By Rex Crum

SAN FRANCISCO (Dow Jones) -- Seagate Technology on Monday shook up its executive ranks as the No. 1 maker of computer hard-disk drives replaced Chief Executive William Watkins with the company's chairman, Stephen Luczo.

The move comes less than a week after Seagate said it would cut about 10% of its U.S.-based workforce. In December, Seagate lowered its second-quarter sales forecast due to weakening global demand for hard-disk drives.

It will be the second time Luczo has been chief executive. Luczo was previously CEO from 1998 until he was succeeded by Watkins in mid-2004. Before that, he served as Seagate's chief operating officer.

Following announcement of the CEO change, Seagate (STX) shares fell 58 cents, or more than 10%, to $5.06. The stock has lost 78% of its value over the last year.

Watkins was a 12-year Seagate veteran. Seagate said in a statement that Luczo and Watkins would "confer over the next week to determine what role, if any," Watkins would have at the firm.

"Steve's significant understanding of Seagate's business and technology, and the customer and employee relationships that he built over his 15-year career at Seagate make Steve the ideal person to lead our company at this time," said Lydia M. Marshall, the board's lead director.

Shebly Seyrafi, an analyst with Calyon Securities, left his sell rating and $4-a-share price tag intact on Seagate's stock following the announcement. Seyrafi said Watkins' departure is a "sign of things to come" at Seagate.

"We read this development as not only reflecting disappointment with recent results, but to also reflect a likely massive restructuring at the company," Seyrafi said in a research note. Seyrafi added that he expects Seagate to announce another round of job cuts that could result in as much as 20% of the company being laid off.

Seagate is the world's top maker of hard-disk drives, but the company built more drives than it could sell last year and also was late to market with larger disks for computer notebooks, analysts say.

The company has since trimmed overall production and is aiming to speed up delivery of big disks. The U.S. recession, however, could further dampen demand, especially in the desktop PC market.

The Scotts Valley, Calif.-based vendor also faces a growing threat from so-called solid state drives, often known as flash memory, produced by Samsung, SanDisk and others.

Solid-state drives are much smaller, more stable and use less energy than spinning disk drives. Flash memory is already used in a variety of electronic products like digital cameras and MP3 players such as the iPod Nano.

Although solid-state drives are more expensive than hard disks, prices continue to fall steadily and the newer technology could eventually supplant the older one.

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