##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-Q



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|                                         |  |                                                                                           
|---------------------------------------- |  | ------------------------------------------------------------------------------------------
|(Mark one)                               |  |                                                                                           
|                                        
|þ                                        |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                        
|For the period ended September 29,
	2001
|                                        
|or                                      
|                                        
|o                                        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
|                                        
|                                         |  | For the transition period from
	          to                                              

Commission file Number: 0-14016

Maxtor Corporation

(Exact name of registrant as specified in its
charter)


|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                        |  | 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 
þ
          No 
 o

As of November 7, 2001, 239,799,343 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                                          
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                                      
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OF COMPREHENSIVE INCOME
|                              |                                                                                               | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY                            
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                            
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                       
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|                              | SIGNATURES                                                                                   
|                              | EXHIBIT INDEX                                                                                
|EXHIBIT 10.1                 
|EXHIBIT 10.2                 
|EXHIBIT 10.3                 
|EXHIBIT 10.4                 
|EXHIBIT 10.5                 



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##### Table of Contents



MAXTOR CORPORATION

FORM 10-Q

September 29, 2001


INDEX

|                                |  |                                                                                                                                                        |    |      |    | 
|------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|                                |  |                                                                                                                                                        |    | Page
|                                |  |                                                                                                                                                        |    |     
|PART I.  FINANCIAL
	INFORMATION
|Item  1.                        |  | Condensed Consolidated Financial Statements                                                                                                            |    |      | 2  | 
|                                |  | Condensed Consolidated Balance Sheets 
	September 29, 2001, and December 30, 2000                                                                     |    |      | 2  | 
|                                |  | Condensed Consolidated Statements of Operations
	and of Comprehensive Income  Three and nine months
	ended September 29, 2001, and September 30, 2000 |    |      | 3  | 
|                                |  | Condensed Consolidated Statements of
	Stockholders Equity  Nine months ended
	September 29, 2001                                                     |    |      | 4  | 
|                                |  | Condensed Consolidated Statements of Cash
	Flows  Nine months ended September 29, 2001, and
	September 30, 2000                                       |    |      | 5  | 
|                                |  | Notes to Condensed Consolidated Financial
	Statements                                                                                                  |    |      | 6  | 
|Item  2.                        |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations                                                                 |    |      | 20 | 
|Item  3.                        |  | Quantitative and Qualitative Disclosures about
	Market Risk                                                                                            |    |      | 39 | 
|PART II.  OTHER
	INFORMATION   
|Item  1.                        |  | Legal Proceedings                                                                                                                                      |    |      | 40 | 
|Item  6.                        |  | Exhibits and Reports on Form 8-K                                                                                                                       |    |      | 41 | 
|Signature Page                  |  |                                                                                                                                                        | 42 |     

1



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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)


|                                          |                                                                                                                                                                                                     |                                            |            |              |           |  |           |         |           | 
|----------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------------ | --------- |  | --------- | ------- | --------- | 
|                                          |                                                                                                                                                                                                     | September 29,                              |            | December 30,
|                                          |                                                                                                                                                                                                     | 2001                                       |            | 2000        
|                                          |                                                                                                                                                                                                     |                                            |            |             
|ASSETS                                   
|Current assets:                           |                                                                                                                                                                                                     |                                            |            |              |           |  |           |        
|                                          | Cash and cash equivalents                                                                                                                                                                           |                                            | $          | 375,014      |           |  | $         | 193,228 |          
|                                          | Restricted cash                                                                                                                                                                                     |                                            |            | 98,594       |           |  |           |        |          
|                                          | Marketable securities                                                                                                                                                                               |                                            |            | 171,477      |           |  |           | 182,949 |          
|                                          | Accounts receivable, net of allowance for
	doubtful accounts $19,060 at September 29, 2001 and $15,148
	at December 30, 2000                                                                        |                                            |            | 328,696      |           |  |           | 284,253 |          
|                                          | Inventories, net                                                                                                                                                                                    |                                            |            | 236,228      |           |  |           | 106,405 |          
|                                          | Prepaid expenses and other                                                                                                                                                                          |                                            |            | 64,917       |           |  |           | 34,577  |          
|                                          |                                                                                                                                                                                                     |                                            |            |              |           |  |           |        
|                                          |                                                                                                                                                                                                     | Total current assets                       |            |              | 1,274,926 |  |           |         | 801,412   | 
|Property, plant and equipment, net        |                                                                                                                                                                                                     |                                            | 387,391    |              |           |  | 165,926   |        
|Goodwill and other intangible assets, net |                                                                                                                                                                                                     |                                            | 987,317    |              |           |  | 44,237    |        
|Other assets                              |                                                                                                                                                                                                     |                                            | 28,245     |              |           |  | 13,344    |        
|                                          |                                                                                                                                                                                                     |                                            |            |              |           |  |           |        
|                                          |                                                                                                                                                                                                     | Total assets                               |            | $            | 2,677,879 |  |           | $       | 1,024,919 | 
|                                          |                                                                                                                                                                                                     |                                            |            |              |           |  |           |        
|LIABILITIES AND STOCKHOLDERS
	EQUITY    
|Current liabilities:                      |                                                                                                                                                                                                     |                                            |            |              |           |  |           |        
|                                          | Short-term borrowings, including current portion
	of long-term debt                                                                                                                                 |                                            | $          | 46,046       |           |  | $         | 15,432  |          
|                                          | Accounts payable                                                                                                                                                                                    |                                            |            | 539,647      |           |  |           | 421,338 |          
|                                          | Accrued and other liabilities                                                                                                                                                                       |                                            |            | 420,639      |           |  |           | 192,152 |          
|                                          |                                                                                                                                                                                                     |                                            |            |              |           |  |           |        
|                                          |                                                                                                                                                                                                     | Total current liabilities                  |            |              | 1,006,332 |  |           |         | 628,922   | 
|Deferred taxes                            |                                                                                                                                                                                                     |                                            | 196,218    |              |           |  |          |        
|Long-term debt, net of current portion    |                                                                                                                                                                                                     |                                            | 253,429    |              |           |  | 92,259    |        
|Other liabilities                         |                                                                                                                                                                                                     |                                            | 144,806    |              |           |  |          |        
|                                          |                                                                                                                                                                                                     |                                            |            |              |           |  |           |        
|                                          |                                                                                                                                                                                                     | Total liabilities                          |            |              | 1,600,785 |  |           |         | 721,181   | 
|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; 241,175,987 shares issued and outstanding at
	September 29, 2001 and 116,205,270 shares issued and
	outstanding at December 30, 2000 |                                            |            | 2,412        |           |  |           | 1,162   |          
|Additional paid-in capital                |                                                                                                                                                                                                     |                                            | 2,321,314  |              |           |  | 1,059,899 |        
|Deferred compensation                     |                                                                                                                                                                                                     |                                            | (6,163     | )            |           |  |          |        
|Accumulated deficit                       |                                                                                                                                                                                                     |                                            | (1,244,282 | )            |           |  | (760,126  | )      
|Cumulative other comprehensive income     |                                                                                                                                                                                                     |                                            | 3,813      |              |           |  | 2,803     |        
|                                          |                                                                                                                                                                                                     |                                            |            |              |           |  |           |        
|                                          |                                                                                                                                                                                                     | Total stockholders equity                 |            |              | 1,077,094 |  |           |         | 303,738   | 
|                                          |                                                                                                                                                                                                     |                                            |            |              |           |  |           |        
|                                          |                                                                                                                                                                                                     | Total liabilities and stockholders equity |            | $            | 2,677,879 |  |           | $       | 1,024,919 | 
|                                          |                                                                                                                                                                                                     |                                            |            |              |           |  |           |        

See accompanying notes to condensed consolidated
financial statements.

2



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##### Table of Contents



MAXTOR CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


AND OF COMPREHENSIVE INCOME


(In thousands except share and per share
amounts)


|                                                                        |                                                       |                          |           |                   |         |               |         |               |        |   |           |             |         |   |           |             |         | 
|----------------------------------------------------------------------- | ----------------------------------------------------- | ------------------------ | --------- | ----------------- | ------- | ------------- | ------- | ------------- | ------ | - | --------- | ----------- | ------- | - | --------- | ----------- | ------- | 
|                                                                        |                                                       |                          |           |                  
|                                                                        |                                                       | Three Months Ended       |           | Nine Months Ended
|                                                                        |                                                       |                          |           |                  
|                                                                        |                                                       | September 29,            |           | September 30,     |         | September 29, |         | September 30,
|                                                                        |                                                       | 2001                     |           | 2000              |         | 2001          |         | 2000         
|                                                                        |                                                       |                          |           |                   |         |               |         |              
|Net Revenues                                                            |                                                       | $                        | 1,045,020 |                   |         | $             | 619,314 |               |        | $ | 2,717,408 |             |         | $ | 1,977,674 |            
|Cost of revenues                                                        |                                                       |                          | 963,931   |                   |         |               | 556,379 |               |        |   | 2,469,366 |             |         |   | 1,706,592 |            
|                                                                        |                                                       |                          |           |                   |         |               |         |               |        |   |           |             |         |   |           |            
|                                                                        | Gross profit                                          |                          |           | 81,089            |         |               |         | 62,935        |        |   |           | 248,042     |         |   |           | 271,082     |        
|Operating expenses:                                                     |                                                       |                          |           |                   |         |               |         |               |        |   |           |             |         |   |           |            
|                                                                        | Research and development                              |                          |           | 124,497           |         |               |         | 54,851        |        |   |           | 322,748     |         |   |           | 171,411     |        
|                                                                        | Selling, general and administrative                   |                          |           | 53,607            |         |               |         | 23,269        |        |   |           | 188,992     |         |   |           | 75,264      |        
|                                                                        | Amortization of goodwill and other intangible
	assets |                          |           | 63,265            |         |               |         | 2,520         |        |   |           | 127,671     |         |   |           | 7,560       |        
|                                                                        | Purchased in-process research and development         |                          |           | 400               |         |               |         |              |        |   |           | 95,140      |         |   |           |            |        
|                                                                        |                                                       |                          |           |                   |         |               |         |               |        |   |           |             |         |   |           |            
|                                                                        |                                                       | Total operating expenses |           |                   | 241,769 |               |         |               | 80,640 |   |           |             | 734,551 |   |           |             | 254,235 | 
|                                                                        |                                                       |                          |           |                   |         |               |         |               |        |   |           |             |         |   |           |            
|Income (loss) from operations                                           |                                                       |                          | (160,680  | )                 |         |               | (17,705 | )             |        |   | (486,509  | )           |         |   | 16,847    |            
|Interest expense                                                        |                                                       |                          | (6,188    | )                 |         |               | (3,435  | )             |        |   | (14,659   | )           |         |   | (10,405   | )          
|Interest and other income                                               |                                                       |                          | 2,784     |                   |         |               | 6,410   |               |        |   | 20,569    |             |         |   | 21,765    |            
|Other loss                                                              |                                                       |                          | (503      | )                 |         |               |        |               |        |   | (1,109    | )           |         |   |          |            
|                                                                        |                                                       |                          |           |                   |         |               |         |               |        |   |           |             |         |   |           |            
|Income (loss) before provision for income
	taxes                        |                                                       |                          | (164,587  | )                 |         |               | (14,730 | )             |        |   | (481,708  | )           |         |   | 28,207    |            
|Provision for (benefit from) income taxes                               |                                                       |                          | 1,140     |                   |         |               | (737    | )             |        |   | 2,448     |             |         |   | 1,410     |            
|                                                                        |                                                       |                          |           |                   |         |               |         |               |        |   |           |             |         |   |           |            
|Net income (loss)                                                       |                                                       |                          | (165,727  | )                 |         |               | (13,993 | )             |        |   | (484,156  | )           |         |   | 26,797    |            
|Unrealized gain (loss) on investments in
	equity securities, net of tax |                                                       |                          | 1,613     |                   |         |               | (2,700  | )             |        |   | 1,010     |             |         |   | 2,169     |            
|                                                                        |                                                       |                          |           |                   |         |               |         |               |        |   |           |             |         |   |           |            
|Comprehensive income (loss)                                             |                                                       | $                        | (164,114  | )                 |         | $             | (16,693 | )             |        | $ | (483,146  | )           |         | $ | 28,966    |            
|                                                                        |                                                       |                          |           |                   |         |               |         |               |        |   |           |             |         |   |           |            
|Net income (loss) per share  basic                                     |                                                       | $                        | (0.69     | )                 |         | $             | (0.12   | )             |        | $ | (2.46     | )           |         | $ | 0.23      |            
|Net income (loss) per share 
	diluted                                  |                                                       | $                        | (0.69     | )                 |         | $             | (0.12   | )             |        | $ | (2.46     | )           |         | $ | 0.22      |            
|Shares used in per share calculation                                    |                                                       |                          |           |                   |         |               |         |               |        |   |           |             |         |   |           |            
|                                                                        |  basic                                               |                          |           | 238,629,903       |         |               |         | 115,709,525   |        |   |           | 196,829,537 |         |   |           | 114,906,927 |        
|                                                                        |  diluted                                             |                          |           | 238,629,903       |         |               |         | 115,709,525   |        |   |           | 196,829,537 |         |   |           | 119,156,289 |        

See accompanying notes to condensed consolidated
financial statements.

