HDCO - Why sudden dip? Message Board

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Technology Stocks : HDCO - Why sudden dip?

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To: kolo55 who wrote (567)	8/18/1999 12:20:00 PM
From: rich evans	Read Replies (1) of 572

HDCO had another steady quarter. With ECM customers like SLR,SCI,CLS as HDCO's major customers, the large growth in ECM business should bode well for HDCO as well. The amortization is 12 million a year so there is a cash earnings higher then reported earnings by about 85 cents a year. This is helping cashflow and debt repayment. Cap Ex however is scheduled to increase from about 75 million to 90 mill in the year 2000 using more cash. Malaysia is finally profitable. It has been a long time coming for this facility acquired from ZYCON deal. Austin still unprofitable which was acquired for Continental deal. Company mentioned midteens growth rate in year 2000 so with leverage of higher capicity utilization and fairly steady ASPs we should see some good bottom line improvements if business forecasts hold and SGA remaines under control in the 21-23 million range. Best news is the increasing gross margin to 16.2% for Q3 which should continue up to Q4 hopefully toward the near term goal of 17. But old 20+ margins in 97 are not in the cards anymore IMO. HDCO needs to get their Q/T facility on the East Coast more profitable like other Q/T margins of their competitors and their West Coast Facility. Also need a European Q/T facility which has been a weakness for some time and most of the European possibilities have been picked over already. Company acknowledged this need and is looking for a facility to augment design and sales group over there and looks to spend 10-15 million to get European Q/T plant. Hopefully VAM growth will return in Q4.Its too bad HDCO didn't spend their money to acquire and grow this part of business instead of their Board business as we would have another SANM then.But with ECM customers representing almost 50% of their volume business which is 85% of total revenues, I can't see how Company will not do very well as these ECM customers continue their fast growth. I guess the risk is pricing again but Taiwanese no longer dumping over here so pricing has stabalized. Overall things look positive to me and the stock should reflect this and increase if we can have a 20 PE applied toward the higher leveraged earnings expected. Rich

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