxtor
acquiring MMC was to provide the Company with a reliable source
of media supply. The acquisition has been accounted for as a
purchase with a total cost of $17.9 million, which
consisted of cash consideration of $1.0 million,
$16.0 million of loan forgiveness and $0.9 million of
estimated direct transaction costs. In connection with the
acquisition, the Company has also assumed liabilities of
$105.7 million, including a $7.3 million note owed by
MMC to Hynix, which was non-interest bearing through
March 31, 2002, with any balance remaining thereafter
bearing interest at nine percent per annum. On January 5,
2001, Hynix issued a promissory note to Maxtor for
$2 million in principal amount, representing Hynixs
share of a settlement relating to litigation between Maxtor,
Hynix and Stormedia. This note bore interest at 9% per annum,
with the payment of principal and interest due on
December 31, 2001 (the Hynix Note). Hynix and
Maxtor agreed that the principal and accrued interest on the
Hynix Note as of December 28, 2001 was offset against the
principal amount of the Maxtor Note, such that the Hynix Note
was fully paid and the Maxtor Note had a principal amount of
approximately $5.1 million as of December 29, 2001; as
of March 30, 2002, the Maxtor Note continued to have a
principal amount of approximately $5.1 million. MMCs
results of operations are included in the financial statements
from the date of acquisition, and the assets and liabilities
acquired were recorded based on their fair values as of the date
of acquisition.

The total purchase price and the purchase price
allocation of the MMC acquisition were as follows (in millions):

|                                  |                      |  |  |  |  |   |      |      | 
|--------------------------------- | -------------------- |  |  |  |  | - | ---- | ---- | 
|Cash paid                         |                      |  |  |  |  | $ | 1.0  |     
|Forgiveness of loan consideration |                      |  |  |  |  |   | 16.0 |     
|                                  |                      |  |  |  |  |   |      |     
|                                  |                      |  |  |  |  |   | 17.0 |     
|Transaction costs                 |                      |  |  |  |  |   | 0.9  |     
|                                  |                      |  |  |  |  |   |      |     
|                                  | Total purchase price |  |  |  |  |   | $    | 17.9 | 
|                                  |                      |  |  |  |  |   |      |     

Purchase Price Allocation (in millions):

|                                    |                                    |                           |  |      |  |   |      |   |        |  
|----------------------------------- | ---------------------------------- | ------------------------- |  | ---- |  | - | ---- | - | ------ | -
|Total tangible assets               |                                    |                           |  |      |  | $ | 97.7 |  
|Existing technology                 |                                    |                           |  |      |  |   | 4.4  |  
|Goodwill                            |                                    |                           |  |      |  |   | 21.1 |  
|In-process research and development |                                    |                           |  |      |  |   | 0.5  |  
|Liabilities assumed:                |                                    |                           |  |      |  |   |      |  
|                                    | Accruals and other liabilities     |                           |  | 30.6 |  |   |      |   |       
|                                    | Capital lease obligations and debt |                           |  | 75.1 |  |   |      |   |       
|                                    |                                    |                           |  |      |  |   |      |  
|                                    |                                    | Total liabilities assumed |  |      |  |   |      |   | (105.7 | )
|                                    |                                    |                           |  |      |  |   |      |  
|                                    |                                    | Total purchase price      |  |      |  |   |      | $ | 17.9   |  
|                                    |                                    |                           |  |      |  |   |      |  

c.     Pro forma
disclosure

The following unaudited proforma consolidated
amounts give effect to the acquisitions of Quantum HDD and MMC,
excluding the charges for acquired in-process research and
development, as if the acquisitions had occurred on
January 1, 2001. On a proforma basis, the results of
operations of Quantum HDD and MMC are consolidated with the
Companys results for the three months ended March 30,
2002 and March 31, 2001. The

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proforma amounts do not purport to be indicative
of what would have occurred had the acquisitions been made as of
the beginning of each period or of results which may occur in
the future.


|                                       |         |                                |         |             |  |   |         |             | 
|-------------------------------------- | ------- | ------------------------------ | ------- | ----------- |  | - | ------- | ----------- | 
|                                       |         |                               
|                                       |         | Three Months Ended            
|                                       |         |                               
|                                       |         | March 30,                      |         | March 31,  
|                                       |         | 2002                           |         | 2001       
|                                       |         |                                |         |            
|                                       |         |                               
|                                       |         | (In millions, except share and
|                                       |         | per share amounts)            
|Revenue                                |         | $                              | 1,044.7 |             |  | $ | 1,319.8 |            
|Net loss                               |         | $                              | (65.0   | )           |  | $ | (21.9   | )          
|Net loss per share  basic and diluted |         | $                              | (0.27   | )           |  | $ | (0.09   | )          
|Shares used in per share calculations: |         |                                |         |             |  |   |         |            
|                                       | Basic   |                                |         | 236,956,653 |  |   |         | 234,285,531 | 
|                                       | Diluted |                                |         | 236,956,653 |  |   |         | 234,285,531 | 

4.     Restricted
Cash

The Companys restricted cash balance of
$99.1 million at March 30, 2002, is associated with
short-term letters of credits (LOCs), where the
Company has chosen to provide cash security in order to lower
the cost of the LOCs.

5.     Supplemental
Financial Statement Data

|                               |                                              |                |         |              |  |   |         |         | 
|------------------------------ | -------------------------------------------- | -------------- | ------- | ------------ |  | - | ------- | ------- | 
|                               |                                              | March 30,      |         | December 29,
|                               |                                              | 2002           |         | 2001        
|                               |                                              |                |         |             
|                               |                                              |               
|                               |                                              | (In thousands)
|Inventories:                   |                                              |                |         |              |  |   |         |        
|                               | Raw materials                                |                | $       | 33,923       |  |   | $       | 36,914  | 
|                               | Work-in-process                              |                |         | 10,439       |  |   |         | 9,087   | 
|                               | Finished goods                               |                |         | 149,558      |  |   |         | 139,555 | 
|                               |                                              |                |         |              |  |   |         |        
|                               |                                              | $              | 193,920 |              |  | $ | 185,556 |        
|                               |                                              |                |         |              |  |   |         |        
|Accrued and other liabilities: |                                              |                |         |              |  |   |         |        
|                               | Income taxes payable                         |                | $       | 22,547       |  |   | $       | 27,740  | 
|                               | Accrued payroll and payroll-related expenses |                |         | 63,482       |  |   |         | 82,828  | 
|                               | Accrued warranty                             |                |         | 301,287      |  |   |         | 313,894 | 
|                               | Accrued expenses                             |                |         | 95,774       |  |   |         | 107,896 | 
|                               |                                              |                |         |              |  |   |         |        
|                               |                                              | $              | 483,090 |              |  | $ | 532,358 |        
|                               |                                              |                |         |              |  |   |         |        

6.     Net Income
(Loss) Per Share

In accordance with the disclosure requirements of
Statements of Financial Accounting Standards No. 128,
Earnings per Share a reconciliation of the numerator
and denominator of the basic and diluted net

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income (loss) per share calculations is
provided as follows (in thousands, except share and per share
amounts):


|                                                       |                              |                    |             |           |  |   |             |           | 
|------------------------------------------------------ | ---------------------------- | ------------------ | ----------- | --------- |  | - | ----------- | --------- | 
|                                                       |                              |                   
|                                                       |                              | Three Months Ended
|                                                       |                              |                   
|                                                       |                              | March 30,          |             | March 31,
|                                                       |                              | 2002               |             | 2001     
|                                                       |                              |                    |             |          
|Numerator  Basic and
    diluted                      |                              |                    |             |           |  |   |             |          
|Net income (loss)                                      |                              | $                  | (65,038     | )         |  | $ | 1,339       |          
|                                                       |                              |                    |             |           |  |   |             |          
|Net income (loss) available to common
    stockholders |                              | $                  | (65,038     | )         |  | $ | 1,339       |          
|                                                       |                              |                    |             |           |  |   |             |          
|Denominator                                            |                              |                    |             |           |  |   |             |          
|Basic weighted average common shares outstanding       |                              |                    | 236,956,653 |           |  |   | 114,865,211 |          
|Effect of dilutive securities:                         |                              |                    |             |           |  |   |             |          
|                                                       | Common stock options         |                    |             |          |  |   |             | 2,268,373 | 
|                                                       | Contingently issuable shares |                    |             |          |  |   |             | 1,767,500 | 
|                                                       |                              |                    |             |           |  |   |             |          
|Diluted weighted average common shares                 |                              |                    | 236,956,653 |           |  |   | 118,901,084 |          
|                                                       |                              |                    |             |           |  |   |             |          
|Basic net income (loss) per share                      |                              | $                  | (0.27       | )         |  | $ | 0.01        |          
|                                                       |                              |                    |             |           |  |   |             |          
|Diluted net income (loss) per share                    |                              | $                  | (0.27       | )         |  | $ | 0.01        |          
|                                                       |                              |                    |             |           |  |   |             |          

The following securities and contingently
issuable shares are excluded in the calculation of diluted
shares outstanding, as their effects would be antidilutive:

|                             |  |                    |            |           |  |  |           | 
|---------------------------- |  | ------------------ | ---------- | --------- |  |  | --------- | 
|                             |  |                   
|                             |  | Three Months Ended
|                             |  |                   
|                             |  | March 30,          |            | March 31,
|                             |  | 2002               |            | 2001     
|                             |  |                    |            |          
|Common stock options         |  |                    | 23,569,840 |           |  |  | 8,129,804 | 
|Contingently issuable shares |  |                    | 1,295,362  |           |  |  |          | 

7.     Short-Term
Borrowings and Long-Term Debt

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

|                                                                                                   |  |           |         |              |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | --------- | ------- | ------------ |  | - | ------- | -
|                                                                                                   |  | March 30, |         | December 29,
|                                                                                                   |  | 2002      |         | 2001        
|                                                                                                   |  |           |         |             
|5.75% Subordinated Debentures due March 1,
    2012                                                |  | $         | 65,262  |              |  | $ | 74,262  |  
|Economic Development Board of Singapore Loan due
    March 2004                                    |  |           | 12,504  |              |  |   | 16,313  |  
|Pro rata portion of Quantum Corporations 7%
    Subordinated Convertible Notes due August 1, 2004 |  |           | 95,833  |              |  |   | 95,833  |  
|Mortgages                                                                                          |  |           | 36,608  |              |  |   | 36,926  |  
|Hynix Semiconductor America Inc. Note                                                              |  |           | 5,095   |              |  |   | 5,095   |  
|Equipment Loans and Capital Leases                                                                 |  |           | 53,943  |              |  |   | 60,189  |  
|                                                                                                   |  |           |         |              |  |   |         |  
|                                                                                                   |  |           | 269,245 |              |  |   | 288,618 |  
|Less amounts due within one year                                                                   |  |           | (44,608 | )            |  |   | (44,160 | )
|                                                                                                   |  |           |         |              |  |   |         |  
|                                                                                                   |  | $         | 224,637 |              |  | $ | 244,458 |  
|                                                                                                   |  |           |         |              |  |   |         |  

The 5.75% Subordinated Debentures due
March 1, 2012 require semi-annual interest payments and
annual sinking fund payments of $5.0 million, which
commenced March 1, 1998. The Debentures are subordinated in
right to payment to all senior indebtedness.

In September 1999, Maxtor Peripherals
(S) Pte Ltd entered into a four-year Singapore dollar
denominated loan agreement with the Economic Development Board
of Singapore (the Board), which is being amortized
in seven equal semi-annual installments ending March 2004. As of
March 30, 2002, the

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balance was equivalent to $12.5 million. The
Board charges interest at 1% above the prevailing Central
Provident Fund lending rate, subject to a minimum of
3.5% per year (3.5% as of March 30, 2002). This loan
is supported by a two-year guaranty from a bank. Cash is
currently provided as collateral for this guaranty but the
Company may, at its option, substitute other assets as security.
As part of this arrangement, the Company is subject to two
financial covenants, the maintenance of minimum unrestricted
cash and a tangible net worth test.


As of December 29, 2001, the Company
determined that it was not in compliance with the tangible net
worth covenant under the loan agreement. On February 15,
2002, the Company received a waiver and amendment from the
lender for its Singapore loan relating to the tangible net worth
covenant. On the same date, the Banks participating in the
Companys asset securitization program (the
Program) agreed to a first amendment through
May 15, 2002 to the Program. In each case, the definition
for calculating tangible net worth was amended to include an
adjustment associated with the purchase price accounting for the
acquisition of Quantum HDD. After giving effect to this first
amendment, the Company was in compliance with the tangible net
worth covenant.

On March 15, 2002, the first amendment was
superceded by a second amendment reflecting the terms of the
first amendment and extending the terms of the amendment for the
duration of the Program. At this time the Program was reduced
from $300 million to $210 million due to the
withdrawal of one of the participating banks.

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

In connection with the acquisition of the Quantum
HDD business, the Company acquired real estate and related
mortgage obligations. The term of the mortgages is ten years, at
an interest rate of 9.2%, with monthly payments based on a
twenty-year amortization schedule, and a balloon payment at the
end of the 10-year term, which is September 2006. The
outstanding balance at March 30, 2002 was
$36.6 million.

