Hutchinson's CEO Discusses F3Q2012 Results - Earnings Call Transcript

Hutchinson Technology Inc. (HTCH)

F3Q2012 Results Earnings Call

July 26, 2012 5:00 PM ET

Executives

Chuck Ives – Treasurer and Director, Investor Relations

Wayne Fortun – Chief Executive Officer

Rick Penn – President, Disk Drive Components Division

Dave Radloff – Chief Financial Officer

Analysts

Sherri Scribner – Deutsche Bank

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Hutchinson Technology Third 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)

This conference is being recorded today, Thursday, June 26, 2012. I would now like to turn the conference over to Mr. Chuck Ives, Treasurer and Director of Investor Relations. 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, ramping new programs, product mix, pricing, production capabilities and volumes, the restoration of our assembly operation in Thailand, capital spending, product costs, operating expenses, product commercialization and adoption, clinical study results 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. As we reported in late June, we saw demand for suspension assemblies weaken in the final weeks of our fiscal third quarter.

Our average weekly shipments in the quarter, in the last five weeks were more than 15% lower than they were in the first eight weeks. Our total shipments for the quarter did increased slightly compared with the preceding quarter, but less than we expected them to. The slight recovery in volume resulted in lower than expected fixed costs leverage in the quarter and prevented us from improving gross margin.

At our assembly operation in Thailand, we have resume production and have shift product for customer qualification. We expect the qualification process to be completed in a matter of days. We are bringing new units online at our Thailand assembly operation, as we steadily increase capacity there.

In our BioMeasurement division, we continue to focus on controlling the costs of operating the business and we're looking forward to the results of a number of critical care studies becoming publicly available in September.

I’ll turn the call over to Rick now for a recap of the Disk Drive Components Division's third quarter.

Rick Penn

Thanks, Wayne. During our fiscal 2012 third quarter, we shipped 100.1 million suspension assemblies, an increase of 3% from 96.9 million suspension assemblies in the preceding quarter, but short of our initial expectations which were for shipment of about 105 million to 115 million.

All of the volume increase in the fiscal third quarter was attributable to growth in shipments of suspensions for 3.5-inch ATA applications. Shipments of suspensions for mobile and enterprise applications declined compared to the preceding quarter.

For the fiscal 2012 third quarter, our mix of products shipped was as follows. Suspensions for 3.5-inch ATA applications increased 31% sequentially and accounted for 42% of our shipments, up from 33% in the preceding quarter.

Shipments for mobile applications declined 9% sequentially and accounted for 37% of our shipments, compared with 42% in the preceding quarter. And then shipments for enterprise applications declined 13% sequentially and accounted for 21% of our shipments, compared with 25% in the preceding quarter.

Our average selling price in the third quarter was $0.58, down from $0.63 in the preceding quarter. The decline primarily reflects a comparison to a second quarter ASP that benefited from a higher volume of development products for new disk drive programs.

Also contributing to the decline in AFP was the shift in product mix towards suspension assemblies for 3.5-inch ATA applications. We had anticipated that this mix shift would occur, as the industry supply chain continue to recover from last year’s flooding.

TSA+ suspensions accounted for 70% of our third quarter shipments, up from 55% in the preceding quarter. As a result of this shift to a higher mix of TSA+ and our improving TSA+ costs, our variable cost per part declined. The migration towards TSA+ should continue and we expect TSA+ suspensions to account for more than 80% of our volume by the end of the fiscal year.

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