Seagate to Close Disk Media Plant in Milpitas, CA

Here is the content of a SEC FORM 8-K published by Seagate Technology

Costs Associated with Exit or Disposal Activities
On July 9, 2008, Seagate Technology announced the proposed closure of its media manufacturing facility in Milpitas, California. The closure is part of the Company’s ongoing focus on cost-efficiencies in all areas of its business.

seagatemilpitasdiskplant

The Company plans to cease production at the Milpitas manufacturing facility on October 3, 2008. The Company currently estimates the restructuring, exit costs and other charges to be approximately $74 million, of which approximately $36 million are expected to be cash. These charges include severance of approximately $21 million, accelerated asset depreciation of approximately $38 million and approximately $15 million of other exit costs. The Company intends to record approximately $19 million of the severance charges as restructuring costs in its Statement of Operations for its fourth quarter of fiscal year 2008.

The Company expects to record approximately $43 million of charges relating to the closure in its Statement of Operations for its first quarter of fiscal year 2009, of which approximately $38 million relating to accelerated asset depreciation will be recorded to cost of revenue. The remaining charges are expected to be incurred over the balance of fiscal year 2009. The Company aims to realize annual savings of approximately $42 million in connection with the Milpitas facility.
Consistent with past practice, the Company’s business outlook and guidance provided on April 15, 2008, did not include the impact of this specific activity or any other restructuring, acquisitions, or stock repurchase activities to be undertaken by the Company during its fourth quarter of fiscal year 2008.

Comments

Seagate is deeply restructuring its component (disk and media) manufacturing, one of the big reason being the fact that WD purchased Read-Rite and then Komag, this latter being a huge furnisher of disk media for the worldwide leader of HDDs.

Seagate Technology has decided to close disk drive component plants in Milpitas, CA making magnetic media, and in Limavady, Londonderry, Northern Ireland, producing nickel plated aluminum substrates, as well as investing £120 million in its Springtown, Londonderry facility, in wafers for disk heads.

Disks and heads are the main critical components of a disk drive. Seagate manufactures most of its disk media for its own HDDs, being the largest maker of these platters in the world, but not enough for its needs.

Milpitas site in charge of magnetic rigid disks with a capacity of 12 million units per quarter, according to TrendFOCUS. In fact, for most of them, Seagate was using its currently expanded plant in Woodlands, Singapore, place which will be its unique source for these media, after having relocated in Asia certain of the acquired Maxtor media manufacturing equipment.

Seagate’s long-term strategy is to externally purchase no more than 15% of total recording media requirement.