Hutchinson Technology: Fiscal 1Q08 Financial Results

Hutchinson
Technology Incorporated reported net
income of $2.3 million, or $0.09 per diluted share, on net
sales of $173.1 million for its fiscal 2008 first quarter
ended December 30, 2007.

Diluted earnings per share for
the quarter were reduced approximately $0.05 by a pre-tax
litigation charge of $2.5 million related to a tentative
settlement of a class-action lawsuit regarding the company’s
pay practices for gowning.

In its fiscal 2007 first quarter, the company reported net
income of $5.8 million, or $0.22 per diluted share, on net
sales of $188.9 million. Reinstatement of the federal research
and development tax credit on December 20, 2006, retroactive
to January 1, 2006, increased fiscal 2007 first quarter
net income by $1.9 million, or $0.07 per diluted share.

The company shipped approximately 213 million suspension
assemblies in its fiscal 2008 first quarter, compared with
approximately 246 million in the preceding quarter and approximately
225 million in the fiscal 2007 first quarter. The sequential
quarter decline in shipments reflects the impact of a customer’s
accelerated purchases at the end of the preceding quarter
to realize volume price breaks and comparison of a 13-week
first quarter against a 14-week fourth quarter. "Without
these factors and the litigation charge noted above, our
total shipments, net sales and income from operations would
have increased modestly on a sequential quarter basis,”
said Wayne M. Fortun, the company’s president and chief
executive officer.

Gross margin in the fiscal 2008 first quarter was 19 percent,
compared with 18 percent in the preceding quarter and 19
percent in the fiscal 2007 first quarter. Capacity utilization
in the quarter was approximately 75 percent, flat with the
preceding quarter but down from approximately 80 percent
in the fiscal 2007 first quarter. Gross margin continued
to benefit from cost reductions completed in the company’s
fiscal 2007 third quarter.

The company continues to make progress on optimizing its
TSA+ processes to produce next-generation suspension assemblies. "Our plans to initiate volume production on our TSA+ manufacturing
lines later this year remain on track,” said Kathleen Skarvan,
president of the Disk Drive Components Division. "We continue
to work with multiple customers on TSA+ program development
for their future disk drive programs, and we are encouraged
by the high level of customer interest in this new platform.”

The company’s BioMeasurement Division placed InSpectra(tm)
StO2 Systems at seven additional hospitals during the fiscal
2008 first quarter and increased the number of customer
evaluations in progress. "We continue to expand the number
of hospitals using our device in the United States and Europe,”
said Richard Penn, president of the BioMeasurement Division. "As this installed base grows, and as we work with clinicians
to make our device the standard of care for measuring tissue
perfusion, we expect to see increased sales of disposable
InSpectra StO2 Sensors.” Penn added that, as planned, the
company has begun to support customer evaluations of the
InSpectra StO2 System in critical care settings beyond trauma.

The company generated $35 million in cash from operations
in the fiscal 2008 first quarter and spent $18 million on
capital investments, generating free cash flow of $17 million,
compared with $6 million of free cash flow in the preceding
quarter and negative free cash flow of $1 million in the
fiscal 2007 first quarter. Capital investments in fiscal
2008 are currently expected to total $75 million, down from
$102 million in fiscal 2007.

Commenting on industry conditions and the company’s outlook,
Fortun said that storage industry analysts are now expecting
unit shipments of disk drives to increase by about 12 percent
in calendar 2008, up from earlier estimates of 10 percent.
The projected increase in disk drive shipments, coupled
with growth in average disk drive capacities, is expected
to result in strong industry-wide demand for suspension
assemblies.

"In this demand environment, we plan to continue growing
our market share in the 2.5” mobile segment and sustain
our leading market share in the enterprise segment," said
Fortun. ”In addition, we are working with customers to regain
market share in the 3.5-inch ATA segment on next-generation
disk drive programs.” Fortun said the company expects overall
average selling prices in fiscal 2008 to remain relatively
flat with fiscal 2007. "Capacity utilization and leveraging
our fixed costs will continue to be key to improving gross
margin in the current fiscal year,” said Fortun.

Hutchinson
Technology Incorporated