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Jan 12, 2009

Seagate cuts 10% jobs, replaces CEO

Seagate Technology, the world’s largest maker of computer disk drives, on Monday replaced its chief executive and said it would reduce its US workforce by 10 per cent.

The Silicon Valley company blamed economic conditions for the job cuts, while analysts said there appeared to be rifts among Seagate executives leading to the departure of Bill Watkins, CEO since 2004.

A potential successor to Mr Watkins, David Wickersham, president and chief operating officer, also resigned on Monday, leaving the job to Stephen Luczo, the Seagate’s chairman. He was previously the company’s chief executive from 1998 to 2004.

Seagate shares were down 17 per cent in midday trading in New York at $4.68 on the news. They have lost nearly 80 per cent of their value during the past year.

The company gave no reason for replacing Mr Watkins. It said he continue to advise Mr Luczo to enable a smooth transition and the two would confer over the next week about what role he might continue have with the company.

The board stressed Mr Luczo’s experience at Seagate: “The customer and employee relationships that he built over his15-year career at Seagate make Steve the ideal person to lead our company at this time,” said Lydia Marshall, chair of its nominating and corporate governance committee.

Mr Luczo had led Seagate’s privatisation in 2000 and then its public offering in 2002.

Analysts at Avian Securities said in a note that “there had been mounting evidence of rifts among the Seagate executive ranks since last summer.”

“This disaffection combined with the disruption from multiple restructurings (with another forthcoming) of Seagate’s operations and executive teams over the past year had created a difficult operating environment, which in our view has hindered Seagate’s ability to execute.”

Avian said Mr Luczo’s appointment could help resolve some of those problems.

Seagate said it planned to reduce its US workforce by around 10 per cent in a restructuring programme. Around 8,000 of its 54,000 employees are based in the US.

The company has suffered from a drop in demand for its hard disks in common with the rest of the technology industry, which is beginning to feel the effects of the global economic recession.

Last month, Seagate warned that its second-quarter revenues could be down by as much as a third on the previous year at $2.3bn. It reports second-quarter results next week.

Seagate has also suffered some market share losses to its biggest rival Western Digital, which Avian Securities says is achieving higher efficiency and improved gross margins.

In a report on Monday, Thomas Weisel Partners said the growth in popularity of low-storage netbooks was a minor setback for Seagate because its presence in supplying extra capacity through external hard-disk drives is relatively weak.

Source : FinancialTimes
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