HTCH

Hutchinson Technology Incorporated (HTCH)

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Hutchinson Technology Incorporated (HTCH)

F4Q12 (Qtr End 09/30/2012) Earnings Call

November 8, 2012 5:00 PM ET

Executives

Charles Ives - Treasurer and Director, Investor Relations

Richard Penn - President and Chief Executive Officer

David Radloff - Vice President and Chief Financial Officer

Analysts

Richard Kugele - Needham & Company

Kevin LaBuz - Deutsche Bank

Timothy Stabosz - Private Investor

Mark Miller - Noble Financial Capital Market

Tom Levins - High Road Value Research

Presentation

Operator

Welcome to the Hutchinson Technology fourth quarter results conference call. (Operator Instructions) I would now like to turn the conference over to Chuck Ives, Director of Investor Relations.

Charles Ives

Good afternoon, everyone. Welcome to our fourth quarter results conference call. On the call with me today are Rick Penn, our Chief Executive Officer; and Dave Radloff, our Chief Financial Officer.

As a reminder, we will be providing forward-looking information on demand for and shipments of disk drives and the company's products, ramping new programs, product mix, pricing, production capabilities and volumes, program qualifications at our assembly operation in Thailand, capital spending, product costs, operating expenses, product commercialization and adoption, and the company's business model, 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 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 Rick now.

Richard Penn

Thanks, Chuck. Good afternoon, everyone, and thank you for joining us today. I'll give you a summary of the quarter first and then begin to more detail on our business performance. Dave will cover our financial results and outlook.

As we noted in our fourth quarter results announcement, industry sources estimate that disk drive shipments declined about 11% in the September quarter compared with the preceding quarter. In the face of that decline, our shipment volumes held relatively flat. That occurred, thanks to increased allocations on existing customer programs and our new programs beginning to ramp.

Gross margin improved slightly, as we realized more of the cost advantages of our TSA+ platform and due to other measures taken to control costs, including a one-week shutdown early in the quarter.

In Thailand, our plans to restore our assembly operations capacity to pre-flood levels are on track, and qualifications on customer programs are proceeding. We will continue to move more of our assembly production to our operation there as the new fiscal year progresses, realizing the resulting cost benefits.

Getting into more detail on the quarter, during our 14 week fiscal 2012 third quarter, we shipped 105.2 million suspensions compared to 100.1 million suspensions in the preceding 13 week quarter. On a weekly basis, our shipments of suspension assembly decreased 2% compared with the preceding quarter. Overall, a decline in suspension shipments for enterprise applications was partially offset by increased shipments for mobile applications.

For the fiscal 2012 fourth quarter, our mix of products shipped was as follows. Suspensions for 3.5-inch ATA applications increased 4% sequentially and accounted for 41% of our shipments compared with 42% of shipments in the preceding quarter. Shipments for mobile applications increased 19% sequentially and accounted for 42% of our shipments compared with 37% in the preceding quarter.

And shipments for enterprise applications declined 18% sequentially and accounted for 17% of our shipments compared with 21% in the preceding quarter. Our average selling price in the fourth quarter was $0.58, flat with both the preceding quarter and last year's fourth quarter.

Dual state actuated or DSA suspensions accounted for 5% of our shipments, up from 1% in the preceding quarter. DSA suspensions carry a higher selling price and cost more to manufacture, and we expect them to steadily increase as a percentage of our product mix as the fiscal year 2013 progresses.

TSA+ suspensions accounted for 85% of our fourth quarter shipments, up from 70% in the preceding quarter, as subtracted suspensions continue to be phased out in favor of our more capable and lower cost TSA+ suspensions.

At our Thailand assembly operation, about half of the pre-flood production capacity is now installed. We expect to have it fully restored, pre-flood capacity by the middle of fiscal of 2013. And by the end of the fiscal 2013 third quarter, we expect to have about one-half of our total assembly output coming from our Thai operation.

Near the end of fiscal 2013, we expect to have the full capacity for the Thailand site installed. And shortly thereafter, we should begin realizing the full cost benefits we initially expected for the operation.

Regarding the outlook for suspension assembly demand, we expect shipments for our fiscal 2013 first quarter to range from 100 million to 105 million, representing an increase of 2% of 7% on a weekly basis compared with the 14 week fiscal 2012 fourth quarter. Hard disk drive shipments in the December quarter are expected to be about flat sequentially.

Our average selling price in the fiscal 2013 first quarter should benefit modestly from a continued shift in our product mix toward DSA suspensions. In addition, gross profit should improve as a result of higher volume and better fixed cost leverage.

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