In connection with the acquisition of MMC, the
Company assumed certain amortizing equipment loans and capital
leases amounting to $53.9 million at March 30, 2002,
which have final maturity dates ranging from December 2002 to
October 2004 and interest rates averaging 9.9%.

In connection with the acquisition of MMC, the
Company assumed a note for $7.3 million owing to Hynix,
which bore no interest through March 31, 2002; thereafter,
unpaid principal amounts were to bear interest at 9% per
annum (the Maxtor Note). On January 5, 2001,
Hynix issued a promissory note to Maxtor for $2 million in
principal amount, the note bears interest at 9% per annum,
with the payment of principal and interest due on
December 31, 2001 (the Hynix Note). Hynix and
Maxtor have agreed that the principal and accrued interest on
the Hynix Note as of December 28, 2001 was offset against
the principal amount of the Maxtor Note, such that the Hynix
Note was fully paid and the Maxtor Note had a principal amount
of approximately $5.1 million as of such date; as of
March 30, 2002, the principal amount outstanding under the
Maxtor Note was approximately $5.1 million.

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8.     Comprehensive
Income (Loss)

Cumulative other comprehensive income
(loss) on the consolidated balance sheets consists of
unrealized loss on investments. Total comprehensive income
(loss) for the three months ended March 30, 2002 and
March 31, 2001, is presented in the following table (in
thousands):

|                                                                        |  |                    |         |           |  |   |       |  
|----------------------------------------------------------------------- |  | ------------------ | ------- | --------- |  | - | ----- | -
|                                                                        |  |                   
|                                                                        |  | Three Months Ended
|                                                                        |  |                   
|                                                                        |  | March 30,          |         | March 31,
|                                                                        |  | 2002               |         | 2001     
|                                                                        |  |                    |         |          
|Net income (loss)                                                       |  | $                  | (65,038 | )         |  | $ | 1,339 |  
|Other comprehensive loss  Change in
    unrealized loss on investments |  |                    | (1,006  | )         |  |   | (72   | )
|                                                                        |  |                    |         |           |  |   |       |  
|Comprehensive income (loss)                                             |  | $                  | (66,044 | )         |  | $ | 1,267 |  
|                                                                        |  |                    |         |           |  |   |       |  

9.     Segment,
Geography and Major Customers Information

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

The Company has determined that it has two
reportable segments; the hard disk drive group and the network
systems group. The Company has a world-wide sales, service and
distribution network. Products are marketed and sold through a
direct sales force to computer equipment manufacturers,
distributors and retailers in the United States, Europe and Asia
Pacific.

The following table presents net revenue and
operating income (loss) for each operating segment:

|                         |  |                |           |           |  |   |         |  
|------------------------ |  | -------------- | --------- | --------- |  | - | ------- | -
|                         |  | March 30,      |           | March 31,
|                         |  | 2002           |           | 2001     
|                         |  |                |           |          
|                         |  |               
|                         |  | (In thousands)
|Net revenue:             |  |                |           |           |  |   |         |  
|Hard Disk Drive Group    |  | $              | 1,033,411 |           |  | $ | 626,563 |  
|Network Systems Group    |  |                | 11,308    |           |  |   | 4,258   |  
|                         |  |                |           |           |  |   |         |  
|Total                    |  | $              | 1,044,719 |           |  | $ | 630,821 |  
|                         |  |                |           |           |  |   |         |  
|Operating income (loss): |  |                |           |           |  |   |         |  
|Hard Disk Drive Group    |  | $              | (48,554   | )         |  | $ | 12,278  |  
|Network Systems Group    |  |                | (12,313   | )         |  |   | (12,235 | )
|                         |  |                |           |           |  |   |         |  
|Total                    |  | $              | (60,867   | )         |  | $ | 43      |  
|                         |  |                |           |           |  |   |         |  

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The following table presents the reconciliation
of segment operating income (loss) to the consolidated
income (loss) before provision for (benefit from) income
taxes:

|                                      |                                                                    |                    |         |           |   |   |        |       | 
|------------------------------------- | ------------------------------------------------------------------ | ------------------ | ------- | --------- | - | - | ------ | ----- | 
|                                      |                                                                    |                   
|                                      |                                                                    | Three Months Ended
|                                      |                                                                    |                   
|                                      |                                                                    | March 30,          |         | March 31,
|                                      |                                                                    | 2002               |         | 2001     
|                                      |                                                                    |                    |         |          
|                                      |                                                                    |                   
|                                      |                                                                    | (In thousands)    
|Total segment operating income (loss) |                                                                    | $                  | (60,867 | )         |   | $ | 43     |      
|Unallocated amounts:                  |                                                                    |                    |         |           |   |   |        |      
|Interest and other income (expense)   |                                                                    |                    | (3,517  | )         |   |   | 2,818  |      
|Other loss                            |                                                                    |                    |        |           |   |   | (1,286 | )    
|                                      |                                                                    |                    |         |           |   |   |        |      
|                                      | Income (loss) before provision for (benefit
    from) income taxes |                    | $       | (64,384   | ) |   | $      | 1,575 | 
|                                      |                                                                    |                    |         |           |   |   |        |      

Sales to computer equipment manufacturers for the
three months ended March 30, 2002 represented 43.1% of
total revenue, compared to 69.5% for the corresponding period in
fiscal year 2001. Sales to the distribution and retail channels
for the three months ended March 30, 2002 represented 56.9%
of total revenue, compared to 30.5% in the corresponding period
in fiscal year 2001. Sales to one customer represented 9.9% of
total revenue in the three months ended March 30, 2002;
sales to one customer represented 17.7% of total revenue, in the
corresponding period of fiscal year 2001. Only one customer
represented over 10% of total revenue in the three months ended
March 31, 2001.

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 its manufacturing facilities in Singapore
that produce subassemblies and final assemblies for the
Companys disk drive products. Revenue by destination and
long-lived assets information by geographic area for the three
months ended March 30, 2002 and March 31, 2001 is
presented in the following table (in thousands):

|                         |  |                    |           |                    |  |         |           |            |  |   |         |  |  |   |         | 
|------------------------ |  | ------------------ | --------- | ------------------ |  | ------- | --------- | ---------- |  | - | ------- |  |  | - | ------- | 
|                         |  |                    |           |                   
|                         |  | Three Months Ended |           | Three Months Ended
|                         |  | March 30, 2002     |           | March 31, 2001    
|                         |  |                    |           |                   
|                         |  |                    |           | Long-lived         |  |         |           | Long-lived
|                         |  | Revenue            |           | Assets             |  | Revenue |           | Assets    
|                         |  |                    |           |                    |  |         |           |           
|United States and Canada |  | $                  | 394,617   |                    |  | $       | 1,304,650 |            |  | $ | 288,511 |  |  | $ | 114,015 | 
|Asia Pacific             |  |                    | 296,108   |                    |  |         | 121,447   |            |  |   | 170,981 |  |  |   | 129,302 | 
|Europe                   |  |                    | 343,185   |                    |  |         | 1,488     |            |  |   | 144,962 |  |  |   | 1,029   | 
|Latin America and other  |  |                    | 10,809    |                    |  |         |          |            |  |   | 26,367  |  |  |   |        | 
|                         |  |                    |           |                    |  |         |           |            |  |   |         |  |  |   |         | 
|Total                    |  | $                  | 1,044,719 |                    |  | $       | 1,427,585 |            |  | $ | 630,821 |  |  | $ | 244,346 | 
|                         |  |                    |           |                    |  |         |           |            |  |   |         |  |  |   |         | 

Long-lived assets located within the United
States consist primarily of goodwill and other intangible assets
which amounted to $1,056.1 million and
$1,077.4 million as of March 30, 2002 and
December 29, 2001, respectively. Long-lived assets located
outside the United States consist primarily of the
Companys manufacturing operations located in Singapore
which amounted to $119.8 million and $128.5 million as
of March 30, 2002 and March 31, 2001, respectively.

10.     Asset
Securitization

In July 1998, the Company entered into an
accounts receivable securitization program (the
Program) with a financial institution. On
November 15, 2001, the Company amended its asset
securitization program to increase the amount available to
$300 million from $200 million. The Program allows the
Company to sell on a revolving basis an undivided interest in up
to $300 million in eligible receivables. The eligible
receivables are sold to bank conduits through a
bankruptcy-remote special purpose entity which is consolidated
for financial reporting purposes.

The transaction has been accounted for as a sale
under Statement of Financial Accounting Standards No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. As

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of March 30, 2002 and March 31, 2001,
the Company has sold $60.0 million and $90.0 million
of receivables, respectively under the Program which are
reflected as reductions of receivables in the accompanying
consolidated balance sheets. As part of this arrangement, the
Company is subject to financial covenants including the
maintenance of certain financial ratios and a tangible net worth
test.


As of December 29, 2001, the Company
determined that it was not in compliance with the tangible net
worth covenant under the Program. On February 15, 2002, the
Company received a waiver and amendment from the lender for its
Singapore loan relating to the tangible net worth covenant. On
the same date, the Banks participating in the Companys
asset securitization program (the Program) agreed to
a first amendment through May 15, 2002 to the Program. In
each case, the definition for calculating tangible net worth was
amended to include an adjustment associated with the purchase
price accounting for the acquisition of Quantum HDD. After
giving effect to this first amendment, the Company was in
compliance with the tangible net worth covenant.

On March 15, 2002, the first amendment was
superceded by a second amendment reflecting the terms of the
first amendment and extending the terms of the amendment for the
duration of the Program. At this time the Program was reduced
from $300 million to $210 million due to the
withdrawal of one of the participating banks.

The Company receives cash in respect of the
interest in its receivables sold. The proceeds were used for
working capital purposes and are reflected as operating cash
flows in the Companys statement of cash flows. Delinquent
amounts and credit losses related to these receivables were not
material at March 30, 2002. Sales of receivables resulted
in recognition of expenses of approximately $1.0 million
and $1.7 million for the three months ended March 30,
2002 and March 31, 2001, respectively. These expenses are
included in interest expense.

11.     Related Party
Transactions

In 1994, Hyundai Electronics Industries
HEI and certain of its affiliates had purchased 40%
of Maxtors outstanding common stock for
$150.0 million in cash. In early 1996, Hynix, formerly
Hyundai Electronics America, or HEA, acquired all of the
remaining shares of common stock of Maxtor in a tender offer and
merger for $215.0 million in cash and also acquired all of
Maxtors common stock held by HEI and its affiliates.
Maxtor operated as a wholly-owned subsidiary of Hynix until
completion of its initial public offering on July 31, 1998,
which reduced the ownership interest of Hynix to below 50%. In
April 2001 as a result of Maxtors acquisition of the
Quantum HDD business, Hynixs ownership in Maxtor was
reduced to approximately 17% of the outstanding common stock. As
described below, Hynix sold Maxtor shares to the public and to
Maxtor in October 2001, reducing Hynixs ownership to 5.17%
at December 29, 2001, and in February 2002, Hynix
distributed the balance of its Maxtor shares to the beneficial
owners of a trust and is no longer a stockholder of Maxtor.

On September 2, 2001, Maxtor completed its
acquisition of MMC which had previously been a wholly-owned
subsidiary of Hynix. MMC, based in San Jose, California,
designs, develops and manufactures media for hard disk drives.
Prior to the acquisition, sales to Maxtor constituted 95% of
MMCs annual revenues. The primary business reason for
Maxtors acquisition of MMC was to provide Maxtor with a
reliable source of supply of media for hard disk drives. A
fairness opinion was delivered to Maxtors Board of
Directors by a nationally recognized investment banking firm in
connection with the MMC acquisition. The fairness opinion
concluded that the consideration to be paid by Maxtor for MMC
was fair to Maxtor, from a financial point of view. The
acquisition of MMC was approved by the Maxtor Boards
Affiliated Transactions Committee and was determined by the
Committee to be in the best interests of Maxtor and its
stockholders. The Affiliated Transactions Committee was
comprised entirely of directors with no relationship with Hynix
and its affiliates. The acquisition was accounted for as a
purchase with a total cost of $17.9 million, which
consisted of cash consideration of $1.0 million,
$16.0 million of loan forgiveness, and $0.9 million of
estimated direct transaction costs. In connection with the
acquisition, Maxtor also assumed liabilities of
$105.7 million.

In connection with the acquisition of MMC
Technology, Inc., Maxtor assumed a note for $7.3 million
owing to Hynix, which bears no interest through March 31,
2002; thereafter, unpaid principal amounts bear

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interest at 9% per annum (the Maxtor
Note). On January 5, 2001, Hynix issued a promissory
note to Maxtor for $2 million in principal amount
representing Hynixs share of a settlement relating to
litigation between Maxtor and Hynix and Stormedia. This note
bore interest at 9% per annum, with the payment of principal and
interest due on December 31, 2001 (the Hynix
Note). Hynix and Maxtor agreed that the principal and
accrued interest on the Hynix Note as of December 28, 2001
was offset against the principal amount of the Maxtor Note, such
that the Hynix Note was fully paid and the Maxtor Note had a
principal amount of approximately $5.1 million as of
December 29, 2001; as of March 30, 2002, the principal
amount outstanding under the Maxtor Note was approximately
$5.1 million.