3



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##### Table of Contents



MAXTOR CORPORATION






CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


(In thousands except share amounts)


|                            |                                                                |              |             |             |  |          |       |              |  |               |           |               |  |        |        |        |   |   |            |          |   |   |       |       |  |   |           |           |  
|--------------------------- | -------------------------------------------------------------- | ------------ | ----------- | ----------- |  | -------- | ----- | ------------ |  | ------------- | --------- | ------------- |  | ------ | ------ | ------ | - | - | ---------- | -------- | - | - | ----- | ----- |  | - | --------- | --------- | -
|                            |                                                                |              |             |             |  |          |       |              |  | Cumulative    |           |              
|                            |                                                                | Common Stock |             | Additional  |  |          |       |              |  | Other         |           | Total        
|                            |                                                                |              |             | Paid-In     |  | Deferred |       | Accumulated  |  | Comprehensive |           | Stockholders
|                            |                                                                | Shares       |             | Amount      |  | Capital  |       | Compensation |  | Deficit       |           | Income        |  | Equity
|                            |                                                                |              |             |             |  |          |       |              |  |               |           |               |  |       
|Balance, December 30, 2000  |                                                                |              | 116,205,270 |             |  | $        | 1,162 |              |  | $             | 1,059,899 |               |  | $      |       |        |   | $ | (760,126   | )        |   | $ | 2,803 |       |  | $ | 303,738   |          
|                            | Issuance of stock under stock option plan                      |              |             | 3,940,245   |  |          |       | 39           |  |               |           | 19,610        |  |        |        |       |   |   |            |         |   |   |       |      |  |   |           | 19,649    |  
|                            | Issuance of stock relating to Quantum HDD
	acquisition         |              |             | 121,030,472 |  |          |       | 1,211        |  |               |           | 1,229,466     |  |        |        |       |   |   |            |         |   |   |       |      |  |   |           | 1,230,677 |  
|                            | Deferred compensation relating to
	Quantum HDD acquisition     |              |             |            |  |          |       |             |  |               |           | 9,920         |  |        |        | (9,920 | ) |   |            |         |   |   |       |      |  |   |           |          |  
|                            | Stock compensation                                             |              |             |            |  |          |       |             |  |               |           | 2,419         |  |        |        | 3,757  |   |   |            |         |   |   |       |      |  |   |           | 6,176     |  
|                            | Change in unrealized gain on investments in
	equity securities |              |             |            |  |          |       |             |  |               |           |              |  |        |        |       |   |   |            |         |   |   |       | 1,010 |  |   |           | 1,010     |  
|                            | Net loss                                                       |              |             |            |  |          |       |             |  |               |           |              |  |        |        |       |   |   |            | (484,156 | ) |   |       |      |  |   |           | (484,156  | )
|                            |                                                                |              |             |             |  |          |       |              |  |               |           |               |  |        |        |        |   |   |            |          |   |   |       |       |  |   |           |          
|Balance, September 29, 2001 |                                                                |              | 241,175,987 |             |  | $        | 2,412 |              |  | $             | 2,321,314 |               |  | $      | (6,163 | )      |   | $ | (1,244,282 | )        |   | $ | 3,813 |       |  | $ | 1,077,094 |          
|                            |                                                                |              |             |             |  |          |       |              |  |               |           |               |  |        |        |        |   |   |            |          |   |   |       |       |  |   |           |          

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##### Table of Contents



MAXTOR CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


|                                                                                                      |                                                                                 |                                   |                                                      |               |          |         |          |        |         |          |  
|----------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | --------------------------------- | ---------------------------------------------------- | ------------- | -------- | ------- | -------- | ------ | ------- | -------- | -
|                                                                                                      |                                                                                 |                                  
|                                                                                                      |                                                                                 | Nine Months Ended                
|                                                                                                      |                                                                                 |                                  
|                                                                                                      |                                                                                 | September 29,                     |                                                      | September 30,
|                                                                                                      |                                                                                 | 2001                              |                                                      | 2000         
|                                                                                                      |                                                                                 |                                   |                                                      |              
|Cash Flows from Operating
	Activities:                                                                |                                                                                 |                                   |                                                      |               |          |         |          |       
|Net income (loss)                                                                                     |                                                                                 | $                                 | (484,156                                             | )             |          | $       | 26,797   |       
|Adjustments to reconcile net income
	(loss) to net cash provided by (used in) operating
	activities:  |                                                                                 |                                   |                                                      |               |          |         |          |       
|                                                                                                      | Depreciation and amortization                                                   |                                   |                                                      | 91,423        |          |         |          | 59,861 |        
|                                                                                                      | Amortization of goodwill and other intangible
	assets                           |                                   |                                                      | 127,661       |          |         |          | 7,560  |        
|                                                                                                      | Amortization of deferred compensation related to
	Quantum DSS restricted shares |                                   |                                                      | 33,467        |          |         |          |       |        
|                                                                                                      | Purchased in-process research and development                                   |                                   |                                                      | 95,140        |          |         |          |       |        
|                                                                                                      | Stock compensation expense                                                      |                                   |                                                      | 6,175         |          |         |          | 3,762  |        
|                                                                                                      | Loss on sale of property, plant and equipment and
	other assets                 |                                   |                                                      | (104          | )        |         |          | 2,255  |        
|                                                                                                      | Gain on retirement of bond                                                      |                                   |                                                      | (857          | )        |         |          |       |        
|                                                                                                      | Change in assets and liabilities:                                               |                                   |                                                      |               |          |         |          |        |        
|                                                                                                      |                                                                                 | Accounts receivable               |                                                      |               | 203,731  |         |          |        | (36,859 | )       
|                                                                                                      |                                                                                 | Inventories                       |                                                      |               | 76,080   |         |          |        | (3,480  | )       
|                                                                                                      |                                                                                 | Prepaid expenses and other assets |                                                      |               | 63,291   |         |          |        | (3,267  | )       
|                                                                                                      |                                                                                 | Accounts payable                  |                                                      |               | (145,566 | )       |          |        | 3,451   |         
|                                                                                                      |                                                                                 | Accrued and other liabilities     |                                                      |               | (70,432  | )       |          |        | 22,738  |         
|                                                                                                      |                                                                                 |                                   |                                                      |               |          |         |          |       
|                                                                                                      |                                                                                 |                                   | Net cash provided by (used in) operating
	activities |               |          | (4,147  | )        |        |         | 82,818   |  
|                                                                                                      |                                                                                 |                                   |                                                      |               |          |         |          |       
|Cash Flows from Investing
	Activities:                                                                |                                                                                 |                                   |                                                      |               |          |         |          |       
|Proceeds from sale of property, plant and
	equipment                                                  |                                                                                 |                                   | 183                                                  |               |          |         | 174      |       
|Purchase of property, plant and equipment                                                             |                                                                                 |                                   | (101,212                                             | )             |          |         | (89,358  | )     
|Cash acquired from acquisitions, net of merger
	related expenses                                      |                                                                                 |                                   | 374,692                                              |               |          |         |         |       
|Restricted cash acquired from acquisition                                                             |                                                                                 |                                   | (98,594                                              | )             |          |         |         |       
|Purchase of marketable securities                                                                     |                                                                                 |                                   | (125,000                                             | )             |          |         | (231,777 | )     
|Proceeds from marketable securities                                                                   |                                                                                 |                                   | 139,478                                              |               |          |         | 148,960  |       
|                                                                                                      |                                                                                 |                                   |                                                      |               |          |         |          |       
|                                                                                                      |                                                                                 |                                   | Net cash provided by (used in) investing
	activities |               |          | 189,547 |          |        |         | (172,001 | )
|                                                                                                      |                                                                                 |                                   |                                                      |               |          |         |          |       
|Cash Flows from Financing
	Activities:                                                                |                                                                                 |                                   |                                                      |               |          |         |          |       
|Principal payments of debt, including short-term
	borrowings                                          |                                                                                 |                                   | (16,034                                              | )             |          |         | (7,527   | )     
|Proceeds from issuance of common stock from
	employee stock purchase plan and stock options exercised |                                                                                 |                                   | 12,420                                               |               |          |         | 10,981   |       
|                                                                                                      |                                                                                 |                                   |                                                      |               |          |         |          |       
|                                                                                                      |                                                                                 |                                   | Net cash provided by (used in) financing
	activities |               |          | (3,614  | )        |        |         | 3,454    |  
|                                                                                                      |                                                                                 |                                   |                                                      |               |          |         |          |       
|Net change in cash and cash equivalents                                                               |                                                                                 |                                   | 181,786                                              |               |          |         | (85,729  | )     
|Cash and cash equivalents at beginning of period                                                      |                                                                                 |                                   | 193,228                                              |               |          |         | 240,357  |       
|                                                                                                      |                                                                                 |                                   |                                                      |               |          |         |          |       
|Cash and cash equivalents at end of period                                                            |                                                                                 | $                                 | 375,014                                              |               |          | $       | 154,628  |       
|                                                                                                      |                                                                                 |                                   |                                                      |               |          |         |          |       
|Supplemental Disclosures of Cash Flow
	Information:                                                   |                                                                                 |                                   |                                                      |               |          |         |          |       
|                                                                                                      | Cash paid during the period for:                                                |                                   |                                                      |               |          |         |          |        |        
|                                                                                                      |                                                                                 | Interest                          |                                                      | $             | 16,379   |         |          | $      | 12,766  |         
|                                                                                                      |                                                                                 | Income taxes                      |                                                      | $             | 646      |         |          | $      | 652     |         
|Schedule of Non-Cash Investing and Financing
	Activities:                                             |                                                                                 |                                   |                                                      |               |          |         |          |       
|                                                                                                      | Purchase of property, plant and equipment
	financed by accounts payable         |                                   | $                                                    | 12,747        |          |         | $        | 23,549 |        
|                                                                                                      | Retirement of debt in exchange for bond redemption                              |                                   | $                                                    | 5,000         |          |         | $        | 5,000  |        
|                                                                                                      | Value of shares issued in Quantum HDD acquisition                               |                                   | $                                                    | 1,240,597     |          |         | $        |       |        
|                                                                                                      | Net receivables forgiven for MMC Technology Inc.
	acquisition                   |                                   | $                                                    | 16,001        |          |         | $        |       |        

See accompanying notes to condensed consolidated
financial statements.

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MAXTOR CORPORATION






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


1.     Condensed
Consolidated Financial Statements

The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. The
consolidated financial statements include the accounts of Maxtor
Corporation (Maxtor or the Company) and
its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. All
adjustments of a normal recurring nature which, in the opinion
of management, are necessary for a fair statement of the results
for the interim periods have been made. It is recommended that
the interim financial statements be read in conjunction with the
Companys audited consolidated financial statements and
notes thereto for the fiscal year ended December 30, 2000
incorporated in the Companys Annual Report on
Form 10-K. Interim results are not necessarily indicative
of the operating results expected for later quarters or the full
fiscal year.

2.     Quantum HDD
Acquisition

On April 2, 2001, Maxtor completed the
business combination transaction with the hard disk drive
business of Quantum Corporation (Quantum HDD). The
merger was approved by the stockholders of both companies on
March 30, 2001. The merger was accounted for as a purchase.
As of the effective time of the merger, each share of Quantum
HDD common stock was converted into 1.52 shares of Maxtor common
stock, and each outstanding Quantum HDD option assumed by Maxtor
was converted into an option to purchase Maxtor common stock,
with appropriate adjustment to the exercise price and share
numbers in accordance with the exchange ratio.

As a result of the merger, Maxtor issued
121.0 million shares of Maxtor common stock and assumed
options to purchase 12.8 million shares of Maxtor common
stock.

The total purchase price and preliminary purchase
price allocation of the Quantum HDD merger was 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 | 
|                                  |                   |                      |         |     

6



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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Preliminary Purchase Price Allocation (in
millions):

|                                    |                                           |                           |       |       |  |  |        |       |         |  
|----------------------------------- | ----------------------------------------- | ------------------------- | ----- | ----- |  |  | ------ | ----- | ------- | -
|Tangible assets:                    |                                           |                           |       |       |  |  |        |      
|                                    | Cash and cash equivalents                 |                           | $     | 315.3 |  |  |        |       |        
|                                    | Restricted cash                           |                           |       | 93.9  |  |  |        |       |        
|                                    | Accounts receivable                       |                           |       | 247.3 |  |  |        |       |        
|                                    | Inventories                               |                           |       | 181.7 |  |  |        |       |        
|                                    | Prepaid expenses and other current assets |                           |       | 124.6 |  |  |        |       |        
|                                    | Property, plant and equipment             |                           |       | 129.8 |  |  |        |       |        
|                                    | Other noncurrent assets                   |                           |       | 28.3  |  |  |        |       |        
|                                    |                                           |                           |       |       |  |  |        |      
|                                    |                                           | Total tangible assets     |       |       |  |  |        | $     | 1,120.9 |  
|                                    |                                           |                           |       |       |  |  |        |      
|Intangible assets acquired:         |                                           |                           |       |       |  |  |        |      
|                                    | Core and other existing technology        |                           |       |       |  |  |        | 286.1 |        
|                                    | Assembled workforce                       |                           |       |       |  |  |        | 43.0  |        
|Deferred compensation               |                                           |                           |       |       |  |  | 9.9    |      
|Goodwill                            |                                           |                           |       |       |  |  | 716.0  |      
|In-process research and development |                                           |                           |       |       |  |  | 94.7   |      
|Liabilities assumed:                |                                           |                           |       |       |  |  |        |      
|                                    | Accounts payable                          |                           |       | 231.4 |  |  |        |       |        
|                                    | Accruals and other liabilities            |                           |       | 195.4 |  |  |        |       |        
|                                    | Deferred taxes                            |                           |       | 196.2 |  |  |        |       |        
|Long-term debt                      |                                           |                           | 132.4 |       |  |  |        |      
|Other long-term liabilities         |                                           |                           | 142.0 |       |  |  |        |      
|                                    |                                           |                           |       |       |  |  |        |      
|                                    |                                           | Total liabilities assumed |       |       |  |  |        |       | (897.4  | )
|                                    |                                           |                           |       |       |  |  |        |      
|Merger-related restructuring costs  |                                           |                           |       |       |  |  | (103.8 | )    
|                                    |                                           |                           |       |       |  |  |        |      
|                                    |                                           | Total purchase price      |       |       |  |  |        | $     | 1,269.4 |  
|                                    |                                           |                           |       |       |  |  |        |      

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

Under purchase accounting rules, the Company
recorded $26.5 million for estimated severance pay
associated with termination of approximately 700 employees
in the United States. In addition, during the three months ended
June 30, 2001, the Company expensed and paid in cash
$25.5 million for severance pay associated with termination
of approximately 600 Quantum Corporation (Quantum)
employees. As a result, the total severance cost amounted to
$52.0 million and the total number of terminated employees,
including Quantum transitional employees was approximately
1,300. Under purchase accounting rules, the Company also
recorded liabilities that include $64.6 million for
estimated facility exit costs for the closure of certain
Quantum HDD offices and research and development facilities
located in Milpitas, California, and $12.7 million for
certain non-cancelable adverse inventory and other purchase
commitments. In the nine months ended September 29, 2001,
the Company paid $25.5 million and $6.5 million related to
severance pay in the second and third quarters of fiscal year
2001, respectively. The Company also paid $12.7 million
related to certain non-cancelable adverse inventory and other
purchase commitments in the nine months ended September 29,
2001. The remainder of the severance accrual is expected to be
paid during the fourth quarter of fiscal year 2001. The Company
has not paid any amounts related to the estimated facility exit
costs. The Company expects to pay these amounts starting in the
first quarter of fiscal year 2002.

