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Technology Stocks : HDCO - Why sudden dip? -- Ignore unavailable to you. Want to Upgrade?

To: Douglas V. Fant who wrote (450)	5/22/1998 12:15:00 AM
From: kolo55	Respond to of 572

Notes on the conference call. Largest customer is Solectron at 16% of sales, with top 10 customers only 48% of sales; this company is fairly diversified. They saw flat pricing in the a quarter with lower gross margins; the operating margin is down to 7.3%. The drop in margin is partly due to lower capacity utilization to 80%, which is below plan. They are focusing on sales to improve capacity utilization, but customers are reducing inventories, WIP, and pipeline inventories. The desktop sector, like Compaq and HP, is suffering the most. Networking, telecommunications, and workstations are doing better, and the ECM companies are doing better. Another reason for lower margins is weak pricing. Last Q pricing was flat with the previous Q, which in turn was down from the Q before that. Now Hadco says pricing in the backlog is 6% lower. The backlog pricing may not reflect this Q's final revenues if quickturn and value-added manufacturing(mostly backplanes) work comes in for shipment this Q, and helps drive the pricing up a bit. But basically they expect weak pricing environment this quarter especially in volume manufacturing segment. The under 8 layer boards is seeing the most competitive pricing, where some Far East supply seems to be coming in. Quickturn is about 9% of sales, value-added manufacturing (backplanes) are 16%(and is growing), and volume manufacturing is the remainder. If the company hit full capacity, the revenues would be about $1000M per year. The biggest value-added manufacturing customers are Sun, Cisco, Primetech, and Solectron. This segment has grown over 100% in the last year. The Malaysian plant(part of Zycon acquisition) is not profitable yet, and is running about $8M per Q, flat over the previous quarter. They are seeing some customer interest, with 7 customer site visits, and hope to have this facility at a $40M run rate by the end of the year. The Austin plant should be on-line to begin producing this summer. This plant will not be profitable in the 3rd or 4th quarters, but maybe will turn by year-end. They have just finished visiting with all their customers, and although their is considerable weakness this quarter, many expect big ramps in the last half of the year. Therefore, Hadco sees flat (to slightly down) revenues this quarter depending on pricing, but hopes the inventory corrections are out of the way leading to a stronger second half. Paul