The following is a discussion of the financial condition and results of operations for our fiscal quarter ended October 2, 2009, herein referred to as "the September 2009 quarter." Unless the context indicates otherwise, as used herein, the terms "we," "us," "Seagate," the "Company" and "our" refer to Seagate Technology, an exempted company incorporated with limited liability under the laws of the Cayman Islands, and its subsidiaries. References to "$" are to United States dollars.

You should read this discussion in conjunction with financial information and related notes included elsewhere in this report. We operate and report financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. The quarter ended October 2, 2009 was 13 weeks and the quarters ended July 3, 2009 and October 3, 2008 were 13 and 14 weeks, respectively. Except as noted, references to any fiscal year mean the twelve-month period ending on the Friday closest to June 30 of that year.

Some of the statements and assumptions included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects and estimates of industry growth for the fiscal quarter ending January 1, 2010 and beyond. These statements identify prospective information and include words such as "expects," "plans," "anticipates," "believes," "estimates," "predicts," "projects" and similar expressions. These forward-looking statements are based on information available to us as of the date of this report. Current expectations, forecasts and assumptions involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks, uncertainties and other factors may be beyond our control. In particular, the decline in global economic conditions pose a risk to our operating and financial performance as consumers and businesses have, and may continue to, defer purchases in response to tighter credit and negative financial conditions. Such risks and uncertainties also include the impact of the variable demand, particularly in view of current business and economic conditions; dependence on our ability to successfully qualify, manufacture and sell our disk drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly our new disk drive products with lower cost structures; the impact of competitive product announcements; our ability to achieve projected cost savings; and our ability to rapidly increase our manufacturing capacity in pace with our competitors if demand for disk drives increases. We also encourage you to read our Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission on August 19, 2009, as it contains information concerning risk, uncertainties and other factors that could cause results to differ materially from those projected in the forward-looking statements. These forward-looking statements should not be relied upon as representing our views as of any subsequent date and we undertake no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.

Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying condensed consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. MD&A is organized as follows:

†          Our Company.  Overview of our business.

†          Overview of the September 2009 Quarter.  The September 2009 quarter
summary and trends.

†          Results of Operations. Analysis of our financial results comparing
the September 2009 quarter to the June 2009 quarter and the September 2008
quarter.

†          Liquidity and Capital Resources. An analysis of changes in our

† Contractual Obligations and Off-Balance-Sheet Arrangements. Overview of contractual obligations and contingent liabilities and commitments outstanding as of October 2, 2009 and an explanation of off-balance-sheet arrangements.

† Critical Accounting Policies. Accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.

Our Company

We are the world's leading provider of hard disk drives based on revenue. We design, manufacture, market and sell hard disk drives. We produce a broad range of disk drive products addressing enterprise applications, where our products are used in enterprise servers, mainframes and workstations; desktop applications, where our products are used in desktop computers; mobile computing applications, where our products are used in notebook computers; and consumer electronics applications, where our products are used in a wide variety of devices such as digital video recorders (DVRs) and other consumer electronic devices that require storage. We also sell our branded storage solutions under both the Seagate and Maxtor brands. In addition to manufacturing and selling disk drives, we provide data storage services for small- to medium-sized businesses, including online backup, data protection and recovery solutions.

Overview of the September 2009 Quarter

In the September 2009 quarter, we saw an improvement of disk drive demand that began late in the prior fiscal year evidenced by an increase of 17% in the total available market (TAM) for disk drives as compared to the immediately preceding quarter.

Revenue, gross margin, income (loss) from operations, net income (loss) and net income (loss) per share for the September 2009 quarter, the June 2009 quarter, and the September 2008 quarter were as follows:

                                                               For the Three Months Ended
(Dollars in millions, except per share data)     October 2, 2009      July 3, 2009      October 3, 2008

Revenue                                         $           2,663    $        2,353    $           3,033
Gross margin                                                  653               415                  526
Income (loss) from operations                                 221               (11 )                 81
Net income (loss) (1)                                         179               (83 )                 57
Net income (loss) per share:
Basic(1)                                        $            0.36    $        (0.17 )  $            0.12
Diluted(1)                                                   0.35             (0.17 )               0.12

Revenue and Gross Margin

Revenue for the September 2009 quarter of $2.66 billion represented an increase of approximately 13% from the immediately preceding quarter and a decrease of approximately 12% from the same period in fiscal year 2009. We shipped 46.3 million units during the quarter, which was 14% higher than the immediately preceding quarter and 4% lower than the same period in fiscal year 2009. We believe the overall industry shipped 153 million units in the September 2009 quarter, compared to 132 million units and 152 million units, respectively, in the immediately preceding quarter and the same period in fiscal year 2009.

