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November 5, 1998; Revised October 25, 2002

SEAGATE TECHNOLOGIES: OPERATIONAL HEDGING

On July 10, 1997, Ron Verdoorn, Executive Vice

President of Seagate Technologies and Chief Operating

Officer of its Storage Products Group, was reading the

capital appropriation request for the Barracuda 9LP and

the Cheetah 9LP. The Barracuda 9LP and Cheetah 9LP

were two of Seagate’s new high-end disk-drive product

families that were scheduled to go into volume

production in the first calendar quarter of 1998. The

capital appropriation request called for a $103 million

capital investment in two final assembly facilities, one for

the Barracuda and one for the Cheetah, and one joint test

facility. The capacities of the new facilities would enable

the execution of the master production plan, which was

derived by the Material Division based on the sales

forecast by the Marketing Division.

While the capital investment plan was definitely

reasonable, Ron was wondering whether the plan would

provide Seagate with a sufficient hedge against demand

uncertainty, which was intrinsic to the sales forecast in

the highly volatile disk drive industry.

Company Background

Seagate Technology, Inc. is a data technology company

that provides products for storing, managing, and

accessing digital information on the world's computer

and data communications systems. At more than $8.9

billion in revenue for its fiscal year ended June 27, 1997,

Seagate is the largest independent disc drive and related

components company in the world. (Selected financials

are shown in Exhibit 1.) Founded in 1979, the Scotts

Valley, California-based company had shipped more than

100 million disc drives by 1997.

Seagate designs, manufactures and markets disc drives

for use in computer systems ranging from notebook

computers and desktop personal computers to

workstations and supercomputers, as well as in

multimedia applications such as digital video and videoon-demand. Seagate leads the...