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Hutchinson Technology Reports First Quarter Net Loss

TSA+ Efficiency Improves Significantly
/ Source: GlobeNewswire

TSA+ Efficiency Improves Significantly

Volume Ramp of Thailand Operations on Schedule

HUTCHINSON, Minn., Jan. 25, 2011 (GLOBE NEWSWIRE) -- Hutchinson Technology Incorporated (Nasdaq:HTCH) today reported a net loss of $17.0 million, or $0.73 per share, on net sales of $68.2 million for its fiscal 2011 first quarter ended December 26, 2010. In the preceding quarter, the company reported a net loss of $27.1 million, or $1.16 per share, on net sales of $74.0 million. Results for both the fiscal 2011 first quarter and the preceding quarter included $2.2 million, or $0.10 per share, of non-cash interest expense resulting from the company's adoption, at the beginning of fiscal 2010, of Financial Accounting Standards Board guidance for accounting for convertible debt instruments.

"The benefits of prior cost reductions and significant improvements in our TSA+ yield and output enabled us to reduce our first quarter loss compared with the preceding quarter," said Wayne Fortun, Hutchinson Technology's president and chief executive officer. "Our TSA+ yield and output improvements and the ramp to higher volume at our Thailand assembly operation are moving us toward our goal of being the lowest cost producer of suspension assemblies. These initiatives, combined with increasing our revenue through growth in the overall suspension assembly market and higher market share, are essential to returning the company to positive cash flow and profitability." 

The company's first quarter suspension assembly shipments declined 3.5 percent compared with the preceding quarter, in line with its previous guidance. "We believe that the first quarter will be the low point for our quarterly suspension assembly volume in fiscal 2011 and expect to see modest market share growth in the balance of the fiscal year," said Fortun. 

Fiscal 2011 first quarter gross profit increased to $3.3 million, as the company realized the benefits of its 2010 cost reduction actions and reduced its TSA+ cost burden to $3.1 million. Gross profit also improved due to better utilization of its component manufacturing capacity, as the company increased its TSA+ flexure inventory to provide supply assurance for its customers and increased component inventory to support the production ramp at its Thailand assembly operation. 

In the fiscal 2011 first quarter, cash flow from operations totaled $1.4 million and capital expenditures totaled $4.7 million. The company's cash and investments balance at quarter end totaled $101.2 million compared with $104.5 million at the end of the preceding quarter. The company said that it continues to expect its fiscal 2011 capital expenditures to be $20 million to $25 million.

Disk Drive Components Division

The company shipped 106.5 million suspension assemblies in the fiscal 2011 first quarter compared with 110.4 million in the preceding quarter and 155.2 million in the fiscal 2010 first quarter. Compared with the preceding quarter, a decline in shipments for mobile applications was partially offset by an increase in suspension assembly shipments for 3.5-inch ATA applications. First quarter shipments for enterprise applications were flat compared with the preceding quarter. Average selling price in the fiscal 2011 first quarter was $0.62 compared with $0.66 in the preceding quarter and $0.68 in the fiscal 2010 first quarter. 

The company shipped 48 million TSA+ suspension assemblies in the fiscal 2011 first quarter, compared with 38 million in the preceding quarter and 25 million in the fiscal 2010 first quarter. Kathleen Skarvan, president of the Disk Drive Components Division, said that the cost burden of TSA+ flexure production was reduced from $7.6 million in the preceding quarter to $3.1 million in the fiscal 2011 first quarter. "In the fiscal 2011 first quarter, we eliminated the cost burden of TSA+ flexure production during a four-week period in which we reached certain levels of yield, output and capacity utilization," said Skarvan. "Demonstrating that this cost burden can be eliminated is a significant achievement. With TSA+ yields continuing to improve as we entered the fiscal 2011 second quarter, our TSA+ cost per part will primarily be determined by our TSA+ output and capacity utilization." TSA+ suspension assemblies, which accounted for about 45 percent of fiscal 2011 first quarter shipments, are expected to account for more than half of the company's fiscal 2011 second quarter shipments and two-thirds of its shipments by year end.

The company's assembly operation in Thailand has been qualified, and volume product is being shipped from the site. Start-up expenses for the Thailand operation totaled $4.7 million in the fiscal 2011 first quarter, compared with $2.9 million in the preceding quarter. "We are now focusing on increasing volume at our Thailand operation to further improve our cost position and customer service," said Skarvan.