Gross margin, as a percentage of revenue, increased to approximately 24.5% in the September 2009 quarter, representing an increase of more than 680 basis points and 700 basis points as compared to the immediately preceding quarter and same period in fiscal year 2009, respectively. Customers continued to transition to our newer, more cost-effective and higher capacity products in the notebook and desktop markets. As a result of the increase in demand and actions taken by management over the last few quarters to align our manufacturing infrastructure to market conditions, we realized an improvement in capacity utilization during the September 2009 quarter. Additionally, supply and demand were substantially in balance, which we believe resulted in a relatively stable price environment compared to historical price erosion trends.

Demand Trends for Disk Drives

Desktop. We believe we maintained our leadership position in the desktop market, shipping 23.3 million units, up approximately 6% from the immediately preceding quarter and down approximately 17% from the same period in fiscal year 2009. The TAM in the desktop market for the September 2009 quarter was approximately 58 million units, up approximately 7% from the immediately preceding quarter and down approximately 10% from the same period in fiscal year 2009. We believe that the decline from the same period in fiscal year 2009, in both the industry TAM and our desktop shipments, was primarily due to a continuing shift from desktop to notebook computing.

Mobile. We believe the overall mobile compute market grew approximately 28% and 32% from the immediately preceding quarter and same period in fiscal year 2009, respectively, with Seagate shipping 13.9 million units in the September 2009 quarter, an increase of approximately 22% and 41% from the immediately preceding quarter and same period in fiscal year 2009, respectively. The increase in unit shipments was driven by our more competitive product offerings as well as the continuing shift from desktop towards notebook computers by both consumers and enterprises. In addition, we believe the consumer base for 2.5-inch mobile drives is expanding as notebook and netbook system prices continue to decline.

Enterprise. During the September 2009 quarter, we maintained our market leadership position in the enterprise market, shipping 4.0 million units, representing an increase of approximately 10% when compared to the immediately preceding quarter and a decrease of approximately 24% when compared to the same period in fiscal year 2009. Although the enterprise market grew by 13% from the June 2009 quarter, it has not returned to historical levels of demand observed prior to the macroeconomic contraction and the resulting consolidation in the financial services industry, traditionally a significant portion of the market for enterprise disk drives.

Consumer Electronics. In the September 2009 quarter, we shipped a total of 5.1 million units in the consumer electronics (CE) market, an increase of 34% and 6% from the immediately preceding quarter and same period in fiscal year 2009, respectively. The increase in shipments from the immediately preceding quarter was due an improvement in our market share for DVR applications as well seasonal demand for gaming applications.

Industry Constraints. During the September 2009 quarter, we and the industry operated near maximum capacity and expect to continue to operate at or near maximum capacity over the short term. As a result, in the September 2009 quarter we optimized our production volumes and product mix to pursue our higher margin products as opposed to simply pursuing unit volume share. We require capital investments in fiscal year 2010 of $450 million to primarily fund necessary investments in our core technologies. As the demand for hard drives increases, additional capital investments will be required to meet this demand. If the quarterly demand remains strong through our December 2009 quarter, which gives us more confidence in assessing future demand, we may be required to increase capital investments in fiscal year 2010 to $650 million to meet our customer needs by the seasonal peak of the second half of calendar year 2010. We anticipate making our capital investments in stages over the coming quarters as we continue to evaluate the long term demand environment.

We believe the industry is observing supply constraints for glass substrates, a component in mobile disk drives, and other components of disk drives. With respect to these components, we believe we are well positioned to meet anticipated production schedules. In the long term we expect that suppliers of these components, as well as others, will increase capacity if the TAM of disk drives continues to grow.

Other Significant Events

Debt. During the September 2009 quarter, we reduced short-term borrowings and long-term debt by approximately $465 million. This included the retirement of our $300 million floating rate senior notes at maturity and a $150 million partial repayment of our amended credit facility. Subsequent to the end of the September 2009 quarter, we repaid the remaining $200 million outstanding on our amended credit facility and made open market purchases of $47 million of other indebtedness, which substantially depleted the remaining proceeds from the issuance of our 10% Senior Secured Second-Priority Notes due May 2014 held in escrow. The total debt reduction during fiscal year 2010 was approximately $712 million.

