##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q





|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the period ended April 1, 2006                                                          
|          
|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: 001-16447





Maxtor Corporation


(Exact name of registrant as specified in its charter)


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

Registrants telephone number, including area code:


(408) 894-5000


þ o


12b-2




| |                           |                     |                         | 
| | ------------------------- | ------------------- | ----------------------- | 
| | Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | 

12b-2 o þ












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##### 










MAXTOR CORPORATION


FORM 10-Q


April 1, 2006


INDEX


|             |  |                                                                                                                           |  |      |    | 
|------------ |  | ------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|             |  |                                                                                                                           |  | Page |   
|             |  |                                                                                                                           |  |      |   
|             |  | PART I. FINANCIAL INFORMATION                                                                                             |  |      |    | 
|Item 1.      |  | Condensed Consolidated Financial Statements
    (Unaudited)                                                               |  |      | 2  | 
|             |  | Condensed Consolidated Balance
    Sheets  April 1, 2006, and December 31,
    2005 (Unaudited)                          |  |      | 2  | 
|             |  | Condensed Consolidated Statements of
    Operations  Three months ended April 1, 2006,
    and April 2, 2005 (Unaudited) |  |      | 3  | 
|             |  | Condensed Consolidated Statements of Cash
    Flows  Three months ended April 1, 2006, and
    April 2, 2005 (Unaudited) |  |      | 4  | 
|             |  | Notes to Condensed Consolidated Financial
    Statements (Unaudited)                                                      |  |      | 5  | 
|Item 2.      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                 |  |      | 22 | 
|Item 3.      |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                            |  |      | 50 | 
|Item 4.      |  | Controls and Procedures                                                                                                   |  |      | 50 | 
|             |  | PART II. OTHER INFORMATION                                                                                                |  |      |    | 
|Item 1.      |  | Legal Proceedings                                                                                                         |  |      | 51 | 
|Item 1A.     |  | Risk Factors                                                                                                              |  |      | 52 | 
|Item 2.      |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                                                           |  |      | 56 | 
|Item 3.      |  | Defaults Upon Senior Securities                                                                                           |  |      | 56 | 
|Item 4.      |  | Submission of Matters to a Vote of Security
    Holders                                                                   |  |      | 56 | 
|Item 5.      |  | Other Information                                                                                                         |  |      | 56 | 
|Item 6.      |  | Exhibits                                                                                                                  |  |      | 56 | 
|             |  | Signature Page                                                                                                            |  |      | 57 | 
|EXHIBIT 12.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1
|EXHIBIT 32.2







---



##### Table of Contents



PART I. FINANCIAL INFORMATION







|        |                                                            
|------- | -----------------------------------------------------------
|Item 1. | Condensed Consolidated Financial Statements
    (Unaudited)

MAXTOR CORPORATION





CONDENSED CONSOLIDATED BALANCE SHEETS


|                                             |                                                                                                                                                                                                                                                   |                                            |            |         |              |  |            |         |           | 
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------- | ------------ |  | ---------- | ------- | --------- | 
|                                             |                                                                                                                                                                                                                                                   | April 1,                                   |            |         | December 31, | 
|                                             |                                                                                                                                                                                                                                                   | 2006                                       |            |         | 2005         | 
|                                             |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                             |                                                                                                                                                                                                                                                   | (Unaudited)                                |           
|                                             |                                                                                                                                                                                                                                                   | (In thousands, except share                |           
|                                             |                                                                                                                                                                                                                                                   | and per share amounts)                     |           
|ASSETS                                       |                                                                                                                                                                                                                                                   |                                            |            |         |              |  |            |        
|Current assets:                              |                                                                                                                                                                                                                                                   |                                            |            |         |              |  |            |        
|                                             | Cash and cash equivalents                                                                                                                                                                                                                         |                                            | $          | 451,350 |              |  | $          | 497,509 |          
|                                             | Marketable securities                                                                                                                                                                                                                             |                                            |            | 42,809  |              |  |            | 67,722  |          
|                                             | Restricted cash                                                                                                                                                                                                                                   |                                            |            | 16,261  |              |  |            | 16,055  |          
|                                             | Accounts receivable, net of allowance of doubtful accounts of
    $11,595 at April 1, 2006 and $12,961 at December 31,
    2005                                                                                                                   |                                            |            | 329,211 |              |  |            | 396,077 |          
|                                             | Other receivables                                                                                                                                                                                                                                 |                                            |            | 20,216  |              |  |            | 21,904  |          
|                                             | Inventories                                                                                                                                                                                                                                       |                                            |            | 279,547 |              |  |            | 240,462 |          
|                                             | Prepaid expenses and other                                                                                                                                                                                                                        |                                            |            | 25,280  |              |  |            | 89,813  |          
|                                             |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                             |                                                                                                                                                                                                                                                   | Total current assets                       |            |         | 1,164,674    |  |            |         | 1,329,542 | 
|Property, plant and equipment, net           |                                                                                                                                                                                                                                                   |                                            | 347,563    |         |              |  | 335,336    |        
|Goodwill                                     |                                                                                                                                                                                                                                                   |                                            | 489,482    |         |              |  | 489,482    |        
|Other intangible assets, net                 |                                                                                                                                                                                                                                                   |                                            | 363        |         |              |  | 580        |        
|Other assets                                 |                                                                                                                                                                                                                                                   |                                            | 66,474     |         |              |  | 22,832     |        
|                                             |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                             |                                                                                                                                                                                                                                                   | Total assets                               |            | $       | 2,068,556    |  |            | $       | 2,177,772 | 
|                                             |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|LIABILITIES AND STOCKHOLDERS EQUITY         |                                                                                                                                                                                                                                                   |                                            |            |         |              |  |            |        
|Current liabilities:                         |                                                                                                                                                                                                                                                   |                                            |            |         |              |  |            |        
|                                             | Short-term borrowings, including current portion of long-term
    debt                                                                                                                                                                            |                                            | $          | 331,648 |              |  | $          | 5,868   |          
|                                             | Accounts payable                                                                                                                                                                                                                                  |                                            |            | 660,782 |              |  |            | 677,288 |          
|                                             | Accrued and other liabilities                                                                                                                                                                                                                     |                                            |            | 308,716 |              |  |            | 300,758 |          
|                                             |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                             |                                                                                                                                                                                                                                                   | Total current liabilities                  |            |         | 1,301,146    |  |            |         | 983,914   | 
|Long-term debt, net of current portion       |                                                                                                                                                                                                                                                   |                                            | 245,739    |         |              |  | 575,773    |        
|Other liabilities                            |                                                                                                                                                                                                                                                   |                                            | 51,889     |         |              |  | 65,113     |        
|                                             |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                             |                                                                                                                                                                                                                                                   | Total liabilities                          |            |         | 1,598,774    |  |            |         | 1,624,800 | 
|Commitments and contingencies                |                                                                                                                                                                                                                                                   |                                            |            |         |              |  |            |        
|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; 273,487,823 shares issued and
    260,239,205 shares outstanding at April 1, 2006 and
    269,542,593 shares issued and 256,293,975 shares
    outstanding at December 31, 2005 |                                            |            | 2,735   |              |  |            | 2,695   |          
|Additional paid-in capital                   |                                                                                                                                                                                                                                                   |                                            | 2,472,691  |         |              |  | 2,451,946  |        
|Accumulated deficit                          |                                                                                                                                                                                                                                                   |                                            | (1,940,662 | )       |              |  | (1,838,515 | )      
|Cumulative other comprehensive income (loss) |                                                                                                                                                                                                                                                   |                                            | (33        | )       |              |  | 1,795      |        
|Treasury stock (13,248,618 shares) at cost   |                                                                                                                                                                                                                                                   |                                            | (64,949    | )       |              |  | (64,949    | )      
|                                             |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                             |                                                                                                                                                                                                                                                   | Total stockholders equity                 |            |         | 469,782      |  |            |         | 552,972   | 
|                                             |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                             |                                                                                                                                                                                                                                                   | Total liabilities and stockholders equity |            | $       | 2,068,556    |  |            | $       | 2,177,772 | 
|                                             |                                                                                                                                                                                                                                                   |                                            |            |         |              | 