Maxtors cost of revenue includes certain
component parts Maxtor purchased from MMC. These purchases
amounted to $38 million for the quarter ended
March 31, 2001. In August 1998, Maxtor entered into an
agreement with MMC with respect to the pricing of future
purchases that provided for pricing discounts in return for a
purchase volume commitment based on a percentage of our total
media purchases through September 30, 2001 (as described
above, Maxtor completed its acquisition of MMC on
September 2, 2001). The pricing discounts generally ranged
from 2% to 4% off of competitive prices.

Maxtors cost of revenue also includes
certain DRAM chip purchases from Hynix Semiconductor, Inc.,
HSI, formerly HEI. The pricing of such DRAM chips is
determined pursuant to a bid auction in which Maxtor sets a
price and all suppliers are eligible to participate and respond,
resulting in pricing at the applicable rate established in such
bid auction. Maxtors purchases from HSI totaled
$26.5 million in fiscal year 1999, $41.6 million in
fiscal year 2000 and $19.3 million in fiscal year 2001.

In October 2001, Hynix sold approximately
23.3 million shares of Maxtor common stock in a registered
public offering. At the same time as Hynixs sale of Maxtor
common stock to the public, Maxtor purchased an additional
5.0 million shares of its common stock from Hynix.
Maxtors purchase of its shares from Hynix was on the same
terms as Hynixs sale of shares to the public at
$4 per share for an aggregate purchase price of
$20.0 million. The repurchase of its shares was intended to
improve Maxtors capital structure, increase shareholder
returns, and increase the price of Maxtors stock. The
repurchase of the shares from Hynix was approved by the Maxtor
Boards Affiliated Transaction Committee and determined to
be in the best interest of the Company and its stockholders. As
a result of Hynixs sale of its Maxtor shares to the public
and to Maxtor, in October 2001, and Hynixs distribution of
its remaining shares to the beneficial owners of a trust in
February 2002, Hynix is no longer a stockholder of Maxtor.

Pursuant to a sublicense agreement with HEI,
Maxtor is obligated to pay a portion of an IBM license royalty
fee otherwise due from HEI. Such payments are due in annual
installments through 2007, and are based upon the license fee
separately negotiated on an arms length basis between HEI
and IBM. For the years ended January 1, 2000,
December 30, 2000 and December 29, 2001, Maxtor
recorded $1.9 million of expenses each year in connection
with this obligation.

Hynix is an unconditional guarantor of one of
Maxtors facilities lease in Milpitas, California. The
aggregate rent under the lease was $3.24 million per annum
in each of the years ended January 1, 2000,
December 30, 2000 and December 29, 2001. The lease
rate was established by arms length negotiations with the
lessor based on applicable market rates. The lease expired
March 31, 2002 and was not extended.

12.     Contingencies

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

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purchased the overwhelming majority of the
spindle motors used in our hard disk drives from vendors that
were licensed under the Papst patents. Quantum purchased many
spindle motors used in its hard disk drives from vendors that
were not licensed under the Papst patents, including MKE. As a
result of Maxtors acquisition of the Quantum HDD business,
the Company assumed Quantums potential liabilities to
Papst arising from the patent infringement allegations Papst
asserted against Quantum. Papst and MKE recently entered into an
agreement to settle Papsts pending patent infringement
claims against MKE. That agreement includes a license of the
Papst patents to MKE which might provide Quantum, and thus
Maxtor, with additional defenses to Papsts patent
infringement claims.


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, the
Company cannot assure that it 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 Maxtor 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, Maxtor also could be required to pay treble
damages and Papsts attorneys fees. Accordingly, a
litigation outcome favorable to Papst could harm Maxtors
business, financial condition and operating results. Management
believes that it has valid defenses to the claims of Papst and
is defending this matter vigorously.

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 Maxtor, alleging infringement of U.S. Patent
No. 4,371,903. On March 7, 2002, this matter was
finally and fully settled on terms favorable to Maxtor. A
dismissal with prejudice was entered on March 13, 2002.

13.     Goodwill and
Other Intangible Assets

On December 30, 2001, the Company adopted
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets(SFAS 142). SFAS 142 requires goodwill
to be tested for impairment under certain circumstances, written
down when impaired, and requires purchased intangible assets
other than goodwill to be amortized over their useful lives
unless these lives are determined to be indefinite.

The Company ceased amortizing goodwill totaling
$814.9 million as of the beginning of fiscal 2002,
including $31.1 million of acquired workforce intangibles
previously classified as purchased intangible assets.

Purchased intangible assets are carried at cost
less accumulated amortization. Amortization is computed over the
estimated useful lives of the respective assets, generally one
to seven years. The Company expects amortization expense on
purchased intangible assets to be $62.8 million for the
remainder of fiscal 2002, $82.3 million in fiscal 2003,
$37.1 million in fiscal 2004, $22.0 million in fiscal
2005, and $5.9 million in fiscal 2006, at which time
purchased intangible assets will be fully amortized.

The Company will also be required to perform a
transition impairment analysis. Any impairment resulting from
these transition tests is anticipated to be recorded as of
December 30, 2001 and will be recognized as 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. The Company is currently in
the process of completing the transitional impairment analysis,
which it expects to complete by June 30, 2002. In addition,
the Company will be required to perform an annual impairment
test, which it expects to perform in the third quarter of each
year.

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The following table presents the impact of SFAS
142 on net income (loss) and net income (loss) per share had the
standard been in effect for the three months ended
March 31, 2001 (in thousands, except per share amounts):

|                                                                |                                                                                                         |                    |         |           |  |   |       |       | 
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------ | ------- | --------- |  | - | ----- | ----- | 
|                                                                |                                                                                                         |                   
|                                                                |                                                                                                         | Three Months Ended
|                                                                |                                                                                                         |                   
|                                                                |                                                                                                         | March 30,          |         | March 31,
|                                                                |                                                                                                         | 2002               |         | 2001     
|                                                                |                                                                                                         |                    |         |          
|Net income (loss)  as reported                                 |                                                                                                         | $                  | (65,038 | )         |  | $ | 1,339 |      
|Adjustments:                                                    |                                                                                                         |                    |         |           |  |   |       |      
|                                                                | Amortization of goodwill                                                                                |                    |         |          |  |   |       | 1,684 | 
|                                                                | Amortization of acquired workforce intangibles
    previously classified as purchased intangible assets |                    |         |          |  |   |       | 36    | 
|                                                                |                                                                                                         |                    |         |           |  |   |       |      
|                                                                | Net adjustments                                                                                         |                    |         |          |  |   |       | 1,720 | 
|                                                                |                                                                                                         |                    |         |           |  |   |       |      
|Net income (loss)  adjusted                                    |                                                                                                         | $                  | (65,038 | )         |  | $ | 3,059 |      
|                                                                |                                                                                                         |                    |         |           |  |   |       |      
|Basic and diluted net income (loss) per
    share  as reported |                                                                                                         | $                  | (0.27   | )         |  | $ | 0.01  |      
|Basic and diluted net income (loss) per
    share  adjusted    |                                                                                                         | $                  | (0.27   | )         |  | $ | 0.03  |      

14.     Recent
Accounting Pronouncements

In June 2001, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 00-25 (EITF
00-25), Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendors
Products. EITF 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 adoption of
EITF 00-25 did not have a significant impact on
Maxtors 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 be used for all business
combinations initiated after June 30, 2001 and establishes
specific criteria for the recognition of intangibles assets
separately from goodwill. The Company has applied SFAS 141
for the acquisition of MMC and will follow the requirements of
this statement for all future acquisitions.

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 143
(SFAS 143), Accounting for Asset
Retirement Obligations. This statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. This Statement applies to all entities.
It applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition,
construction, development and/or the normal operation of a
long-lived asset, except for certain obligations or lessees.
SFAS 143 is effective for financial statements issued for
fiscal years beginning after June 25, 2002. The Company is
currently assessing the impact of SFAS 143 on its financial
statements.

In October 2001, the FASB issued Statement of
Financial Accounting Standards No. 144
(SFAS 144), Accounting for the Impairment
or Disposal of Long-lived Assets. The objectives of
SFAS 144 are to address significant issues relating to the
implementation of FASB Statement 121
(SFAS 121), Accounting for the Impairment
of Long-lived assets to be Disposed of, and to develop a
single accounting model, based on the framework established by
SFAS 121, for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. Although
SFAS 144 supercedes SFAS 121, it retains some
fundamental provisions of SFAS 121. SFAS 144 is
effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods
within those fiscal years. The adoption of SFAS 144 did not
have a significant impact on Maxtors financial statements.

On April 30 2002, the Financial Accounting
Standards Board (FASB) issued FASB Statement No. 145
(SFAS 145), Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13,

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and Technical Corrections. FAS 145 rescinds
both FASB Statement No. 4 (SFAS 4), Reporting Gains and
Losses from Extinguishment of Debt, and the amendment to
FAS 4, FASB Statement No. 64 (SFAS 64),
Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. Through this rescission, FAS 145 eliminates
the requirement (in both SFAS 4 and SFAS 64) that
gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of
the related income tax effect. However, an entity is not
prohibited from classifying such gains and losses as
extraordinary items, so long as they meet the criteria in
paragraph 20 of Accounting Principles Board Opinion
No. 30, Reporting the Results of Operations Reporting the
Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Further, SFAS 145 amends paragraph 14(a)
of FASB Statement No. 13, Accounting for Leases, to
eliminate an inconsistency between the accounting for
sale-leaseback transactions and certain lease modifications that
have economic effects that are similar to sale-leaseback
transactions. The amendment requires that a lease modification
(1) results in recognition of the gain or loss in the
financial statements, (2) is subject to FASB Statement
No. 66, Accounting for Sales of Real Estate, if the leased
asset is real estate (including integral equipment), and
(3) is subject (in its entirety) to the sale-leaseback
rules of FASB Statement No. 98, Accounting for Leases:
Sale-Leaseback Transactions Involving Real Estate, Sales-Type
Leases of Real Estate, Definition of the Lease Term, and Initial
Direct Costs of Direct Financing Leases. Generally, FAS 145
is effective for transactions occurring after May 15, 2002.
The Company is currently assessing the impact of SFAS 145
on its financial statements.





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. In this report, the words
anticipates, believe,
expect, intend, may,
will, should, plan,
estimate, predict,
potential, future, continue,
or similar expressions also identify forward-looking statements.
These statements are only predictions. We make these
forward-looking statements based upon information available on
the date hereof, and we have no obligation (and expressly
disclaim any such obligation) to update or alter any such
forward-looking statements whether as a result of new
information, future events, or otherwise. Our actual results
could differ materially from those anticipated in this report as
a result of certain factors including, but not limited to, those
set forth in the following section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Certain Factors
Affecting Future Performance and elsewhere in this report.

Overview

Maxtor Corporation (Maxtor or the
Company) was founded in 1982 and completed an
initial public offering of common stock in 1986. In the
mid-1980s, we were a leading technology innovator in the
hard disk drive industry. As is true today, the hard disk drive
industry during the 1980s was intensely competitive and
characterized by rapid technological change, rapid rates of
product and technology obsolescence, changing customer
requirements, dramatic shifts in market share and significant
erosion of average selling prices. In an effort to mitigate the
risks associated with these factors, we pursued all major
product segments in the hard disk drive market, utilizing
multiple product families and technology platforms. This costly
strategy added significant complexity to the business, which
caused us to delay or miss a number of key product introductions
and ultimately led to the deterioration of our overall financial
condition. As a result of this deterioration, we sold 40% of our
outstanding common stock to Hyundai Electronics Industries (now
Hynix Semiconductor Inc.) and its affiliates in 1994.

In early 1996, Hyundai Electronics America (Hynix
Semiconductor America, Inc.  Hynix)
acquired all of the remaining publicly held shares of our common
stock as well as all of our common stock then held by Hynix
Semiconductor Inc. and its affiliates. Shortly thereafter, Hynix
invested in renewed efforts to revitalize

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Maxtor. In July 1996, we hired a new management
team, headed by Michael R. Cannon, our current President
and Chief Executive Officer and a 20-year veteran of the hard
drive industry, to lead our turnaround and capture business at
leading desktop computer manufacturers.


In the third quarter of 1998, we completed a
public offering of approximately 49.7 million shares of our
common stock. We received net proceeds of approximately
$328.8 million from the offering.

In February 1999, we completed a public offering
of 7.8 million shares of our common stock. We received net
proceeds of approximately $95.8 million from the offering.
We used a portion of the proceeds from the offering to prepay,
without penalty, outstanding aggregate principal indebtedness of
$55.0 million owing to Hynix under a subordinated note.

