Maxtor cutting jobs in Singapore but is hiring rapidly in China
By Therese Poletti
Mercury News
Maxtor, a Milpitas disk-drive maker, said Friday that it plans to cut 5,500 jobs in Singapore as it shuts down one of its two plants there amid a shift to even lower-cost operations in China.
The company, which has been restructuring in the past four months with a new management team, said the cuts equal 42 percent of its total workforce of 13,000. But Maxtor said it is hiring rapidly in China, as its builds up its manufacturing plant there.
``I can't say what the net reduction is, yet, if any,'' said Alan Bernheimer, a Maxtor spokesman. The company is moving its desktop drive manufacturing to China to slash costs in a cutthroat market for disk drives, where Maxtor competes fiercely with Seagate of Scotts Valley and Western Digital of Lake Forest. Maxtor has reported losses three quarters in a row.
Maxtor said it expects to cut 2,500 jobs through attrition and the other 3,000 through layoffs with severance packages. It will take an estimated $12 million charge in the first quarter for the severance packages. Maxtor also plans to spend an additional $6 million over the next two years for retention bonuses.
Loss to be larger
As a result of the job cuts, the company's first-quarter loss will be slightly bigger than expected, Duston Williams, Maxtor's new chief financial officer, told analysts in a mid-quarter update conference call.
``We are in the early stages of execution,'' Williams said of the company's shift to China from Singapore. By December, it hopes to be making two-thirds of its disk drives for desktop computers in China.
Williams said Maxtor now expects a net loss in the range of $35 million to $39 million for the quarter, compared with a previously expected loss of $31 million to $39 million, including the restructuring charges. The net loss is expected to be 14 to 16 cents a share, vs. previous expectations of 12 to 16 cents a share.
``It looks a lot worse than it is,'' said Dan Renouard, an analyst with Robert Baird & Co., who does not own any Maxtor shares. ``This has been planned. . . . They will see some cost savings in China,'' he said but added that the company has been vague on projected savings.
Maxtor executives said they saw good demand in the first quarter and that revenue was on track to be better than previously predicted. Williams projected first-quarter revenue in the range of $975 million to $1 billion, vs. earlier estimates of $950 million to $980 million.
``General industry dynamics remain positive,'' Williams said, adding that price declines in the desktop arena have been moderate and that the company was seeing stronger-than-expected seasonal demand for its drives aimed at the corporate market.
`100-day plan'
``We are also very pleased with the initial progress on the 100-day plan,'' he said, referring to the new management team's restructuring schedule to turn the company around.
The first quarter will include an additional $6 million expense for canceling Maxtor's development of a 2.5-inch disk drive for mobile computers, where analysts have said it was already behind. The company now plans instead to develop one-inch disk drives, the size used in digital music players.
Maxtor's shares added 10 cents, or 1.7 percent, to $5.90, in response to the improved sentiment.
``We just finished batting practice. We just banged out a bunch of balls off the wall. We are feeling pretty good but the game remains to be played,'' Williams said.
Maxtor's shift to China is part of a larger trend.
``China is becoming the manufacturing center of the electronics industry,'' said George Burns, president of Strategic Marketing Associates in Santa Cruz, which tracks chip manufacturing plants. ``It has really been a powerhouse in the low end for quite awhile, but it has been their strategy for the last five years to move up the food chain. They are competitive with places like Singapore for new factories of all sorts.''
Seagate has both a big presence in Singapore, with 8,600 employees, and China, where it opened operations in 1995 and now has 8,000 workers. It also has plants in Thailand, Malaysia and Northern Ireland.
Brian Ziel, a Seagate spokesman, said the company is happy with its current manufacturing strategy and does not see any changes in the near future.