2



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##### Table of Contents



MAXTOR CORPORATION





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                       |                                        |                                 |             |        |          |   |             |         |         | 
|------------------------------------------------------ | -------------------------------------- | ------------------------------- | ----------- | ------ | -------- | - | ----------- | ------- | ------- | 
|                                                       |                                        | Three Months Ended              |            
|                                                       |                                        |                                 |            
|                                                       |                                        | April 1,                        |             |        | April 2, |  
|                                                       |                                        | 2006                            |             |        | 2005     |  
|                                                       |                                        |                                 |             |        |          |  
|                                                       |                                        | (Unaudited)                     |            
|                                                       |                                        | (In thousands, except share and |            
|                                                       |                                        | per share amounts)              |            
|Net revenues                                           |                                        | $                               | 881,018     |        |          | $ | 1,069,601   |        
|Cost of revenues(1)                                    |                                        |                                 | 858,807     |        |          |   | 953,197     |        
|                                                       |                                        |                                 |             |        |          |  
|                                                       | Gross profit                           |                                 |             | 22,211 |          |   |             | 116,404 |        
|Operating expenses:                                    |                                        |                                 |             |        |          |   |             |        
|                                                       | Research and development(1)            |                                 |             | 76,046 |          |   |             | 78,551  |        
|                                                       | Selling, general and administrative(1) |                                 |             | 34,547 |          |   |             | 37,302  |        
|                                                       | Merger-related expense                 |                                 |             | 12,192 |          |   |             |        |        
|                                                       | Restructuring charge                   |                                 |             | (4,863 | )        |   |             | 13,854  |        
|                                                       | Amortization of intangible assets      |                                 |             | 217    |          |   |             | 217     |        
|                                                       |                                        |                                 |             |        |          |  
|                                                       |                                        | Total operating expenses        |             |        | 118,139  |   |             |         | 129,924 | 
|                                                       |                                        |                                 |             |        |          |  
|Loss from operations                                   |                                        |                                 | (95,928     | )      |          |   | (13,520     | )      
|Interest expense                                       |                                        |                                 | (6,879      | )      |          |   | (8,401      | )      
|Interest income                                        |                                        |                                 | 4,290       |        |          |   | 2,356       |        
|Write-off of unamortized debt issuance costs           |                                        |                                 | (7,419      | )      |          |   |            |        
|Other gain (loss)                                      |                                        |                                 | 4,213       |        |          |   | (268        | )      
|                                                       |                                        |                                 |             |        |          |  
|Loss before income taxes                               |                                        |                                 | (101,723    | )      |          |   | (19,833     | )      
|Provision for income taxes                             |                                        |                                 | 424         |        |          |   | 328         |        
|                                                       |                                        |                                 |             |        |          |  
|Net loss                                               |                                        | $                               | (102,147    | )      |          | $ | (20,161     | )      
|                                                       |                                        |                                 |             |        |          |  
|Net loss per share  basic and diluted                 |                                        | $                               | (0.40       | )      |          | $ | (0.08       | )      
|Shares used in basic and diluted per share calculation |                                        |                                 | 258,020,987 |        |          |   | 251,595,181 |        






|    |                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Cost and expenses for the three months ended April 1, 2006
    include SFAS 123R stock-based compensation expense. See
    Note 2 to the Condensed Consolidated Financial Statements
    for additional information.



3



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##### Table of Contents



MAXTOR CORPORATION





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                         |                                                                            |                                   |                                                     |        |          |         |         |        |         |         |  
|-------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | --------------------------------- | --------------------------------------------------- | ------ | -------- | ------- | ------- | ------ | ------- | ------- | -
|                                                                                                         |                                                                            | Three Months Ended                |                                                    
|                                                                                                         |                                                                            |                                   |                                                    
|                                                                                                         |                                                                            | April 1,                          |                                                     |        | April 2, |        
|                                                                                                         |                                                                            | 2006                              |                                                     |        | 2005     |        
|                                                                                                         |                                                                            |                                   |                                                     |        |          |        
|                                                                                                         |                                                                            | (Unaudited)                       |                                                    
|                                                                                                         |                                                                            | (In thousands)                    |                                                    
|Cash Flows from Operating Activities:                                                                    |                                                                            |                                   |                                                     |        |          |         |         |       
|Net loss                                                                                                 |                                                                            | $                                 | (102,147                                            | )      |          | $       | (20,161 | )     
|Adjustments to reconcile net loss to net cash used in operating
    activities:                          |                                                                            |                                   |                                                     |        |          |         |         |       
|                                                                                                         | Depreciation and amortization                                              |                                   |                                                     | 38,506 |          |         |         | 37,307 |        
|                                                                                                         | Amortization of intangible assets                                          |                                   |                                                     | 217    |          |         |         | 217    |        
|                                                                                                         | Amortization of debt issuance costs                                        |                                   |                                                     | 455    |          |         |         |       |        
|                                                                                                         | Write-off of unamortized debt issuance costs                               |                                   |                                                     | 7,419  |          |         |         |       |        
|                                                                                                         | Stock-based compensation expense                                           |                                   |                                                     | 3,344  |          |         |         | 13     |        
|                                                                                                         | Restructuring charge, net                                                  |                                   |                                                     | (4,863 | )        |         |         | 13,752 |        
|                                                                                                         | Loss (gain) on sale of property, plant and equipment                       |                                   |                                                     | 2,636  |          |         |         | (338   | )      
|                                                                                                         | Gain on sale of asset held for sale                                        |                                   |                                                     | (2,442 | )        |         |         |        |        
|                                                                                                         | Loss (gain) on sale of equity investments                                  |                                   |                                                     | (2,035 | )        |         |         | 12     |        
|                                                                                                         | Other                                                                      |                                   |                                                     | 115    |          |         |         |       |        
|                                                                                                         | Change in assets and liabilities:                                          |                                   |                                                     |        |          |         |         |        |        
|                                                                                                         |                                                                            | Accounts receivable               |                                                     |        | 66,866   |         |         |        | (3,296  | )      
|                                                                                                         |                                                                            | Other receivables                 |                                                     |        | 1,688    |         |         |        | 10,538  |        
|                                                                                                         |                                                                            | Inventories                       |                                                     |        | (39,085  | )       |         |        | (1,618  | )      
|                                                                                                         |                                                                            | Prepaid expenses and other assets |                                                     |        | 2,770    |         |         |        | 3,765   |        
|                                                                                                         |                                                                            | Accounts payable                  |                                                     |        | (2,770   | )       |         |        | (47,211 | )      
|                                                                                                         |                                                                            | Accrued and other liabilities     |                                                     |        | (403     | )       |         |        | 6,526   |        
|                                                                                                         |                                                                            |                                   |                                                     |        |          |        
|                                                                                                         |                                                                            |                                   | Net cash used in operating activities               |        |          | (29,729 | )       |        |         | (494    | )
|                                                                                                         |                                                                            |                                   |                                                     |        |          |        
|Cash Flows from Investing Activities:                                                                    |                                                                            |                                   |                                                     |        |          |         |         |       
|Proceeds from sale of asset held for sale                                                                |                                                                            |                                   | 10,489                                              |        |          |         |        |       
|Proceeds from sale of property, plant and equipment                                                      |                                                                            |                                   | 787                                                 |        |          |         | 1       |       
|Purchase of property, plant and equipment                                                                |                                                                            |                                   | (67,892                                             | )      |          |         | (25,816 | )     
|Change in restricted assets                                                                              |                                                                            |                                   | (206                                                | )      |          |         | 27,627  |       
|Maturities and sales of marketable securities                                                            |                                                                            |                                   | 25,055                                              |        |          |         | 28,283  |       
|Purchase of marketable securities                                                                        |                                                                            |                                   |                                                    |        |          |         | (13,900 | )     
|Proceeds from sale of equity investments                                                                 |                                                                            |                                   | 2,150                                               |        |          |         |        |       
|                                                                                                         |                                                                            |                                   |                                                     |        |          |        
|                                                                                                         |                                                                            |                                   | Net cash provided by (used in) investing activities |        |          | (29,617 | )       |        |         | 16,195  |  
|                                                                                                         |                                                                            |                                   |                                                     |        |          |        
|Cash Flows from Financing Activities:                                                                    |                                                                            |                                   |                                                     |        |          |         |         |       
|Principal payments of debt including short-term borrowings                                               |                                                                            |                                   | (4,031                                              | )      |          |         | (27,567 | )     
|Principal payments under capital lease obligations                                                       |                                                                            |                                   | (223                                                | )      |          |         | (1,132  | )     
|Proceeds from issuance of common stock from employee stock
    purchase plan and stock options exercised |                                                                            |                                   | 17,441                                              |        |          |         | 10,540  |       
|                                                                                                         |                                                                            |                                   |                                                     |        |          |        
|                                                                                                         |                                                                            |                                   | Net cash provided by (used in) financing activities |        |          | 13,187  |         |        |         | (18,159 | )
|                                                                                                         |                                                                            |                                   |                                                     |        |          |        
|Net change in cash and cash equivalents                                                                  |                                                                            |                                   | (46,159                                             | )      |          |         | (2,458  | )     
|Cash and cash equivalents at beginning of period                                                         |                                                                            |                                   | 497,509                                             |        |          |         | 378,065 |       
|                                                                                                         |                                                                            |                                   |                                                     |        |          |        
|Cash and cash equivalents at end of period                                                               |                                                                            | $                                 | 451,350                                             |        |          | $       | 375,607 |       
|                                                                                                         |                                                                            |                                   |                                                     |        |          |        
|Supplemental Disclosures of Cash Flow Information:                                                       |                                                                            |                                   |                                                     |        |          |         |         |       
|                                                                                                         | Cash paid during the period for:                                           |                                   |                                                     |        |          |         |         |        |        
|                                                                                                         |                                                                            | Interest                          |                                                     | $      | 5,576    |         |         | $      | 4,013   |        
|                                                                                                         |                                                                            | Income taxes                      |                                                     | $      | 297      |         |         | $      | 647     |        
|Schedule of Non-Cash Investing and Financing Activities:                                                 |                                                                            |                                   |                                                     |        |          |         |         |       
|                                                                                                         | Purchase of property, plant and equipment financed by accounts
    payable |                                   | $                                                   | 5,235  |          |         | $       | 6,252  |        
|                                                                                                         | Change in unrealized loss on investments                                   |                                   | $                                                   | (1,828 | )        |         | $       | (1,637 | )      



