HTCH

Hutchinson Technology Incorporated (HTCH)

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Hutchinson Technology Inc. (HTCH)

F4Q09 Earnings Call

November 2, 2009; 5:00 pm ET

Executives

Wayne Fortun - Chief Executive Officer

Kathleen Skarvan - President of our Disk Drive Components Division

Rick Penn - President of our BioMeasurement Division

John Ingleman - Chief Financial Officer

Dave Radloff - Corporate Controller

Chuck Ives - Investor Relations

Analysts

Sherri Scribner - Deutsche Bank

Christian Schwab - Craig-Hallum Capital Group

Rich Kugele - Needham & Co.

Tom Lewis - High Road Value Research

Peter Kim - ISI Capital

Presentation

Operator

Welcome to the Hutchinson Technology’s fourth quarter results conference call. Turning today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions)

I’d now like to turn the conference over to Chuck Ives, Investor Relations.

Chuck Ives

Good afternoon everyone. Welcome to our fourth quarter results conference call. On the call with me today are Wayne Fortun, our CEO; Kathleen Skarvan, President of our Disk Drive Components Division; Rick Penn, President of our BioMeasurement Division; John Ingleman, our CFO; and Dave Radloff, our Corporate Controller.

As a reminder, we will be providing forward-looking information on demand for and shipments, of the company’s products, production capabilities, capital spending, worldwide disk drive and suspension assembly demand and shipments; average selling price; product cost, our plans to establish new assembly operation in Thailand, our BioMeasurement Division’s revenue, product commercialization and adoption, the company’s results of operations and operating performance.

These forward-looking statements involve risks and uncertainties as they 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 nonpublic information through any other means. We issued our fourth quarter results announcement just after the market closed this afternoon and it is now posted on our website at www.htch.com.

I’ll turn the call over to Wayne now for his opening remarks.

Wayne Fortun

Thanks Chuck. Good afternoon and thank you for joining us today. The improvement in operating performance and financial position that is evident in our fourth quarter results is the product of actions we have been taking throughout fiscal 2009 to reduce costs and debt. Over the course of the year we have worked aggressively to improve our cash flows, strength in our balance sheet and fundamentally change the cost structure of our business in response to very challenging market and economic conditions.

Due to the substantial cost reductions we achieved, we operated at close to breakeven in the fourth quarter, excluding the gains on debt repurchases and on the sale of our Sioux Falls Building. Our fiscal 2009 fourth quarter operating income increased to $2.1 million compared to a $10.5 million operating loss in last year’s fourth quarter. Our ability to deliver these kinds of results, despite a 31% decline in suspension shipments, illustrates the impact of the actions we took to change the cost structure of the business.

With the respect to our financial position, over the course of year we have repaid $132 million, or 35%, of our convertible debt, reducing the balance from $375 million to $243 million. We had got a lot of hard work to do yet to get back to consistent profitability, but we are pleased to have weathered the period of extraordinary challenges without compromising our ability to innovate and compete.

Now I’ll turn the call over to Kathleen for an update on the Disk Drive Components Division.

Kathleen Skarvan

Thanks Wayne. During our fiscal 2009 fourth quarter we shipped 145 million suspension assemblies, about flat with the 146 million in the preceding quarter. This is down 31% from $209 million in last year’s fourth quarter. The strengthening of demand during the quarter and our ability to respond to that demand enabled us to ship volume that was comparable to the prior quarter, despite a decline in shipments to Seagate Technology that was expected.

In the 1.8inch ATA and enterprise segments, suspension assembly shipments increased slightly quarter-over-quarter, but declined slightly in the 3.5inch ATA and 2.5inch ATA segments. These changes resulted in a product mix that was nearly identical to the preceding quarter and breaks down as follows. Suspension for mobile applications accounted for 44% of our shipments, the same as the preceding quarter.

Suspensions for 3.5inch ATA applications accounted for 37% of our shipments compared to 38% in the preceding quarter and suspensions for enterprise applications accounted for 19% of our shipments compared to 18% in the preceding quarter. Average selling price in the fiscal 2009 fourth quarter was $0.70 down from $0.71 in the preceding quarter and $0.78 in last year’s fourth quarter.

Now moving to TSA+ results for the fourth quarter, our shipments included $18 million TSA+ suspensions, up from $10 million in the preceding quarter. TSA+ suspensions offer our customers superior performance, and as a result they are gaining broader acceptance and being designed in two more disk drive programs. We are also continuing to reduce the cost burden of TSA+ flexure production, which is $7.1 million in fiscal 2009 fourth quarter down from $7.6 million in the preceding quarter and $11 million in last year’s fourth quarter.

Our TSA+ output yields and efficiencies are all improving and we remain on track to eliminate this cost burden in the second half of fiscal 2010. Ultimately we expect that the cost to reduce our additive TSA+ flexures will be lower than the cost to reduce our current subtractive TSA+ flexures. Another technology that is generating interest is dual stage actuation or DSA. This technology was used in the past by one hard drive manufacturer for an enterprise application.

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