Hutchinson: Fiscal 3Q08 Financial Results

Hutchinson Technology Incorporated reported net sales of $150.4 million for its fiscal third quarter ended June 29, 2008, up 5 percent compared with $143.8 million in the preceding quarter. In the fiscal 2007 third quarter, net sales totaled $156.7 million.

The company reported a net loss of $8.4 million, or $0.36 per share, for the fiscal 2008 third quarter. The net loss included a $10.2 million reduction in gross profit as a result of preparing for and initiating TSA+ volume production, a $5.6 million operating loss in the company’s BioMeasurement Division and pre-tax charges of approximately $1.1 million, or $0.03 per share, for severance costs.

In the comparable fiscal 2007 period, the company reported a net loss of $13.5 million, or $0.52 per share. The net loss for the fiscal 2007 third quarter included pre-tax charges of approximately $8.7 million, or $0.22 per share, for severance costs and the write-off of design costs for a cancelled facility expansion.

The company shipped approximately 189 million suspension assemblies in its fiscal 2008 third quarter, compared with approximately 179 million in the preceding quarter and approximately 190 million in the fiscal 2007 third quarter. Overall average selling price in the fiscal 2008 third quarter was $0.79 compared with $0.80 in both the preceding and prior year quarters. Gross margin in the fiscal 2008 third quarter was 11 percent, compared with 13 percent in both the preceding quarter and last year’s third quarter.

The company’s total cash and investments decreased from $285 million at the end of the fiscal 2008 second quarter to $275 million at the end of the third quarter primarily as a result of the company’s repurchase of approximately $10 million of its common shares.

Disk Drive Components Division
Kathleen Skarvan, president of the company’s Disk Drive Components Division, said the company increased its overall suspension assembly market share, primarily due to gains in the 2.5-inch mobile segment. "Our shipments for 2.5-inch mobile applications increased 34 percent compared to the preceding quarter and 76 percent compared to last year’s third quarter," said Skarvan. "In addition, we stabilized our share position in the 3.5-inch ATA segment after several periods of decline, and we maintained our market-leading position in the enterprise segment."

Skarvan added that the company successfully initiated volume production and shipments of TSA+ suspension assemblies in the fiscal 2008 third quarter as planned. "We shipped more than one million TSA+ suspension assemblies during the third quarter, and we currently expect fourth quarter TSA+ shipments to increase roughly five-fold from the third quarter level," said Skarvan. "In addition, we are working with all of the hard disk drive manufacturers to develop TSA+ suspension assemblies for their future disk drive programs." Skarvan said that although the initiation of TSA+ volume production has dampened the company’s gross margin, this burden should diminish with the TSA+ volume growth and process and productivity improvements that are expected over the next several quarters.

BioMeasurement Division
The company’s BioMeasurement Division added nine hospitals as customers for its InSpectra StO(2) Tissue Oxygenation Monitor during the fiscal 2008 third quarter, bringing the total number of customers to 45 and year-to-date net sales to $598,000. The number of prospective customers currently evaluating or moving towards purchase of the InSpectra StO(2) System totaled 115 at the end of the third quarter, compared with 106 at the end of the preceding quarter. Rick Penn, president of the BioMeasurement Division, noted that several hospitals have now formalized guidelines for use of the system. "This is key to establishing routine use of the system and advancing StO(2) monitoring as a standard of care," said Penn.

Penn added that a growing body of clinical and economic evidence attesting to the value of StO(2) monitoring has been documented in numerous studies. "This compelling evidence is supporting our efforts to increase adoption of InSpectra StO(2) monitoring in trauma hospitals and is encouraging evaluation in a number of other clinical applications, including emergency medicine, surgery and intensive care. In addition, there are several studies underway to further demonstrate how StO(2) can be used to improve treatments and outcomes," said Penn..

Business Outlook
Commenting on the company’s third quarter performance, Wayne M. Fortun, Hutchinson Technology’s president and chief executive officer, said the market share gains in the Disk Drive Components Division resulted from the company’s continued emphasis on cost reductions, quality improvement and excellent customer service. "Our focus in these areas, combined with our technology leadership, should enable us to continue winning preferred supplier positions on customers’ new disk drive programs. We believe we can sustain or improve upon this quarter’s market share gains," said Fortun. Storage industry analysts now expect calendar year 2008 disk drive unit shipments to grow by 13 to 14 percent. Based on its current expectations regarding fourth quarter suspension assembly shipments and estimated fourth quarter average selling prices of $0.76 to $0.77, Fortun said the company now estimates that fiscal 2008 net sales will total $630 to $640 million.

Regarding the BioMeasurement Division, Fortun said the growing number of hospitals implementing specific guidelines for use of the InSpectra StO(2) System and the expanding interest in the system for applications beyond trauma are evidence of increasing momentum in the division. The company expects BioMeasurement Division revenue for fiscal 2008 to reach approximately $1 million.