4



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MAXTOR CORPORATION





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




|   |                                                          
|-- | ---------------------------------------------------------
|1. | Basis of Presentation and Significant Accounting Policies

10-Q 10-K






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





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





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



5



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

10-K




|   |                         
|-- | ------------------------
|2. | Stock-Based Compensation











| |                             
| | ----------------------------
| | Employee Stock Purchase Plan



6



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                
| | ---------------
| | 1996 Stock Plan





| |                                
| | -------------------------------
| | 2005 Performance Incentive Plan





| |                        
| | -----------------------
| | Quantum HDD Merger Plan

00-23


7



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                       |           |           |            |            |                |           |         |             |  |  |                 |      |  |   |        |   | 
|-------------------------------------- | --------- | --------- | ---------- | ---------- | -------------- | --------- | ------- | ----------- |  |  | --------------- | ---- |  | - | ------ | - | 
|                                       |           |           |            |            |                | Weighted- |         |             | 
|                                       |           |           |            | Weighted-  |                |           | Average |             |  | 
|                                       |           | Number of |            |            | Average        |           |         | Remaining   |  |  | Aggregate       |     
|                                       |           | Shares    |            |            | Exercise Price |           |         | Contractual |  |  | Intrinsic Value |     
|                                       |           | (000s)   |            |            | Per Share      |           |         | Term        |  |  | ($000s)        |     
|                                       |           |           |            |            |                |           |         |             |  |  |                 |     
|Options outstanding at January 1, 2006 |           |           | 24,611,561 |            |                | $         | 5.80    |             |  |  | 6.94            |      |  | $ | 41,444 |  
|                                       | Granted   |           |            | 145,675    |                |           | $       | 8.57        |  |  |                 | 9.87 |  |   | $      |  | 
|                                       | Exercised |           |            | (3,417,010 | )              |           | $       | 5.12        |  |  |                 |     |  |   | $      |  | 
|                                       | Canceled  |           |            | (297,031   | )              |           | $       | 5.98        |  |  |                 |     |  |   | $      |  | 
|                                       |           |           |            |            |                |           |         |             |  |  |                 |     
|Options outstanding at April 1, 2006   |           |           | 21,043,195 |            |                | $         | 5.93    |             |  |  | 6.98            |      |  | $ | 81,982 |  
|                                       |           |           |            |            |                |           |         |             |  |  |                 |     
|Exercisable at April 1, 2006           |           |           | 10,739,545 |            |                | $         | 6.71    |             |  |  | 5.25            |      |  | $ | 35,948 |  
|                                       |           |           |            |            |                |           |         |             |  |  |                 |     





|                                     |  |           |         |   |                 |   |      | 
|------------------------------------ |  | --------- | ------- | - | --------------- | - | ---- | 
|                                     |  | Number of |         |   | Weighted-       |  
|                                     |  | Shares    |         |   | Average Grant-  |  
|                                     |  | (000s)   |         |   | Date Fair Value |  
|                                     |  |           |         |   |                 |  
|Non-vested shares at January 1, 2006 |  |           | 332,000 |   |                 | $ | 5.02 | 
|Granted                              |  |           | 616,625 |   |                 | $ | 9.72 | 
|Vested                               |  |           | (1,400  | ) |                 | $ | 4.95 | 
|Forfeited                            |  |           | (5,000  | ) |                 | $ | 4.83 | 
|                                     |  |           |         |   |                 |  
|Non-vested shares at April 1, 2006   |  |           | 942,225 |   |                 | $ | 8.09 | 
|                                     |  |           |         |   |                 |  







8



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                        |  |                    |      |                |                    |  |      |          |  |  |          |       |  |  |      |      
|----------------------- |  | ------------------ | ---- | -------------- | ------------------ |  | ---- | -------- |  |  | -------- | ----- |  |  | ---- | -----
|                        |  |                    |      | Employee Stock |                   
|                        |  | Stock Option Plans |      |                | Purchase Plan      | 
|                        |  |                    |      |                |                    | 
|                        |  | Three Months Ended |      |                | Three Months Ended | 
|                        |  |                    |      |                |                    | 
|                        |  | April 1,           |      |                | April 2,           |  |      | April 1, |  |  | April 2, |      
|                        |  | 2006               |      |                | 2005               |  |      | 2006     |  |  | 2005     |      
|                        |  |                    |      |                |                    |  |      |          |  |  |          |      
|Expected life           |  |                    | 4.2  | years          |                    |  | 4.5  | years    |  |  | 0.5      | years |  |  | 0.5  | years
|Risk-free interest rate |  |                    | 4.42 | %              |                    |  | 3.89 | %        |  |  | 4.7      | %     |  |  | 2.86 | %    
|Volatility              |  |                    | 56   | %              |                    |  | 74   | %        |  |  | 58       | %     |  |  | 74   | %    
|Expected dividend yield |  |                    |     |                |                    |  |     |          |  |  |         |       |  |  |     |      







|                                    |  |   |       | 
|----------------------------------- |  | - | ----- | 
|Cost of revenues                    |  | $ | 505   | 
|Research and development            |  |   | 1,456 | 
|Selling, general and administrative |  |   | 1,383 | 
|                                    |  |   |      
|Stock-based compensation expense    |  | $ | 3,344 | 
|                                    |  |   |      



9



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                    |             |   |         |       |  
|----------------------------------------------------------------------------------- | ----------- | - | ------- | ----- | -
|Net loss  as reported                                                              |             | $ | (20,161 | )    
|Add: APB 25 stock-based employee compensation expense, as
    reported              |             |   | 13      |      
|Less: Stock-based compensation expense determined under fair
    value based method |             |   | 3,917   |      
|                                                                                    |             |   |        
|Pro forma net loss                                                                  |             | $ | (24,065 | )    
|                                                                                    |             |   |        
|Basic and diluted net loss per share:                                               |             |   |         |      
|                                                                                    | As reported |   | $       | (0.08 | )
|                                                                                    |             |   |        
|                                                                                    | Pro forma   |   | $       | (0.10 | )
|                                                                                    |             |   |        



