Maxtor Swings to a Profit

The results beat analysts' expectations for a loss.
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Maxtor (MXO) unexpectedly swung to a second-quarter profit as revenue and gross margin improved.

The hard-drive maker said after the bell Wednesday that it earned $9.4 million, or 4 cents a share, in the quarter ended July 2, compared with a loss of $26.5 million, or 11 cents a share, a year earlier.

Revenue grew to $925 million from $818 million a year ago.

The top-line result was below the consensus estimate of Thomson First Call's analyst survey that called for revenue of $948.6 million, but easily beat First Call expectations for Maxtor to post a loss in the quarter of 3 cents a share.

"We are very pleased with our return to profitability in the second quarter," said Dr. C.S. Park, chairman and chief executive. "Our results were primarily due to a strong enterprise performance. During the second quarter, we shipped 926,000 SCSI drives, a 20% increase over the first-quarter volume. Furthermore, we were successful in shipping a richer mix of SCSI products. Our performance also reflected the incremental benefits of our efforts to drive quality improvements and cost and expense reductions on our desktop products."

Maxtor said the average selling price in the second quarter increased to $77 compared with $75 in the first quarter. The gross profit margin was 13.2% compared with 10.9% in the first quarter.

"We continue to focus on our turnaround plan," Park continued. "We are working very hard to ensure we deliver our 500 GB drive and other new products scheduled for release in 2005 and early 2006 on time and with the quality our customers expect from Maxtor. The manufacturing transition of a majority of our desktop products to China remains on track. Finally, we have begun implementation of our plan to produce media in Asia."

Shares of Maxtor ticked up 3 cents to $5.58 on Instinet after the earnings report.