HTCH

Hutchinson Technology Incorporated (HTCH)

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Hutchinson Technology Inc. (HTCH)

F1Q10 (Qtr End 12/27/09) Earnings Call

January 26, 2010 5:00 pm ET

Executives

Wayne Fortun - CEO

Kathleen Skarvan - President, Disk Drive Components Division

Rick Penn - President, BioMeasurement Division

John Ingleman - SVP, CFO

Dave Radloff - Corporate Controller

Chuck Ives – Director, IR

Analysts

Rich Kugele - Needham & Company

Tom Lewis - High Road Value Research

Peter Kim - ISI Capital

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Hutchinson Technology’s first quarter results conference call. During 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 Mr. Chuck Ives, Director of Investor Relations. Please go ahead, sir.

Chuck Ives

Good afternoon, everyone. Welcome to our first 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; pricing; product cost, our plans to establish an assembly operation in Thailand, our BioMeasurement Division’s revenue, product commercialization and adoption, customer education, 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 first 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. We are pleased to report that the improvement in our operating performance and financial position that became evident in our fourth quarter results continued in the first quarter of our new fiscal year.

When we ended fiscal 2008 to the first of the quarter of fiscal 2010, we have substantially improved our gross margin despite a decline in net sales. The improvement is the result of the actions we took to restructure the business and reduce our cost as well as the turnaround in demand that began in the later half of fiscal 2009.

The sequential quarter growth in shipments and net sales, our first quarter gross profit grew to $20.8 million compared with $17.5 million in the preceding quarter and represents an increase of more than 200 basis points. The first quarter of fiscal 2010 was a strong period for cash generation as well and our cash from operations was about $24 million. We added about $15 million of that to our cash and investment balance, which now totals $242 million. We also use some cash to repurchase $4.5 million of our convertible subordinated notes that are due in March.

Over the past five quarters, we have reduced the principle balance of our debt by approximately $83 million and our net debt by more than $61 million. We look forward to sustaining the positive momentum on adoption of our TSA+ technology, establishing our operation in Thailand and turning the growing the InSpectra StO2 into growing revenue. While the fluctuations demand typically in our business to make our progress less than steady, we are better positioned to accommodate those fluctuations than we were a year ago.

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

Kathleen Skarvan

Thanks, Wayne. During our fiscal 2010 first quarter we shipped 155 million suspension assemblies, up about 7% from the preceding quarter and about flat with last year’s first quarter. We estimate that our volume growth in the quarter was about comparable to the overall market growth for the suspension assembly.

Compared with the preceding quarter, our shipments of suspension assemblies were 3.5inch ATA and enterprise applications increased 20% and 9% respectively. Shipments for 2.5inch ATA applications were up 1% and shipments for 1.8inch applications were down 52% and this seasonally typical for that application.

For the quarter of mix of product shipped was as follows. Suspensions for 3.5inch ATA application accounted for 42% of our shipments, compared to 37% in the preceding quarters. Suspensions for mobile applications accounted for 39% of our shipments, compared with 44% in the preceding quarter. And enterprise application accounted for 19% of our shipments, same as the preceding quarter.

Average selling price in the fiscal 2010 first quarter was $0.68 down from $0.70 for the preceding quarter, and $0.76 in last year’s first quarter. The price decline reflects the competitive pricing environment and mixed product shipped.

The first quarter suspension assembly shipment included $25 million TSA+ suspension or 16% of total shipments up from $18 million or about 13% in the preceding quarter. TSA+ suspensions will increase of the percent of our shipments as fiscal year progresses and could be nearly 50% of our volume by the end of the year.

Read the rest of this transcript for free on seekingalpha.com