|   |                   
|-- | ------------------
|3. | Balance Sheet Data

|                                               |                                                 |                |          |         |              |   |          |         | 
|---------------------------------------------- | ----------------------------------------------- | -------------- | -------- | ------- | ------------ | - | -------- | ------- | 
|                                               |                                                 | April 1,       |          |         | December 31, |  
|                                               |                                                 | 2006           |          |         | 2005         |  
|                                               |                                                 |                |          |         |              |  
|                                               |                                                 | (In thousands) |         
|Inventories:                                   |                                                 |                |          |         |              |   |          |        
|                                               | Raw materials                                   |                | $        | 55,681  |              |   | $        | 55,400  | 
|                                               | Work-in-process                                 |                |          | 47,206  |              |   |          | 53,118  | 
|                                               | Finished goods                                  |                |          | 176,660 |              |   |          | 131,944 | 
|                                               |                                                 |                |          |         |              |  
|                                               |                                                 | $              | 279,547  |         |              | $ | 240,462  |        
|                                               |                                                 |                |          |         |              |  
|Prepaid expenses and other:                    |                                                 |                |          |         |              |   |          |        
|                                               | Prepayment to supplier                          |                | $        | 3,701   |              |   | $        | 37,500  | 
|                                               | Supplier payment                                |                |          |        |              |   |          | 12,500  | 
|                                               | Vendor down payment                             |                |          | 4,425   |              |   |          | 12,062  | 
|                                               | Prepaid expenses                                |                |          | 7,126   |              |   |          | 8,959   | 
|                                               | Long-lived assets held for sale                 |                |          |        |              |   |          | 8,047   | 
|                                               | Investments in equity securities, at fair value |                |          |        |              |   |          | 2,200   | 
|                                               | Other                                           |                |          | 10,028  |              |   |          | 8,545   | 
|                                               |                                                 |                |          |         |              |  
|                                               |                                                 | $              | 25,280   |         |              | $ | 89,813   |        
|                                               |                                                 |                |          |         |              |  
|Property, plant and equipment, at cost:        |                                                 |                |          |         |              |   |          |        
|                                               | Buildings                                       |                | $        | 143,049 |              |   | $        | 139,009 | 
|                                               | Machinery and equipment                         |                |          | 603,196 |              |   |          | 607,339 | 
|                                               | Leasehold improvements                          |                |          | 93,256  |              |   |          | 90,090  | 
|                                               | Software                                        |                |          | 85,801  |              |   |          | 85,154  | 
|                                               | Furniture and fixtures                          |                |          | 29,746  |              |   |          | 29,522  | 
|                                               |                                                 |                |          |         |              |  
|                                               |                                                 | $              | 955,048  |         |              | $ | 951,114  |        
|Less accumulated depreciation and amortization |                                                 |                | (607,485 | )       |              |   | (615,778 | )      
|                                               |                                                 |                |          |         |              |  
|Property, plant and equipment, net             |                                                 | $              | 347,563  |         |              | $ | 335,336  |        
|                                               |                                                 |                |          |         |              |  

10



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                               |                                              |                |         |         |              |   |         |         | 
|------------------------------ | -------------------------------------------- | -------------- | ------- | ------- | ------------ | - | ------- | ------- | 
|                               |                                              | April 1,       |         |         | December 31, |  
|                               |                                              | 2006           |         |         | 2005         |  
|                               |                                              |                |         |         |              |  
|                               |                                              | (In thousands) |        
|Accrued and other liabilities: |                                              |                |         |         |              |   |         |        
|                               | Accrued warranty                             |                | $       | 158,134 |              |   | $       | 161,464 | 
|                               | Accrued payroll and payroll-related expenses |                |         | 66,620  |              |   |         | 51,928  | 
|                               | Accrued supplier payment                     |                |         |        |              |   |         | 12,500  | 
|                               | Restructuring liabilities, short-term        |                |         | 13,107  |              |   |         | 13,296  | 
|                               | Income taxes payable                         |                |         | 8,345   |              |   |         | 8,225   | 
|                               | Bond interest payable                        |                |         | 5,077   |              |   |         | 5,592   | 
|                               | VAT liability                                |                |         | 7,468   |              |   |         | 219     | 
|                               | Accrued expenses                             |                |         | 49,965  |              |   |         | 47,534  | 
|                               |                                              |                |         |         |              |  
|                               |                                              | $              | 308,716 |         |              | $ | 300,758 |        
|                               |                                              |                |         |         |              |  



|   |                                     
|-- | ------------------------------------
|4. | Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets




|                              |                      |          |  |               |          |                |         |              |                   |   |                |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |          |         |          |   |         |         |   |   |         |     |   | 
|----------------------------- | -------------------- | -------- |  | ------------- | -------- | -------------- | ------- | ------------ | ----------------- | - | -------------- | ------- | -------- | --- | ------- | -------- | ------ | - | ----------- | ------------ | - | ----- | ---------- | ------ | ------- | --- | -------- | ------- | -------- | - | ------- | ------- | - | - | ------- | --- | - | 
|                              |                      |          |  | April 1, 2006 |          |                |         |              | December 31, 2005 |   |                |        
|                              |                      |          |  |               |          |                |         |              |                   |   |                |        
|                              |                      | Useful   |  |               | Gross    |                |         |              |                   |   |                | Gross   |          |     |         |          |       
|                              |                      | Life     |  |               | Carrying |                |         | Accumulated  |                   |   | Asset          |         |          |     |         | Carrying |        |   | Accumulated |              |   | Asset |            |        |        
|                              |                      | (Years)  |  |               | Amount   |                |         | Amortization |                   |   | Impairment     |         |          | Net |         |          | Amount |   |             | Amortization |   |       | Impairment |        |         | Net |         
|                              |                      |          |  |               |          |                |         |              |                   |   |                |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |         
|                              |                      |          |  |               |          | (In thousands) |         |              |                   |   | (In thousands) |         |          |     |         |         
|Goodwill                      |                      |          |  |               |          | $              | 489,482 |              |                   |   |               |         |          |     |        |          |        | $ | 489,482     |              |   | $     | 489,482    |        |         |     |         |         |          |   |        |         |   | $ | 489,482 |    
|                              |                      |          |  |               |          |                |         |              |                   |   |                |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |         
|Quantum HDD                   |                      |          |  |               |          |                |         |              |                   |   |                |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |          |         |          |   |         |         |   |   |         |    
|Existing Technology           |                      |          |  |               |          |                |         |              |                   |   |                |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |          |         |          |   |         |         |   |   |         |    
|                              | Core technology      |          |  | 5             |          |                | $       | 96,700       |                   |   | $              | (72,525 | )        |     | $       | (24,175  | )      |   | $           |             |   |       | $          | 96,700 |         |     | $        | (72,525 | )        |   | $       | (24,175 | ) |   | $       |    |  
|                              | Consumer electronics |          |  | 3             |          |                |         | 8,900        |                   |   |                | (8,900  | )        |     |         |         |        |   |             |             |   |       |            | 8,900  |         |     |          | (8,900  | )        |   |         |        |   |   |         |    |  
|                              |                      | High-end |  |               | 3        |                |         |              | 75,500            |   |                |         | (75,500  | )   |         |          |       |   |             |              |  |       |            |        | 75,500  |     |          |         | (75,500  | ) |         |         |  |   |         |     |  | 
|                              |                      | Desktop  |  |               | 3        |                |         |              | 105,000           |   |                |         | (105,000 | )   |         |          |       |   |             |              |  |       |            |        | 105,000 |     |          |         | (105,000 | ) |         |         |  |   |         |     |  | 
|MMC Technology                |                      |          |  |               |          |                |         |              |                   |   |                |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |          |         |          |   |         |         |   |   |         |    
|                              | Existing technology  |          |  | 5             |          |                |         | 4,350        |                   |   |                | (3,987  | )        |     |         |         |        |   |             | 363          |   |       |            | 4,350  |         |     |          | (3,770  | )        |   |         |        |   |   |         | 580 |  
|                              |                      |          |  |               |          |                |         |              |                   |   |                |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |         
|Total other intangible assets |                      |          |  |               |          | $              | 290,450 |              |                   | $ | (265,912       | )       |          | $   | (24,175 | )        |        | $ | 363         |              |   | $     | 290,450    |        |         | $   | (265,695 | )       |          | $ | (24,175 | )       |   | $ | 580     |    
|                              |                      |          |  |               |          |                |         |              |                   |   |                |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |         

11



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |               
|-- | --------------
|5. | Long-term Debt



|                                                    |  |          |          |   |              |   |         |  
|--------------------------------------------------- |  | -------- | -------- | - | ------------ | - | ------- | -
|                                                    |  | April 1, |          |   | December 31, |  
|                                                    |  | 2006     |          |   | 2005         |  
|                                                    |  |          |          |   |              |  
|6.8% Convertible Senior Notes due April 30, 2010    |  | $        | 135,729  |   |              | $ | 135,729 |  
|5.75% Subordinated Debentures due March 1, 2012     |  |          | 55,000   |   |              |   | 59,031  |  
|2.375% Convertible Senior Notes due August 15, 2012 |  |          | 326,000  |   |              |   | 326,000 |  
|Manufacturing Facility Loan, Suzhou China           |  |          | 60,000   |   |              |   | 60,000  |  
|Equipment Loans and Capital Leases                  |  |          | 658      |   |              |   | 881     |  
|                                                    |  |          |          |   |              |  
|                                                    |  |          | 577,387  |   |              |   | 581,641 |  
|Less amounts due within one year                    |  |          | (331,648 | ) |              |   | (5,868  | )
|                                                    |  |          |          |   |              |  
|                                                    |  | $        | 245,739  |   |              | $ | 575,773 |  
|                                                    |  |          |          |   |              |  