In September 1999, we acquired privately held
Creative Design Solutions, Inc. (CDS), a participant
in the emerging network attached storage market. The acquisition
of CDS helped us to transition from only being a supplier of
hard disk drives for the desktop personal computer market to
also being positioned to provide storage solutions that deliver
price and performance values in networked environments.

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

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

On October 9, 2001, Hynix sold 23,329,843
shares (including exercise of the underwriters
over-allotment) of Maxtor common stock in a registered public
offering. Maxtor did not receive any proceeds from Hynixs
sale of Maxtor stock to the public. In addition, at the same
time and on the same terms as Hynixs sale of Maxtor stock
to the public, we repurchased 5.0 million shares from Hynix
for an aggregate purchase price of $20.0 million. These
repurchased shares are being held as treasury shares. See
Related Party Transactions below. In February 2002,
Hynix distributed all of its remaining Maxtor shares to the
beneficial owners of a trust and is no longer a stockholder of
Maxtor.

Results of Operations

Revenue and
Gross Profit

|                            |  |                    |         |                |  |        |       |   |  |   |       |  
|--------------------------- |  | ------------------ | ------- | -------------- |  | ------ | ----- | - |  | - | ----- | -
|                            |  |                    |         |               
|                            |  | Three Months Ended |         |               
|                            |  |                    |         |               
|                            |  | March 30, 2002     |         | March 31, 2001 |  | Change
|                            |  |                    |         |                |  |       
|                            |  |                    |         |               
|                            |  | (Unaudited)        |         |               
|                            |  |                    |         |               
|                            |  | (In millions)      |         |               
|Total revenue               |  | $                  | 1,044.7 |                |  | $      | 630.8 |   |  | $ | 413.9 |  
|Gross profit                |  | $                  | 115.6   |                |  | $      | 89.0  |   |  | $ | 26.6  |  
|Net income (loss)           |  | $                  | (65.0   | )              |  | $      | 1.3   |   |  | $ | (66.3 | )
|As a percentage of revenue: |  |                    |         |                |  |        |       |   |  |   |       |  
|Total revenue               |  |                    | 100.0   | %              |  |        | 100.0 | % |  |   |       |  
|Gross profit                |  |                    | 11.1    | %              |  |        | 14.1  | % |  |   |       |  
|Net income (loss)           |  |                    | (6.2    | )%             |  |        | 0.2   | % |  |   |       |  

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Revenue

Revenue in the three months ended March 30,
2002 was $1,044.7 million, compared to $630.8 million
in the three months ended March 31, 2001, an increase of
65.6%. Total shipments for the three months ended March 30,
2002 were 13.7 million units, which was 7.0 million
units, or 104.5%, higher as compared to the three months ended
March 31, 2001. Revenue and units increased substantially
in the three months ended March 30, 2002, compared to the
corresponding period in fiscal year 2001, primarily as a result
of our acquisition of the Quantum HDD business. However, revenue
did not increase at the same rate as unit shipments in the three
months ended March 30, 2002. This was mainly due to the
continued decline in average selling prices primarily due to a
shift in product sales to single platter devices, as well as
continued quarterly pricing reduction. We have historically
experienced seasonal fluctuation in sales volume with a decline
typically occurring in the second quarter of the year. We
believe demand in the desktop computer market will strengthen
later in the current year as next generation products are
introduced and consumers refresh personal computers over the
course of the year.

Revenues on a proforma basis (as if the Quantum
HDD business had been acquired on January 1, 2001) were
$1,044.7 million and $1,281.4 million for the three
months ended March 30, 2002 and March 31, 2001,
respectively. On a pro forma basis, the percentage decrease was
18.5% in the three months ended March 30, 2002 compared to
the corresponding period in fiscal year 2001, primarily
reflecting the slowdown in demand for hard disk drives and the
continued pricing pressures in the market.

Sales to the top five customers represented 33.2%
and 39.4% of revenue in the three months ended March 30,
2002 and March 31, 2001, respectively. Sales to one
customer were 9.9% of revenue in the three months ended
March 30, 2002; sales to one customer represented 17.7% of
total revenue for the corresponding period in fiscal year 2001,
and this was the only customer with over 10% of revenue in this
period.

Revenue from sales to computer equipment
manufacturers represented 43.1% and 69.5% in the three months
ended March 30, 2002 and March 31, 2001, respectively.
Revenue from sales to the distribution channel and retail
customers represented 56.9% and 30.5% for the three months ended
March 30, 2002 and March 31, 2001, respectively. The
increase in revenue from sales to the distribution channel is
primarily reflective of the current desktop PC market and our
effort to accommodate the growth of non-branded customers.
Additionally, the increase is partially due to our acquisition
of the Quantum HDD business in April 2001.

Domestic revenue represented 37.9% and 45.7% of
total sales in the three months ended March 30, 2002 and
March 31, 2002, respectively. International revenue
represented 62.1% and 54.3% of total sales in the three months
ended March 30, 2002 and March 31, 2001, respectively.
Revenue from international sales increased primarily as a result
of our stronger presence in Europe and Asia Pacific as a result
of the acquisition of the Quantum HDD business. Sales to Europe
represented 32.8% of total revenue in the three months ended
March 30, 2002, compared to 23.0% of total revenue for the
corresponding period in fiscal year 2001. In absolute terms,
Europe sales increased 136.7% in the three months ended
March 30, 2002, compared to the corresponding period in
fiscal year 2001. Sales to Asia Pacific represented 28.3% of
total revenue in the three months ended March 30, 2002,
compared to 27.1% of total revenue for the corresponding period
in fiscal year 2001. In absolute terms, Asia Pacific sales
increased 73.2% in the three months ended March 30, 2002,
compared to the corresponding period in fiscal year 2001. We
plan to continue building our sales efforts in Europe and Asia
Pacific over the course of the year.

Gross
Profit

Gross profit increased to $115.6 million in
the three months ended March 30, 2002, compared to
$89.0 million for the corresponding period in fiscal year
2001. As a percentage of revenue, gross profit decreased to
11.1% in the three months ended March 30, 2002 from 14.1%
in the corresponding period of fiscal year 2001. The decrease in
gross profit was primarily due 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 in the first quarter of fiscal
year 2002 and we expect such pressure to continue in the second
quarter of 2002. As we complete the integration of our product
development efforts associated with

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our acquisition of the Quantum HDD business, we
expect to achieve cost benefits and efficiencies which could
favorably impact our gross margins, although we expect a
negative impact on gross margin in the second quarter of fiscal
year 2002 from the transition of the manufacturing of desktop
drive products from MKE to the Maxtor Singapore manufacturing
facility.


Operating
expenses

|                                                         |  |                    |       |                |  |        |      |   |  |   |      | 
|-------------------------------------------------------- |  | ------------------ | ----- | -------------- |  | ------ | ---- | - |  | - | ---- | 
|                                                         |  |                    |       |               
|                                                         |  | Three Months Ended |       |               
|                                                         |  |                    |       |               
|                                                         |  | March 30, 2002     |       | March 31, 2001 |  | Change
|                                                         |  |                    |       |                |  |       
|                                                         |  |                    |       |               
|                                                         |  | (Unaudited)        |       |               
|                                                         |  |                    |       |               
|                                                         |  | (In millions)      |       |               
|Research and development                                 |  | $                  | 109.0 |                |  | $      | 59.0 |   |  | $ | 50.0 | 
|Selling, general and administrative                      |  | $                  | 46.1  |                |  | $      | 27.5 |   |  | $ | 18.6 | 
|Amortization of goodwill and other intangible
    assets |  | $                  | 21.3  |                |  | $      | 2.5  |   |  | $ | 18.8 | 
|As a percentage of revenue:                              |  |                    |       |                |  |        |      |   |  |   |      | 
|Research and development                                 |  |                    | 10.4  | %              |  |        | 9.4  | % |  |   |      | 
|Selling, general and administrative                      |  |                    | 4.4   | %              |  |        | 4.4  | % |  |   |      | 
|Amortization of goodwill and other intangible
    assets |  |                    | 2.0   | %              |  |        | 0.4  | % |  |   |      | 

Research and
Development (R&D)

R&D expense in the three months ended
March 30, 2002 was $109.0 million, or 10.4% of
revenue, compared to $59.0 million, or 9.4% of revenue, in
the corresponding period in fiscal year 2001. The increase in
R&D expense was primarily due to the inclusion of Quantum
HDD expenses, which were not included in the prior year period
as the acquisition occurred on April 2, 2001. The increase
also reflects the inclusion of MMC expenses, our on-going effort
to maintain leadership products to address the requirements of
the PC desktop market and our continued investments to expand
our product portfolio in the Network Systems Group.

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

|                                              |  |                    |       |           |  |   |      | 
|--------------------------------------------- |  | ------------------ | ----- | --------- |  | - | ---- | 
|                                              |  |                   
|                                              |  | Three Months Ended
|                                              |  |                   
|                                              |  | March 30,          |       | March 31,
|                                              |  | 2002               |       | 2001     
|                                              |  |                    |       |          
|                                              |  |                   
|                                              |  | (In millions)     
|R&D expense                                   |  | $                  | 109.0 |           |  | $ | 59.0 | 
|Stock-based compensation expense              |  |                    | (0.6  | )         |  |   |     | 
|Amortization related to DSS restricted shares |  |                    | (2.8  | )         |  |   |     | 
|                                              |  |                    |       |           |  |   |      | 
|                                              |  | $                  | 105.6 |           |  | $ | 59.0 | 
|                                              |  |                    |       |           |  |   |      | 

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

SG&A expense in the three months ended
March 30, 2002 was $46.1 million, or 4.4% of revenue,
compared to $27.5 million, or 4.4% of revenue, in the
corresponding period in fiscal year 2001. The increase in
absolute dollars in SG&A expense was primarily due to the
inclusion of Quantum HDDs and MMCs SG&A expenses.

As a result of the Quantum HDD acquisition,
SG&A expense includes stock-based compensation charges of
$0.2 million in the three months ended March 30, 2002,
resulting from options we issued to Quantum employees who joined
Maxtor in connection with the merger on April 2, 2001.
Additionally, SG&A expense in the three months ended
March 30, 2002 includes $1.0 million of stock-based
compensation

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amortization for Quantum DSS shares issued to
Quantum employees who joined Maxtor in connection with the
merger. The following table summarizes the effect of these
merger-related charges:


|                                              |  |                    |      |           |  |   |      | 
|--------------------------------------------- |  | ------------------ | ---- | --------- |  | - | ---- | 
|                                              |  |                   
|                                              |  | Three Months Ended
|                                              |  |                   
|                                              |  | March 30,          |      | March 31,
|                                              |  | 2002               |      | 2001     
|                                              |  |                    |      |          
|                                              |  |                   
|                                              |  | (In millions)     
|SG&A expense                                  |  | $                  | 46.1 |           |  | $ | 27.5 | 
|Stock-based compensation expense              |  |                    | (0.2 | )         |  |   |     | 
|Amortization related to DSS restricted shares |  |                    | (1.0 | )         |  |   |     | 
|                                              |  |                    |      |           |  |   |      | 
|                                              |  | $                  | 44.9 |           |  | $ | 27.5 | 
|                                              |  |                    |      |           |  |   |      | 

Stock-based
Compensation

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



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

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

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

|                                       |  |                    |     |           |  |   |     | 
|-------------------------------------- |  | ------------------ | --- | --------- |  | - | --- | 
|                                       |  |                   
|                                       |  | Three Months Ended
|                                       |  |                   
|                                       |  | March 30,          |     | March 31,
|                                       |  | 2002               |     | 2001     
|                                       |  |                    |     |          
|                                       |  |                   
|                                       |  | (In millions)     
|Cost of revenue                        |  | $                  | 0.1 |           |  | $ | 0.1 | 
|Research and development               |  |                    | 0.7 |           |  |   | 0.1 | 
|Selling, general and administrative    |  |                    | 0.7 |           |  |   | 0.6 | 
|                                       |  |                    |     |           |  |   |     | 
|Total stock-based compensation expense |  | $                  | 1.5 |           |  | $ | 0.8 | 
|                                       |  |                    |     |           |  |   |     | 

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

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of the shares are subject to continued employment
with Maxtor. Amortization as of March 30, 2002 was as
follows:


|                                                        |  |                    |     |           |  |   |   | 
|------------------------------------------------------- |  | ------------------ | --- | --------- |  | - | - | 
|                                                        |  |                   
|                                                        |  | Three Months Ended
|                                                        |  |                   
|                                                        |  | March 30,          |     | March 31,
|                                                        |  | 2002               |     | 2001     
|                                                        |  |                    |     |          
|                                                        |  |                   
|                                                        |  | (In millions)     
|Cost of revenue                                         |  | $                  | 0.3 |           |  | $ |  | 
|Research and development                                |  |                    | 2.8 |           |  |   |  | 
|Selling, general and administrative                     |  |                    | 1.0 |           |  |   |  | 
|                                                        |  |                    |     |           |  |   |   | 
|Total amortization related to DSS restricted
    shares |  | $                  | 4.1 |           |  | $ |  | 
|                                                        |  |                    |     |           |  |   |   | 

