UPDATE 4-Seagate CEO Watkins, COO step down; shares fall

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By Franklin Paul

NEW YORK, Jan 12 (Reuters) - Seagate Technology Inc (STX.O), the world's largest maker of hard-disk drives, replaced Chief Executive Bill Watkins and said its chief operating officer stepped down, in a management shake-up that sent its shares down 17 percent.

Chairman Stephen Luczo will replace Watkins, 56, the company said on Monday. Luczo and Watkins will "determine what role, if any, Mr. Watkins will have at the company going forward," Seagate said.

Seagate also confirmed that it was planning to cut about 10 percent of its U.S. work force, affecting a broad range of departments, including research and development.

Watkins, a colorful personality who once defended driving his Bentley despite the growing environmental movement, was named CEO in 2004 after Luczo relinquished the role. Luczo, 51, will continue to serve as chairman, a position he has held since 2002.

The move was a surprise given Watkins' numerous media appearances last week at the Consumer Electronics Show in Las Vegas, the world's biggest gadget fest.

When asked for a reason for the changes, a Seagate spokeswoman said the board of directors "made the determination that Steve was the right person to lead the company at this time." Watkins could not immediately be reached for comment.

In addition, Seagate said David Wickersham resigned as president and chief operating officer, replaced by Chief Technology Officer Robert Whitmore.

Analysts said they were encouraged by Luczo's return, citing his experience with the company, but suggested that shareholders were unnerved by the one-two punch of Watkins' fall and Wickersham's departure.

"It is the COO resignation (in addition to the CEO), that leaves questions around management stability," said Avian Securities analyst Matt Bryson, who has a "positive" rating on the stock.

Bryson, in a note to clients, said there had been "mounting evidence of rifts" among the Seagate executive ranks since last summer.

"This disaffection combined with the disruption from multiple restructurings ... 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," he said in the note.

Collins Stewart analyst Ashok Kumar, however, viewed the management shake-up as a positive, noting that Seagate's smaller rival Western Digital Corp (WDC.N) had performed better even in the face of the recession.

"You could argue Steve Luczo continues to be the power behind the throne...it's a tough environment for any CEO but I think there were company-specific issues that also lead to the significant underperformance of Seagate," Kumar said.

The hard disk drive industry, dominated by Seagate and Western Digital, has felt the brunt of the global economic downturn as technology spending slowed.