Restructuring. In August 2009, we announced plans to close our Ang Mo Kio (AMK) factory in Singapore and move the hard disk drive manufacturing operations to other Seagate locations. This closure and relocation is part of our ongoing focus on cost efficiencies in all areas of our business and is intended to facilitate leveraging manufacturing investments across fewer sites. In connection with this closure and relocation we recorded $37 million in restructuring charges during the September 2009 quarter.

Impairment of Long-lived Assets. During the September 2009 quarter, we committed to a plan to sell certain equipment related to certain research activities that have ceased. In connection with this plan, we reclassified these assets as held for sale and recorded an impairment charge of approximately $64 million to adjust the carrying value of these assets to the estimated fair value, less cost to sale.

Adoption of New Accounting Pronouncements

On July 4, 2009, we implemented a change in the accounting for our convertible debt instruments, applied on a retrospective basis to separately account for our convertible debt in two parts, (i) a debt component that is recorded upon acquisition at the estimated fair value of a similar debt instrument without the debt-for-equity conversion feature; and (ii) an equity component that is included in paid-in capital and represents the estimated fair value of the conversion feature at issuance. The bifurcation of the debt and equity components resulted in a discounted carrying value of the debt component compared to the principal amount. The discount is accreted to the carrying value of the debt component through interest expense over the expected life of the debt using the effective interest method. The retrospective impact on our Condensed Consolidated Balance Sheet as of July 3, 2009 was a reduction of Long-term debt of $30 million, an increase to Additional paid-in-capital of $61 million, and an increase to the Accumulated deficit of $31 million. In addition, we reflected additional interest expense of $3 million for each of the three months ended October 2, 2009 and October 3, 2008 in our Condensed Consolidated Statements of Operations.

Results of Operations



We list in the tables below the historical Condensed Consolidated Statements of
Operations in dollars and as a percentage of revenue for the periods indicated.



                                              For the Three Months Ended
                                             October 2,       October 3,
(Dollars in millions)                           2009            2008(1)

Revenue                                     $       2,663    $       3,033
Cost of revenue                                     2,010            2,507

Gross margin                                          653              526

Product development                                   208              260
Marketing and administrative                          106              148
Amortization of intangibles                             8               14
Restructuring and other, net                           46               23
Impairment of long-lived assets                        64                -

Income from operations                                221               81
Other income (expense), net                           (41 )            (40 )

Income before income taxes                            180               41
Provision for (benefit from) income taxes               1              (16 )

Net income                                  $         179    $          57

                                              For the Three Months Ended
                                             October 2,       October 3,
(as a percentage of revenue)                    2009            2008(1)

Revenue                                               100 %            100 %
Cost of revenue                                        75               83

Gross margin                                           25               17

Product development                                     8                9
Marketing and administrative                            4                5
Amortization of intangibles                             -                -
Restructuring and other, net                            2                1
Impairment of long-lived assets                         2                -

Income from operations                                  9                2
Other income (expense), net                            (2 )             (1 )

Income before income taxes                              7                1
Provision for (benefit from) income taxes               -               (1 )

Net income                                              7 %              2 %

The following table summarizes information regarding volume shipments, average selling prices (ASPs) and revenues by channel and geography:

                                              For the Three Months Ended
(Dollars in millions, except
percentages and ASPs)            October 2, 2009      July 3, 2009     October 3, 2008

Net Revenue                     $           2,663    $        2,353   $           3,033
Unit Shipments:
Desktop                                      23.3              21.9                28.2
Mobile                                       13.9              11.3                 9.8
Enterprise                                    4.0               3.6                 5.2
Consumer Electronics                          5.1               3.8                 4.8
Total Units Shipped                          46.3              40.6                48.0
ASPs (per unit)                 $              57    $           57   $              62

Revenues by Channel (%)
OEM                                            68 %              65 %                66 %
Distributors                                   24 %              25 %                27 %
Retail                                          8 %              10 %                 7 %
Revenues by Geography (%)
North America                                  24 %              30 %                27 %
Europe                                         23 %              22 %                29 %
Far East                                       53 %              48 %                44 %

Revenue

Revenue $ 2,663 $ 2,353 $ 3,033

Revenue for the September 2009 quarter increased approximately 13% from the immediately preceding quarter primarily due to a 14% increase in total number of disk drives shipped. Additionally, supply and demand were substantially in balance, which we believe resulted in a relatively stable price environment.