Amortization of
Goodwill and Other Intangible Assets

Amortization of other intangible assets
represents the amortization of customer list and other current
products and technology, arising from our acquisitions of CDS in
September 1999, the Quantum HDD business in April 2001 and MMC
in September 2001. Amortization of other intangible assets
increased to $21.3 million in the three months ended
March 30, 2002 compared to $0.8 million in the three
months ended March 31, 2001 primarily as a result of the
Quantum HDD business and MMC acquisitions. The three months
ended March 31, 2001 reflects $1.7 million of goodwill
amortization. On December 30, 2001, we adopted SFAS
No. 142, Goodwill and Other Intangible Assets. In
compliance with SFAS No. 142:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On December 30, 2001, we reclassified
    $31.1 million in workforce assets to goodwill and we ceased
    amortizing the resulting net goodwill balance of
    $814.9 million. Accordingly, there are no charges for the
    amortization of goodwill in 2002 or thereafter.                                                                                                                                                                                                                                                               
|
| |  | The net book value of goodwill will be reviewed
    for impairment annually and whenever there is indication that
    the value of the goodwill may be impaired. Any resulting
    impairment will be recorded in the income statement in the
    period it is identified and quantified.                                                                                                                                                                                                                                                  
|
| |  | We will also be required to perform a transition
    impairment analysis. We are currently in the process of
    completing the transitional impairment analysis, which we expect
    to complete by June 30, 2002. In addition, we will be
    required to perform an annual impairment test, which we expect
    to perform in the third quarter of each year.                                                                                                                                                                           
|
| |  | The amortization of intangible assets incurred in
    the three months ended March 30, 2002 primarily related to
    the amortization of other intangible assets. Other intangibles
    comprising customer list and purchased technology resulting from
    our acquisitions of CDS, the Quantum HDD business and MMC
    Technology will continue to be amortized. The net book value of
    these intangibles at March 30, 2002 was $241.2 million
    and amortization for the three months ended March 30, 2002
    was $21.3 million.

Interest Expense
and Interest Income

|                            |  |                    |     |           |  |        |     |   |  |   |      |  
|--------------------------- |  | ------------------ | --- | --------- |  | ------ | --- | - |  | - | ---- | -
|                            |  |                    |     |          
|                            |  | Three Months Ended |     |          
|                            |  |                    |     |          
|                            |  | March 30,          |     | March 31, |  |       
|                            |  | 2002               |     | 2001      |  | Change
|                            |  |                    |     |           |  |       
|                            |  |                    |     |          
|                            |  | (Unaudited)        |     |          
|                            |  |                    |     |          
|                            |  | (In millions)      |     |          
|Interest expense            |  | $                  | 6.5 |           |  | $      | 2.9 |   |  | $ | 3.6  |  
|Interest and other income   |  | $                  | 3.0 |           |  | $      | 5.8 |   |  | $ | (2.8 | )
|Other loss                  |  | $                  |    |           |  | $      | 1.3 |   |  | $ | (1.3 | )
|As a percentage of revenue: |  |                    |     |           |  |        |     |   |  |   |      |  
|Interest expense            |  |                    | 0.6 | %         |  |        | 0.5 | % |  |   |      |  
|Interest and other income   |  |                    | 0.3 | %         |  |        | 0.9 | % |  |   |      |  
|Other loss                  |  |                    | 0.0 | %         |  |        | 0.2 | % |  |   |      |  

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Interest
Expense

Interest expense increased by $3.6 million
in the first quarter of 2002 compared to the corresponding
period in fiscal year 2001. The increase was primarily due to
the debt assumed in conjunction with the acquisitions of MMC and
the Quantum HDD business and the obligation to reimburse Quantum
for interest due on the Quantum HDD pro rata portion of
Quantums convertible subordinated notes in connection with
the acquisition of the Quantum HDD business. Total short-term
and long-term outstanding borrowings were $269.2 million as
of March 30, 2002 compared to $98.9 million as of
March 31, 2001.

Interest and
Other Income

Interest and other income decreased
$2.8 million in the first quarter of 2002 compared to the
corresponding period in fiscal year 2001. The decrease was
principally due to lower returns on cash investment portfolios
resulting from a reduction in short-term interest rates. Total
cash and cash equivalents, restricted cash and marketable
securities were $606.0 million as of March 30, 2002
compared to $348.6 million as of March 31, 2001.

Provision for
income taxes

|                                                    |  |                    |       |           |  |        |     |  |  |   |       |  
|--------------------------------------------------- |  | ------------------ | ----- | --------- |  | ------ | --- |  |  | - | ----- | -
|                                                    |  |                    |       |          
|                                                    |  | Three Months Ended |       |          
|                                                    |  |                    |       |          
|                                                    |  | March 30,          |       | March 31, |  |       
|                                                    |  | 2002               |       | 2001      |  | Change
|                                                    |  |                    |       |           |  |       
|                                                    |  |                    |       |          
|                                                    |  | (Unaudited)        |       |          
|                                                    |  |                    |       |          
|                                                    |  | (In millions)      |       |          
|Income (loss) before provision for income
    taxes |  | $                  | (64.4 | )         |  | $      | 1.6 |  |  | $ | (66.0 | )
|Provision for income taxes                          |  | $                  | 0.6   |           |  | $      | 0.2 |  |  | $ | 0.4   |  

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

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

We ceased to be a member of the HEA consolidated
group as of August 1998. We remain liable for our share of the
total consolidated or combined tax return liability of the HEA
consolidated group prior to August 1998. We have agreed to
indemnify or reimburse HEA if there is any increase in our share
of the HEA consolidated or combined tax return liability
resulting from revisions to our taxable income.

Pursuant to a Tax Sharing and Indemnity
Agreement entered into in connection with the
Companys merger with Quantum HDD, Maxtor, as successor to
Quantum HDD, and Quantum are allocated their share of
Quantums income tax liability for periods before the
split-off, consistent with past practices and as if the Quantum
HDD and Quantum DSS business divisions had been separate and
independent corporations. To the extent that the income tax
liability attributable to one business division is reduced by
using NOLs and other tax attributes of the other business
division, the business division utilizing the attributes must
pay the other for the use of those attributes. We must also
indemnify Quantum for additional taxes related to the Quantum
DSS business for all periods before Quantums issuance of
tracking stock and additional taxes related to the Quantum HDD
business for all periods before the split-off, limited in the
aggregate to $142.0 million plus 50% of any excess over
$142.0 million, excluding any required gross-up payment.
The Company recorded approximately $142.0 million in other
liabilities associated with Maxtors agreement to reimburse
Quantum Corporation for income tax liabilities for certain years
prior to the acquisition of the Quantum HDD business by Maxtor.

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

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

Liquidity and Capital Resources

Cash and Cash
Equivalents

Cash, cash equivalents, marketable securities and
restricted cash were $606.0 million at March 30, 2002
compared to $645.8 million at December 29, 2001. The
Companys restricted cash balance at March 30, 2002
was $99.1 million, which is pledged as collateral for
certain stand-by letters of credit issued by commercial banks.
We have a net deferred tax liability of $196.4 million,
which could become payable upon repatriation of the cash
invested abroad.

Operating activities used cash of
$6.7 million in the three months ended March 30, 2002.
Uses of cash from operating activities reflect our net loss of
$65.0 million offset by adjustments for depreciation,
amortization of intangible assets and other non-cash adjustments
of $63.8 million. Sources of cash from operating activities
also include a $39.7 million increase in accounts payable
primarily due to higher material intake and a $17.4 million
decrease in accounts receivable. This was partially offset by a
$50.0 million decrease in accrued and other liabilities in
part due to merger-related payments and $12.5 million
increase in inventory and other current assets.

Net cash provided by investing activities was
$1.0 million in the three months ended March 30, 2002.
Investing activities primarily reflects the receipt of
$25.0 million in proceeds from the sale of marketable
securities (net of purchases), and investments made in property
plant and equipment of $23.5 million. We expect that our
investments in property, plant and equipment in 2002 will be
approximately $200.0 million, primarily to fund
manufacturing upgrades and expansion, product development and
updating our information technology systems.

Net cash used in financing activities was
$8.8 million during the quarter ended March 30, 2002,
primarily reflecting the repayment of debt and lease obligations
and purchase of publicly traded debt in the aggregate amount of
$19.4 million, offset by proceeds from employee stock
purchases and stock options exercised of $11.1 million.

25



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##### Table of Contents



Certain
Financing Activities

Future payments due under debt and capital lease
obligations as of March 30, 2002 are reflected in the
following table (in thousands):

|                             |  |                |        |                   |  |                   |        |              |  |                   |        |           |  |       |        |  |  |   |       |  |  |   |        |  |  |   |         | 
|---------------------------- |  | -------------- | ------ | ----------------- |  | ----------------- | ------ | ------------ |  | ----------------- | ------ | --------- |  | ----- | ------ |  |  | - | ----- |  |  | - | ------ |  |  | - | ------- | 
|                             |  |                |        |                   |  | Pro rata Portion  |        |              |  |                   |        |           |  |      
|                             |  |                |        | Economic          |  | of Quantum        |        |              |  |                   |        |           |  |      
|                             |  | 5.75%          |        | Development       |  | Corporations 7%  |        |              |  |                   |        | Equipment |  |      
|                             |  | Subordinated   |        | Board of          |  | Subordinated      |        |              |  | Hynix             |        | Loans and |  |      
|                             |  | Debentures due |        | Singapore Loan    |  | Convertible Notes |        |              |  | Semiconductor     |        | Capital   |  |      
|                             |  | 2012(1)        |        | due March 2004(2) |  | due 2004(3)       |        | Mortgages(4) |  | America Inc. Note |        | Leases(5) |  | Total
|                             |  |                |        |                   |  |                   |        |              |  |                   |        |           |  |      
|Fiscal Year Ending           |  |                |        |                   |  |                   |        |              |  |                   |        |           |  |       |        |  |  |   |       |  |  |   |        |  |  |   |         | 
|2002 (remaining nine months) |  | $              |       |                   |  | $                 | 3,126  |              |  | $                 |       |           |  | $     | 1,000  |  |  | $ | 5,095 |  |  | $ | 19,567 |  |  | $ | 28,788  | 
|2003                         |  |                | 5,000  |                   |  |                   | 6,252  |              |  |                   |       |           |  |       | 1,444  |  |  |   |      |  |  |   | 21,242 |  |  |   | 33,938  | 
|2004                         |  |                | 5,000  |                   |  |                   | 3,126  |              |  |                   | 95,833 |           |  |       | 1,583  |  |  |   |      |  |  |   | 13,134 |  |  |   | 118,676 | 
|2005                         |  |                | 5,000  |                   |  |                   |       |              |  |                   |       |           |  |       | 1,734  |  |  |   |      |  |  |   |       |  |  |   | 6,734   | 
|2006                         |  |                | 5,000  |                   |  |                   |       |              |  |                   |       |           |  |       | 30,847 |  |  |   |      |  |  |   |       |  |  |   | 35,847  | 
|Thereafter                   |  |                | 45,262 |                   |  |                   |       |              |  |                   |       |           |  |       |       |  |  |   |      |  |  |   |       |  |  |   | 45,262  | 
|                             |  |                |        |                   |  |                   |        |              |  |                   |        |           |  |       |        |  |  |   |       |  |  |   |        |  |  |   |         | 
|Total                        |  | $              | 65,262 |                   |  | $                 | 12,504 |              |  | $                 | 95,833 |           |  | $     | 36,608 |  |  | $ | 5,095 |  |  | $ | 53,943 |  |  | $ | 269,245 | 
|                             |  |                |        |                   |  |                   |        |              |  |                   |        |           |  |       |        |  |  |   |       |  |  |   |        |  |  |   |         | 



---



|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|(1) | For the remainder of fiscal year 2002 through
    fiscal year 2012, we will make interest payments of
    $30.5 million.          
|   
|(2) | For the remainder of fiscal year 2002 through
    fiscal year 2004, we will make interest payments of
    $0.5 million.           
|   
|(3) | For the remainder of fiscal year 2002 through
    fiscal years 2003 and 2004, we will make interest payments of
    $15.7 million.
|   
|(4) | For the remainder of fiscal year 2002 through
    fiscal year 2006, we will make interest payments of
    $14.0 million.          
|   
|(5) | For the remainder of fiscal year 2002 through
    fiscal years 2003 and 2004, we will make interest payments of
    $5.9 million. 

The Company did not enter into any significant
operating lease obligations during the three month period ended
March 30, 2002. For additional information regarding the
Companys operating lease obligations, see the
Companys Annual Report on Form 10-K for the fiscal
year ended December 29, 2001.