7



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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


A portion of the purchase price has been
allocated to developed technology and acquired in-process
research and development. Developed technology and in-process
research and development were identified and valued through
analysis of data provided by Quantum HDD concerning
developmental products, their stage of development, the time and
resources needed to complete them, if applicable, their expected
income generating ability, target markets and associated risks.
The income approach, which includes an analysis of the markets,
cash flows and risks associated with achieving such cash flows,
was the primary technique utilized in valuing the developed
technology and in-process research and development. Where
developmental projects had reached technological feasibility,
they were classified as developed technology, and the value
assigned to developed technology was capitalized. Where the
developmental projects had not reached technological feasibility
and had no future alternative uses, they were classified as
in-process research and development and were charged to expense
upon closing of the merger.

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

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

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

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

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

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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


The value assigned to in-process research and
development was determined by considering the importance of each
project to the overall development plan, estimating costs to
develop the purchased in-process research and development into
commercially viable products, estimating the resulting net cash
flows from the projects when completed and discounting the net
cash flows to their present value. The revenue estimates used to
value the purchased in-process research and development were
based on estimates of relevant market sizes and growth factors,
expected trends in technology and the nature and expected timing
of new product introductions by Quantum HDD and its
competitors. The rates utilized to discount the net cash flows
to their present value are based on Quantum HDD weighted average
cost of capital. Given the nature of the risks associated with
the difficulties and uncertainties in completing each project
and thereby achieving technological feasibility, anticipated
market acceptance and penetration, market growth rates and risks
related to the impact of potential changes in future target
markets, the weighted average cost of capital was adjusted.
Based on these factors, a discount rate of 23% for High-end and
Desktop and other identified projects and a discount rate of 28%
for Core Technology and Self Servo-Writer Technology were deemed
appropriate. The estimates used in valuing in-process research
and development were based upon assumptions believed to be
reasonable but which are inherently uncertain and unpredictable.
The assumptions may be incomplete or inaccurate, and no
assurance can be given that unanticipated events and
circumstances will not occur. Accordingly, actual results may
vary from the projected results. Following were the estimated
completion percentages with respect to the research and
development efforts and technology lives at the close of the
Quantum HDD acquisition:

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

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

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

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

The acquired assembled workforce was composed of
approximately 1,650 skilled employees across Quantum
HDDs Executive, Research and Development, Manufacturing,
Supervisor/ Manager, and Sales and Marketing groups. The Company
is currently amortizing the value assigned to the assembled
workforce of $43 million on a straight-line basis over an
estimated remaining useful life of three years. The Company will
adopt Statements of Financial Accounting Standards No. 142
(SFAS 142) effective December 30, 2001,
which will result in the Company no longer amortizing its
existing acquired assembled workforce and reclassifying the
balance to goodwill.

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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Goodwill, which represents the excess of the
purchase price of an investment in an acquired business over the
fair value of the underlying net identifiable assets, is
currently being amortized on a straight-line basis over its
estimated remaining useful life of five years. The Company will
adopt SFAS 142 effective December 30, 2001, which will
result in the Company no longer amortizing its existing goodwill.

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

|                                   |  |                           |         |               |  |   |         |  
|---------------------------------- |  | ------------------------- | ------- | ------------- |  | - | ------- | -
|                                   |  |                          
|                                   |  | For the Nine Months Ended
|                                   |  |                          
|                                   |  | September 29,             |         | September 30,
|                                   |  | 2001                      |         | 2000         
|                                   |  |                           |         |              
|                                   |  |                          
|                                   |  | (In millions, except     
|                                   |  | per share data)          
|Revenue                            |  | $                         | 3,368.0 |               |  | $ | 4,566.9 |  
|Net loss                           |  | $                         | (471.5  | )             |  | $ | (155.7  | )
|Loss per share  basic and diluted |  | $                         | (1.98   | )             |  | $ | (0.67   | )

3.     MMC
Technology, Inc. Acquisition

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 an assured source
of supply of media. The acquisition has been 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 transaction costs. In connection with the
acquisition, the Company has also assumed liabilities of
$105.7 million. Included in this amount is
$7.3 million owed by MMC to Hynix which is non-interest
bearing through March 31, 2002, and any balance remaining
thereafter bears interest at nine percent. 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 preliminary
purchase price allocation of the MMC acquisition was 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 | 
|                                  |                      |   |      |     

10



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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Preliminary Purchase Price Allocation (in
millions):

|                                    |                                    |                           |  |      |  |  |      |   |        |  
|----------------------------------- | ---------------------------------- | ------------------------- |  | ---- |  |  | ---- | - | ------ | -
|                                    |                                    | Total tangible assets     |  |      |  |  |      | $ | 97.7   |  
|Existing technology                 |                                    |                           |  |      |  |  | 2.8  |  
|Goodwill                            |                                    |                           |  |      |  |  | 22.8 |  
|In-process research and development |                                    |                           |  |      |  |  | 0.4  |  
|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   |  
|                                    |                                    |                           |  |      |  |  |      |  

The purchase price allocation is preliminary as
the Company is currently evaluating various matters related to
the acquisition, including other accrued expenses.

A portion of the purchase price has been
allocated to developed technology and acquired in-process
research and development. Developed technology and in-process
research and development were identified and valued through
analysis of data provided by MMC concerning developmental
products, their stage of development, the time and resources
needed to complete them, if applicable, their expected
income-generating ability, target markets and associated risks.
The income approach, which includes an analysis of the markets,
cash flows and risks associated with achieving such cash flows,
was the primary technique utilized in valuing the developed
technology and in-process research and development. Where
developmental products had reached technological feasibility,
they were classified as developed technology, and the value
assigned to developed technology was capitalized. Where the
developmental projects had not reached technological feasibility
and had no future alternative uses, they were classified as
in-process research and development and were charged to expense
upon closing of the acquisition.

The value assigned to in-process research and
development was determined by considering the importance of each
project to the overall development plan, estimating costs to
develop the purchased in-process research and development into
commercially viable products, estimating the resulting net cash
flows from the projects when completed and discounting the net
cash flows to their present value. The revenue estimates used to
value the purchased in-process research and development were
based on estimates of relevant market sizes and growth factors,
expected trends in technology and the nature and expected timing
of new product introductions by MMC and its competitors. The
rates utilized to discount the net cash flows to their present
value were based on an average cost of capital of publicly
traded companies comparable to MMC. Given the nature of the
risks associated with the difficulties and uncertainties in
completing each project and thereby achieving technological
feasibility, anticipated market acceptance and penetration,
market growth rates and risks related to the impact of potential
changes in future target markets, the weighted average cost of
capital was adjusted. Based on these factors, an average
discount rate of 28.5% for the 80GB Project and the 120GB
Project was deemed appropriate. The estimates used in valuing
in-process research and development were based upon assumptions
believed to be reasonable but which are inherently uncertain and
unpredictable. The assumptions may be incomplete or inaccurate,
and no assurance can be given that unanticipated events and
circumstances will not occur. Accordingly, actual results may
vary from the projected results.

The allocation of revenue to existing and
in-process technology was based on the obsolescence rate for
mechanical and magnetic technology. MMCs acquired existing
technology and in-process research and development consisted of
magnetic, mechanical and process technology related primarily to
its 80GB and 120GB products. The development cycle for the
current research and development with respect to the 80GB

11



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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Program will continue, with the expected
completion dates in the third quarter of calendar year 2002. The
development cycle for the current research and development with
respect to the 120GB Program will continue, with expected
completion dates by the fourth quarter of calendar year 2003.
Following are the estimated completion percentages with respect
to the research and development efforts and technology lives:

|              |  |           |    |                 |  |  |         | 
|------------- |  | --------- | -- | --------------- |  |  | ------- | 
|              |  | Percent   |    | Expected       
|              |  | Completed |    | Technology Life
|              |  |           |    |                
|80GB Program  |  |           | 30 | %               |  |  | 5 years | 
|120GB Program |  |           | 5  | %               |  |  | 5 years | 

The Company is amortizing the acquired existing
technology of $2.8 million on a straight-line basis over an
estimated remaining useful life of five years.

Goodwill, which represents the excess of the
purchase price of an investment in an acquired business over the
fair value of the underlying net identifiable assets, is
reflected in the financial statements of the Company. In
accordance with SFAS 142, the Company is not amortizing the
amount of goodwill associated with the MMC acquisition. The
Company expects that none of the goodwill amount will be
deductible for tax purposes.

4.     Restricted
Cash

The Companys restricted cash balance of
$98.6 million at September 29, 2001, 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.     Inventories

|                                 |                 |               |         |              |  |   |         |        | 
|-------------------------------- | --------------- | ------------- | ------- | ------------ |  | - | ------- | ------ | 
|                                 |                 | September 29, |         | December 30,
|                                 |                 | 2001          |         | 2000        
|                                 |                 |               |         |             
|Inventories, net (in thousands): |                 |               |         |              |  |   |         |       
|                                 | Raw materials   |               | $       | 26,775       |  |   | $       | 34,164 | 
|                                 | Work-in-process |               |         | 7,308        |  |   |         | 8,352  | 
|                                 | Finished goods  |               |         | 202,145      |  |   |         | 63,889 | 
|                                 |                 |               |         |              |  |   |         |       
|                                 |                 | $             | 236,228 |              |  | $ | 106,405 |       
|                                 |                 |               |         |              |  |   |         |       

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

12



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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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

|                                                    |                      |                    |             |                   |   |               |             |               |   |   |             |       |   |   |             |           | 
|--------------------------------------------------- | -------------------- | ------------------ | ----------- | ----------------- | - | ------------- | ----------- | ------------- | - | - | ----------- | ----- | - | - | ----------- | --------- | 
|                                                    |                      |                    |             |                  
|                                                    |                      | Three Months Ended |             | Nine Months Ended
|                                                    |                      |                    |             |                  
|                                                    |                      | September 29,      |             | September 30,     |   | September 29, |             | September 30,
|                                                    |                      | 2001               |             | 2000              |   | 2001          |             | 2000         
|                                                    |                      |                    |             |                   |   |               |             |              
|Numerator  Basic and
	diluted                      |                      |                    |             |                   |   |               |             |               |   |   |             |       |   |   |             |          
|Net income (loss)                                   |                      | $                  | (165,727    | )                 |   | $             | (13,993     | )             |   | $ | (484,156    | )     |   | $ | 26,797      |          
|                                                    |                      |                    |             |                   |   |               |             |               |   |   |             |       |   |   |             |          
|Net income (loss) available to common
	stockholders |                      | $                  | (165,727    | )                 |   | $             | (13,993     | )             |   | $ | (484,156    | )     |   | $ | 26,797      |          
|                                                    |                      |                    |             |                   |   |               |             |               |   |   |             |       |   |   |             |          
|Denominator                                         |                      |                    |             |                   |   |               |             |               |   |   |             |       |   |   |             |          
|Basic weighted average common shares outstanding    |                      |                    | 238,629,903 |                   |   |               | 115,709,525 |               |   |   | 196,829,537 |       |   |   | 114,906,927 |          
|Effect of dilutive securities:                      |                      |                    |             |                   |   |               |             |               |   |   |             |       |   |   |             |          
|                                                    | Common stock options |                    |             |                  |   |               |             |              |   |   |             |      |   |   |             | 4,249,362 | 
|                                                    |                      |                    |             |                   |   |               |             |               |   |   |             |       |   |   |             |          
|Diluted weighted average common shares              |                      |                    | 238,629,903 |                   |   |               | 115,709,525 |               |   |   | 196,829,537 |       |   |   | 119,156,289 |          
|                                                    |                      |                    |             |                   |   |               |             |               |   |   |             |       |   |   |             |          
|Net income (loss) per share                         |                      |                    |             |                   |   |               |             |               |   |   |             |       |   |   |             |          
|                                                    | Basic                |                    | $           | (0.69             | ) |               | $           | (0.12         | ) |   | $           | (2.46 | ) |   | $           | 0.23      | 
|                                                    |                      |                    |             |                   |   |               |             |               |   |   |             |       |   |   |             |          
|                                                    | Diluted              |                    | $           | (0.69             | ) |               | $           | (0.12         | ) |   | $           | (2.46 | ) |   | $           | 0.22      | 
|                                                    |                      |                    |             |                   |   |               |             |               |   |   |             |       |   |   |             |          

The number of basic weighted average common
shares for the three and nine months ended September 29,
2001 does not include 1,541,240 contingently issuable shares and
3,309,144 shares as their effect would be anti-dilutive:

7.     Short-Term
Borrowings and Long-Term Debt:

|                                                                                                |  |                |         |              |  |   |         |  
|----------------------------------------------------------------------------------------------- |  | -------------- | ------- | ------------ |  | - | ------- | -
|                                                                                                |  | September 29,  |         | December 30,
|                                                                                                |  | 2001           |         | 2000        
|                                                                                                |  |                |         |             
|                                                                                                |  |               
|                                                                                                |  | (In thousands)
|5.75% Subordinated Debentures due March 1,
	2012                                                |  | $              | 75,885  |              |  | $ | 79,871  |  
|Economic Development Board of Singapore Loan
	due
	September 2003                               |  |                | 16,910  |              |  |   | 27,818  |  
|Pro rata portion of Quantum Corporations 7%
	Subordinated Convertible Notes due August 1, 2004 |  |                | 95,833  |              |  |   |        |  
|Mortgages                                                                                       |  |                | 37,237  |              |  |   |        |  
|Hynix Semiconductor America Inc. Note                                                           |  |                | 7,274   |              |  |   |        |  
|Equipment Loans and Capital Leases                                                              |  |                | 66,336  |              |  |   | 2       |  
|                                                                                                |  |                |         |              |  |   |         |  
|                                                                                                |  |                | 299,475 |              |  |   | 107,691 |  
|Less amounts due within a year                                                                  |  |                | (46,046 | )            |  |   | (15,432 | )
|                                                                                                |  |                |         |              |  |   |         |  
|                                                                                                |  | $              | 253,429 |              |  | $ | 92,259  |  
|                                                                                                |  |                |         |              |  |   |         |  

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

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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


being amortized in seven equal semi-annual
installments ending September 2003. As of September 29,
2001, the balance was equivalent to $16.9 million. Interest
is charged by the Board at 3.5% at September 29, 2001,
subject to a minimum of three and one-half percent per year.
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.

