HTCH

Hutchinson Technology Incorporated (HTCH)

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Hutchinson Technology, Inc. (HTCH)

F4Q2010 Earnings Call Transcript

November 1, 2010 5:00 pm ET

Executives

Chuck Ives – IR Manager

Wayne Fortun – President & CEO

Kathleen Skarvan – VP & President of Disk Drive Components Division

Rick Penn – SVP & President of BioMeasurement Division

Dave Radloff – VP & CFO

Analysts

Kevin McFesson [ph] – Deutsche Bank

Matt Swope – Gleacher Securities

Rich Kugele – Needham & Company

Tom Lewis – High Road Value Research

Mark Miller – Noble Financial

Aaron Rakers – Stifel Nicolaus

Eric Rubel – MTR Securities

Presentation

Operator

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Hutchinson Technology fourth quarter results conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions)

This conference is being recorded today, Monday, November 1, 2010. I would now like to turn the conference over to Chuck Ives, Treasurer and Director of Investor Relations. Please go ahead, sir.

Chuck Ives

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

As a reminder, we will be providing forward-looking information on demand for and shipments of the company’s products, production capabilities and capacity, capital spending, pricing, product costs, cost reductions, operating expenses, our assembly operation in Thailand, our BioMeasurement Division’s revenue, product commercialization and adoption, and the company’s 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 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 Web site 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. Our shipments of suspension assemblies in fiscal fourth quarter declined about 5% compared with the preceding quarter, in line with our expectations.

Inventory reductions at a certain customer reduced our shipments and as we have previously indicated would occur, our fourth quarter volume was negatively impacted by a defect that we encountered on some of our TSA+ products late in the third quarter.

We have implemented and validated the solution for this defect and as a result, our TSA+ output and yield now exceed our previous highs. To return to a positive cash generation and profitability, we must increase revenues through volume growth in our Disk Drive Component Division. The growth will come through capturing overall market growth and through market share growth.

To enhance our ability to compete for suspension assembly market share, we will build on the strengths of our vertically integrated model. It could be the industry’s lowest cost producer. To achieve that goal, we will continue to improve our TSA+ production efficiency while ramping up assembly operations at our facility in Thailand which is now shipping product for customer qualification.

In our BioMeasurement Division planned cost reductions are nearly complete and we’ll substantially reduce the Division’s operating loss in fiscal 2011. The cost reductions in the BioMeasurement Division are part of our previously announced plan to further reduce our cost by $25 million on an annualized basis. These planned cost reductions are on track and will begin to benefit our results in the first quarter of fiscal 2011.

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

Kathleen Skarvan

Thanks, Wayne. During our fiscal 2010 fourth quarter, we shipped 110.4 million suspensions, down 5% from 116.6 million in the preceding quarter and down 24% from $145.4 million in last year’s fourth quarter.

For the quarter our mix of product shipped was as follows. Suspensions for 3.5-inch ATA applications declined 5% sequentially and accounted for 53% of our shipments, flat from the preceding quarter.

Shipments for mobile applications declined 30% sequentially and accounted for 23% of our shipments, down from 31% of our shipments in the preceding quarter. Shipments for enterprise applications increased 43% and accounted for 24% of our shipments, up from 16% in the preceding quarter.

Average selling price in the fiscal 2010 fourth quarter was $0.66, up from $0.65 in the preceding quarter. The higher mix of shipments for enterprise applications offset continued pressure on prices. In last year’s fourth quarter, average selling price was $0.70.

Our fourth quarter suspension assembly shipments included $38 million TSA+ suspension assemblies or 34% of our volume. That’s up from $33 million or 28% of our volume in the preceding quarter and $18 million or 13% of our volume in the fiscal 2009 fourth quarter.

The cost burden related to TSA+ flexure production remained about flat at $7.6 million compared with $7.5 million in the preceding quarter. This is primarily due to the cost remediating the TSA+ defect; however, due to a resumption of yield improvements and higher output, the TSA+ cost burden decreased as we move through the quarter.

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