In July 1998, we entered into an accounts
receivable securitization program (the Program) with
a group of commercial banks (the Banks). On
November 15, 2001, we amended and restated the Program,
extending the Program for another three years and increasing the
available size of the Program from $200 million to
$300 million. Under the Program, we sell our U.S. and
Canadian accounts receivable via a special purpose entity,
Maxtor Receivables Corporation (MRC). MRC, our
wholly-owned subsidiary, sells the Banks an ownership interest
in our accounts receivable on a revolving basis, in an amount
determined by an eligible pool of receivables. The
Banks purchases of interests in our accounts receivable
results in the amount of the purchases being excluded from our
consolidated accounts receivable, and the proceeds of the sale
being included in our consolidated cash balance. The Banks had
purchased a $60.0 million interest in our accounts
receivable under this Program at March 30, 2002.

We are subject to certain defined
Liquidation Events under this Program, including a
minimum tangible net worth test and a requirement to maintain a
specified minimum unrestricted cash balance. Our Singapore Loan
is subject to two financial covenants, including a minimum
tangible net worth test, the calculation of which is the same as
defined in the Program, and a minimum consolidated cash balance
requirement. As of December 29, 2001, we concluded that we
would not be in compliance with our tangible net worth covenant
under the Program and under the Singapore loan. We were,
however, in compliance with the minimum cash balance
requirements under the Program and the Singapore loan.

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On February 15, 2002, we received a waiver
and amendment from the lender for the Singapore loan relating to
the tangible net worth covenant. On the same date, the Banks
participating in the Program agreed to a first amendment through
May 15, 2002 to the Program. In each case, the definition
for calculating tangible net worth was amended to include an
adjustment associated with the purchase price accounting for the
acquisition of the Quantum HDD business. After giving effect to
this first amendment, we were in compliance with the tangible
net worth covenant.

On March 15, 2002, the first amendment was
superceded by a second amendment reflecting the terms of the
first amendment and extending the terms of the first amendment
for the duration of the Program. At this time the Program was
reduced from $300 million to $210 million due to the
withdrawal of one participating bank. We, at our discretion, can
seek additional banks to expand the facility back to
$300 million. However, there is no assurance that a
particular level of expansion can be achieved. We do not expect
that the reduction in the size of the Program will have any
adverse impact on our liquidity. In 2001, the Banks
monthly purchases of interests in our receivables under the
Program fluctuated between $45.2 million and $150.0 million
and averaged $103.9 million. We expect that the Program
will be similarly used in 2002.

If a Liquidation Event were to occur, the Banks
would be entitled to all cash collections on our accounts
receivables in the United States until its net investment had
been recovered. We do not expect that such an event by itself
would have a significant adverse impact on our liquidity, given
the fact that we believe the Banks net investment would be
satisfied shortly following such Liquidation Event, based on our
historical collection rate of receivables. However, we would no
longer have access to the Program following such Liquidation
Event although we do not expect that the unavailability of the
Program would have a material adverse effect on our liquidity.

In the event that a default occurs in a financial
covenant under our Singapore loan, and we do not receive a
waiver we may be required to repay the loan earlier than
anticipated; however, we do not expect that such an earlier
repayment of the Singapore loan would have a material adverse
impact on our liquidity. After a scheduled payment of
$3.8 million in principal in the quarter ended
March 30, 2002, the outstanding principal amount under our
Singapore loan was $12.5 million. The loan is adequately
collateralized.

Related Party
Transactions

In 1994, Hyundai Electronics Industries
HEI and certain of its affiliates had purchased 40%
of our outstanding common stock for $150.0 million in cash.
In early 1996, Hynix, formerly Hyundai Electronics America, or
HEA, acquired all of the remaining shares of our common stock in
a tender offer and merger for $215.0 million in cash and
also acquired all of our common stock held by HEI and its
affiliates. We operated as a wholly-owned subsidiary of Hynix
until completion of our initial public offering on July 31,
1998, which reduced the ownership interest of Hynix to below
50%. In April 2001 as a result of our acquisition of the Quantum
HDD business, Hynixs ownership in Maxtor was reduced to
approximately 17% of the outstanding common stock. As described
below, Hynix sold Maxtor shares to the public and to us in
October 2001, reducing Hynixs ownership to 5.17% at
December 29, 2001 and distributed the balance of Maxtor
shares to the beneficiaries of the DECS Trust in February 2002,
and accordingly is no longer an investor in Maxtor.

On September 2, 2001, we completed our
acquisition of MMC which had previously been a wholly-owned
subsidiary of Hynix. MMC, based in San Jose, California,
designs, develops and manufactures media for hard disk drives.
Prior to the acquisition, sales to Maxtor constituted 95% of
MMCs annual revenues. The primary business reason for our
acquisition of MMC was to provide us with a reliable source of
supply of media for hard disk drives. A fairness opinion was
delivered to Maxtors Board of Directors by a nationally
recognized investment banking firm in connection with the MMC
acquisition. The fairness opinion concluded that the
consideration to be paid by Maxtor for MMC was fair to Maxtor,
from a financial point of view. The acquisition of MMC was
approved by the Maxtor Boards Affiliated Transactions
Committee and was determined by the Committee to be fair to and
in the best interests of Maxtor and its stockholders. The
Affiliated Transactions Committee was comprised entirely of
directors with no relationship with Hynix and its affiliates.
The acquisition was accounted for as a purchase with a total
cost of $17.9 million, which consisted of cash
consideration of $1 million, $16 million of loan
forgiveness, and $0.9 million of estimated direct

27



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transaction costs. In connection with the
acquisition, we also assumed liabilities of $105.7 million.
As part of these liabilities, we assumed a note for
$7.3 million owing to Hynix, which bears no interest
through March 31, 2002; thereafter, unpaid principal
amounts bear interest at 9% per annum (the Maxtor
Note). On January 5, 2001, Hynix issued a promissory
note to Maxtor for $2 million in principal amount,
representing Hynixs share of a settlement relating to
litigation between Maxtor, Hynix and Stormedia. This note bore
interest at 9% per annum, with the payment of principal and
interest due on December 31, 2001 (the Hynix
Note). Hynix and Maxtor agreed that the principal and
accrued interest on the Hynix Note as of December 28, 2001
was offset against the principal amount of the Maxtor Note, such
that the Hynix Note was fully paid and the Maxtor Note had a
principal amount of approximately $5.1 million as of
December 29, 2001; as of March 31, 2002, the Maxtor
Note continued to have a principal amount of $5.1 million.
As a result of the MMC acquisition, MMCs results of
operations are included in our financial statements from the
date of acquisition.


In October 2001, Hynix sold approximately
23.3 million shares of Maxtor common stock in a registered
public offering. At the same time as Hynixs sale of Maxtor
common stock to the public, we purchased an additional
5.0 million shares of its common stock from Hynix. Our
purchase of our shares from Hynix was on the same terms as
Hynixs sale of shares to the public at $4 per share for an
aggregate purchase price of $20.0 million. The repurchase
of our shares was intended to improve our capital structure,
increase shareholder returns, and increase the price of our
stock. The repurchase of the shares from Hynix was approved by
the Maxtor Boards Affiliated Transaction Committee and
determined to be in the best interest of Maxtor and its
stockholders. As a result of Hynixs sale of its Maxtor
shares to the public and to Maxtor, Hynixs ownership in
Maxtor was reduced to 5.17% of the outstanding common stock as
of December 29, 2001. In February 2002, Hynix distributed
all of its remaining shares of Maxtor common stock to the
beneficiaries of the DECS trust and thus is no longer a
stockholder of Maxtor.

In connection with the acquisition of MMC, we
assumed equipment loans and capital leases. As of March 30,
2002, there was $53.9 million outstanding under these
obligations, which have maturity dates ranging from December
2001 to October 2004 and interest rates averaging 9.9%. Hynix is
continued as a guarantor on these leases. As a result of the MMC
acquisition, MMCs results of operations are included in
our financial statements from the date of acquisition.

Our cost of revenue includes certain component
parts Maxtor purchased from MMC. These purchases amounted to
$38 million for the quarter ended March 31, 2001. In
August 1998, Maxtor entered into an agreement with MMC with
respect to the pricing of future purchases that provided for
pricing discounts in return for a purchase volume commitment
based on a percentage of our total media purchases through
September 30, 2001 (as described above, Maxtor completed
its acquisition of MMC on September 2, 2001). The pricing
discounts generally ranged from 2% to 4% off of competitive
prices.

Our cost of revenue also includes certain DRAM
chip purchases from Hynix Semiconductor, Inc., HSI,
formerly HEI. The pricing of such DRAM chips is determined
pursuant to a bid auction in which we set a price and all
suppliers are eligible to participate and respond, resulting in
pricing at the applicable rate established in such bid auction.
Our purchases from HSI totaled $26.5 million in fiscal year
1999, $41.6 million in fiscal year 2000 and
$19.3 million in fiscal year 2001.

Pursuant to a sublicense agreement with HEI, we
are obligated to pay a portion of an IBM license royalty fee
otherwise due from HEI. Such payments are due in annual
installments through 2007, and are based upon the license fee
separately negotiated on an arms length basis between HEI
and IBM. For the years ended January 1, 2000,
December 30, 2000 and December 29, 2001, we recorded
$1.9 million of expenses each year in connection with this
obligation.

Hynix is an unconditional guarantor of one of our
facilities leases in Milpitas, California. The aggregate rent
under the lease was $3.24 million per annum in each of the
years ended January 1, 2000, December 30, 2000 and
December 29, 2001. The lease rate was established by
arms length negotiations with the lessor based on
applicable market rates. The lease expired March 31, 2002
and was not extended.

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*******

We believe the existing cash and cash
equivalents, short term investment and capital resources,
together with cash generated from operations and available
borrowing capacity will be sufficient to fund our operations
through at least the next twelve months. We require substantial
working capital to fund our business, particularly to finance
accounts receivable and inventory, and to invest in property,
plant and equipment. During 2002, capital expenditures are
expected to be approximately $200 million, primarily used
for manufacturing upgrades and expansion, product development,
and updating our information technology systems. We intend to
seek financing arrangements to fund our future capacity
expansion and working capital, as necessary. 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.

Recent Accounting Pronouncements

In June 2001, the Emerging Issues Task Force
(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 adoption of EITF 00-25 did not have a significant
impact on Maxtors 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 be used for all business
combinations initiated after June 30, 2001 and establishes
specific criteria for the recognition of intangibles assets
separately from goodwill. The Company has applied SFAS 141 for
the acquisition of MMC and will follow the requirements of this
statement for all future acquisitions.

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 143 (SFAS
143), Accounting for Asset Retirement
Obligations. This statement addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. This Statement applies to all entities. It applies to
legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset,
except for certain obligations or lessees. SFAS 143 is effective
for financial statements issued for fiscal years beginning after
June 25, 2002. The Company is currently assessing the
impact of SFAS 143 on its financial statements.

In October 2001, the FASB issued Statement of
Financial Accounting Standards No. 144 (SFAS
144), Accounting for the Impairment or Disposal of
Long-lived Assets. The objectives of SFAS 144 are to
address significant issues relating to the implementation of
FASB Statement 121 (SFAS 121), Accounting for
the Impairment of Long-lived assets to be Disposed of, and
to develop a single accounting model, based on the framework
established by SFAS 121, for long-lived assets to be disposed of
by sale, whether previously held and used or newly acquired.
Although SFAS 144 supercedes SFAS 121, it retains some
fundamental provisions of SFAS 121. SFAS 144 is effective for
financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal
years. The adoption of SFAS 144 did not have a significant
impact on Maxtors financial statements.

On December 30, 2001, the Company adopted
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets(SFAS
142). SFAS 142 requires goodwill to be tested for
impairment under certain circumstances, written down when
impaired, and requires purchased intangible assets other than
goodwill to be amortized over their useful lives unless these
lives are determined to be indefinite.

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The Company ceased amortizing goodwill totaling
$814.9 million as of the beginning of fiscal 2002,
including $31.1 million of acquired workforce intangibles
previously classified as purchased intangible assets.

Purchased intangible assets are carried at cost
less accumulated amortization. Amortization is computed over the
estimated useful lives of the respective assets, generally one
to seven years. The Company expects amortization expense on
purchased intangible assets to be $62.8 million for the
remainder of fiscal 2002, $82.3 million in fiscal 2003,
$37.1 million in fiscal 2004, $22.0 million in fiscal
2005, and $5.9 million in fiscal 2006, at which time
purchased intangible assets will be fully amortized.

The Company will also be required to perform a
transition impairment analysis. Any impairment resulting from
these transition tests is anticipated to be recorded as of
December 30, 2001 and will be recognized as 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. The Company is currently in
the process of completing the transitional impairment analysis,
which it expects to complete by June 30, 2002. In addition,
the Company will be required to perform an annual impairment
test, which it expects to perform in the third quarter of each
year.