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

In connection with the acquisition of MMC, the
Company assumed equipment loans and capital leases amounting to
$66.3 million at September 29, 2001, which have
maturity dates ranging from December 2001 to October 2004 and
interest rates averaging 9.9%. In addition, the Company 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 and Hynix and Stormedia; 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
will be offset against the principal amount of the Maxtor Note,
such that the Hynix Note shall be fully paid and the Maxtor Note
shall have a principal amount of approximately $5.1 million.

8.     Segment,
Geography and Major Customers Information

Based on the criteria set forth in SFAS
No. 131, Disclosures about Segments of an Enterprise
and Related Information, the Company has determined that
it has two reportable segments; hard disk drive operations and
network systems group. The Company has a worldwide sales,
service and distribution network. Products are marketed and sold
through a direct sales force to original equipment manufacturers
(OEMs), distributors and retailers in the United
States, Europe and Asia Pacific.

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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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

|                           |  |                    |           |                   |  |               |         |               |  |   |           |   |  |   |           |  
|-------------------------- |  | ------------------ | --------- | ----------------- |  | ------------- | ------- | ------------- |  | - | --------- | - |  | - | --------- | -
|                           |  |                    |           |                  
|                           |  | Three Months Ended |           | Nine Months Ended
|                           |  |                    |           |                  
|                           |  | September 29,      |           | September 30,     |  | September 29, |         | September 30,
|                           |  | 2001               |           | 2000              |  | 2001          |         | 2000         
|                           |  |                    |           |                   |  |               |         |              
|                           |  |                   
|                           |  | (In thousands)    
|Net revenue:               |  |                    |           |                   |  |               |         |               |  |   |           |   |  |   |           |  
|Hard Disk Drive Operations |  | $                  | 1,035,193 |                   |  | $             | 614,461 |               |  | $ | 2,694,368 |   |  | $ | 1,969,584 |  
|Network Systems Group      |  |                    | 9,827     |                   |  |               | 4,853   |               |  |   | 23,040    |   |  |   | 8,090     |  
|                           |  |                    |           |                   |  |               |         |               |  |   |           |   |  |   |           |  
|Total                      |  | $                  | 1,045,020 |                   |  | $             | 619,314 |               |  | $ | 2,717,408 |   |  | $ | 1,977,674 |  
|                           |  |                    |           |                   |  |               |         |               |  |   |           |   |  |   |           |  
|Operating income (loss):   |  |                    |           |                   |  |               |         |               |  |   |           |   |  |   |           |  
|Hard Disk Drive Operations |  | $                  | (147,361  | )                 |  | $             | (7,702  | )             |  | $ | (449,356  | ) |  | $ | 46,525    |  
|Network Systems Group      |  |                    | (13,319   | )                 |  |               | (10,003 | )             |  |   | (37,153   | ) |  |   | (29,678   | )
|                           |  |                    |           |                   |  |               |         |               |  |   |           |   |  |   |           |  
|Total                      |  | $                  | (160,680  | )                 |  | $             | (17,705 | )             |  | $ | (486,509  | ) |  | $ | 16,847    |  
|                           |  |                    |           |                   |  |               |         |               |  |   |           |   |  |   |           |  

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 |          | Nine Months Ended
|                                      |                                                                 |                    |          |                  
|                                      |                                                                 | September 29,      |          | September 30,     |   | September 29, |         | September 30,
|                                      |                                                                 | 2001               |          | 2000              |   | 2001          |         | 2000         
|                                      |                                                                 |                    |          |                   |   |               |         |              
|                                      |                                                                 |                   
|                                      |                                                                 | (In thousands)    
|Total segment operating income (loss) |                                                                 | $                  | (160,680 | )                 |   | $             | (17,705 | )             |   | $ | (486,509 | )        |   | $ | 16,847 |       
|Unallocated amounts:                  |                                                                 |                    |          |                   |   |               |         |               |   |   |          |          |   |   |        |       
|Interest and other income (expense)   |                                                                 |                    | (3,907   | )                 |   |               | 2,975   |               |   |   | 4,801    |          |   |   | 11,360 |       
|                                      |                                                                 |                    |          |                   |   |               |         |               |   |   |          |          |   |   |        |       
|                                      | Income (loss) before provision for (benefit
	from) income taxes |                    | $        | (164,587          | ) |               | $       | (14,730       | ) |   | $        | (481,708 | ) |   | $      | 28,207 | 
|                                      |                                                                 |                    |          |                   |   |               |         |               |   |   |          |          |   |   |        |       

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
information by geographic area for the three and nine months
ended September 29, 2001 and September 30, 2000 is
presented in the following table:

|                        |  |                    |           |                   |  |               |         |               |  |   |           |  |  |   |           | 
|----------------------- |  | ------------------ | --------- | ----------------- |  | ------------- | ------- | ------------- |  | - | --------- |  |  | - | --------- | 
|                        |  |                    |           |                  
|                        |  | Three Months Ended |           | Nine Months Ended
|                        |  |                    |           |                  
|                        |  | September 29,      |           | September 30,     |  | September 29, |         | September 30,
|                        |  | 2001               |           | 2000              |  | 2001          |         | 2000         
|                        |  |                    |           |                   |  |               |         |              
|                        |  |                   
|                        |  | (In thousands)    
|Revenue:                |  |                    |           |                   |  |               |         |               |  |   |           |  |  |   |           | 
|United States           |  | $                  | 445,598   |                   |  | $             | 298,297 |               |  | $ | 1,204,543 |  |  | $ | 898,522   | 
|Asia Pacific            |  |                    | 291,445   |                   |  |               | 157,225 |               |  |   | 748,340   |  |  |   | 556,061   | 
|Europe                  |  |                    | 304,974   |                   |  |               | 153,925 |               |  |   | 706,778   |  |  |   | 459,017   | 
|Latin America and other |  |                    | 3,003     |                   |  |               | 9,867   |               |  |   | 57,747    |  |  |   | 64,074    | 
|                        |  |                    |           |                   |  |               |         |               |  |   |           |  |  |   |           | 
|Total                   |  | $                  | 1,045,020 |                   |  | $             | 619,314 |               |  | $ | 2,717,408 |  |  | $ | 1,977,674 | 
|                        |  |                    |           |                   |  |               |         |               |  |   |           |  |  |   |           | 

Sales to OEMs for the three and nine months ended
September 29, 2001 represented 52.3% and 59.2% of total
revenue, respectively, compared to 70.6% and 71.0%,
respectively, for the corresponding periods in fiscal year 2000.
Sales to the distribution and retail channels for the three and
nine months ended September 29,

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


2001 represented 47.7% and 40.8% of total
revenue, respectively, compared to 29.4% and 29.0%,
respectively, for the corresponding periods in fiscal year 2000.
Sales to Dell were 10.8% and 12.6% of total revenue in the three
and nine months ended September 29, 2001, respectively,
compared to 14.1% and 13.3% of total revenue, respectively, in
the corresponding periods of fiscal 2000. Dell was the only
customer with over 10% of total revenue for the three and nine
month periods of fiscal years 2001 and 2000.

Long-lived asset information by geographic area
as of September 29, 2001 and December 30, 2000 is
presented in the following table:

|                   |  |                |           |              |  |   |         | 
|------------------ |  | -------------- | --------- | ------------ |  | - | ------- | 
|                   |  | September 29,  |           | December 30,
|                   |  | 2001           |           | 2000        
|                   |  |                |           |             
|                   |  |               
|                   |  | (In thousands)
|Long-lived assets: |  |                |           |              |  |   |         | 
|United States      |  | $              | 1,238,005 |              |  | $ | 97,436  | 
|Asia Pacific       |  |                | 135,271   |              |  |   | 111,858 | 
|Europe             |  |                | 1,429     |              |  |   | 869     | 
|                   |  |                |           |              |  |   |         | 
|Total              |  | $              | 1,374,705 |              |  | $ | 210,163 | 
|                   |  |                |           |              |  |   |         | 

Long-lived assets located outside the United
States consist primarily of the Companys manufacturing
operations located in Singapore.

9.     Asset
Securitization

On September 29, 2001, $150 million of
accounts receivable was securitized under an asset
securitization program and was excluded from the Companys
accounts receivable balance. The program is scheduled to expire
on November 24th, 2001. The Company has reached an
agreement in principle with three banks with respect to the
terms of a $300 million asset securitization program under
which the Company will sell its eligible US and Canadian trade
accounts receivables on a non-recourse basis through a special
purpose entity. The Company expects funding under this facility
on or about November 15th, 2001. In the event the new
facility does not become effective prior to November 24th,
2001, our business and financial condition may be harmed.

10.     Related Party
Transactions

The Company purchases certain component parts
from MMC Technology, Inc., previously a wholly owned subsidiary
of Hynix Semiconductor America Inc. (Hynix,), which
also owns more than 5% of Maxtors common stock. On
September 2, 2001, Maxtor completed the acquisition of MMC.
MMCs results of operations are included in the
Companys financial statements from the date of
acquisition. As part of the acquisition of MMC, Maxtor 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 and Hynix and Stormedia; 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
will be offset against the principal amount of the Maxtor Note,
such that the Hynix Note shall be fully paid and the Maxtor Note
shall have a principal amount of approximately
$5.1 million. Cost of revenue includes $27 million and
$99 million for the two and eight months ended
September 1, 2001, respectively, compared to
$40 million and $121 million for the three and nine
months ended September 30, 2000 for such purchases.

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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


11.     Contingencies

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

While the Company believes it has valid defenses
to Papsts claims, the results of any litigation are
inherently uncertain and other infringement claims relating to
current patents, pending patent applications, and/or future
patent applications or issued patents could be asserted by
Papst. Additionally, there can be no assurance the Company will
be able to successfully defend itself against this or any other
Papst lawsuit. The Papst complaint asserts claims to an
unspecified dollar amount of damages. A favorable outcome for
Papst in this lawsuit could result in the issuance of an
injunction against the Company and its products and/or the
payment of monetary damages equal to a reasonable royalty. In
the case of a finding of a willful infringement, the Company
could also be required to pay treble damages and Papsts
attorneys fees. Accordingly, a litigation outcome
favorable to Papst could harm the Companys business,
financial condition, and operating results.

On May 22, 2001, Maxtor was sued by Cambrian
Consultants, a California corporation, for patent infringement.
The complaint alleges infringement by both Maxtor and Quantum
products. An answer and counter-claim have been filed. Discovery
is ongoing. While the Company believes it has valid defenses to
Cambrians claims, the results of any litigation are
inherently uncertain. Additionally, there can be no assurance
the Company will be able to successfully defend itself against
this lawsuit. The Cambrian complaint asserts claims to an
unspecified dollar amount of damages. A favorable outcome for
Cambrian in this lawsuit could result in the payment of monetary
damages equal to a reasonable royalty. In the case of a finding
of a willful infringement, the Company could also be required to
pay treble damages and Cambrians attorneys fees.
Accordingly, a litigation outcome favorable to Cambrian could
harm the Companys business, financial condition, and
operating results.

12.     Recent
Accounting Pronouncements

The Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging Activities, as
amended by Statement of Financial Accounting Standards
No. 137 (SFAS 137), Accounting for
Derivative Instruments and Hedging Activities 
Deferral of the Effective Date of FASB Statement No. 133,
and Statement of Financial Accounting Standards No. 138
(SFAS 138), Accounting for Certain Derivative
Instruments and Certain Hedging Activities, also an amendment of
SFAS 133, on January 1, 2001. There has been no
material impact to the financial statements resulting from the
adoption of SFAS 133, SFAS 137 or SFAS 138.

In June 2001, the EITF issued EITF Issue
No. 00-25, Vendor Income Statement Characterization
of Consideration Paid to a Reseller of the Vendors
Products. EITF Issue No. 00-25 addresses whether
consideration from a vendor to a reseller is (a) an
adjustment of the selling prices of the vendors products
and, therefore, should be deducted from revenue when recognized
in the vendors income statement or (b) a cost
incurred by the vendor for assets or services received from the
reseller and, therefore, should be included as a cost or expense
when recognized in the vendors income statement.
EITF 00-25 is effective for the interim

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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


and year-end periods beginning after
December 15, 2001. The Company believes that the adoption
of EITF 00-25 will not have a significant impact on its
financial statements.

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 141 (SFAS 141),
Business Combinations. SFAS 141 requires the
purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and establishes
specific criteria for the recognition of intangible 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 July 2001, the FASB issued Statement of
Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible
Assets, which is effective for fiscal years beginning
after December 15, 2001. SFAS 142 requires, among
other things, the discontinuance of goodwill amortization. In
addition, the standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles
out of previously reported goodwill and the testing for
impairment of existing goodwill and other intangibles. The
Company will adopt SFAS 142 effective December 30,
2001, which will result in the Company no longer amortizing its
existing goodwill and acquired assembled workforce. At
September 29, 2001, goodwill approximated
$700.4 million and goodwill amortization approximated
$37.7 million and $76.0 million for the three and nine
months ended September 29, 2001, respectively. Acquired
assembled workforce approximated $43.9 million and related
amortization approximated $4.6 million and
$8.2 million for the three and nine months ended
September 29, 2001, respectively. In addition, the Company
is required to reclassify the existing acquired assembled
workforce balance to goodwill as it does not meet the separate
recognition criterion according to SFAS 142. The Company
will also be required to measure goodwill for impairment as part
of the transition provisions. The Company is required to
complete transition impairment tests no later than
December 28, 2002. Any impairment resulting from these
transition tests is anticipated to be recorded as of
December 30, 2001 and will be recognized as of the
cumulative effect of a change in accounting principle. The
Company will not be able to determine if impairment will be
required until completion of such impairment tests. In
accordance with SFAS 142, the Company is not amortizing the
amount of goodwill associated with the MMC acquisition that was
completed on September 2, 2001.