12



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




U.S.-dollar






|   |           
|-- | ----------
|6. | Guarantees



| |                                                  
| | -------------------------------------------------
| | Intellectual Property Indemnification Obligations





| |                 
| | ----------------
| | Accrued Warranty



13



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                               |  |                    |         |   |          |   |         |  
|------------------------------ |  | ------------------ | ------- | - | -------- | - | ------- | -
|                               |  | Three Months Ended |        
|                               |  |                    |        
|                               |  | April 1,           |         |   | April 2, |  
|                               |  | 2006               |         |   | 2005     |  
|                               |  |                    |         |   |          |  
|Balance at beginning of period |  | $                  | 161,464 |   |          | $ | 185,940 |  
|Charges to operations          |  |                    | 28,930  |   |          |   | 52,420  |  
|Settlements(1)                 |  |                    | (34,350 | ) |          |   | (47,341 | )
|Changes in estimates(2)        |  |                    | 2,090   |   |          |   | 14,987  |  
|                               |  |                    |         |   |          |  
|Balance at end of period       |  | $                  | 158,134 |   |          | $ | 206,006 |  
|                               |  |                    |         |   |          |  






|    |                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents aggregate reductions in the liability for payments
    made (in cash or in kind) under the warranty.                                                                                                              
|   
|(2) | Comprises changes in the estimated cost of repair; changes in
    expected return rates; changes due to product expirations and
    changes in estimates related to specific non-standard claims
    received from customers.







|   |              
|-- | -------------
|7. | Restructuring



14



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








reduction-in


reduction-in reduction-in




15



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                             |              |               |       |       |               |   |      |       |   |   |       |       |  
|---------------------------- | ------------ | ------------- | ----- | ----- | ------------- | - | ---- | ----- | - | - | ----- | ----- | -
|                             |              | Facilities-   |       |       | Severance and |   |      |      
|                             |              | Related       |       |       | Benefits      |   |      | Total |  
|                             |              |               |       |       |               |   |      |       |  
|                             |              | (In millions) |      
|Provision at April 1, 2001   |              | $             | 45.3  |       |               | $ |     |       |   | $ | 45.3  |      
|Amounts paid                 |              |               | (0.9  | )     |               |   |     |       |   |   | (0.9  | )    
|                             |              |               |       |       |               |   |      |       |  
|Balance at December 29, 2001 |              |               | 44.4  |       |               |   |     |       |   |   | 44.4  |      
|Amounts paid                 |              |               | (4.5  | )     |               |   |     |       |   |   | (4.5  | )    
|2002 accrual                 |              |               | 8.9   |       |               |   |     |       |   |   | 8.9   |      
|                             |              |               |       |       |               |   |      |       |  
|Balance at December 28, 2002 |              |               | 48.8  |       |               |   |     |       |   |   | 48.8  |      
|                             | Amounts paid |               |       | (10.0 | )             |   |      |      |   |   |       | (10.0 | )
|                             |              |               |       |       |               |   |      |       |  
|Balance at December 27, 2003 |              |               | 38.8  |       |               |   |     |       |   |   | 38.8  |      
|                             | Amounts paid |               |       | (7.8  | )             |   |      | (10.7 | ) |   |       | (18.5 | )
|                             | Accruals     |               |       | 20.3  |               |   |      | 12.9  |   |   |       | 33.2  |  
|                             |              |               |       |       |               |   |      |       |  
|Balance at December 25, 2004 |              |               | 51.3  |       |               |   | 2.2  |       |   |   | 53.5  |      
|                             | Amounts paid |               |       | (6.0  | )             |   |      | (15.6 | ) |   |       | (21.6 | )
|                             | Adjustments  |               |       |      |               |   |      | 3.3   |   |   |       | 3.3   |  
|                             | Accruals     |               |       |      |               |   |      | 15.3  |   |   |       | 15.3  |  
|                             |              |               |       |       |               |   |      |       |  
|Balance at December 31, 2005 |              |               | 45.3  |       |               |   | 5.2  |       |   | $ | 50.5  |      
|                             |              |               |       |       |               |   |      |       |  
|Amounts paid                 |              |               | (2.4  | )     |               |   | (4.4 | )     |   |   | (6.8  | )    
|Adjustments                  |              |               | (10.9 | )     |               |   |     |       |   |   | (10.9 | )    
|Accruals                     |              |               |      |       |               |   | 6.1  |       |   |   | 6.1   |      
|                             |              |               |       |       |               |   |      |       |  
|Balance at April 1, 2006     |              | $             | 32.0  |       |               | $ | 6.9  |       |   | $ | 38.9  |      
|                             |              |               |       |       |               |   |      |       |  



|   |                    
|-- | -------------------
|8. | Asset Held for Sale



16



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                   
|-- | ------------------
|9. | Earnings Per Share



|                                                 |                                         |                    |             |   |          |   |             |   | 
|------------------------------------------------ | --------------------------------------- | ------------------ | ----------- | - | -------- | - | ----------- | - | 
|                                                 |                                         | Three Months Ended |            
|                                                 |                                         |                    |            
|                                                 |                                         | April 1,           |             |   | April 2, |  
|                                                 |                                         | 2006               |             |   | 2005     |  
|                                                 |                                         |                    |             |   |          |  
|Numerator  Basic and Diluted                    |                                         |                    |             |   |          |   |             |  
|Net loss                                         |                                         | $                  | (102,147    | ) |          | $ | (20,161     | )
|                                                 |                                         |                    |             |   |          |  
|Denominator                                      |                                         |                    |             |   |          |   |             |  
|Basic weighted average common shares outstanding |                                         |                    | 258,020,987 |   |          |   | 251,595,181 |  
|Effect of dilutive securities:                   |                                         |                    |             |   |          |   |             |  
|                                                 | Common stock options                    |                    |             |  |          |   |             |  | 
|                                                 | Restricted shares subject to repurchase |                    |             |  |          |   |             |  | 
|                                                 |                                         |                    |             |   |          |  
|Diluted weighted average common shares           |                                         |                    | 258,020,987 |   |          |   | 251,595,181 |  
|                                                 |                                         |                    |             |   |          |  
|Net loss per share  basic and diluted           |                                         | $                  | (0.40       | ) |          | $ | (0.08       | )
|                                                 |                                         |                    |             |   |          |  



|                                             |                                                                                                |              |        |        |          |  |        |        | 
|-------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------ | ------ | ------ | -------- |  | ------ | ------ | 
|                                             |                                                                                                | Three Months |       
|                                             |                                                                                                | Ended        |       
|                                             |                                                                                                |              |       
|                                             |                                                                                                | April 1,     |        |        | April 2, | 
|                                             |                                                                                                | 2006         |        |        | 2005     | 
|                                             |                                                                                                |              |        |        |          | 
|Stock options outstanding:                   |                                                                                                |              |        |        |          |  |        |       
|                                             | In-the-money options                                                                           |              |        | 5,560  |          |  |        | 1,993  | 
|                                             | Out-of-the-money options                                                                       |              |        | 2,543  |          |  |        | 13,467 | 
|Unvested common shares subject to repurchase |                                                                                                |              | 634    |        |          |  | 20     |       
|6.8% Convertible Senior Notes due 2010       |                                                                                                |              | 11,069 |        |          |  | 18,756 |       
|2.375% Convertible Senior Notes due 2012     |                                                                                                |              | 13,903 |        |          |  |       |       
|                                             |                                                                                                |              |        |        |          | 
|                                             | Total potential shares of common stock excluded from the
    computation of earnings per share |              |        | 33,709 |          |  |        | 34,236 | 
|                                             |                                                                                                |              |        |        |          | 