The following table presents the impact of SFAS
142 on net income (loss) and net income (loss) per share had the
standard been in effect for the three months ended
March 31, 2001 (in thousands, except per share amounts):

|                                                                |                                                                                                         |                    |         |                |  |   |       |       | 
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------ | ------- | -------------- |  | - | ----- | ----- | 
|                                                                |                                                                                                         |                   
|                                                                |                                                                                                         | Three Months Ended
|                                                                |                                                                                                         |                   
|                                                                |                                                                                                         | March 30, 2002     |         | March 31, 2001
|                                                                |                                                                                                         |                    |         |               
|                                                                |                                                                                                         |                   
|                                                                |                                                                                                         | (In thousands)    
|Net income (loss)  as reported                                 |                                                                                                         | $                  | (65,038 | )              |  | $ | 1,339 |      
|Adjustments:                                                    |                                                                                                         |                    |         |                |  |   |       |      
|                                                                | Amortization of goodwill                                                                                |                    |         |               |  |   |       | 1,684 | 
|                                                                | Amortization of acquired workforce intangibles
    previously classified as purchased intangible assets |                    |         |               |  |   |       | 36    | 
|                                                                |                                                                                                         |                    |         |                |  |   |       |      
|                                                                | Net adjustments                                                                                         |                    |         |               |  |   |       | 1,720 | 
|                                                                |                                                                                                         |                    |         |                |  |   |       |      
|Net income (loss)  adjusted                                    |                                                                                                         | $                  | (65,038 | )              |  | $ | 3,059 |      
|                                                                |                                                                                                         |                    |         |                |  |   |       |      
|Basic and diluted net income (loss) per
    share  as reported |                                                                                                         | $                  | (0.27   | )              |  | $ | 0.01  |      
|Basic and diluted net income (loss) per
    share  adjusted    |                                                                                                         | $                  | (0.27   | )              |  | $ | 0.03  |      

On April 30 2002, the Financial Accounting
Standards Board (FASB) issued FASB Statement No. 145
(SFAS 145), Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical
Corrections. FAS 145 rescinds both FASB Statement No. 4
(SFAS 4), Reporting Gains and Losses from Extinguishment of
Debt, and the amendment to FAS 4, FASB Statement No. 64
(SFAS 64), Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. Through this rescission, FAS 145 eliminates the
requirement (in both SFAS 4 and SFAS 64) that gains and losses
from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income
tax effect. However, an entity is not prohibited from
classifying such gains and losses as extraordinary items, so
long as they meet the criteria in paragraph 20 of Accounting
Principles Board Opinion No. 30, Reporting the Results of
Operations Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. Further, SFAS 145 amends paragraph
14(a) of FASB Statement No. 13, Accounting for Leases, to
eliminate an inconsistency between the accounting for
sale-leaseback transactions and certain lease modifications that
have economic effects that are similar to sale-leaseback
transactions. The amendment requires that a lease modification
(1) results in recognition of the gain or loss in the
financial statements, (2) is subject to FASB Statement
No. 66, Accounting for Sales of Real Estate, if the leased
asset is real estate (including integral equipment), and
(3) is subject (in its entirety) to the sale-leaseback
rules of FASB Statement No. 98, Accounting for Leases:
Sale-Leaseback Transactions Involving Real Estate, Sales-Type
Leases of Real Estate, Definition of the Lease Term, and Initial
Direct Costs of Direct Financing Leases. Generally, FAS 145 is
effective for transactions occurring after May 15, 2002.
The Company is currently assessing the impact of SFAS 145 on its
financial statements.

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CERTAIN FACTORS AFFECTING FUTURE
PERFORMANCE

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

We have a history of significant losses and may
not achieve profitability. 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. In the twelve
months following the acquisition of the Quantum HDD business, we
incurred a net loss of $712.7 million, which included
approximately $444.8 million in merger related expenses; in
the quarter ended March 30, 2002, our net loss was $65.0
million, which included $21.3 million for the amortization
of intangible assets and a $4.9 million charge for
stock-based compensation related to the Quantum HDD acquisition.

We may fail to successfully complete the
integration of the Quantum HDD business, and in that event will
not achieve some or all of the expected benefits of the
acquisition.

We acquired the Quantum HDD business in April
2001 and since then we have made substantial progress in merging
the two companies. However, we have further work to do to
complete the integration of the two operations. It is not
certain that all or any of the anticipated benefits related to
the integration of Maxtor and Quantum HDD will be realized. The
risks of unsuccessful integration of the businesses include:



| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | disruption of the combined companys
    business;                           
|
| |  | distraction of management; and                                               
|
| |  | unanticipated expenses associated with
    integration of the two businesses.

The combined company may not succeed in
addressing these risks, which might result in a failure to
achieve some of the expected benefits of the acquisition and
could harm our business, financial condition, operating results,
and cash flows. Further, the growth rate of the combined company
may not equal the historical growth rates experienced by us or
Quantum HDD.

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

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

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Our ability to use our equity for financings
or acquisitions and our attractiveness as an acquisition target
could be limited until April 3, 2003 due to restrictions we
must comply with to mitigate the risk of triggering a tax
obligation to Quantum for which we are indemnitor.

Under the federal tax rules applicable to the
treatment of our acquisition of the Quantum HDD business as a
tax-free 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
    businesses or to raise financing;
|
| |  | a 50% or greater interest in us is acquired by
    another party.                    

In addition, these restrictions could discourage
potential acquisition proposals and could delay or prevent a
change of control of the company, including offers 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. In addition, intense price
competition among personal computer manufacturers and
Intel-based server manufacturers may cause the price of hard
disk drives to decline. As a result, the hard disk drive market
tends to experience periods of excess capacity and intense price
competition. Competitors attempts to liquidate excess
inventories, restructure, or gain market share also tend to
cause average selling prices to decline. This intense price
competition could force us to lower prices, which would reduce
margins, cause operating results to suffer and make it difficult
for us to achieve or maintain profitability. If we are unable to
lower the cost of our hard disk drives to be consistent with the
decline of average selling prices, we will not be able to
compete effectively and our operating results would suffer.

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

The desktop computer market segment and the
overall hard disk drive market are intensely competitive even
during periods when demand is stable. We compete primarily with
manufacturers of 3.5 inch hard disk drives, including Fujitsu,
Hitachi, IBM, Samsung, Seagate Technology and Western Digital.
Hitachi and IBM have recently announced a plan to merge their
hard disk drive businesses into a single joint venture. 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.                                                                    

Increasing competition could reduce the demand
for our products and/or the prices of our products by
introducing technologically better and cheaper products, which
could reduce our revenues. In addition, new

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competitors could emerge and rapidly capture
market share. If we fail to compete successfully against current
or future competitors, our business, financial condition and
operating results will suffer.


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

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



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the average selling price of our products;                                                                                                                                                                           
|
| |  | fluctuations in the demand for our products as a
    result of the seasonal nature of the desktop computer industry
    and the markets for our customers products, as well as the
    overall economic environment;
|
| |  | the availability, and efficient use, of
    manufacturing capacity;                                                                                                                                                  
|
| |  | our ability to successfully qualify our products
    with our customers;                                                                                                                                             
|
| |  | our customers canceling, rescheduling or
    deferring orders; and                                                                                                                                                   
|
| |  | our ability to purchase components at competitive
    prices.                                                                                                                                                        

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, period to period comparisons of our
historical results of operations are not a good predictor of our
future performance. If our future operating results are below
the expectations of stock market analysts, our stock price may
decline. Due to current economic conditions and their impact on
IT spending, particularly personal computer sales, our ability
to predict demand for our products and our financial results for
current and future periods may be severely diminished. This may
adversely affect both our ability to adjust production volumes
and expenses and our ability to provide the financial markets
with forward-looking information.

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

Our Maxtor-owned facility in Singapore and our
relationship with MKE for the manufacture of hard disk drives
are currently our only sources of production for our hard disk
drive products. We are consolidating manufacturing of our
desktop drive products to our Singapore facility by the end of
third quarter of 2002, and we expect this consolidation process
will negatively impact our gross margins in the second quarter
of 2002. Unexpected difficulties in such consolidation may
significantly harm our business, financial condition and
operating results. 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. 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.

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

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

Most of our products are sold to desktop computer
and Intel-based server manufacturers or to their subcontractors.
These manufacturers select or qualify their hard disk drive
suppliers, either directly or through their subcontractors,
based on quality, storage capacity, performance and price.
Manufacturers typically seek to qualify two or more suppliers
for each hard disk drive product generation. To qualify
consistently, and thus succeed in the desktop and Intel-based
server hard disk drive industry, we must consistently be among
the first-to-market introduction and first-to-volume production
at leading storage capacity per disk, offering competitive
prices and high quality. Once a manufacturer or subcontractor
has chosen its hard disk drive suppliers for a given desktop
computer or Intel-based server product, it often will purchase
hard disk drives from those suppliers for the commercial
lifetime of that product line. If we miss a qualification
opportunity, we may not have another opportunity to do business
with that manufacturer or subcontractor until it introduces its
next generation of products. The effect of missing a product
qualification opportunity is magnified by the limited number of
high-volume manufacturers of personal computers and Intel-based
servers. If we do not reach the market or deliver volume
production in a timely manner, we may lose opportunities to
qualify our products. In such case, our business, financial
condition and operating results would be adversely affected.

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

To remain a significant supplier of hard disk
drives to major manufacturers of personal computers and
Intel-based servers, we will need to offer a broad range of hard
disk drive products to our customers. Although almost all of our
current products are designed for the desktop computer and the
Intel-based server markets, demand in these segments may shift
to products we do not offer or volume demand may shift to other
segments. Such segments may include laptop computers or handheld
consumer products, which none of our products currently serves.
Accordingly, we will need to develop and manufacture new
products that address additional hard disk drive market segments
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 or avoid technical or other
difficulties that could delay or prevent the successful
development, introduction or marketing of new hard disk drives.
Any failure to successfully develop and introduce new products
for our existing customers or to address additional market
segments could 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. In recent quarters, demand for
desktop computers has been adversely affected by unfavorable
economic conditions. If the economic conditions in the United
States and globally do not improve, or if we experience a
worsening in the global economic slowdown, we may experience a
further decrease in demand for desktop computers. Because we
sell a significant portion of our products to the desktop
segment of the personal computer industry, we will be affected
more by changes in market conditions for desktop computers than
a company with a broader range of products. Any decrease in the
demand for desktop computers could reduce the demand for our
products, harming our business.

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

We sell most of our products to a limited number
of customers. For the fiscal year ended December 29, 2001,
one customer, Dell Computer Corporation, accounted for
approximately 11.3% of our total revenue, and our top five
customers accounted for approximately 33.8% of our revenue. We
expect that a relatively small number of customers will continue
to account for a significant portion of our revenue, and the
proportion of our revenue from these customers could continue to
increase in the future. These customers have a wide

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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
business, financial condition and operating results could suffer.


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

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

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

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

If we fail to match production with product
demand or to manage inventory, we may incur additional
costs.

We base our inventory purchases and commitments
on forecasts from our customers, who are not obligated to
purchase the forecast amounts. If actual orders do not match our
forecasts, or if any products become obsolete between order and
delivery time, we may have excess or inadequate inventory of our
products. In addition, our significant OEM customers have
adopted build-to-order manufacturing models or just-in-time
inventory management processes that require component suppliers
to maintain inventory at or near the customers production
facility. These policies, combined with continued compression of
product life cycles, have complicated inventory management
strategies that make it more difficult to match manufacturing
plans with projected customer demand and cause us to carry
inventory for more time and to incur additional costs to manage
inventory which could cause our operating results to suffer.
Excess inventory could materially adversely affect our operating
results due to increased storage or obsolescence costs and 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, digital signal
processor/ controllers from two sources and spin/ servo
integrated circuits from one source. Although our recent
purchase of our primary supplier of media, MMC, has reduced our
dependence on outside suppliers for this component, MMC cannot
supply all of our media needs, and therefore we are still
required to purchase media from a limited number of outside
sources. As we have experienced in the past,

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some required parts may be periodically in short
supply. As a result, we will have to allow for significant
ordering lead times for some components. In addition, we may
have to pay significant cancellation charges to suppliers if we
cancel orders for components because we reduce production due to
market oversupply, reduced demand, transition to new products or
technologies or for other reasons. We order the majority of our
components on a purchase order basis and we have limited
long-term volume purchase agreements with only some of our
existing suppliers. If we cannot obtain sufficient quantities of
high-quality parts when needed, product shipments would be
delayed and our business, financial condition and operating
results could suffer.


Because we purchase a significant portion of
our parts from third party suppliers, we are subject to the risk
that we may be unable to acquire quality components in a timely
manner, or effectively integrate parts from different suppliers,
and these problems would cause our business to suffer.

Unlike some of our competitors, we do not
manufacture any of the parts used in our products, other than
media as a result of our acquisition of 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;                                            
|
| |  | 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 manage the
integration of parts obtained from third party suppliers, our
business, financial condition and operating results could suffer.

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

Our products may contain defects. We generally
warrant our products for three to five years and prior to the
merger, Quantum HDD generally warranted its products for one to
five years. We assumed Quantum HDDs warranty obligations
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 generally 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. We determined that there were issues with
certain Quantum HDD products that we acquired in the merger, and
which are no longer being manufactured. We have established a
warranty provision for these products and have increased
goodwill associated with the merger to reflect pre-acquisition
contingencies related to these issues. We may incur additional
operating expenses if these steps do not reflect the actual cost
of resolving such issues; and if these expenses are significant,
our business, financial condition and results of operations will
suffer.