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-loved assets that result from the acquisition,
construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations or lessees.
This Statement also amends SFAS No., 19, Financial
Accounting and Reporting by Oil and Gas Producing
Companies. SFAS 143 is effective for financial
statements issued for fiscal years beginning after June 25,
2002. The Company expects that the initial application of
SFAS 143 will not have a material impact 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 Company expects that the initial
application of SFAS 144 will not have a material impact on
its financial statements.

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MAXTOR CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


13.     Subsequent
Event

On October 9, 2001, Hynix sold
23,329,843 shares (including underwriters over-allotments)
of Maxtor common stock in a registered secondary public
offering. Maxtor did not receive any proceeds from the sale of
the Maxtor shares sold by Hynix. Under the agreement with Hynix,
Maxtor repurchased 5,000,000 shares from Hynix at $4 per
share, the same price offered to the public, or an aggregate
purchase price of $20,000,000. These repurchased shares are
being held as treasury shares.

19



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##### Table of Contents






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

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

This report contains forward-looking statements
within the meaning of the U.S. federal securities laws that
involve risks and uncertainties. The statements contained in
this report that are not purely historical, including, without
limitation, statements regarding our expectations, beliefs,
intentions or strategies regarding the future, are
forward-looking statements including those discussed in
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations: Results of
Operations; Liquidity and Capital Resources;
Certain Factors Affecting Future Performance; and
elsewhere in this report. In this report, the words
anticipate, believe, expect,
intend, future, may,
will, should, could,
would, might, plan,
estimate, predict,
potential, continue, and similar
expressions also identify forward-looking statements. These
statements are only predictions. We make these forward-looking
statements based upon information available on the date hereof,
and we have no obligation (and expressly disclaim any such
obligation) to update or alter any such forward-looking
statements whether as a result of new information, future
events, or otherwise. Our actual results could differ materially
from those anticipated in this report as a result of certain
factors including, but not limited to, those set forth in the
following risk factors and elsewhere in this report.



| |                        
| | -----------------------
| | Quantum HDD Acquisition

On April 2, 2001, we completed our
acquisition of the hard disk drive business of Quantum
Corporation (Quantum HDD). The merger agreement
provided for the exchange of 1.52 shares of our common
stock and options to purchase shares of our common stock for
each common share and outstanding option of Quantum HDD,
respectively. The total purchase price of $1,269.4 million
included consideration of 121.0 million shares of our
common stock valued at an average of $9.40 per common share. The
average market price is based on the average closing price for
two trading days prior and two trading days subsequent to
October 4, 2000 (the announcement date of the terms of the
merger). The value of the options ($107.1 million) as well
as estimated direct transaction costs ($28.8 million), have
been included as part of total purchase costs. The purchase
price allocation is preliminary as we are currently evaluating
various matters related to the acquisition, including warranty
provision, tax liabilities and other accruals. For additional
information regarding the Quantum HDD acquisition, see
note 2 of the Notes to Condensed Consolidated Financial
Statements.



| |                                  
| | ---------------------------------
| | MMC Technology, Inc.
	Acquisition

On September 2, 2001, we 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 our
acquisition of MMC was to provide us with an assured source of
supply of media. The acquisition has been 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 transaction costs. In connection with the
acquisition, we have also assumed liabilities of
$105.7 million. Included in this amount is
$7.3 million owed by MMC to Hynix which is non-interest
bearing through March 31, 2002, and any balance remaining
thereafter bears interest at nine percent. The purchase price
allocation is preliminary as we are currently evaluating various
matters related to the acquisition, including other accrued
expenses. 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. For additional
information regarding the MMC acquisition, see note 3 of
the Notes to Condensed Consolidated Financial Statements.

20



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##### Table of Contents





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

|                            |  |                    |         |               |  |                   |       |               |  |               |        |        |  |   |         |    |  |   |         |   |  |   |        |  
|--------------------------- |  | ------------------ | ------- | ------------- |  | ----------------- | ----- | ------------- |  | ------------- | ------ | ------ |  | - | ------- | -- |  | - | ------- | - |  | - | ------ | -
|                            |  |                    |         |               |  |                   |       |              
|                            |  | Three Months Ended |         |               |  | Nine Months Ended |       |              
|                            |  |                    |         |               |  |                   |       |              
|                            |  | September 29,      |         | September 30, |  |                   |       | September 29, |  | September 30, |        |       
|                            |  | 2001               |         | 2000          |  | Change            |       | 2001          |  | 2000          |        | Change
|                            |  |                    |         |               |  |                   |       |               |  |               |        |       
|                            |  |                   
|                            |  | (In millions)     
|Total revenue               |  | $                  | 1,045.0 |               |  | $                 | 619.3 |               |  | $             | 425.7  |        |  | $ | 2,717.4 |    |  | $ | 1,977.7 |   |  | $ | 739.7  |  
|Gross profit                |  | $                  | 81.1    |               |  | $                 | 62.9  |               |  | $             | 18.2   |        |  | $ | 248.0   |    |  | $ | 271.1   |   |  | $ | (23.1  | )
|Net income (loss)           |  | $                  | (165.7  | )             |  | $                 | (14.0 | )             |  | $             | (151.7 | )      |  | $ | (484.2  | )  |  | $ | 26.8    |   |  | $ | (511.0 | )
|As a percentage of revenue: |  |                    |         |               |  |                   |       |               |  |               |        |        |  |   |         |    |  |   |         |   |  |   |        |  
|Total revenue               |  |                    | 100.0   | %             |  |                   | 100.0 | %             |  |               |        |        |  |   | 100.0   | %  |  |   | 100.0   | % |  |   |        |  
|Gross profit                |  |                    | 7.8     | %             |  |                   | 10.2  | %             |  |               |        |        |  |   | 9.1     | %  |  |   | 13.7    | % |  |   |        |  
|Net income (loss)           |  |                    | (15.9   | )%            |  |                   | (2.3  | )%            |  |               |        |        |  |   | (17.8   | %) |  |   | 1.4     | % |  |   |        |  



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

Total revenue for the three and nine months ended
September 29, 2001 increased 68.7% and 37.4%, respectively,
from the corresponding periods in fiscal year 2000, primarily
reflecting the acquisition of Quantum HDD in April 2001. Total
shipments for the third fiscal quarter 2001 were
12.5 million units, which was 6.1 million units or
93.2% higher compared to the third fiscal quarter a year ago.
Units increased substantially in the three months ended
September 29, 2001, compared to the corresponding period in
fiscal year 2000, primarily as a result of the Quantum HDD
acquisition. However, revenue did not increase at the same rate
primarily due to a decrease in average selling price.

Revenues on a proforma basis (as if Quantum HDD
had been acquired on January 1, 2000) were
$1,045.0 million and $1,443.0 million for the three
months ended September 29, 2001 and September 30,
2000, respectively. Proforma revenues were $3,368.0 million
and $4,566.9 million for the nine months ended
September 29, 2001 and September 30, 2000,
respectively. On a pro forma basis, the percentage decreases
were 27.6% and 26.3%, respectively, in the three and nine months
ended September 29, 2001 compared to the corresponding
periods in fiscal year 2000, primarily reflecting the slowdown
in demand for hard disk drives and the continued pricing
pressures in the market.

Sales to OEMs for the three and nine months ended
September 29, 2001 represented 52.3% and 59.2% of total
revenue, respectively, compared to 70.6% and 71.0%,
respectively, for the corresponding periods in fiscal year 2000.
Sales to the distribution and retail channels for the three and
nine months end September 29, 2001 represented 47.7% and
40.8% of total revenue, respectively, compared to 29.4% and
29.0%, respectively, for the corresponding periods in fiscal
year 2000. Revenue to distribution channels increased in the
three and nine months ended September 29, 2001 compared to
the corresponding periods in fiscal year 2000, primarily
reflecting the current PC market condition coupled with our
acquisition of Quantum HDD in April 2001. Sales to our top five
customers in the three and nine months ended September 29,
2001 represented 37.1% and 36.6% of revenue, respectively,
compared to 36.5% and 33.9% of revenue, respectively, for the
corresponding periods in fiscal year 2000. Sales to Dell
Corporation were 10.8% and 12.6% of total revenue in the three
and nine months ended September 29, 2001, respectively,
compared to 14.1% and 13.3% of total revenue in the
corresponding periods of fiscal year 2000. Dell was the only
customer with over 10% of total revenue for the three and nine
month periods of fiscal years 2001 and 2000.



| |             
| | ------------
| | Gross Profit

Gross profit as a percentage of revenue decreased
to 7.8% in the three months ended September 29, 2001 from
10.2% in the same quarter of fiscal year 2000. Gross profit as a
percentage of revenue decreased to 9.1% in the nine months ended
September 29, 2001 from 13.7% in the same period of fiscal
year 2000. The decrease in gross profit is primarily due to the
decrease in the average selling price compared to the average
unit cost and the acceleration of end-of-life sales. Unfavorable
product mix and competitive pricing pressures contributed to the
overall decrease in average selling price and gross margin.

21



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##### Table of Contents





| |                   
| | ------------------
| | Operating expenses

|                                                      |  |                    |       |               |  |                   |      |               |  |               |      |        |  |   |       |   |  |   |       |   |  |   |       | 
|----------------------------------------------------- |  | ------------------ | ----- | ------------- |  | ----------------- | ---- | ------------- |  | ------------- | ---- | ------ |  | - | ----- | - |  | - | ----- | - |  | - | ----- | 
|                                                      |  |                    |       |               |  |                   |      |              
|                                                      |  | Three Months Ended |       |               |  | Nine Months Ended |      |              
|                                                      |  |                    |       |               |  |                   |      |              
|                                                      |  | September 29,      |       | September 30, |  |                   |      | September 29, |  | September 30, |      |       
|                                                      |  | 2001               |       | 2000          |  | Change            |      | 2001          |  | 2000          |      | Change
|                                                      |  |                    |       |               |  |                   |      |               |  |               |      |       
|                                                      |  |                    |       |               |  |                   |      |              
|                                                      |  | (Unaudited)        |       |               |  | (Unaudited)       |      |              
|                                                      |  |                   
|                                                      |  | (In millions)     
|Research and development                              |  | $                  | 124.5 |               |  | $                 | 54.9 |               |  | $             | 69.6 |        |  | $ | 322.7 |   |  | $ | 171.4 |   |  | $ | 151.3 | 
|Selling, general and administrative                   |  | $                  | 53.6  |               |  | $                 | 23.3 |               |  | $             | 30.3 |        |  | $ | 189.0 |   |  | $ | 75.2  |   |  | $ | 113.8 | 
|Amortization of goodwill and other intangible
	assets |  | $                  | 63.3  |               |  | $                 | 2.5  |               |  | $             | 60.8 |        |  | $ | 127.7 |   |  | $ | 7.6   |   |  | $ | 120.1 | 
|Purchased in-process research and development         |  | $                  | 0.4   |               |  | $                 |     |               |  | $             | 0.4  |        |  | $ | 95.1  |   |  | $ |      |   |  | $ | 95.1  | 
|As a percentage of revenue:                           |  |                    |       |               |  |                   |      |               |  |               |      |        |  |   |       |   |  |   |       |   |  |   |       | 
|Research and development                              |  |                    | 11.9  | %             |  |                   | 8.9  | %             |  |               |      |        |  |   | 11.8  | % |  |   | 8.7   | % |  |   |       | 
|Selling, general and administrative                   |  |                    | 5.1   | %             |  |                   | 3.8  | %             |  |               |      |        |  |   | 6.9   | % |  |   | 3.8   | % |  |   |       | 
|Amortization of goodwill and other intangible
	assets |  |                    | 6.1   | %             |  |                   | 0.4  | %             |  |               |      |        |  |   | 4.7   | % |  |   | 0.4   | % |  |   |       | 
|Purchased in-process research and development         |  |                    |      |               |  |                   |     |               |  |               |      |        |  |   | 3.5   | % |  |   |      |   |  |   |       | 



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

R&D expenditures were $124.5 million in
the third quarter of 2001 compared to $54.9 million in the
third quarter of 2000 and $322.7 million for the nine
months ended September 29, 2001 compared to
$171.4 million for the corresponding prior year period. The
increase in R&D expenses was primarily due to the inclusion
of Quantum HDD expenses during the fiscal year 2001 periods,
coupled with continued investments to expand the product
portfolio in the Network Systems Group.



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

SG&A expenditures were $53.6 million in
the third quarter of 2001 compared to $23.3 million in the
third quarter of 2000 and $189.0 million for the nine
months ended September 29, 2001 compared to
$75.2 million for the corresponding prior year period. The
increase in SG&A is primarily due to the inclusion of
Quantum HDD and other post-merger related expenses, including
costs of transitional services. Included in the transitional
services costs was $25.5 million of severance expense for
approximately 600 Quantum Corporation transitional employees.



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

On April 2, 2001, as part of the acquisition
of Quantum HDD, 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

22



---



##### Table of Contents



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 merger represented options for 7,650,965 shares and
4,655,236 shares of Maxtor common stock, respectively.