(In-the (Out-of


17



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                   
|--- | ------------------
|10. | Comprehensive Loss



|                                                                           |  |                    |          |   |          |   |         |  
|-------------------------------------------------------------------------- |  | ------------------ | -------- | - | -------- | - | ------- | -
|                                                                           |  | Three Months Ended |         
|                                                                           |  |                    |         
|                                                                           |  | April 1,           |          |   | April 2, |  
|                                                                           |  | 2006               |          |   | 2005     |  
|                                                                           |  |                    |          |   |          |  
|Net loss                                                                   |  | $                  | (102,147 | ) |          | $ | (20,161 | )
|Unrealized loss on investments in securities                               |  |                    | 207      |   |          |   | (1,920  | )
|Less: reclassification adjustment for gain (loss) included in
    net loss |  |                    | 2,035    |   |          |   | (283    | )
|                                                                           |  |                    |          |   |          |  
|Comprehensive loss                                                         |  | $                  | (103,975 | ) |          | $ | (21,798 | )
|                                                                           |  |                    |          |   |          |  



|    |                                     
|--- | ------------------------------------
|11. | Segment and Geographical Information





|                                                           |  |                    |         |  |          |   |           | 
|---------------------------------------------------------- |  | ------------------ | ------- |  | -------- | - | --------- | 
|                                                           |  | Three Months Ended |        
|                                                           |  |                    |        
|                                                           |  | April 1,           |         |  | April 2, |  
|                                                           |  | 2006               |         |  | 2005     |  
|                                                           |  |                    |         |  |          |  
|United States                                              |  | $                  | 267,443 |  |          | $ | 332,278   | 
|Asia Pacific and Japan                                     |  |                    | 258,408 |  |          |   | 323,311   | 
|Europe, Middle East and Africa (excluding the Netherlands) |  |                    | 217,274 |  |          |   | 285,002   | 
|The Netherlands                                            |  |                    | 97,017  |  |          |   | 117,212   | 
|Latin America and other                                    |  |                    | 40,876  |  |          |   | 11,798    | 
|                                                           |  |                    |         |  |          |  
|Total                                                      |  | $                  | 881,018 |  |          | $ | 1,069,601 | 
|                                                           |  |                    |         |  |          |  



|                               |  |          |         |  |              |   |         | 
|------------------------------ |  | -------- | ------- |  | ------------ | - | ------- | 
|                               |  | April 1, |         |  | December 31, |  
|                               |  | 2006     |         |  | 2005         |  
|                               |  |          |         |  |              |  
|United States                  |  | $        | 673,755 |  |              | $ | 680,833 | 
|Asia Pacific and Japan         |  |          | 229,334 |  |              |   | 166,769 | 
|Europe, Middle East and Africa |  |          | 793     |  |              |   | 628     | 
|Latin America and other        |  |          |        |  |              |   |        | 
|                               |  |          |         |  |              |  
|Total                          |  | $        | 903,882 |  |              | $ | 848,230 | 
|                               |  |          |         |  |              |  





|    |                              
|--- | -----------------------------
|12. | Commitments and Contingencies



| |                      
| | ---------------------
| | Investment Commitment



18



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                  
| | -----------------
| | Legal Proceedings













19



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                               
|--- | ------------------------------
|13. | Merger with Seagate Technology



20



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






21



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





Executive Overview






S-4




22



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Critical Accounting Policies




23



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

10-K




| |                                 
| | --------------------------------
| | Stock-Based Compensation Expense





24



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| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

10-K


Results of Operations




| |                              
| | -----------------------------
| | Net Revenues and Gross Profit

|                            |  |                    |        |    |          |   |         |        |  |   |        |  
|--------------------------- |  | ------------------ | ------ | -- | -------- | - | ------- | ------ |  | - | ------ | -
|                            |  | Three Months Ended |        |    |         
|                            |  |                    |        |    |         
|                            |  | April 1,           |        |    | April 2, |   |         |       
|                            |  | 2006               |        |    | 2005     |   |         | Change | 
|                            |  |                    |        |    |          |   |         |        | 
|                            |  | (In millions)      |       
|Total revenues              |  | $                  | 881.0  |    |          | $ | 1,069.6 |        |  | $ | (188.6 | )
|Gross profit                |  | $                  | 22.2   |    |          | $ | 116.4   |        |  | $ | (94.2  | )
|Net loss                    |  | $                  | (102.1 | )  |          | $ | (20.2   | )      |  | $ | (81.9  | )
|                           
|As a percentage of revenue: |  |                    |        |    |          |   |         |        |  |   |        |  
|Total revenues              |  |                    | 100.0  | %  |          |   | 100.0   | %      |  |   |        |  
|Gross profit                |  |                    | 2.5    | %  |          |   | 10.9    | %      |  |   |        |  
|Net loss                    |  |                    | (11.6  | )% |          |   | (1.9    | )%     |  |   |        |  

Net Revenues.










25



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| |                          
| | -------------------------
| | Net Revenues by Geography

|                               |  |              |       |   |          |  |       |        |  |  |      |  
|------------------------------ |  | ------------ | ----- | - | -------- |  | ----- | ------ |  |  | ---- | -
|                               |  | Three Months |       |   |         
|                               |  | Ended        |       |   |         
|                               |  |              |       |   |         
|                               |  | April 1,     |       |   | April 2, |  |       |       
|                               |  | 2006         |       |   | 2005     |  |       | Change | 
|                               |  |              |       |   |          |  |       |        | 
|As a Percentage of Revenue:    |  |              |       |   |          |  |       |        |  |  |      |  
|United States and Canada       |  |              | 31.9  | % |          |  | 31.1  | %      |  |  | 0.8  | %
|Europe, Middle East and Africa |  |              | 35.7  | % |          |  | 37.6  | %      |  |  | -1.9 | %
|Asia Pacific and Japan         |  |              | 29.3  | % |          |  | 30.2  | %      |  |  | -0.9 | %
|Other                          |  |              | 3.1   | % |          |  | 1.1   | %      |  |  | 2.0  | %
|Total                          |  |              | 100.0 | % |          |  | 100.0 | %      |  |  |      |  

|                                       |  |                |        | 
|-------------------------------------- |  | -------------- | ------ | 
|                                       |  | Change between |       
|                                       |  | Q106 and Q105  |       
|Percentage Change in Absolute Dollars: |  |                |       
|United States and Canada               |  |                | -15.5% | 
|Europe, Middle East and Africa         |  |                | -21.9% | 
|Asia Pacific and Japan                 |  |                | -20.1% | 







Cost of Revenues; Gross Profit.






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

|                                    |  |               |      |   |          |   |      |        |  |   |      |  
|----------------------------------- |  | ------------- | ---- | - | -------- | - | ---- | ------ |  | - | ---- | -
|                                    |  | Three Months  |      |   |         
|                                    |  | Ended         |      |   |         
|                                    |  |               |      |   |         
|                                    |  | April 1,      |      |   | April 2, |   |      |       
|                                    |  | 2006          |      |   | 2005     |   |      | Change | 
|                                    |  |               |      |   |          |   |      |        | 
|                                    |  | (In millions) |     
|Research and development            |  | $             | 76.0 |   |          | $ | 78.5 |        |  | $ | (2.5 | )
|Selling, general and administrative |  | $             | 34.5 |   |          | $ | 37.3 |        |  | $ | (2.8 | )
|Merger-related expense              |  | $             | 12.2 |   |          | $ |     |        |  | $ | 12.2 |  
|Restructuring charge                |  | $             | (4.9 | ) |          | $ | 13.9 |        |  | $ | 18.8 |  
|Amortization of intangible assets   |  | $             | 0.2  |   |          | $ | 0.2  |        |  | $ |     |  
|                                   
|As a percentage of revenue:         |  |               |      |   |          |   |      |        |  |   |      |  
|Research and development            |  |               | 8.6  | % |          |   | 7.3  | %      |  |   |      |  
|Selling, general and administrative |  |               | 3.9  | % |          |   | 3.5  | %      |  |   |      |  
|Merger-related expense              |  |               | 1.4  | % |          |   | 0.0  | %      |  |   |      |  
|Restructuring charge                |  |               | -0.6 | % |          |   | 1.3  | %      |  |   |      |  
|Amortization of intangible assets   |  |               | 0.0  | % |          |   | 0.0  | %      |  |   |      |  

Research and Development. (R&D). 2.5-inch


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


Restructuring Charge.


reduction-in


Merger-related Expense.


27



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Amortization of Intangible Assets.




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

|                                             |  |               |      |    |          |   |      |        |  |   |      |  
|-------------------------------------------- |  | ------------- | ---- | -- | -------- | - | ---- | ------ |  | - | ---- | -
|                                             |  | Three Months  |      |    |         
|                                             |  | Ended         |      |    |         
|                                             |  |               |      |    |         
|                                             |  | April 1,      |      |    | April 2, |   |      |       
|                                             |  | 2006          |      |    | 2005     |   |      | Change | 
|                                             |  |               |      |    |          |   |      |        | 
|                                             |  | (In millions) |     
|Interest expense                             |  | $             | (6.9 | )  |          | $ | (8.4 | )      |  | $ | (1.5 | )
|Interest income                              |  | $             | 4.3  |    |          | $ | 2.4  |        |  | $ | 1.9  |  
|Write off of unamortized debt issuance costs |  | $             | (7.4 | )  |          |   |     |        |  | $ | (7.4 | )
|Other gain (loss)                            |  | $             | 4.2  |    |          | $ | (0.3 | )      |  | $ | 4.5  |  
|                                            
|As a percentage of revenue:                  |  |               |      |    |          |   |      |        |  |   |      |  
|Interest expense                             |  |               | (0.8 | )% |          |   | (0.8 | )%     |  |   |      |  
|Interest income                              |  |               | 0.5  | %  |          |   | 0.2  | %      |  |   |      |  
|Write off of unamortized debt issuance costs |  |               | 0.8  | %  |          |   |     |        |  |   |      |  
|Other gain (loss)                            |  |               | 0.5  | %  |          |   | 0.0  | %      |  |   |      |  

Interest Expense.