We may need additional capital in the future
which may not be available on favorable terms or at all and our
ability until April 3, 2003 to issue equity securities has
been severely limited by our acquisition of 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;

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| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | the timing and size of business or technology
    acquisitions; and                       
|
| |  | the timing of introductions of new products and
    enhancements to our existing products.

To mitigate the risk of triggering a tax
obligation of Quantum for which we have indemnification
obligations as a result of our acquisition of the Quantum HDD
business, we are restricted in our ability to issue additional
equity securities to raise capital for two years after the
split-off and merger, or until April 3, 2003. In the event
we decide to 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 is authorized under our charter documents to
issue preferred stock with rights, preferences or privileges
senior to those of the common stock without stockholder approval.

We may be unable to satisfy a financial
covenant in our asset securitization program or under our
Singapore loan in the future, and if we are unable to obtain a
waiver for any such default, we will not have access to the
asset securitization program and may be required to pay down our
Singapore loan earlier than anticipated.

In July 1998, we entered into an accounts
receivable securitization program (Program) with a
group of commercial banks (Banks). On
November 15, 2001, we amended and restated the Program,
extending the Program for another three years and increasing the
available size of the Program from $200 million to
$300 million. Under the Program, we sell our U.S. and
Canadian accounts receivable via a special purpose entity,
Maxtor Receivables Corporation (MRC). MRC, our
wholly-owned subsidiary, sells the Banks an ownership interest
in our accounts receivable on a revolving basis, in an amount
determined by an eligible pool of receivables. The
activity between MRC and Maxtor is eliminated during the
consolidation process. The Banks purchases of interests in
our accounts receivable results in the amount of the purchases
being excluded from our consolidated accounts receivable, and
the proceeds of the sale are reflected in our consolidated cash
balance.

We are subject to certain defined
Liquidation Events under this Program, including a
minimum tangible net worth test and a requirement to maintain a
specified minimum unrestricted cash balance. Our Singapore Loan
is subject to two financial covenants, including a minimum
tangible net worth test, the calculation of which is the same as
defined in the Program, and a minimum consolidated cash balance
requirement.

If a Liquidation Event were to occur, the Banks
would be entitled to all cash collections on our accounts
receivables in the United States until its net investment had
been recovered. We do not expect that such an event by itself
would have a significant adverse impact on our liquidity, given
the fact that we believe the Banks net investment would be
satisfied shortly following such Liquidation Event, based on our
historical collection rate of receivables. We would no longer
have access to the Program following such Liquidation Event, but
do not expect that the unavailability of the Program would have
a material adverse effect on our liquidity.

In the event that a default occurs in a financial
covenant under our Singapore loan and we do not receive a waiver
we may be required to repay the loan earlier than anticipated;
however, we do not expect that such an earlier repayment of the
Singapore loan would have a material adverse impact on our
liquidity.

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. In the case
of products offered in rapidly emerging markets, such as Network
Storage and consumer electronics, our competitors may file
patents more rapidly or in greater numbers resulting in the
issuance of patents that may result in unexpected infringement
assertions against us. Moreover, the rights granted under any
such patents may not

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provide us with any competitive advantages.
Finally, our competitors may develop or otherwise acquire
equivalent or superior technology. We also rely on trade secret,
copyright and trademark laws as well as the terms of our
contracts to protect our proprietary rights. We may have to
litigate to enforce patents issued or licensed to us, to protect
trade secrets or know-how owned by us or to determine the
enforceability, scope and validity of our proprietary rights and
the proprietary rights of others. Enforcing or defending our
proprietary rights could be expensive and might not bring us
timely and effective relief. We may have to obtain licenses of
other parties intellectual property and pay royalties. If
we are unable to obtain such licenses, we may have to stop
production of our products or alter our products. In addition,
the laws of certain countries in which we sell and manufacture
our products, including various countries in Asia, may not
protect our products and intellectual property rights to the
same extent as the laws of the United States. Our remedies in
these countries may be inadequate to protect our proprietary
rights. Any failure to enforce and protect our intellectual
property rights could harm our business, financial condition and
operating results.


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

Prior to our acquisition of the Quantum HDD
business, we, on the one hand, and Quantum and MKE, on the other
hand, were sued by Papst Licensing, GmbH, a German corporation,
for infringement of a number of patents that relate to hard disk
drives. Papsts complaint against Quantum and MKE was filed
on July 30, 1998, and Papsts complaint against Maxtor
was filed on March 18, 1999. Both lawsuits, filed in the
United States District Court for the Northern District of
California, were transferred by the Judicial Panel on
Multidistrict Litigation to the United States District Court for
the Eastern District of Louisiana for coordinated pre-trial
proceedings with several other pending litigations involving the
Papst patents. The matters will be transferred back to the
District Court for the Northern District of California for
trial. Papsts infringement allegations are based on
spindle motors that Maxtor and Quantum purchased from third
party motor vendors, including MKE, and the use of such spindle
motors in hard disk drives. Maxtor purchased the overwhelming
majority of the spindle motors used in our hard disk drives from
vendors that were licensed under the Papst patents. Quantum
purchased many spindle motors used in its hard disk drives from
vendors that were not licensed under the Papst patents,
including MKE. As a result of the merger with Quantum HDD, we
assumed Quantums potential liabilities to Papst arising
from the patent infringement allegations Papst asserted against
Quantum. Papst and MKE recently entered into an agreement to
settle Papsts pending patent infringement claims against
MKE. That agreement includes a license of the Papst patents to
MKE which might provide Quantum, and thus us, with additional
defenses to Papsts patent infringement claims.

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. Management believes that it has
valid defenses to the claims of Papst and is defending this
matter vigorously.

We face risks from our substantial
international operations and sales.

We conduct most of our manufacturing and testing
operations and purchase a substantial portion of our key parts
outside the United States. In particular, manufacturing
operations for our products are concentrated in Singapore, where
both our and MKEs principal manufacturing operations are
located. Such concentration of operations in Singapore will
likely magnify the effects on us of any disruptions or 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 with staffing and managing
    international operations;             
|
| |  | transportation and supply chain disruptions as a
    result of terrorist activity;

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| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | economic slowdown and/or downturn in the foreign
    markets;                                                                                         
|
| |  | international currency fluctuations;                                                                                                                  
|
| |  | political and economic uncertainty caused by
    terrorism or acts of war or hostility;                                                               
|
| |  | legislative and regulatory responses to terrorist
    activity such as increased restrictions on cross-border movement
    of products and technology;
|
| |  | general strikes or other disruptions in working
    conditions;                                                                                       
|
| |  | labor shortages;                                                                                                                                      
|
| |  | political instability;                                                                                                                                
|
| |  | trade restrictions;                                                                                                                                   
|
| |  | changes in tariffs;                                                                                                                                   
|
| |  | generally longer periods to collect receivables;                                                                                                      
|
| |  | unexpected legislative or regulatory requirements;                                                                                                    
|
| |  | reduced protection for intellectual property
    rights in some countries;                                                                            
|
| |  | significant unexpected duties or taxes; and                                                                                                           
|
| |  | difficulty in obtaining export licenses 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.

The loss of key personnel could harm our
business.

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

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

Because of the chemicals we use in our
manufacturing and research operations, we are subject to a wide
range of environmental protection regulations in the United
States and Singapore. While we do not believe our operations to
date have been harmed as a result of such laws, future
regulations may increase our expenses and harm our business,
financial condition and results of operations. Even if we are in
compliance in all material respects with all present
environmental regulations, in the United States environment
regulations often require parties to fund remedial action
regardless of fault. As a consequence, it is often difficult to
estimate the future

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impact of environmental matters, including
potential liabilities. Moreover, we may be subject to liability
in connection with our acquisition of the Quantum HDD and MMC
businesses to the extent that contamination requiring
remediation at our expense is present on properties currently or
formerly occupied by those businesses, or those businesses sent
wastes to sites at which remediation is required. If we have to
make significant capital expenditures or pay significant expense
in connection with future remedial actions or to continue to
comply with applicable environmental laws, our business,
financial condition and operating results could suffer.


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

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



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

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

We have a number of protective provisions in
place designed to provide our board of directors with time to
consider whether a hostile takeover is in our best interests and
that of our stockholders. 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

Derivatives

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

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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.

The following table presents the hypothetical
changes in fair values in the financial instruments held
March 30, 2002 that are sensitive to changes in interest
rates. These instruments are not leveraged and are held for
purposes other than trading. The hypothetical changes assume
immediate shifts in the U.S. Treasury yield curve of plus or
minus 50 basis points (bps), 100 bps, and 150 bps.

|                      |  |          |         |          |  |         |         |            |  |         |         |          |  |          |         |  |  |   |         |   |  |   |         |   |  |   |         |  
|--------------------- |  | -------- | ------- | -------- |  | ------- | ------- | ---------- |  | ------- | ------- | -------- |  | -------- | ------- |  |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                      |  |          |         |          |  |         |         | Fair Value |  |         |         |          |  |         
|                      |  |          |         |          |  |         |         | as of      |  |         |         |          |  |         
|                      |  |          |         |          |  |         |         | March 30,  |  |         |         |          |  |         
|(In thousands)        |  | +150 bps |         | +100 bps |  | +50 bps |         | 2002       |  | -50 bps |         | -100 bps |  | -150 bps
|                      |  |          |         |          |  |         |         |            |  |         |         |          |  |         
|Financial Instruments |  | $        | 139,601 |          |  | $       | 140,216 |            |  | $       | 140,840 |          |  | $        | 141,476 |  |  | $ | 142,102 |   |  | $ | 142,728 |   |  | $ | 143,387 |  
|% Change              |  |          | (1.33   | )%       |  |         | (0.89   | )%         |  |         | (0.45   | )%       |  |          |         |  |  |   | 0.44    | % |  |   | 0.88    | % |  |   | 1.35    | %

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

|                             |  |                                |       |           |  |                                |       |            |  |   |       |    |  |   |       |  |  |   |       |   |  |   |       |   |  |   |       |  
|---------------------------- |  | ------------------------------ | ----- | --------- |  | ------------------------------ | ----- | ---------- |  | - | ----- | -- |  | - | ----- |  |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                             |  |                                |       |           |  |                                |       | Fair Value |  |   |       |    |  |  
|                             |  |                                |       | as of     |  |                               
|                             |  | Valuation of Security Given X% |       | March 30, |  | Valuation of Security Given X%
|(In thousands)               |  | Decrease in the Security Price |       | 2002      |  | Increase in the Security Price
|                             |  |                                |       |           |  |                               
|                             |  |                                |       |           |  |                                |       |            |  |   |       |    |  |  
|Corporate equity investments |  | $                              | 3,196 |           |  | $                              | 4,794 |            |  | $ | 5,433 |    |  | $ | 6,391 |  |  | $ | 7,350 |   |  | $ | 7,989 |   |  | $ | 9,587 |  
|% Change                     |  |                                | (50   | )%        |  |                                | (25   | )%         |  |   | (15   | )% |  |   |       |  |  |   | 15    | % |  |   | 25    | % |  |   | 50    | %

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PART II.     OTHER
INFORMATION




Item 1.     Legal
Proceedings

Prior to our acquisition of the Quantum HDD
business, we, on the one hand, and Quantum and MKE, on the other
hand, were sued by Papst Licensing, GmbH, a German corporation,
for infringement of a number of patents that relate to hard disk
drives. Papsts complaint against Quantum and MKE was filed
on July 30, 1998, and Papsts complaint against Maxtor
was filed on March 18, 1999. Both lawsuits, filed in the
United States District Court for the Northern District of
California, were transferred by the Judicial Panel on
Multidistrict Litigation to the United States District Court for
the Eastern District of Louisiana for coordinated pre-trial
proceedings with several other pending litigations involving the
Papst patents. The matters will be transferred back to the
District Court for the Northern District of California for
trial. Papsts infringement allegations are based on
spindle motors that Maxtor and Quantum purchased from third
party motor vendors, including MKE, and the use of such spindle
motors in hard disk drives. Maxtor purchased the overwhelming
majority of the spindle motors used in our hard disk drives from
vendors that were licensed under the Papst patents. Quantum
purchased many spindle motors used in its hard disk drives from
vendors that were not licensed under the Papst patents,
including MKE. As a result of our acquisition of the Quantum HDD
business, we assumed Quantums potential liabilities to
Papst arising from the patent infringement allegations Papst
asserted against Quantum. Papst and MKE recently entered into an
agreement to settle Papsts pending patent infringement
claims against MKE. That agreement includes a license of the
Papst patents to MKE which might provide Quantum, and thus us,
with additional defenses to Papsts patent infringement
claims.

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. Management believes that it has
valid defenses to the claims of Papst and is defending this
matter vigorously.

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. On March 7, 2002, this matter was
finally and fully settled on terms favorable to Maxtor. A
dismissal with prejudice was entered on March 13, 2002.




Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits.

None

(b) Reports on Form 8-K.

None

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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: May 13, 2002

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