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

|                                    |  |                    |       |                   |  |               |       |               |  |   |         |  |  |   |         | 
|----------------------------------- |  | ------------------ | ----- | ----------------- |  | ------------- | ----- | ------------- |  | - | ------- |  |  | - | ------- | 
|                                    |  |                    |       |                  
|                                    |  | Three Months Ended |       | Nine Months Ended
|                                    |  |                    |       |                  
|                                    |  | September 29,      |       | September 30,     |  | September 29, |       | September 30,
|                                    |  | 2001               |       | 2000              |  | 2001          |       | 2000         
|                                    |  |                    |       |                   |  |               |       |              
|                                    |  |                   
|                                    |  | (In thousands)    
|Cost of revenue                     |  | $                  | 400.9 |                   |  | $             | 635.6 |               |  | $ | 152.6   |  |  | $ | 75.6    | 
|Selling, general and administrative |  |                    | 149.4 |                   |  |               | 145.1 |               |  |   | 1,566.1 |  |  |   | 1,727.2 | 
|Research and development            |  |                    | 58.9  |                   |  |               | 117.0 |               |  |   | 506.7   |  |  |   | 966.8   | 
|                                    |  |                    |       |                   |  |               |       |               |  |   |         |  |  |   |         | 
|Total stock compensation expense    |  | $                  | 609.2 |                   |  | $             | 897.7 |               |  | $ | 2,225.4 |  |  | $ | 2,769.6 | 
|                                    |  |                    |       |                   |  |               |       |               |  |   |         |  |  |   |         | 

In addition, Quantum Corporation issued
restricted DSS shares to Quantum employees who joined Maxtor in
connection with the merger in exchange for the fair value of DSS
options held by such employees. A portion of the acquisition
purchase price has been allocated to this deferred compensation,
recorded as prepaid expense, and is amortized to expenses over
the vesting period as the vesting of the shares are subject to
continued employment with Maxtor. Amortization as of
September 29, 2001 was as follows (in thousands):

|                                                     |  |                    |         |                   |  |               |   |               |  |   |          |  |  |   |   | 
|---------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ------------- | - | ------------- |  | - | -------- |  |  | - | - | 
|                                                     |  |                    |         |                  
|                                                     |  | Three Months Ended |         | Nine Months Ended
|                                                     |  |                    |         |                  
|                                                     |  | September 29,      |         | September 30,     |  | September 29, |   | September 30,
|                                                     |  | 2001               |         | 2000              |  | 2001          |   | 2000         
|                                                     |  |                    |         |                   |  |               |   |              
|                                                     |  |                   
|                                                     |  | (In thousands)    
|Cost of revenue                                      |  | $                  | 1,531.6 |                   |  | $             |  |               |  | $ | 2,989.1  |  |  | $ |  | 
|Selling, general and administrative                  |  |                    | 4,277.0 |                   |  |               |  |               |  |   | 9,026.8  |  |  |   |  | 
|Research and development                             |  |                    | 507.1   |                   |  |               |  |               |  |   | 25,208.0 |  |  |   |  | 
|                                                     |  |                    |         |                   |  |               |   |               |  |   |          |  |  |   |   | 
|Total amortization related to DSS restricted
	shares |  | $                  | 6,315.7 |                   |  | $             |  |               |  | $ | 37,223.9 |  |  | $ |  | 
|                                                     |  |                    |         |                   |  |               |   |               |  |   |          |  |  |   |   | 



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

During September 2001, the Company expensed
IPR&D costs of $0.4 million as a result of the
acquisition of MMC. As a result of the business combination
transaction with Quantum HDD in April 2001, the Company
expensed IPR&D costs of $94.7 million. These amounts
were expensed because the acquired technology had not yet
reached technological feasibility and had no future alternative
uses. For additional information regarding the MMC and Quantum
HDD acquisitions and the costs associated with purchased
in-process research and development, see Note 3 and
Note 2, respectively, of the Notes to Condensed
Consolidated Financial Statements.



| |                                                      
| | -----------------------------------------------------
| | Amortization of Goodwill and Other Intangible
	Assets

Amortization of goodwill and other intangible
assets represents the amortization of goodwill, workforce,
customer list and other current products and technology, arising
from our acquisitions of Creative Design Solutions, Inc.
(CDS) in September 1999, Quantum HDD in April
2001 and MMC in September 2001. In accordance with
SFAS 142, we are not amortizing the amount of goodwill
associated with the MMC acquisition. When we adopt
SFAS 142, effective December 30, 2001, we will
discontinue amortizing our existing goodwill and acquired
assembled workforce associated with CDS and Quantum HDD.

23



---



##### Table of Contents





| |                                     
| | ------------------------------------
| | Interest Expense and Interest Income

|                            |  |                    |      |               |  |                   |      |               |  |               |      |        |  |   |       |    |  |   |       |    |  |   |      |  
|--------------------------- |  | ------------------ | ---- | ------------- |  | ----------------- | ---- | ------------- |  | ------------- | ---- | ------ |  | - | ----- | -- |  | - | ----- | -- |  | - | ---- | -
|                            |  |                    |      |               |  |                   |      |              
|                            |  | Three Months Ended |      |               |  | Nine Months Ended |      |              
|                            |  |                    |      |               |  |                   |      |              
|                            |  | September 29,      |      | September 30, |  |                   |      | September 29, |  | September 30, |      |       
|                            |  | 2001               |      | 2000          |  | Change            |      | 2001          |  | 2000          |      | Change
|                            |  |                    |      |               |  |                   |      |               |  |               |      |       
|                            |  |                    |      |               |  |                   |      |              
|                            |  | (unaudited)        |      |               |  | (unaudited)       |      |              
|                            |  |                   
|                            |  | (In millions)     
|Interest expense            |  | $                  | (6.2 | )             |  | $                 | (3.4 | )             |  | $             | (2.8 | )      |  | $ | (14.7 | )  |  | $ | (10.4 | )  |  | $ | (4.3 | )
|Interest and other income   |  | $                  | 2.8  |               |  | $                 | 6.4  |               |  | $             | (3.6 | )      |  | $ | 20.6  |    |  | $ | 21.8  |    |  | $ | (1.2 | )
|Other loss                  |  | $                  | (0.5 | )             |  | $                 |     |               |  | $             | (0.5 | )      |  | $ | (1.1  | )  |  | $ |      |    |  | $ | (1.1 | )
|As a percentage of revenue:
|Interest expense            |  |                    | (0.6 | )%            |  |                   | (0.5 | )%            |  |               |      |        |  |   | (0.5  | )% |  |   | (0.5  | )% |  |   |      |  
|Interest and other income   |  |                    | 0.3  | %             |  |                   | 1.0  | %             |  |               |      |        |  |   | 0.8   | %  |  |   | 1.1   | %  |  |   |      |  
|Other loss                  |  |                    |     |               |  |                   |     |               |  |               |      |        |  |   |      |    |  |   |      |    |  |   |      |  



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

Interest expense increased by $2.8 million
in the third quarter of 2001 and increased by $4.3 million
for the first nine months of fiscal year 2001 compared to the
corresponding periods in fiscal year 2000. The increases were
primarily due to the debt assumed in conjunction with the
acquisitions of MMC and Quantum HDD 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 Quantum HDD. Total
short-term and long-term outstanding borrowings were
$107.7 million as of September 30, 2000 compared to
$299.5 million as of September 29, 2001.



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

Interest and other income decreased
$3.6 million and $1.2 million for the three and nine
months ended September 29, 2001, respectively, when
compared to the corresponding periods in fiscal year 2000. The
decreases were principally due to one-time gains in fiscal year
2000 pertaining to repayment of notes and retirement of bonds.
Total cash and cash equivalents, restricted cash and marketable
securities were $645.1 million as of September 29,
2001 compared to $351.0 million as of September 30,
2000.



| |                           
| | --------------------------
| | Provision for income taxes

|                                                |  |                    |        |               |  |                   |       |               |  |               |        |        |  |   |        |   |  |   |      |  |  |   |        |  
|----------------------------------------------- |  | ------------------ | ------ | ------------- |  | ----------------- | ----- | ------------- |  | ------------- | ------ | ------ |  | - | ------ | - |  | - | ---- |  |  | - | ------ | -
|                                                |  |                    |        |               |  |                   |       |              
|                                                |  | Three Months Ended |        |               |  | Nine Months Ended |       |              
|                                                |  |                    |        |               |  |                   |       |              
|                                                |  | September 29,      |        | September 30, |  |                   |       | September 29, |  | September 30, |        |       
|                                                |  | 2001               |        | 2000          |  | Change            |       | 2001          |  | 2000          |        | Change
|                                                |  |                    |        |               |  |                   |       |               |  |               |        |       
|                                                |  |                    |        |               |  |                   |       |              
|                                                |  | (unaudited)        |        |               |  | (unaudited)       |       |              
|                                                |  |                   
|                                                |  | (In millions)     
|Income (loss) before provision for income taxes |  | $                  | (164.6 | )             |  | $                 | (14.7 | )             |  | $             | (149.9 | )      |  | $ | (481.7 | ) |  | $ | 28.2 |  |  | $ | (509.9 | )
|Provision for income taxes                      |  | $                  | 1.1    |               |  | $                 | (0.7  | )             |  | $             | 1.8    |        |  | $ | 2.4    |   |  | $ | 1.4  |  |  | $ | 1.0    |  

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.

The Company recorded approximately
$196.2 million of deferred tax liabilities in connection
with the acquisition of Quantum HDD in April 2001. The
deferred taxes were recorded principally to reflect the taxes
which would become payable upon the repatriation of the cash
which was invested abroad by Quantum HDD. In addition, the
Company recorded approximately $142 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 Quantum HDD by Maxtor.

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Liquidity and Capital Resources

As of September 29, 2001, we had
$645.1 million in cash and cash equivalents, restricted
cash and marketable securities as compared to
$376.2 million at December 30, 2000.

Operating activities used cash of
$4.1 million in the nine months ended September 29,
2001. Uses of cash from operating activities reflect a net loss
after adjustment for depreciation and amortization, purchased
in-process research and development, stock compensation expense,
and a decrease in accounts payable and accrued liabilities. This
was partially offset by decreases in accounts receivable,
inventory and other assets.

Investing activities provided cash of
$189.5 million during the first nine months of 2001,
primarily reflecting cash acquired from the Quantum HDD
acquisition, offset in part by investment in property, plant and
equipment, and restricted cash providing security to short-term
letter of credits.

As of September 29, 2001, our outstanding
debt was comprised of $77.6 million of publicly-traded
subordinated debentures, due March 1, 2012, and a Singapore
dollar denominated loan equivalent to $16.9 million from
the Economic Board of Development of Singapore, which is
guaranteed by a bank. The Singapore dollar denominated loan has
seven consecutive semi-annual installment payments, ending
September 2003. The Company has assumed two mortgages totaling
$37.5 million due October 31, 2006, for properties
acquired in the acquisition of Quantum HDD. In connection
with our acquisition of the Quantum HDD business, we 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 we have included the principal amount of
$95.8 million in our long term debt. Quantum is required to
pay interest semi-annually on February 1 and August 1,
and principal is payable on maturity; we are 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. Our outstanding
subordinated debentures are entitled to annual sinking fund
payments of $5.0 million, which commenced March 1,
1998. These debentures no longer are convertible into our common
stock or any other security of Maxtor.

In connection with the acquisition of MMC, we
have assumed equipment loans and capital leases amounting to
$66.3 million, which have maturity dates ranging from
December 2001 to October 2004 and interest rates averaging 9.9%.
In addition, 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 us for $2 million in
principal amount, representing Hynixs share of a
settlement relating to litigation between Maxtor and Hynix and
Stormedia; 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 will be offset against the principal
amount of the Maxtor Note, such that the Hynix Note shall be
fully paid and the Maxtor Note shall have a principal amount of
approximately $5.1 million.

On September 29, 2001, $150 million of
accounts receivable was securitized under an asset
securitization program and was excluded from the Companys
accounts receivable balance. The program is scheduled to expire
on November 24th, 2001. The Company has reached an
agreement in principle with three banks with respect to the
terms of a $300 million asset securitization program under
which the Company will sell its eligible US and Canadian trade
accounts receivables on a non-recourse basis through a special
purpose entity. The Company expects funding under this facility
on or about November 15th, 2001. In the event the new
facility does not become effective prior to November 24th,
2001, our business and financial condition may be harmed.

Under an agreement with Hynix, on October 9,
2001, Maxtor repurchased 5 million shares of Maxtor Common
Stock owned by Hynix at the same price as shares of Maxtor
common stock were sold to the public in a registered secondary
public offering by Hynix, for an aggregate purchase price of
$20 million; these repurchased Maxtor common shares have
been returned to the status of treasury shares.

We believe the existing capital resources,
together with cash generated from operations and borrowing
capacity will be sufficient to fund our operations through at
least the next twelve months. We require

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substantial working capital to fund our business,
particularly to finance accounts receivable and inventory, and
to invest in property, plant and equipment. During 2001, capital
expenditures are expected to be between approximately
$130.0 million and $150.0 million, primarily used for
manufacturing upgrades, product development, and updating our
information technology systems. We intend to seek financing
arrangements to fund our future capacity expansion and working
capital, as necessary. However, our ability to generate cash
will depend on, among other things, demand in the desktop hard
disk drive market and pricing conditions. If we need additional
capital, there can be no assurance that such additional
financing can be obtained, or, if obtained, that it will be
available on satisfactory terms. See discussion below under the
heading Certain Factors Affecting Future Performance.


Recent Accounting Pronouncements

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

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

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 141 (SFAS 141),
Business Combinations. SFAS 141 requires the
purchase method of accounting to 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 July 2001, the FASB issued Statement of
Financial Accounting Standards No. 142 (SFAS
142), Goodwill and Other Intangible Assets,
which is effective for fiscal years beginning after
December 15, 2001. SFAS 142 requires, among other things,
the discontinuance of goodwill amortization. In addition, the
standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles
out of previously reported goodwill and the testing for
impairment of existing goodwill and other intangibles. The
Company will adopt SFAS 142 effective December 30, 2001,
which will result in the Company no longer amortizing its
existing goodwill and acquired assembled workforce. At
September 29, 2001, goodwill approximated
$700.4 million and goodwill amortization approximated
$37.7 million and $76.0 million for the three and six
months ended September 29, 2001, respectively. Acquired
assembled workforce approximated $43.9 million and related
amortization approximated $4.6 million and $8.2 million for
the three and nine months ended September 29, 2001,
respectively. In addition, the Company is required to reclassify
the existing acquired assembled workforce balance to goodwill as
it does not meet the separate recognition criterion according to
SFAS 142. The Company will also be required to measure goodwill
for impairment as part of the transition provisions. The Company
is required to complete transition impairment tests no later
than December 31, 2002. Any impairment resulting from these
transition tests is anticipated to be recorded as of
December 30, 2001 and will be recognized as of the
cumulative effect of a change in accounting principle. The
Company will not be able to determine if an impairment will be
required until completion of such impairment

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tests. In accordance with SFAS 142, the Company
is not amortizing the amount of goodwill associated with the MMC
acquisition that was completed on September 2, 2001.


