Hutchinson Technology: Fiscal 3Q15 Financial Results

Hutchinson Technology Incorporated reported a net loss of $10.2 million, or $0.30 per share, on net sales of $54.7 million for its fiscal third quarter ended June 28, 2015. The net loss included a $1.1 million foreign currency loss and $330,000 of non-cash interest expense. Excluding these items, the company’s net loss for the fiscal 2015 third quarter was $8.7 million, or $0.26 per share.

In the preceding quarter, the company reported a net loss of $9.7 million, or $0.29 per share, on net sales of $62.4 million. The net loss included $430,000 of non-cash interest expense and a $140,000 foreign currency gain. Excluding these items, the company’s net loss for the fiscal 2015 second quarter was $9.4 million, or $0.28 per share.

Compared with the preceding quarter, the company’s suspension assembly shipments declined 14% to 86.6 million. The decline in shipments resulted from the seasonal slowdown in disk drive demand, weakness in PC demand and inventory reductions in the PC supply chain.

“Demand for suspension assemblies typically strengthens in the second half of the calendar year and we expect our shipments to increase in our fiscal 2015 fourth quarter,” said Rick Penn, president and CEO.

Gross profit in the fiscal 2015 third quarter totaled $4.8 million, or 8.8% of net sales, down from $6.3 million, or 10.0% of net sales, in the preceding quarter primarily because of the lower volume in the quarter. The company’s operating loss in the third quarter totaled $6.1 million, an improvement from a $6.7 million operating loss in the preceding quarter, as R&D expenses declined from $7.1 million in the preceding quarter to $5.2 million in the third quarter.

“We took steps to manage our costs and mitigate the impact of the lower volume on gross profit and operating income,” said Penn. “We intend to continue improving our vertically integrated cost model while leveraging our capacity and technology investments in the U.S. and Thailand.”

The company’s Thailand assembly operation accounted for 89% of assembly production in the third quarter, up from 85% in the preceding quarter.

The company announced the introduction of a new SMA OIS actuator that is 70% thinner than its initial product and that lowers the company’s capital and production costs.

“We believe this new design has fundamental advantages that bring superior value and capability to the marketplace and that the product is well aligned with the needs of camera module and smartphone manufacturers,” said Penn. “We are focused on introducing our new offering to the market, earning positions on new smartphone programs and optimizing our manufacturing processes for the new design.“

Cash and investments at the end of the fiscal 2015 third quarter totaled $36.4 million compared with $43.6 million at the end of the preceding quarter. As the company expected, cash decreased primarily as a result of applying the $6 million remainder of a customer’s advance payment to a portion of third quarter suspension assembly shipments and a subsequent $5 million increase in the company’s receivables. Capital spending totaled $2.8 million in the third quarter. Outstanding borrowings on the company’s revolving line of credit were $3.0 million at the end of the third quarter compared to zero at the end of the preceding quarter.

For its fiscal 2015 fourth quarter, the company currently expects its suspension assembly shipments to increase 10% to 20% sequentially. ASP is expected to be $0.57 to $0.58, depending on product mix, compared with $0.59 in the third quarter.

“We have managed through two challenging quarters and now expect our suspension assembly shipments to increase due to strengthening disk drive demand, our high level of development activity with customers and our expanding program wins across the disk drive segments,” said Penn. “In addition, we continue to be excited about the growth potential for OIS as we introduce our new SMA OIS actuator that offers size and performance benefits to prospective customers while substantially lowering our capital and manufacturing costs.”