Hutchinson Technology Inc. (HTCH) F2Q10 (Qtr End 03/28/10) Earnings Call April 27, 2010 5:00 p.m. ET Executives Chuck Ives - Director of IR Wayne Fortun - CEO Kathleen Skarvan - President of Disk Drive Components Division Steve Polacek - CFO Dave Radloff - Corporate Controller Analysts Rich Kugele - Needham & Company Christian Schwab - Craig-Hallum Capital Group Eric Reubel - MTR Securities Edward Lee - Pacific Madrone Capital Jim Brilliant - Century Management Tom Lewis - High Road Value Research Presentation Operator Welcome to the Hutchinson Technology's second quarter results conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Chuck Ives, Director of Investor Relations. Chuck Ives
We issued our second 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. As you saw in our second quarter results announcement, we reported a net loss in the quarter primarily because of a 16% decline in suspension assembly shipments compared with the preceding quarter. While we expected demand in the second quarter to decline sequentially, our second quarter shipments declined more on a percentage basis than the estimated total available market for suspension assemblies did. Our reduced volume was primarily the result of a temporary market share loss that we believe is limited to the fiscal 2010 second quarter. In short, the combination of share shifts among our drive makers and problems we encountered as we broadly implemented certain TSA+ process improvements results in a short-term market share loss. We have corrected the process problems that constrained our capacity and hampered our yield improvements and prevented us from meeting demand in the last quarter. Based on volume commitments on customers' programs, we're confident we will regain market share in the third quarter. Despite the difficulties in our second quarter, we've continued to strengthen our balance sheet. We retired the remaining $41 million balance on our 2.25% convertible subordinated notes that was due on March 15, 2010. And we sold a portion of our auction rate securities portfolio for $19.3 million in cash. I'll turn it over now to Kathleen who will give you an update on the Disk Drive Components Division. Kathleen Skarvan Thanks, Wayne. During our fiscal 2010 second quarter, we shipped 130 million assemblies, down 16% from 155 million in the preceding quarter and up 22% from 107 million in last year's second quarter.
For the quarter, our mix of products shipped was as follows: Suspensions for 3.5-inch ATA applications accounted for 46% of our shipment compared to 42% in the preceding quarter. Mobile applications accounted for 32% of our shipment compared with 38% in the preceding quarter. And enterprise applications accounted for 22% of our shipment compared with 20% in the preceding quarter.Compared with the preceding quarter, our shipments of suspension for 3.5-inch ATA and enterprise applications decreased 7% and 5% respectively. The shipments for mobile applications were down 31% sequentially. Share shifts among the disk drive makers contributed to our lower second quarter demand in the mobile and enterprise segments. Our share was also impacted as certain TSA+ process improvements were broadly implemented and new TSA+ products were brought into production, causing yield declines and capacity constraints that temporarily prevented us from meeting demand. These issues have since then resolved. TSA+ yields have improved in the past four weeks of our third quarter or the first four weeks. Average selling price in the fiscal 2010 second quarter was $0.66, down from $0.68 in the preceding quarter and $0.71 in last year's second quarter. The price decline reflects the continuation of a competitive pricing environment. Our second quarter suspension assembly shipments included 20 million TSA+ suspension assemblies or about 15% of our volume, down from 25 million or 16% of volume in the preceding quarter. Due to the short-term decline in the open capacity constraints that I mentioned, the TSA+ cost burden increased in the second quarter to $7.9 million from $7.4 million in the preceding quarter. We do remain confident in our TSA+ production ramp and yield improvement efforts. With the combination of higher TSA+ volume and yield, we believe that we can eliminate the TSA+ cost burden by the end of the current fiscal year. Read the rest of this transcript for free on seekingalpha.com