Revenue for the September 2009 quarter decreased approximately 12% from the same period in fiscal year 2009 primarily due to price erosion, unfavorable shift in product market mix and decrease in total number of disk drives shipped.

We maintain various sales programs such as point-of-sale rebates, sales price adjustments and price protection, aimed at increasing customer demand. We exercise judgment in formulating the underlying estimates related to distributor and retail inventory levels, sales program participation and customer claims submittals in determining the provision for such programs. Sales programs recorded as contra revenue were approximately 7% of our gross revenue for the fiscal September 2009 quarter, as compared to 8% and 12% in the immediately preceding quarter and the same period in fiscal year 2009, respectively.

Gross Margin



                                                              For the Three Months Ended
(Dollars in millions, except percentages)       October 2, 2009      July 3, 2009      October 3, 2008

Cost of revenue                                $           2,010    $        1,938    $           2,507
Gross margin                                                 653               415                  526
Gross margin percentage                                       25 %              18 %                 17 %

The improvement in gross margin for the September 2009 quarter compared to the immediately preceding quarter was due to the continued transition to new products, improving product mix and improving factory efficiencies and utilization. Additionally, supply and demand were substantially in balance, which we believe resulted in a relatively stable price environment compared to historical price erosion trends.

The improvement in gross margin for the September 2009 quarter compared to the same period in fiscal year 2009 was primarily due to continued transition to more cost-effective products.

Operating Expenses



                                              For the Three Months Ended
(Dollars in millions)            October 2, 2009     July 3, 2009      October 3, 2008

Product development             $             208    $         215    $             260
Marketing and administrative                  106              114                  148
Amortization of intangibles                     8               14                   14
Restructuring and other, net                   46               84                   23
Impairment of long-lived
assets                                         64                -                    -
Operating expenses              $             432    $         427    $             445

Product Development Expense. Product development expense did not materially change from the immediately preceding quarter.

Product development expense decreased approximately 20% from the same period in fiscal year 2009 due primarily to restructuring and other cost reduction efforts, and the effect of an additional week of compensation expenses in the same period in fiscal year 2009, which was a 14-week quarter. This resulted in a $31 million decrease in headcount related expenses. Product development material expenses decreased by $12 million, which reflects the cyclical fluctuations in our product development expenses due to the nature of development programs.

Marketing and Administrative Expense. Marketing and administrative expense did not materially change from the immediately preceding quarter.

Marketing and administrative expense for the September 2009 quarter decreased approximately 28% from the same period in fiscal year 2009 due to restructuring and other cost reduction efforts, and the effect of an additional week of compensation expenses in the same period in fiscal year 2009, which was a 14-week quarter. This resulted in $28 million decrease in headcount related expenses. In addition, advertising expenses decreased by $8 million due to our efforts to reduce costs.

Amortization of Intangibles. Amortization of intangibles decreased approximately 43% when compared to the immediately preceding quarter and same period in fiscal year 2009 as certain customer relationships intangibles were fully amortized by the end of the prior fiscal year.

Restructuring and Other, Net. During the September 2009 quarter, we recorded restructuring and other charges of $46 million mainly comprised of charges related to the AMK restructuring plan announced in August 2009. We currently estimate total restructuring charges of approximately $80 million, all in cash, including approximately $60 million for severance, approximately $10 million for the relocation of manufacturing equipment, and approximately $10 million for other plant closure and relocation costs. This closure and relocation, which is expected to be complete by the end of calendar year 2010, is part of our ongoing focus on cost efficiencies in all areas of our business and is intended to facilitate leveraging manufacturing investments across fewer sites.

During the June 2009 quarter, we recorded restructuring and other charges of $84 million comprised mainly of $65 million in charges related to the restructuring plan announced in May 2009, intended to realign our cost structure with the current macroeconomic business environment. This restructuring charge also included a $9 million adjustment to reflect our revised sub-lease expectations related to our Maxtor facilities closure and $10 million in charges related to site closures announced in fiscal year 2009, consisting of $6 million in charges for lease obligations on exited facilities and $4 million of other exit costs.

During the September 2008 quarter, we recorded restructuring and other charges of $23 million. These charges primarily consisted of a $10 million adjustment to previously recorded restructuring charges to reflect our revised sub-lease . . .