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-loved assets that result from the acquisition,
construction, development and (or) the normal operation of
a long-lived asset, except for certain obligations or lessees.
This Statement also amends SFAS No. 19, Financial
Accounting and Reporting by Oil and Gas Producing
Companies. SFAS 143 is effective for financial
statements issued for fiscal years beginning after June 25,
2002. The Company expects that the initial application of
SFAS 143 will not have a material impact 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 Company expects that the initial
application of SFAS 144 will not have a material impact on
its financial statements.

CERTAIN FACTORS AFFECTING FUTURE
PERFORMANCE

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

We have a history of significant losses. In the
last five fiscal years, we were profitable in only fiscal years
1998 and 2000 and Quantum HDD was profitable only in fiscal year
1997. In the six months following the acquisition of Quantum HDD
business, we incurred a net loss of $485.5 million, which
included approximately $327.2 million in merger related
expenses. Furthermore, MMC, which we acquired on
September 2, 2001, has not been profitable in any of the
last three years. We cannot assure you that the combined company
will ever achieve profitability.

A number of factors, including the failure to
retain existing customers of both businesses and the failure to
retain key employees, could prevent us from achieving the
benefits of integrating the business of Quantum HDD with us,
which could harm our business, financial condition and operating
results.

Having acquired Quantum HDD in April 2001, we
need to continue to integrate the two operations. We expect the
combination of Maxtor and Quantum HDD will result in beneficial
synergies for the combined company. Achieving these anticipated
synergies and the potential benefits underlying our reasons for
entering into the merger will depend on a number of factors,
some of which include the ability of the combined company to:



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | reduce expenses through elimination of
	redundancies in sales, marketing and administrative services and
	overhead expenses;        
|
| |  | take advantage of complementary products,
	channels, partners, technology, logistics, critical skills and
	manufacturing approaches;
|
| |  | explore and pursue emerging and higher-profit
	storage opportunities;                                                               
|
| |  | migrate to a common product platform in the
	future;                                                                                
|
| |  | manufacture effectively in one or more locations;                                                                                   

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| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | manage inventory for multiple products; and                                                                                        
|
| |  | execute successfully in time-to-market
	introduction and time-to-volume production of high quality
	products at competitive prices.

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:



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

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

Our financial results will suffer as a result
of purchase accounting treatment of our merger with Quantum HDD.
The accounting charges attributable to amortization of goodwill
and other intangible assets in the merger will amount to
approximately $35.8 million and $23.6 million,
respectively, per fiscal quarter in fiscal year 2001.

As a result of the merger, we allocated
approximately $716.0 million and $329.1 million of
purchase consideration to goodwill and to other intangible
assets, respectively. We will amortize approximately
$35.8 million of goodwill each of the fiscal quarters
beginning April 2, 2001 until the end of fiscal year 2001,
at which time we will discontinue amortizing goodwill in
accordance with Statement of Financial Accounting Standards
No. 142 (SFAS 142 or Goodwill and
other Intangible Assets). In addition, we will be required
to measure goodwill for impairment as part of the transition
provisions stipulated by SFAS 142. Any impairment resulting
from these transition tests will be recorded as of
December 30, 2001 and will be recognized as a cumulative
effect of a change in accounting principle. We will not be able
to determine if an impairment will be required until completion
of such impairment tests. We will amortize approximately
$23.6 million of other intangible assets per fiscal quarter
in fiscal year 2001 and will continue to do so over the
remainder of their estimated useful lives of three to five
years. As a result, purchase accounting treatment of the merger
will result in reduction in earnings and earnings per share for
the foreseeable future. This charge could cause the market price
of our common stock to decline.

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

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

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circumstances, we would have to either use our
existing cash resources or borrow money to cover our obligations
to Quantum. In either case, our payment of the tax, whether
covered by insurance or not, could harm our business, financial
condition and operating results.


Because we have to abide by potentially
significant restrictions with respect to our equity securities
for two years after the merger in order to mitigate the risk of
triggering a tax obligation of Quantum as a result of the
split-off, our ability to attract and retain key personnel or be
acquired could be harmed.

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



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

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



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

If we are unable to attract and retain key
personnel, our business, financial condition and operating
results could suffer.

In addition, the restrictions relating to our
securities under which we must operate could discourage
potential acquisition proposals, could delay or prevent a change
of control of the company and also could diminish the
opportunities for a holder of our common stock to participate in
tender offers, 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 may cause the
price of desktop 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 for the lower-priced personal computer market, we
will not be able to compete effectively and our operating
results would suffer.

We have only recently developed products that we
believe can be produced at low enough costs to be successfully
sold to the consumer electronics market. We anticipate the cost
of consumer electronics products will also decline over time. If
this decline occurs and we are unable to continue to lower the
cost of our hard

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disk drives for the lower-priced consumer
electronics market, we will not be able to compete effectively
in this market, which may harm our operating results.


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

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



| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | consolidate or establish strategic relationships
	among themselves to lower their product costs or to otherwise
	compete more effectively against us;
|
| |  | lower their product prices to gain market share;                                                                                                     
|
| |  | bundle their products with other products to
	increase demand for their products; or                                                                 
|
| |  | develop new technology which would significantly
	reduce the cost of their products.                                                                 

Although we are the largest hard disk drive
manufacturer, based on units shipped both in 2000 and the first
quarter of 2001 by Maxtor and Quantum HDD combined and in the
second and third quarters by Maxtor, we are not the largest in
terms of revenue and our size alone will not eliminate all of
the advantages of our competitors.

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

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

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



| |   |                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the average selling price of our products;                                                                                                                                                                                                                                                  
|
| |  | fluctuations in the demand for our products as a
	result of the cyclical and seasonal nature as well as the
	overall economic environment of the desktop computer industry
	and the markets for personal computers, Intel-based servers,
	consumer electronics applications and NAS devices;
|
| |  | the availability, and efficient use, of
	manufacturing capacity;                                                                                                                                                                                                                            
|
| |  | competitors introducing better products at
	competitive prices before we do;                                                                                                                                                                                                                
|
| |  | new competitors entering our market;                                                                                                                                                                                                                                                        
|
| |  | our ability to successfully qualify our products
	with our customers;                                                                                                                                                                                                                       
|
| |  | our customers canceling, rescheduling or
	deferring orders;                                                                                                                                                                                                                                 
|
| |  | our ability to purchase components at competitive
	prices;                                                                                                                                                                                                                                  
|
| |  | our ability to purchase products from MKE at
	competitive prices;                                                                                                                                                                                                                           
|
| |  | the availability of adequate capital resources;
	and                                                                                                                                                                                                                                        

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| |   |                                                
| | - | -----------------------------------------------
| |  | other general economic and competitive factors.

Many of our expenses are relatively fixed and
difficult to reduce or modify. As a result, the fixed nature of
our operating expenses will magnify any adverse effect of a
decrease in revenue on our operating results. Because of these
and other factors, we believe that period to period comparisons
of our and Quantum HDDs combined historical results of
operations are not a good predictor of our future performance.
If our future operating results are below the expectations of
stock market analysts, our stock price may decline. 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.

We depend on MKE to manufacture a substantial
portion of our hard disk drives and adverse developments in our
relationship with MKE could lead to involuntary shortages or
surpluses.

We depend on MKE for a substantial portion of our
hard disk drives. We have entered into a master agreement and a
hard disk drives purchase agreement with MKE governing our
relationship. The purchase agreement expired on November 2,
2001. We are in the process of negotiating the terms of ongoing
purchases from MKE. We expect to purchase hard disk drives from
MKE by purchase order, generally consistent with the terms of
the purchase agreement. However, such purchases may not be in
adequate volumes or on terms advantageous to us. In these cases,
our revenue may be lower than projected and our operating
results would suffer.

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

In connection with our purchase of MMC, we may
experience additional costs and risks.

As a result of our recently completed acquisition
of MMC, MMC became a component source internal to us. In
connection with our purchase of MMC, we may incur additional
risks, including the risks that:



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

In any of these cases, our profit margins or
revenue may be lower and our operating results would suffer. In
addition, capital expenditures and working capital investments
required for MMCs business will utilize additional cash;
for example, upon the closing of the transaction, we assumed
MMCs equipment loans and capital lease obligations
amounting to $66.3 million and employed an additional 1,054
employees.

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If we do not have adequate manufacturing
capacity in the future because of a disaster at one of our
plants, or an inability to acquire needed additional
manufacturing capacity, or MKEs inability or unwillingness
to meet our manufacturing requirements, our growth will be
adversely impacted and our business could suffer.

Both our and MKEs volume manufacturing
operations are based primarily in Singapore. A flood,
earthquake, political instability or other disaster or condition
that adversely affects our or MKEs facilities or ability
to manufacture could harm our business, financial condition and
operating results. In addition, we will need to acquire
additional manufacturing capacity in the future. Our inability
to add capacity to allow us to meet customers demands in a
timely manner may limit our future growth and could harm our
business, financial condition and operating results. Our future
growth will also require that MKE continue to devote substantial
financial resources to property, plant and equipment to support
the manufacture of a significant portion of our products. If MKE
is unable or unwilling to meet our manufacturing requirements,
an alternative manufacturing source may not be available in the
near term and our business, financial condition and operating
results would suffer.

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

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

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

To remain a significant supplier of hard disk
drives to major manufacturers of personal computers, we will
need to offer a broad range of hard disk drive products to our
customers. Although our current products are designed for the
desktop computer (the largest segment of the hard disk drive
industry) and the Intel-based server, 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 personal
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 segments and emerging technologies to remain competitive
in the hard disk drive industry. We cannot assure you that we
will:



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

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| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | quickly achieve high volume production of new
	hard disk drives; or
|
| |  | achieve market acceptance of our new products.                     

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

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

Our revenue growth and profitability depend
significantly on the overall demand for desktop computers and
related products and services. 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
rely substantially on the desktop segment of the personal
computer industry, we will be affected more by changes in market
conditions for desktop computers than a company with a broader
range of products. Any decrease in the demand for desktop
computers could reduce the demand for our products, harming our
business.

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

We sell most of our products to a limited number
of customers. For the nine months ended September 29, 2001,
one customer, Dell Corporation, accounted for 12.6% of our total
revenue, and our top five customers accounted for 36.6% 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 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 to suffer.

Costly new demands by our customers have
increased the risk of inventory obsolescence and could result in
an increase in our operating costs and a decline in average
selling prices.

Our customers have adopted more sophisticated
business models that place additional strains on our business.
For example, nearly all personal computer manufacturers have
adopted a subcontractor model that requires us to contract
directly with companies that provide manufacturing services for
the personal computer manufacturers. This exposes us to
increased credit risk because these subcontractors are generally
less capitalized than the personal computer manufacturers
themselves, and presents greater inventory and other logistical
challenges because each personal computer manufacturer may
require us to deal with several separate subcontractors. Some
personal computer manufacturers have adopted build-to-order
manufacturing models that reduce their component inventories and
related costs and enable them to tailor their products more
specifically to the needs of consumers. Finally, our
manufacturing customers have adopted just-in-time inventory
management processes that require component suppliers to
maintain inventory at or near the customers production
facility. These policies have complicated inventory management
strategies and made it more difficult to match manufacturing
plans with projected customer demand. As a result, there is an
increased risk that our inventory could become obsolete, our
operating costs could increase or our average selling prices
could decline, any of which could cause our operating results to
suffer.

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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. Due to the current slowdown in the economy, some of
our customers are not purchasing their forecast amounts of our
products. In addition, some 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 have complicated inventory management
strategies and made 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. We recently purchased one supplier of
media, MMC, and also purchase media from one other supplier,
which recently filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. MKE is also dependent on a limited number
of suppliers for its components. As we have experienced in the
past, some required parts may be periodically in short supply.
As a result, we will have to allow for significant ordering lead
times for some components. In addition, we may have to pay
significant cancellation charges to suppliers if we cancel
orders for components because we reduce production due to market
oversupply, reduced demand, transition to new products or
technologies or for other reasons. We order the majority of our
components on a purchase order basis and we have limited
long-term volume purchase agreements with only some of our
existing suppliers. If we cannot obtain sufficient quantities of
high-quality parts when needed, product shipments would be
delayed and our business, financial condition and operating
results could suffer. In addition, our historical relationship
with our suppliers may suffer as a result of our new
relationship with MKE or our recent acquisition of MMC.

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

Unlike some of our competitors, we do not
manufacture any of the parts used in our products, 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;                                         
|
| |  | hire skilled personnel;                                            
|
| |  | effectively integrate different parts from a
	variety of suppliers;
|
| |  | manage difficult scheduling and delivery
	problems; and            
|
| |  | develop and maintain relationships with key
	suppliers.            

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

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Terrorist attacks may adversely impact our
business and operating results.

The terrorist attacks that took place in the
United States on September 11, 2001 were unprecedented
events that have created many economic and political
uncertainties, some of which may adversely impact our business
and operating results, including transportation and supply-chain
disruptions and deferrals of customer purchasing decisions. The
long-term effects of the attacks on our business and operating
results are unknown. The potential for future terrorist attacks,
the national and international responses to terrorist attacks,
and other acts of war or hostility have created many economic
and political uncertainties, which could adversely affect our
business and operating results in the short- or long-term in
ways that cannot presently be predicted.

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 recently implemented workforce reductions that may result
in the termination of key employees who have substantial
knowledge of our business. These 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 may need additional capital in the future
which may not be available on favorable terms or at all and our
ability to issue equity securities has been severely limited by
our merger with Quantum HDD.

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



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

In addition, our ability to raise capital has
been affected as a result of our merger with Quantum HDD. To
mitigate the risk of triggering a tax obligation of Quantum as a
result of the split-off of Quantum HDD from Quantum DSS and the
merger of Quantum HDD with Maxtor, we are restricted in our
ability to issue additional equity securities to raise capital
for two years after the split-off and merger. In the event we
decide to nevertheless raise capital by issuing equity
securities, such financing will decrease the percentage equity
ownership of our stockholders and may, depending on the price at
which the equity is sold, result in significant economic
dilution to them. Our board of directors 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.

In the event our asset securitization program
does not become effective, our business and financial condition
could be harmed.

On September 29, 2001, $150 million of
accounts receivable was securitized under an asset
securitization program and was excluded from the Companys
accounts receivable balance. The program is scheduled to expire
on November 24th, 2001. The Company has reached an
agreement in principle with three banks with

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respect to the terms of a $300 million asset
securitization program under which the Company will sell its
eligible US and Canadian trade accounts receivables on a
non-recourse basis through a special purpose entity. The Company
expects funding under this facility on or about
November 15th, 2001. In the event the new facility does not
become effective prior to November 24th, 2001, our business
and financial condition may be harmed.