Skarvan said that the company continues to supply prototype volumes of dual-stage actuated (DSA) suspensions for customers' programs that are currently in development. "Our leading designs, proven capabilities and established capacity for DSA suspensions position us well to meet our customers' needs for this technology, which is currently expected to be more widely adopted in 2012," said Skarvan.

The company currently expects its suspension assembly shipments to be flat to up slightly for the fiscal 2011 second quarter compared with the first quarter. Pricing is expected to remain competitive and fiscal 2011 second quarter results are not expected to include the gross margin benefit of the first quarter's inventory build. The company believes that the combination of these factors will result in a sequential decline in its fiscal 2011 second quarter gross and operating margin. 

BioMeasurement Division

Net sales for the BioMeasurement Division totaled $542,000 in the fiscal 2011 first quarter compared with $682,000 in the preceding quarter and $509,000 in the fiscal 2010 first quarter. The sequential quarter decline resulted from a decline in sensor sales, reflecting lower patient volume during the calendar fourth quarter. The installed base of monitors totaled 367 at the end of the first quarter, compared with 344 at the end of the preceding quarter and 248 at the end of the fiscal 2010 first quarter.

As a result of previously announced cost reductions, the division's operating loss was reduced from $6.0 million in the preceding quarter to $2.9 million in the fiscal 2011 first quarter. For the full fiscal year, the division's operating loss is currently expected to be less than $8 million on net sales of $3 million to $5 million.

In December 2010, the company began sales of the InSpectraTM StO2 Spot Check in countries that recognize the CE Mark and filed for marketing clearance of the product in the United States under the U.S. Food and Drug Administration's Premarket Notification, or 510(k), process. "This handheld device leverages our StO2 measurement technology and enables clinicians to quickly and cost-effectively identify at-risk patients, who can then be continuously monitored with the InSpectra StO2 Tissue Oxygenation Monitor," said Rick Penn, president of the BioMeasurement Division. 

Penn also said that the clinical and economic evidence supporting wider adoption of StO2 monitoring continues to grow. "Multiple clinical studies demonstrate that patients with low StO2 are at risk of poor outcomes and that a significant percentage of patients in the emergency department and ICU have low StO2 even though their other vital signs are normal," said Penn. Additionally, independent study results were presented at the recent Society of Critical Care Medicine's 40th Critical Care Congress showing how InSpectra StO2 was used to favorably guide resuscitation of shock patients and improve outcomes in the form of shortened length-of-stays in the ICU and hospital. Based on the compelling results of this initial study, the principal investigator is initiating an independent multi-site outcomes study to demonstrate these results in a larger population of patients.

Hutchinson Technology to Host Conference Call

The company will conduct a conference call and webcast for investors beginning at 4:00 p.m. Central Time on Tuesday, January 25. Individual investors and news media may participate in the conference call live via the webcast, which will be available through the Investor Relations page on Hutchinson Technology's web site at . Webcast participants will need to complete a brief registration form and should allow extra time before the webcast begins to register and, if necessary, download and install audio software. 

About Hutchinson Technology

Hutchinson Technology is a global technology manufacturer committed to creating value by developing solutions to critical customer problems. The company's Disk Drive Components Division is a key worldwide supplier of suspension assemblies for disk drives. The company's BioMeasurement Division is focused on bringing new technologies and products to the market that provide information clinicians can use to improve the quality of health care and reduce costs.

Cautionary Note Regarding Forward-Looking Statements

This announcement contains forward-looking statements, including statements regarding demand for and shipments of the company's products, market position, pricing, production capability and costs, assembly operations in Thailand, capital expenditures, cost reductions, product commercialization and adoption, operating performance and financial results. Except as otherwise required by law, the company does not undertake to update its forward-looking statements for any reason. These statements involve risks and uncertainties. The company's actual results could differ materially from those anticipated in these forward-looking statements as a result of changes in market demand and market consumption of disk drives or suspension assemblies, changes in demand for our products, market acceptance of new products, the company's ability to produce suspension assemblies at levels of precision, quality, volume and cost its customers require, changes in product mix, changes in customers yields, changes in storage capacity requirements, changes in expected data density, changes in the company's ability to ramp an assembly operation in Thailand, changes in the company's ability to reduce costs and other factors described from time to time in the company's reports filed with the Securities and Exchange Commission.

CONTACT: Investor Contact: Chuck Ives Hutchinson Technology Inc. 320-587-1605 Media Contact: Connie Pautz Hutchinson Technology Inc. 320-587-1823