HTCH

Hutchinson Technology Incorporated (HTCH)

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Hutchinson Technology Inc. (HTCH)

F3Q11 Earnings Call

July 26, 2011, 5:00 PM ET

Executives

Chuck Ives – Treasurer and Director of Investor Relations

Wayne Fortun – Chief Executive Officer

Rick Penn – President, Disk Drive Components Division

Dave Radloff – Chief Financial Officer

Analysts

Sherri Scribner – Deutsche Bank

Rich Kugele – Needham & Company

Matthew Swope – Gleacher Securities

David Epstein – CRT

Tom Lewis – High Road Value Research

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Hutchinson Technology third quarter results conference call.

During today's presentation, all parties will be placed in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Tuesday, July 26th, 2011. And I would now like to turn the conference over to Mr. Chuck Ives, Director of Investor Relations and Treasurer. Please go ahead, sir.

Chuck Ives

Good afternoon, everyone. Welcome to our third quarter results conference call. On the call with me today are Wayne Fortun, our Chief Executive Officer; Rick Penn, President of our Disk Drive Components Division; and Dave Radloff, our Chief Financial Officer.

Wayne will provide an overview of the business, Rick will provide an update on our Disk Drive Components Division, and Dave will speak to our financial results and guidance.

As a reminder, we will be providing forward-looking information on-demand for and shipments of disk drives and the company's products, market position, product mix, pricing, production capabilities, assembly operations in Thailand, capital spending, product costs, manufacturing consolidation and restructuring, operating expenses, our BioMeasurement Division's results, product commercialization and adoption, and the company's cost structure, operating performance and financial results.

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 non-public information through any other means.

We issued our third 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, everyone, and thank you for joining us today. In our third quarter, our suspension assembly shipments increased 15% and our net sales grew 14% and we cut our net loss nearly in half compared to our second quarter.

Our improved financial performance is driven by an increase in shipments and the cost benefits from actions we have taken to position ourselves as the industry's lowest cost producer of suspension assembly.

Improved efficiency in our TSA+ production, the transition of assembly operations to our Thailand facility, the consolidation of our manufacturing operations and the restructuring of our business are reducing our costs and improving our competitive position.

Volume with all of our customers increased in the third quarter compared with the preceding quarter and we believe we gained a modest amount of market share in all of the disk drive segments as a result of share shifts among our customers and improvement in our share positions on some existing customer programs.

I'll turn it over to Rick now for a recap on the Disk Drive Components Division.

Rick Penn

Thanks, Wayne. During our fiscal 2011 third quarter, we shipped 117.9 million suspension assemblies, up 15% from a 102.3 million suspension assemblies in the preceding quarter. After a weak start in the first-four weeks, our demand strengthened in the final nine weeks of the quarter.

As Wayne mentioned, compared to the preceding quarter, volume increased for all customers in across all disk drive market segments.

For the quarter, our mix of product shipped was as follows. Suspensions for 3.5-inch ATA applications increased 6% sequentially and accounted for 58% of our shipments compared with 63% in the preceding quarter.

Shipments for mobile applications increased 43% sequentially and accounted for 19% of our shipments, up from 16% in the preceding quarter, and shipments for enterprise applications increased 22% sequentially and accounted for 23% of our shipments compared to a 21% in the preceding quarter.

The average sell price in the fiscal 2011 third quarter was $0.59 compared with $0.60 in the preceding quarter. A favorable shift in product mix with suspensions for mobile and enterprise applications accounting for more of the quarter's total shipments, somewhat mitigated a sequential quarter decline in average selling price.

Our third quarter shipments of TSA+ suspension assemblies increased 11% sequentially to $60 and accounted for 51% of our shipments compared with 53% in the preceding quarter when total volume was lower.

Looking ahead, we expect TSA+ suspensions to account for 55% to 60% of our fourth quarter shipments and about 80% of our shipments by this time next year. Our TSA+ yield in cost per part continue to improve in the third quarter.

As more of our product mix shifts from subtractive TSA suspensions to additive TSA+ suspensions and we make further improvements in our TSA+ process efficiency and capacity utilization, our total cost per part will continue to improve.

In regards to our manufacturing consolidation plan, the transition of our Hutchinson components operation into Eau Claire site is progressing well. The startup of our photoetching processes in Eau Claire and the movement of TSA+ equipment from Hutch to Eau Claire are both on track with our plan.

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