Updated from Feb. 3

Investors are giving Maxtor's ( MXO) new management team a break, even though the hard-drive maker posted a a fourth-quarter per-share loss that was nearly twice as wide as Wall Street had expected.

And the company's next quarter also will be written in red ink, the third in a row.

In recent trading on Friday, the stock was up 34 cents, or 7%, to $5.23.

Maxtor's fourth-quarter revenue of $1.03 billion was above analysts' expectations of $990 million, but lower than the $1.17 billion Maxtor reported a year ago , the company reported after the closing bell Thursday.

The Milpitas, Calif., company lost $70.2 million, or 28 cents a share, in the December quarter, compared with a profit of $39.2 million, or 15 cents a share, in the year-ago quarter.

Analysts polled by Thomson First Call were expecting a loss of 15 cents a share in the December quarter.

But the usual spate of morning-after notes from the sell-side supported management's turnaround story. "Maxtor's challenges are many, including quality issues, manufacturing inefficiencies, product cycle issues, liquidity constraints, etc.; however, the improved industry conditions provide management with time and a realistic opportunity to effect a turnaround. We maintain our Neutral rating, although we could become more constructive as we get closer to the second half of 2005," wrote Piper Jaffray analyst Les Santiago.

Several analysts who supported the stock also called it "speculative."

Included in the fourth-quarter loss were $5.1 million for the amortization of intangibles, $7.3 million in executive and other severance-related expenses, $7.8 million in impairment charges related to real estate holdings and $25.0 million due to product cancellation and impairments related to intangibles from the acquisition of Quantum's ( DSS) hard-drive division in 2001. These charges were offset by a favorable adjustment related to the previously announced settlement with Quantum of $8.5 million.

The net total of these charges hurt net income by $36.7 million, the company said.

Although the wider loss would normally be a formula for a drubbing, investors were willing to back out the charges; and on that basis the per share loss was about what analysts had forecasted. "There's still a long road to go, but without the charges, I think the company is beginning to move in the right direction," said Mark Miller, an analyst with Hoefer & Arnett, a research firm that does very little banking.

Maxtor, which endured a wave of high-level executive turnover last year, also said it will lay off about 200 workers in the U.S. this year as it seeks to fix what C.S. Park, the company's CEO, called an "uncompetitive cost and expense structure."

Probably the most significant part of the restructuring is the company's move of much of its production to China , where costs are about two-thirds lower than in Singapore, the location of Maxtor's other major Asian plant.

The company is also moving toward a common platform for its hardware, a move that could save development and manufacturing costs.

If all goes well, the restructuring should begin to help late this year, and by the fourth quarter, the company is likely to have positive cash flow, said CFO Duston Williams. He said that he expects to increase gross margins on desktop drives to low double-digits by the end of 2005 and enterprise product gross margins to 25% by the end of the first quarter of 2005.

But the first quarter will not be profitable, the company forecast. On a GAAP basis, the company will lose between $31 million and $39 million, or 12 cents to 16 cents a share. Revenue will range from $950 million to $980 million. Analysts were expecting a loss of 12 cents on the same basis.

In late January, Maxtor said it would drop development of 2.5-inch drives and take a write-off of $4.5 million to $7 million later in the year. The company's new management appears more interested in even smaller drives and may have been scared off by the large number of competitors -- about six -- in the space, analysts said.