Hutchinson: Fiscal 1Q16 Financial Results

Hutchinson Technology Incorporated reported net sales of $63.9 million for its fiscal 2016 first quarter ended December 27, 2015.

Suspension assembly shipments for the quarter totaled 106.6 million, compared with 105.4 million in the preceding quarter.

Gross profit in the fiscal 2016 first quarter totaled $11.7 million, or 18.3% of net sales, up from $7.5 million, or 11.8% of net sales, in the preceding quarter.

Rick Penn, president and CEO, said that shipments were within the company’s expectations even as demand weakened near the end of the quarter. He attributed the sequential increase in gross profit to the company’s continued efforts to improve costs and a favorable product mix including suspensions using lower cost, internally-produced TSA+ flexures.

The company’s operating loss in the fiscal 2016 first quarter declined to $2.8 million from $3.9 million in the preceding quarter. The sequential improvement resulted from the increase in gross profit, partially offset by expenses of $3.4 million related to the company’s pending merger with TDK Corporation and higher R&D expenses of $5.9 million, up from $3.8 million in the preceding quarter.

The company reported a fiscal 2016 first quarter net loss of $5.3 million, or $0.16 per share.

The net loss for the quarter included:

• $3.4 million of merger-related expenses;
• $590,000 of tax benefits related to recently enacted Federal income tax legislation;
• $350,000 of non-cash interest expense; and
• a $30,000 foreign currency gain.

Excluding these items, the company’s net loss for the fiscal 2016 first quarter was $2.1 million, or $0.06 per share.

In the preceding quarter, the company reported a net loss of $9.3 million, or $0.28 per share. The net loss in the preceding quarter included a $2.4 million foreign currency loss, a $1.6 million asset impairment charge and $340,000 of non-cash interest expense, partially offset by $1.5 million of previously deferred income related to a former cost-sharing agreement for development of the company’s shape memory alloy (SMA) optical image stabilization (OIS) actuator. Excluding these items, the company’s fiscal 2015 fourth quarter net loss was $6.5 million, or $0.20 per share.

Regarding the company’s SMA OIS actuator, Penn said prototype camera modules that use the new Gemini SMA OIS actuator have been undergoing testing and evaluation with a smartphone maker. “The results from performance and reliability tests continue to be encouraging, and we’re continuing to work with companies in the smartphone camera supply chain on evaluations of our SMA OIS actuator.”

Cash and investments at the end of the fiscal 2016 first quarter totaled $49.0 million, an increase of $8.6 million from the end of the preceding quarter. The increase resulted primarily from favorable changes in working capital, including a $5 million reduction in receivables and a $2 million reduction in inventories. Capital spending in the quarter totaled $1.4 million and is currently expected to be $10 million to $15 million for the fiscal year. As in the preceding quarter, there were no outstanding borrowings under the company’s revolving line of credit at the end of the fiscal 2016 first quarter.

The company’s net cash, as defined by its November 1, 2015 merger agreement with TDK Corporation, was $49.9 million at the end of the fiscal 2016 first quarter. The company expects to complete the transactions contemplated by the merger agreement either late in the first calendar quarter or during the second calendar quarter of 2016.

For its fiscal 2016 second quarter, the company currently expects its suspension assembly shipments to range from 85 million to 95 million.

“Demand softened as we exited the December quarter and the March quarter is typically a seasonally weaker quarter for the disk drive industry and its supply chain,” said Penn.

ASP is expected to be about flat with the $0.57 ASP in the fiscal 2016 first quarter. Gross profit is expected to decline on the lower expected volume.

“Overall, our operating results improved in our first quarter,” said Penn. “In the near term, we’ll continue to focus on meeting our customers’ advancing requirements, optimizing our processes, controlling costs and maximizing our cash balance.”