Interest Income.


Write-off of Unamortized Debt Issuance Cost.


Other Gain (Loss).




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

|                                       |  |                    |        |   |          |   |       |        |  |   |      | 
|-------------------------------------- |  | ------------------ | ------ | - | -------- | - | ----- | ------ |  | - | ---- | 
|                                       |  | Three Months Ended |        |   |         
|                                       |  |                    |        |   |         
|                                       |  | April 1,           |        |   | April 2, |   |       |       
|                                       |  | 2006               |        |   | 2005     |   |       | Change | 
|                                       |  |                    |        |   |          |   |       |        | 
|                                       |  | (In millions)      |       
|Loss before provision for income taxes |  | $                  | (101.7 | ) |          | $ | (19.8 | )      |  | $ | 81.9 | 
|Provision for income taxes             |  | $                  | 0.4    |   |          | $ | 0.3   |        |  | $ | 0.1  | 

28



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Liquidity and Capital Resources




|                                                    |  |                    |       |   |               |   |       |  
|--------------------------------------------------- |  | ------------------ | ----- | - | ------------- | - | ----- | -
|                                                    |  | Three Months Ended |      
|                                                    |  |                    |      
|                                                    |  | April 1, 2006      |       |   | April 2, 2005 |  
|                                                    |  |                    |       |   |               |  
|                                                    |  | (In Millions)      |      
|Net cash used in operating activities               |  | $                  | (29.7 | ) |               | $ | (0.5  | )
|Net cash provided by (used in) investing activities |  | $                  | (29.6 | ) |               | $ | 16.2  |  
|Net cash provided by (used in) financing activities |  | $                  | 13.2  |   |               | $ | (18.2 | )
|Net change in cash and cash equivalents             |  | $                  | (46.2 | ) |               | $ | (2.5  | )

29



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30



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| |                        
| | -----------------------
| | Contractual Obligations



|                          |                   |       |           |           |        |   |           |                 |  |   |                 |        |  |               |         |        |  |   |         |        | 
|------------------------- | ----------------- | ----- | --------- | --------- | ------ | - | --------- | --------------- |  | - | --------------- | ------ |  | ------------- | ------- | ------ |  | - | ------- | ------ | 
|                          |                   |       |           | Less Than |        |   |           |                 |  |   | More Than       |       
|                          |                   | Total |           |           | 1 Year |   |           | 1-3 Years(1)(2) |  |   | 3-5 Years(1)(2) |        |  | 5 Years(1)(2) |        
|                          |                   |       |           |           |        |   |           |                 |  |   |                 |        |  |               |        
|Long-term Debt            |                   | $     | 576,729   |           |        | $ | 331,000   |                 |  | $ | 10,000          |        |  | $             | 205,729 |        |  | $ | 30,000  |       
|                          | Interest Payments |       |           | 118,841   |        |   |           | 22,711          |  |   |                 | 43,672 |  |               |         | 37,382 |  |   |         | 15,076 | 
|Capital Lease Obligations |                   |       | 658       |           |        |   | 648       |                 |  |   | 10              |        |  |               |        |        |  |   |        |       
|                          | Interest Payments |       |           | 5         |        |   |           | 4               |  |   |                 | 1      |  |               |         |       |  |   |         |       | 
|Operating Leases(3)       |                   |       | 257,079   |           |        |   | 41,793    |                 |  |   | 76,511          |        |  |               | 67,206  |        |  |   | 71,569  |       
|Purchase Obligations(4)   |                   |       | 664,223   |           |        |   | 661,531   |                 |  |   | 2,692           |        |  |               |        |        |  |   |        |       
|                          |                   |       |           |           |        |   |           |                 |  |   |                 |        |  |               |        
|Total                     |                   | $     | 1,617,535 |           |        | $ | 1,057,687 |                 |  | $ | 132,886         |        |  | $             | 310,317 |        |  | $ | 116,645 |       
|                          |                   |       |           |           |        |   |           |                 |  |   |                 |        |  |               |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include $73 million which may be borrowed under a
    facility in a U.S. dollar-denominated loan, to be secured
    by our facilities in Suzhou, China, drawable until April 2007,
    and repayable in eight semi-annual installments commencing
    October 2007; the borrowings under this facility bear interest
    at LIBOR plus 50 basis points to LIBOR plus 100 bps.                                                                                                                                                                                                                                                                                      
|   
|(2) | Does not include $17 million which we may be obligated to
    contribute to our China subsidiary to allow drawdown under the
    facilities described under footnote (1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | Includes future minimum annual rental commitments, including
    amounts accrued as restructuring liabilities as of April 1,
    2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(4) | Purchase obligations are defined as contractual obligations for
    purchase of goods or services, which are enforceable and legally
    binding on the Company and that specify all significant terms,
    including fixed or minimum quantities to be purchased, fixed,
    minimum or variable price provisions and the approximate timing
    of the transaction. The expected timing of payment of the
    obligations set forth above is estimated based on current
    information. Timing of payments and actual amounts paid may be
    different depending on the time of receipt of goods or services
    or changes to agreed-upon amounts for some obligations.







31



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U.S.-dollar




CERTAIN FACTORS AFFECTING FUTURE PERFORMANCE


Risks Related to Our Merger with Seagate Technology




| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to complete the merger with Seagate Technology
    could materially and adversely affect our results of operations
    and our stock price.



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| |   |                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the market price of our common stock may decline to the extent
    that the current market price includes a market assumption that
    the merger will be completed;                                              
|
| |  | we will remain liable for significant transaction costs,
    including legal, accounting, financial advisory and other costs
    relating to the merger, and may not receive any termination fee
    from Seagate;
|
| |  | the deterioration of our business in the interim period may be
    significant and we may find it difficult to continue as a
    stand-alone entity;                                                              
|
| |  | we may experience a negative reaction to the termination of the
    merger from our customers, suppliers, distributors or partners
    which may adversely impact our future operating results; and               
|
| |  | under some circumstances, we may have to pay a termination fee
    to Seagate in the amount of $53 million or Seagates
    expenses.                                                                             





| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Obtaining required approvals and satisfying closing
    conditions relating to the Seagate merger or other developments
    may delay or prevent completion of the merger.





| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | approval by our stockholders of the merger agreement;                                                                                                          
|
| |  | approval by the stockholders of Seagate of the issuance of its
    shares pursuant to the merger; and                                                          
|
| |  | Seagate and Maxtor obtaining necessary antitrust approvals under
    governmental authorities of the European Economic Area, Japan,
    South Korea and Taiwan.







| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Customer, supplier, distributor and partner uncertainty
    about the merger or general effects of the merger on our
    customer, supplier, distributor and partner relationships could
    harm us or the combined company, whether or not the merger is
    completed.



33



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| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Diversion of management attention to the merger and
    employee uncertainty regarding the merger could adversely affect
    our business, financial condition and operating results.





| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because our stockholders will receive a fixed ratio of
    0.37 of a share of Seagate common stock for each share of Maxtor
    common stock that they own at the closing of the merger, if
    Seagates stock price decreases for any reason, our
    stockholders will receive less value for their Maxtor
    shares.





34



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| |                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Former Maxtor stockholders who become shareholders of
    Seagate will have their shareholder rights governed by the third
    amended and restated memorandum of association of Seagate and by
    the Companies Law (2004 Revision) and the common law of the
    Cayman Islands.





| |                                                                                   
| | ----------------------------------------------------------------------------------
| | The combined company may not realize the anticipated
    benefits from the merger.





| |                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under the terms of the 2.375% Convertible Senior
    Notes due 2012, our merger with Seagate Technology will trigger
    conversion rights that, if exercised, may have an adverse effect
    on the liquidity of the combined company.





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The market price of Seagate common shares after the merger
    may be affected by factors different from those affecting the
    shares of Seagate or Maxtor currently.



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| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If Maxtors former stockholders sell the Seagate
    common shares received in the merger immediately, they could
    cause a decline in the market price of Seagate common
    shares.





| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Maxtor and Maxtors directors are parties to a
    pending lawsuit seeking injunctive relief in connection with the
    merger.



Risks Related to Our Business




| |                                         
| | ----------------------------------------
| | We have a history of significant losses.





| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 or maintain
    profitability.



36



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end-of




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

3.5-inch




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





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

first-to first-to


37



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





| |                                                                               
| | ------------------------------------------------------------------------------
| | If we do not expand into new hard drive markets, our
    revenues will suffer.



