Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Paul Senior who wrote (530)	12/2/1998 9:03:00 PM
From: kolo55	Read Replies (1) \| Respond to of 572

I just realized I never posted any comments on the cc. So I guess I will now. They increased revenues 8% sequentially, and seemed very pleased by bookings of $237M, versus $206M in the 3rd Q. The book-to-bill for the quarter was 1.09, and apparently the monthly book-to-bill increased from 1.04 in August to 1.12 in October. Margins improved due to lower material costs and increased operating efficiencies. They expect Gross margins to improve going forward, because they have "high degree of fixed costs, and higher revenues will send a lot to the bottom line". The capacity utilization in the 4th Q was 81%. There were a lot of questions from analysts on the outlook for margins, but other than saying that margins would improve, they simply wouldn't provide any guidance for how much improvement we might see. One analyst asked if they could get back to historical margins, and management gave a long winded answer that basically said "No." Pricing was a big topic as well. The ASP declined 2.8%, but this is less than the 6% decline in the 3rd Q. They did see some mix shift toward higher level count boards late in the quarter. In Asia, the Taiwanese have been quite competitive on pricing, but they seem to be filling their capacity, so perhaps we may have a somewhat stronger pricing environment there as well. They hope for somewhat stronger pricing (flat price environment?). Their plan is too get higher margins form increased utilization and finish integrating acquired operations, and aren't anticipating much stronger pricing. The Zycon SJ facility is "fully integrated, and they have made a lot of progress there". (BTW They are actively hiring in SJ.) Malaysia is losing money, but is breakeven at the gross margin level. But Malaysia is "advancing, both in technology of their offerings, and in the number of customers"; they expect higher revenues there. Austin is still at a loss. The East Coast tech centers took longer to get operational (ramped in October instead of August), and cost more to get started than anticipated. The East Coast tech centers trimmed earnings about 4-6 cents a share this quarter. They have started an engineering support center in Limerick, Ireland. The top 5 customers were Solectron, Celestica, Compaq, Cisco, and Lucent, and altogether accounted for 40% of revenues. The top 10 customers accounted for 47%. Solectron was the only customer larger than 10%, and accounted for about 15% of sales. Communications sector accounted for 22.4% of sales, computer 27.9%, and ECM about 43.6%. They felt they were taking some market share. They are seeing a broad based turnaround in demand. In response to a question whether this was a temporary recovery and whether customers were 'selling through', they replied that they had surveyed all their major customers recently, and these customers seemed reasonably optimistic about their businesses. Hadco said that they are no longer seeing such an oversupply glut as we saw last last year. The full year EBITDA was $165M, the Gross Operating Margin Income was $170M. The DSO of 46-48 days stands near historical levels. CapEx in 1999 will be about $73M, down from $83.5M in 1998. D&A in the 4th Q was $17.9M. They have hired 200 people since the end of the 3rd Q. Paul

To: Paul Senior who wrote (530)	12/2/1998 9:15:00 PM
From: kolo55	Read Replies (2) \| Respond to of 572

My comments on Hadco looking forward. The tone of the call was interesting. The analysts were trying to get some information so that they could estimate a reasonable margin, and get to a reasonable EPS forecast. But the company basically said that they couldn't forecast quantitatively where the margins would go, only that there will be some increase. Personally, if they hit $240M in the 1st Q, which I think is very do-able, and we see gross margins climb to 15% from 13.4%, and the new tech centers don't continue to trim earnings, then we could see 30-40 cents a share. The consensus is 13 cents. At the peak of the next cycle, this company could easily earn $3-4 a share. I still have my Hadco shares, and plan to hold for now. Paul