Protection of our intellectual property is
limited and it is exposed to third party claims of
infringement.

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

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

Prior to our merger with Quantum HDD, we, on the
one hand, and Quantum and MKE, on the other hand, each were sued
by Papst Licensing, GmbH, a German corporation, for infringement
of a number of patents that relate to hard disk drives. Both
lawsuits, filed in the United States District Court for the
Northern District of California, were transferred by the
Judicial Panel on Multidistrict Litigation to the United States
District Court for the Eastern District of Louisiana for
coordinated pre-trial proceedings with several other pending
litigations involving the Papst patents. Papsts
infringement allegations are based on spindle motors that Maxtor
and Quantum purchased from third party motor vendors, including
MKE, and the use of such spindle motors in hard disk drives.
Maxtor purchased the overwhelming majority of the spindle motors
used in our hard disk drives from vendors that were licensed
under 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. The results of any litigation are
inherently uncertain and Papst may assert other infringement
claims relating to current patents, pending patent applications,
and/or future patent applications or issued patents.
Additionally, we cannot assure you we will be able to
successfully defend ourselves against this or any other Papst
lawsuit. The Papst complaint asserts claims to an unspecified
dollar amount of damages. A favorable outcome for Papst in this
lawsuit could result in the issuance of an injunction against us
and our products and/or the payment of monetary damages equal to
a reasonable royalty. In the case of a finding of a willful
infringement, we also could be required to pay treble damages
and Papsts attorneys fees. Accordingly, a litigation
outcome favorable to Papst could harm our business, financial
condition and operating results. In addition to the Papst
lawsuit, a complaint was filed by Cambrian Consultants on
May 22, 2001 in the United States District Court for the
Central District of California against us, alleging infringement
of U.S. Patent No. 4,371,903. The patent, which expired on
September 28, 2001, claims an emergency head retract system
for magnetic disk drives. Drives manufactured and sold by Maxtor
and Quantum are alleged to incorporate head retract systems that
fall within the scope of the claims. Cambrian seeks a royalty
payment for Maxtors alleged unauthorized use of
Cambrians technology. We answered the complaint and filed
counter-claims on June 18, 2001. Discovery is ongoing.
Analysis and investigation of the claims is ongoing and formal
discovery is about to commence. The results of any litigation
are inherently uncertain and we cannot assure you that we will
be able to successfully defend ourselves against this lawsuit.
The Cambrian complaint asserts claims to an

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unspecified dollar amount of damages. A favorable
outcome for Cambrian in this lawsuit could result in the payment
of monetary damages equal to a reasonable royalty. In the case
of a finding of a willful infringement, we also could be
required to pay treble damages and Cambrians
attorneys fees. Accordingly, a litigation outcome
favorable to Cambrian could harm our business, financial
condition, operating results and cash flows.


We face risks from our substantial
international operations and sales.

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



| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | difficulties associated with staffing and
	managing international operations;                                  
|
| |  | economic slowdown and/or downturn in the computer
	industry in foreign markets;                                
|
| |  | international currency fluctuations;                                                                           
|
| |  | general strikes or other disruptions in working
	conditions;                                                   
|
| |  | political instability;                                                                                         
|
| |  | trade restrictions;                                                                                            
|
| |  | changes in tariffs;                                                                                            
|
| |  | generally longer periods to collect receivables;                                                               
|
| |  | unexpected changes in or impositions of
	legislative or regulatory requirements;                               
|
| |  | reduced protection for intellectual property
	rights in some countries;                                        
|
| |  | potentially adverse taxes; and                                                                                 
|
| |  | delays resulting from difficulty in obtaining
	export licenses for certain technology and other trade barriers.

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

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

Our products may contain defects. We generally
warrant our products for one to five years and prior to the
merger, Quantum HDD also generally warranted its products for
one to five years. We assumed Quantum HDDs warranty
obligation as a result of the merger. The standard warranties
used by us and Quantum HDD contain limits on damages and
exclusions of liability for consequential damages and for
negligent or improper use of the products. We 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 are currently
evaluating possible defects in certain Quantum HDD products that
we acquired in the merger, and

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which are no longer being manufactured. We have
established a warranty provision for these products. As our
evaluation proceeds, we may determine that our warranty
provision in this instance is insufficient. If our warranty
provision is not sufficient, we will be required to increase the
goodwill charge associated with the merger and we may incur
additional operating expenses.


We could be subject to environmental
liabilities which could increase our expenses and subject us to
liabilities.

Because of the chemicals we use in our
manufacturing and research operations, we are subject to a wide
range of environmental protection regulations in the United
States and Singapore. While we do not believe our operations to
date have been harmed as a result of such laws, future
regulations may increase our expenses and harm our business,
financial condition and results of operations. Even if we are in
compliance in all material respects with all present
environmental regulations, in the United States environment
regulations often require parties to fund remedial action
regardless of fault. As a consequence, it is often difficult to
estimate the future impact of environmental matters, including
potential liabilities. If we have to make significant capital
expenditures or pay significant expense in connection with
future remedial actions or to continue to comply with applicable
environmental laws, our business, financial condition and
operating results could suffer.

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.                                                                               

Our stock price may be affected by sales of
our common stock by Hynix or holders of DECS
securities.

Hynix holds 12.5 million shares of our
common stock which are pledged to DECS Trust IV to secure
its obligations to DECS. In February 1999, DECS Trust IV, a
newly formed trust, sold 12.5 million DECS in a registered
public offering. The DECS are securities that represent all of
the beneficial interest in DECS Trust IV, which owns U.S.
treasury securities and a prepaid forward contract to purchase
up to 12.5 million shares of our common stock from Hynix.
Hynix could sell these 12.5 million shares by substituting
other collateral in accordance with the terms of its agreement
with the trust at any time. Our stock price may be affected if
Hynix sells all or part of such 12.5 million shares, which
Hynix has informed us that it may consider selling at a time it
deems appropriate. The trust will terminate on or shortly after
February 15, 2002, and may be liquidated earlier under
certain circumstances. When the trust terminates, Hynix will
deliver, at its option, either cash or our common stock to the
trust. If holders of DECS receive shares of our common stock at
the termination of the trust, they may sell those shares in the
open market. If Hynix delivers cash instead, the
12.5 million shares it has pledged to secure its
obligations to the trust will be released from the pledge and
may be resold by it without substituting any other collateral.
We cannot predict whether Hynix will deliver shares

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of our stock to the trust on its termination or
when or whether holders of the DECS will resell any shares of
our stock they receive. Further, any market that develops for
the DECS could reduce the demand for our common stock or
otherwise negatively impact the market price of our common stock.


Our stock price may be affected by sales of
our common stock by stockholders who received our common stock
in our merger with Quantum HDD.

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

Power outages may adversely affect our
California facilities.

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

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

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




Item 3.     Quantitative and Qualitative Disclosures about Market
Risk

Investment

We maintain an investment portfolio of various
holdings, types, and maturities. These marketable securities are
generally classified as available for sale and, consequently,
are recorded on the balance sheet at fair value with unrealized
gains or losses reported as a separate component of accumulated
other comprehensive income. Part of this portfolio includes
investments in bank issues, corporate bonds and commercial
papers. Investments in both fixed rate and floating rate
interest earning instruments carry a degree of interest rate
risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates, while
floating rate securities may produce less income than expected
if interest rates fall. Due in part to

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these factors, the Companys future
investment income may fall short of expectations due to changes
in interest rates or the Company may suffer losses in principal
if forced to sell securities which have declined in market value
due to changes in interest rates. We do not currently hedge
these interest rate exposures.


The following table presents the hypothetical
changes in fair values in the financial instruments held at
September 29, 2001 that are sensitive to changes in
interest rates. These instruments are not leveraged and are held
for purposes other than trading. The hypothetical changes assume
immediate shifts in the U.S. Treasury yield curve of plus or
minus 50 basis points (bps), 100 bps, and
150 bps.

|                      |  |          |         |          |  |         |         |                  |  |         |         |          |  |          |         |  |  |  |         |   |  |  |         |   |  |  |         |  
|--------------------- |  | -------- | ------- | -------- |  | ------- | ------- | ---------------- |  | ------- | ------- | -------- |  | -------- | ------- |  |  |  | ------- | - |  |  | ------- | - |  |  | ------- | -
|                      |  |          |         |          |  |         |         | Fair Value as of |  |         |         |          |  |         
|                      |  |          |         |          |  |         |         | September 29,    |  |         |         |          |  |         
|Investment Portfolio  |  | +150 BPS |         | +100 BPS |  | +50 BPS |         | 2001             |  | -50 BPS |         | -100 BPS |  | -150 BPS
|                      |  |          |         |          |  |         |         |                  |  |         |         |          |  |         
|Financial Instruments |  |          | 169,385 |          |  |         | 170,075 |                  |  |         | 170,778 |          |  |          | 171,477 |  |  |  | 172,184 |   |  |  | 172,899 |   |  |  | 173,620 |  
|% Change              |  |          | (1.22   | )%       |  |         | (0.82   | )%               |  |         | (0.41   | )%       |  |          |         |  |  |  | 0.41    | % |  |  | 0.83    | % |  |  | 1.25    | %

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.

|                             |  |                       |       |                  |  |                       |       |    |  |  |       |    |  |  |       |  |  |  |       |   |  |  |       |   |  |  |       |  
|---------------------------- |  | --------------------- | ----- | ---------------- |  | --------------------- | ----- | -- |  |  | ----- | -- |  |  | ----- |  |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                             |  |                       |       |                  |  |                      
|                             |  | Valuation of Security |       | Fair Value as of |  | Valuation of Security
|                             |  | Given X% Decrease     |       | September 29,    |  | Given X% Increase    
|                             |  | in the Security Price |       | 2001             |  | in the Security Price
|                             |  |                       |       |                  |  |                      
|                             |  |                       |       |                  |  |                       |       |    |  | 
|% Change                     |  |                       | (50   | )%               |  |                       | (25   | )% |  |  | (15   | )% |  |  |       |  |  |  | 15    | % |  |  | 25    | % |  |  | 50    | %
|Corporate equity investments |  |                       | 2,008 |                  |  |                       | 3,012 |    |  |  | 3,414 |    |  |  | 4,016 |  |  |  | 4,618 |   |  |  | 5,020 |   |  |  | 6,024 |  

Foreign Currency Forward Contract

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




PART II.     OTHER
INFORMATION




Item 1.     Legal Proceedings

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

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

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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.


On May 22, 2001, Maxtor was sued by Cambrian
Consultants, a California corporation, for patent infringement.
The complaint alleges infringement by both Maxtor and Quantum
products. An answer and counter-claim have been filed. Discovery
is ongoing. While the Company believes it has valid defenses to
Cambrians claims, the results of any litigation are
inherently uncertain. Additionally, we cannot assure you that we
will be able to successfully defend ourselves against this
lawsuit. The Cambrian complaint asserts claims to an unspecified
dollar amount of damages. A favorable outcome for Cambrian in
this lawsuit could result in the payment of monetary damages
equal to a reasonable royalty. In the case of a finding of a
willful infringement, we also could be required to pay treble
damages and Cambrians attorneys fees. Accordingly, a
litigation outcome favorable to Cambrian could harm our
business, financial condition, and operating results.




Item 6.     Exhibits and Reports on Form 8-K

(a)  Exhibits.

|     |  |                                                                                                                                                                   
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Lease Amendment and Novation Agreement made as of
	August  31, 2001, by and between FortuneFirst, LLC, Hynix
	Semiconductor America Inc., and MMC Technology, Inc.
|10.2 |  | Termination of Lease Agreement made effective as
	of September 20, 2001, by and between Pratt Land Limited
	Liability Company and Maxtor Corporation.             
|10.3 |  | Guaranty made as of September 2, 2001, by
	Maxtor Corporation to and for the benefit of
	CIT Technologies Corporation.                                            
|10.4 |  | $12,273,650.11 Promissory Note of MMC Technology,
	Inc. in favor of Hynix Semiconductor America Inc. and assumed by
	Maxtor Corporation dated September 2, 2001.  
|10.5 |  | $2,000,000 Promissory Note of Hyundai Electronic
	America Inc. (n/k/a Hynix Semiconductor America Inc.) in favor
	of Maxtor Corporation dated January 5, 2001.    

(b)  Reports on Form 8-K.

Maxtor filed a Current Report on Form 8-K
dated August 28, 2001, setting forth in Item 7 the
audited financial statements of Quantum HDD for the fiscal year
ended March 31, 2001 and the unaudited pro forma condensed
combined financial statements giving pro forma effect to the
acquisition of Quantum HDD as of March 31, 2001 (filing
date August 28, 2001).

Maxtor filed a Current Report on Form 8-K
dated September 26, 2001, setting forth in Item 7 its
press release dated September 26, 2001, announcing its
updated outlook for its financial results for the third fiscal
quarter ended September 26, 2001 (filing date
October 2, 2001).

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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: November 9, 2001

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EXHIBIT INDEX

|        |      |             |  |                                                                                                                                                                   
|------- | ---- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 10.1 |             |  | Lease Amendment and Novation Agreement made as of
	August  31, 2001, by and between FortuneFirst, LLC, Hynix
	Semiconductor America Inc., and MMC Technology, Inc.
|        | 10.2 |             |  | Termination of Lease Agreement made effective as
	of September 20, 2001, by and between Pratt Land Limited
	Liability Company and Maxtor Corporation.             
|        | 10.3 |             |  | Guaranty made as of September 2, 2001, by
	Maxtor Corporation to and for the benefit of
	CIT Technologies Corporation.                                            
|        | 10.4 |             |  | $12,273,650.11 Promissory Note of MMC Technology,
	Inc. in favor of Hynix Semiconductor America Inc. and assumed by
	Maxtor Corporation dated September 2, 2001.  
|        | 10.5 |             |  | $2,000,000 Promissory Note of Hyundai Electronic
	America Inc. (n/k/a Hynix Semiconductor America Inc.) in favor
	of Maxtor Corporation dated January 5, 2001.    

43