38



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| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our efforts to improve operating efficiencies through
    restructuring activities may not be successful, and the actions
    we take to this end could limit our ability to compete
    effectively.





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





| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | If we do not successfully introduce new products or avoid
    product quality problems, our revenues will suffer.





| |                                                                         
| | ------------------------------------------------------------------------
| | If we do not expand into new technologies, our revenues
    will suffer.



39



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





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





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

build-to just-in




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



40



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| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We purchase most of our components from third party
    suppliers, and may have higher costs or more supply chain risks
    than our competitors who are more vertically integrated.







| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we have difficulties with the transition of
    manufacturing to China or a disaster occurs at one of our
    plants, our business, financial condition and operating results
    could suffer.



41



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

Our products may contain defects.




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





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





| |                                                                           
| | --------------------------------------------------------------------------
| | We face risks from our substantial international
    operations and sales.



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| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties with staffing and managing international operations;                                                                                                                                                         
|
| |  | transportation and supply chain disruptions and increased
    transportation expense as a result of epidemics, terrorist
    activity, acts of war or hostility, increased security and less
    developed infrastructure;
|
| |  | economic slowdown and/or downturn in foreign markets;                                                                                                                                                                     
|
| |  | international currency fluctuations;                                                                                                                                                                                      
|
| |  | political and economic uncertainty caused by natural disasters
    such as tsunamis, earthquakes and hurricanes; epidemics;
    terrorism; or acts of war or hostility;                                                   
|
| |  | legislative and regulatory responses to terrorist activity such
    as increased restrictions on cross-border movement of products
    and technology;                                                                    
|
| |  | legislative, regulatory, police, or civil responses to epidemics
    or other outbreaks of infectious diseases such as quarantines,
    factory closures, or increased restrictions on transportation or
    travel;      
|
| |  | general strikes or other disruptions in working conditions;                                                                                                                                                               
|
| |  | labor shortages;                                                                                                                                                                                                          
|
| |  | energy or fuel shortages or cost increases;                                                                                                                                                                               
|
| |  | political instability;                                                                                                                                                                                                    
|
| |  | changes in tariffs;                                                                                                                                                                                                       
|
| |  | generally longer periods to collect receivables;                                                                                                                                                                          
|
| |  | unexpected legislative or regulatory requirements;                                                                                                                                                                        
|
| |  | reduced protection for intellectual property rights in some
    countries;                                                                                                                                                
|
| |  | significant unexpected duties or taxes or other adverse tax
    consequences;                                                                                                                                             
|
| |  | difficulty in obtaining export licenses and other trade barriers;                                                                                                                                                         
|
| |  | increased transportation/shipping costs;                                                                                                                                                                                  
|
| |  | credit and access to capital issues faced by our international
    customers; and                                                                                                                                         
|
| |  | compliance with European Union directives implementing strict
    mandates on electronic equipment waste and banning the use of
    certain materials in electronic manufacturing.                                        





| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Our operations and prospects in China are subject to
    significant political, economic and legal uncertainties.



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| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | We may need additional capital in the future which may not
    be available on favorable terms or at all.





| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                 
|
| |  | the timing of introductions of new products and enhancements to
    our existing products; and                                              
|
| |  | the length of product life cycles.                                                                                                          



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| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | The loss of key personnel or inability of our senior
    management team to work together effectively could harm our
    business.







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





| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | semi-annual interest payments on each series of notes;                                                                                                                                                                                                                     
|
| |  | payment at the respective maturities of each series of notes;                                                                                                                                                                                                              
|
| |  | payment of the principal amount of the 2005 Notes upon
    conversion by the holders or upon demand by the holders
    following certain fundamental change events;                                                                                                        
|
| |  | payment of the principal amount of the 2003 Notes upon
    conversion (if we elect to satisfy a conversion in whole or in
    part, with cash rather than shares of our common stock) or upon
    demand by the holders following certain change of control
    events; and
|
| |  | future capital expenditures, investments and acquisitions,
    payments on our leases and loans, and any increased working
    capital requirements.                                                                                                                       



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| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under the terms of the 2.375% Convertible Senior
    Notes due 2012, holders have conversion rights that, if
    exercised, may have an adverse effect on our liquidity.





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





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| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to existing claims relating to our
    intellectual property which are costly to defend and may harm
    our business.









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





| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our customers are subject, and we are potentially subject,
    to new environmental legislation enacted by the European Union
    and, if we do not comply, our sales could be adversely
    impacted.







| |                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | quarterly fluctuations in operating results;                                                                                
|
| |  | announcements of new products by us or our competitors such as
    products that address additional hard disk drive markets;
|
| |  | gains or losses of significant customers;                                                                                   
|
| |  | changes in stock market analysts estimates;                                                                                
|
| |  | the presence of short-selling of our common stock;                                                                          

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| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | 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;                         
|
| |  | announcement of a material transaction, such as our proposed
    combination with Seagate Technology;
|
| |  | general conditions in the semiconductor and electronic systems
    industries; and                   
|
| |  | general economic conditions in the United States and abroad.                                         



| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Decreased effectiveness of equity compensation could
    adversely affect our ability to attract and retain employees,
    and proposed changes in accounting for equity compensation could
    adversely affect earnings.





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





| |                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions in the indentures governing our
    6.80% Convertible Senior Notes due 2010 and our
    2.375% Convertible Senior Notes due 2012 could discourage
    potential acquisitions or delay or prevent a change of
    control.





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Conversion of our 2.375% Convertible Senior Notes due
    2012 or 6.80% Convertible Senior Notes 2012 will dilute the
    ownership interests of existing stockholders.



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|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market
    Risk

10-K







|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

13a-15(e) 15d-15(e)


Changes in Internal Control Over Financial Reporting




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PART II. OTHER INFORMATION





Item 1.     Legal
Proceedings














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Item 1A.     Risk
Factors


10-K




| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because our stockholders will receive a fixed ratio of
    0.37 of a share of Seagate common stock for each share of Maxtor
    common stock that they own at the closing of the merger, if
    Seagates stock price decreases for any reason, our
    stockholders will receive less value for their Maxtor
    shares.



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| |                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Former Maxtor stockholders who become shareholders of
    Seagate will have their shareholder rights governed by the third
    amended and restated memorandum of association of Seagate and by
    the Companies Law (2004 Revision) and the common law of the
    Cayman Islands.





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The market price of Seagate common shares after the merger
    may be affected by factors different from those affecting the
    shares of Seagate or Maxtor currently.





| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If Maxtors former stockholders sell the Seagate
    common shares received in the merger immediately, they could
    cause a decline in the market price of Seagate common
    shares.



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| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Maxtor and Maxtors directors are parties to a
    pending lawsuit seeking injunctive relief in connection with the
    merger.





| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under the terms of the 2.375% Convertible Senior
    Notes due 2012, holders have conversion rights that, if
    exercised, may have an adverse effect on our liquidity.





| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to existing claims relating to our
    intellectual property which are costly to defend and may harm
    our business.



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|        |                                                                
|------- | ---------------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of
    Proceeds








|        |                                
|------- | -------------------------------
|Item 3. | Defaults Upon Senior Securities








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








|        |                  
|------- | -----------------
|Item 5. | Other Information








|        |         
|------- | --------
|Item 6. | Exhibits



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SIGNATURES






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



| |    |                       
| | -- | ----------------------
| | By | /s/ DUSTON M. WILLIAMS

| |                                  
| | ---------------------------------
| |                                  
| | Duston M. Williams               
| | Executive Vice President, Finance
| | and Chief Financial Officer      



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EXHIBIT INDEX


|        |    |             |  |                                                                                                                                                                                                                                                                           
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 12 | .1          |  | Statements re: Computation of Ratios                                                                                                                                                                                                                                      
|       
|        | 31 | .1          |  | Certification of Dr. C.S. Park, Chairman and Chief
    Executive Officer of Registrant pursuant to Rule 13a-14
    adopted under the Securities Exchange Act of 1934, as amended,
    and Section 302 of the Sarbanes-Oxley Act of 2002.                                  
|       
|        | 31 | .2          |  | Certification of Duston M. Williams, Executive Vice President,
    Finance and Chief Financial Officer of Registrant pursuant to
    Rule 13a-14 adopted under the Securities Exchange Act of
    1934, as amended, and Section 302 of the Sarbanes-Oxley Act
    of 2002.
|       
|        | 32 | .1          |  | Certification of Dr. C.S. Park, Chairman and Chief
    Executive Officer of Registrant furnished pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                              
|       
|        | 32 | .2          |  | Certification of Duston M. Williams, Executive Vice President,
    Finance and Chief Financial Officer of Registrant furnished
    pursuant to 18 U.S.C. § 1350, as adopted pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002