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Hutchinson: Fiscal 2Q13 Financial Results

Back to profit but suspension assembly shipments decreasing 5% Q/Q

(in US$ million) 2Q12 2Q13  6 mo. 12   6 mo. 13
 Revenues 65.5 60.9 124.0  124.6
 Growth   -7%    0%
 Net income (loss)  (7.5) (1.9) (20.0) (4.7)

Hutchinson Technology Incorporated reported net income of $1.9 million, or $0.07 per diluted share, on net sales of $60.9 million for its fiscal second quarter ended March 31, 2013.

Results for the quarter included a $5.0 million gain on debt extinguishment, a $2.0 million foreign currency gain, $800,000 of non-cash interest expense and $300,000 of severance and site consolidation costs. Excluding these items, the company’s second quarter net loss was $4.0 million, or $0.16 per share.

In the preceding quarter, the company reported a net loss of $6.5 million, or $0.27 per share, on net sales of $63.7 million. Results for the quarter included $1.0 million of severance costs, $1.0 million of non-cash interest expense and a $100,000 foreign currency gain. Excluding these items, the company’s first quarter net loss was $4.6 million, or $0.19 per share.

The company’s suspension assembly shipments totaled 98.9 million in the fiscal 2013 second quarter, down from 103.6 million in the previous quarter, and in line with the company’s prior guidance. ASP in the fiscal 2013 second quarter was $0.60, flat with the preceding quarter. Dual-stage actuated (DSA) suspensions accounted for 12% of second quarter shipments, up from 9% in the preceding quarter.

"Our DSA suspension shipments increased in the latter part of the second quarter even though customer ramps on certain programs using DSA suspensions have been slower than expected," said Rick Penn, Hutchinson’s president and CEO. "We expect DSA suspensions to account for approximately 20% of our shipments in our third quarter."

Gross profit in the fiscal 2013 second quarter was $8.0 million, or 13.1% of net sales, up from $7.4 million, or 11.6% of net sales, in the preceding quarter. Gross profit benefited from improved fixed cost leverage on higher levels of flexure and assembly production. The company built more inventory than previously planned in order to accommodate a product mix change and meet expected demand as it continues to transfer production capacity to its assembly operation in Thailand. Gross profit also benefited from lower variable costs per part, resulting primarily from improved efficiency in manufacturing TSA+ suspension assemblies.

The company continues to transfer more assembly production to its lower cost operation in Thailand. In the fiscal 2013 second quarter, the Thailand operation accounted for 27% of assembly production, up from 18% in the preceding quarter. By the end of the fiscal 2013 third quarter, the company expects its Thailand operation will account for approximately 40% of assembly production, including increased production of DSA suspensions.

Cash and investments at the end of the 2013 second quarter totaled $41.1 million compared with $57.5 million at the end of the preceding quarter. During the quarter, the company redeemed the remaining $11.9 million of its 3.25% Convertible Subordinated Notes. Cash generated by operations totaled $3.7 million in the fiscal 2013 second quarter and capital spending totaled $7.6 million. Outstanding borrowings on the company’s revolving line of credit totaled $2.3 million at the end of the fiscal 2013 second quarter compared with $4.1 million at the end of the preceding quarter.

Regarding the company’s outlook, Penn said the company expects its fiscal 2013 third quarter suspension assembly shipments to be roughly flat on a sequential basis at 95 million to 105 million, anticipating flat demand for disk drives. Third quarter ASP is expected to increase slightly as a result of a higher percentage of DSA suspension assemblies in the mix of products shipped in the quarter. Third quarter gross profit is expected to decline due to lower fixed cost leverage on lower production volume following the inventory build in the second quarter.

"Overall, our results in the quarter demonstrate progress toward our goals of being the industry’s lowest cost producer of suspension assemblies and improving our market position and financial performance," said Penn. "We are pleased with our positions on new customer programs and expect to see increased volume from ramps on these programs beginning in our fiscal fourth quarter. We will continue to strengthen our competitive position by advancing our DSA products, further improving our operating efficiency, transitioning more assembly production to our Thailand operation and continuing to consolidate our U.S. operations."

Comments

Abstracts the earnings call transcript:

Rick Penn, president and CEO:
"Our DSA shipments increased in the later part of the second quarter and we currently expect DSA suspensions to increase from 12% of our shipments in the second quarter to about 20% in the third quarter.
"TSA+ suspensions had accounted for 87% of our second quarter shipments, up from 85% in the preceding quarter."


David Radloff, CFO:
"The second quarter suspension assembly shipments were $98.9 million, down 5% from the preceding quarter and in light with guidance we provided at the time of our first quarter results announcement. Our mix of products shipped in the quarter was as follows; suspension shipments for 3.5-inch ATA applications decreased 1% sequentially and accounted for 42% of our shipments compared with 40% of shipments in the preceding quarter.
"Shipments for mobile applications decreased 4% sequentially and accounted for 40% of our shipments, the same as in the preceding quarter and shipments for enterprise applications decreased 12% sequentially and accounted for 18% of our shipments compared with 20% of our shipments in the preceding quarter.
"DSA suspensions accounted for 12% of our shipments in the second quarter, up from 9% in the preceding quarter. Our average selling price in the second quarter was $0.60, flat with preceding quarter. Net sales for the fiscal 2013 second quarter were $60.9 million, down 4% from $63.7 in the preceding quarter.
"The revenue percentages for our top customers in the quarter were as follows; Western Digital 53%, SAE/TDK 24%, Seagate 12%, and Hitachi GST 9%.
"Gross profit in the second quarter improved to $8 million of 13.1% of net sales compared with $7.4 million or 11.6% of net sales in the preceding quarter."

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