Hutchinson Technology Incorporated (HTCH)
F2Q09 Earnings Call
April 28, 2009; 5:00 pm ET
Wayne Fortun - Chief Executive Officer
John Ingleman - Chief Financial Officer
Kathleen Skarvan - President, Disk Drive Components Division
Rick Penn - President BioMeasurement Division
Dave Radloff - Vice President of Corporate Finance
Chuck Ives - Investor Relations Manager
Richard Kugele - Needham & Company
Sherri Scribner - Deutsche Bank
Christian Schwab - Craig-Hallum Capital Group
Sherri Scribner – Deutsche Bank
Bruce Newberg - Jay Goldman & Co.
Previous Statements by HTCH
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I would now like to turn the conference over to Mr. John Ingleman, CFO. Please go ahead sir.
Good afternoon, everyone. Welcome to our second quarter results conference call. With me today is Wayne Fortun, our CEO; Kathleen Skarvan, President of our Disk Drive Components Division; Rick Penn, President of our BioMeasurement Division; Dave Radloff, our Corporate Controller; and Chuck Ives, our Investor Relations Manager.
As a reminder, we will be providing forward-looking information on demand for shipments of the company’s products, production capacity and capability, capital expenditures, worldwide disk drive and suspension assembly demand and shipments; average selling price; manufacturing consolidation and efficiency, product cost, cost reductions, asset impairment charges, workforce reductions and severance costs, our BioMeasurement division’s revenue, product commercialization and adoption, the company’s results of operations, operating performance and debt obligations in cash management.
These forward-looking statements involve risks and uncertainties that are based on our current expectations. Our actual results could differ materially as a result of several factors that are described in our periodic reports on file with the SEC.
In connection with the adoption of SEC rules governing fair disclosure, the company provides financial information and projections only through means that are designed to provide broad distribution of the information to the public. The company will not make projections or provide material non-public information through any other means. We issued our second quarter results announcement just after the market closed this afternoon. The announcement is now posted on our website at www.htch.com.
I’ll turn the call over for Wayne for his opening remarks.
Thanks, John. The fiscal 2009 second quarter was another difficult period for us. Demand was weak and the result in decline in net sales reduced our ability to cover our fixed cost. This lack of fixed cost coverage combined with the asset impairment charges, severance and other costs we are incurring as we structure the business resulted in the net loss for the quarter.
As we announced on April 3, we’ve been notified that Seagate Technology will be phasing out their procurement of suspension assemblies from us over the next 18 to 24 months. We currently expect shipments to Seagate to decline to less than 10% of our total suspension assembly volume in our fiscal 2009 fourth quarter with the remaining volume phased out subsequently.
To adjust to the challenging market conditions we are taking additional measures to reduce cost and improve cash flow. These actions will help us to meet our current provision of our debt obligations and maintain the flexibility to make strategic investments as needed. The additional actions include the elimination of an approximately 300 additional positions, by the end of the June quarter we will have reduced our total employment to approximately 2,500 which equates to about a 45% reduction since the end of fiscal year 2008.
We estimate that these additional restructuring and cost reduction actions will result in another $50 million in annualized cost savings, together with actions we’ve already taken this year we estimate that we have reduced our cost structure by approximately $175 million on an annualized basis.
The full benefit of these cost reductions will be realized in our fiscal 2009 fourth quarter. This will position the company to generate positive free cash flow at a quarterly revenue of $85 million to $90 million, with other actions we are taking to manage our balance sheet and conserve cash and with $293 million in cash and investments at the end of the second quarter, we believe we can meet our current portion of our debt obligations and continue to make select investments.
I’ll turn the call over to Kathleen now for the review of the Disk Drive Components Division’s second quarter performance.
Thanks, Wayne. During our fiscal 2009 second quarter we shipped about 107 suspension assemblies, down 31% from 155 in the preceding quarter, and down 40% from 179 million in last year’s second quarter. Compared to the preceding quarter, shipments declined in the 2.5-inch ATA, 1.8-inch ATA and enterprise segment, but increased in the 3.5-inch ATA segment.
We believe that this sequential quarter decline in overall volume resulted primarily from three factors. First, overall lower demand for disk drive. Second, lower disk drive production as the drive makers managed down inventory; and third a modest loss of overall market share.
As a percent of total shipments, suspension assemblies for mobile applications accounted for about 30% of second quarter shipments, down from 46% in the preceding quarter and shipments for enterprise applications declined to about 21% of our volume from 25% in the preceding quarter. Shipments for 3.5-inch ATA applications increased to 49% from 29%.