Hutchinson posts loss as sales, market share slip

The slump is getting steeper for Hutchinson Technology Inc., a disk-drive component maker that reported an unexpected $6.2 million second-quarter loss Tuesday as its market share in the desktop PC market continues to erode.

The company's shares fell 9 percent in after-hours trading.

Hutchinson Technology, based in Hutchinson, Minn., said it will lay off 80 employees, or 2 percent of its workforce, as part of a bid to cut expenses by $10 million to $12 million. It declined to say where the cuts would be made but said that would be decided in about a week. The company said high start-up expenses for a new product prevented it from cutting costs much more.

The company cut about 500 jobs last year.

In a financial report analysts called disappointing, the company reported sales of $143.8 million, a 16 percent decline, based on fewer sales of its disk-drive components, which position sensitive read-write chips above a spinning magnetic disk. Analysts had expected sales of $165.5 million.

The sales decline underscored Hutchinson's market-share losses in a year when analysts expect worldwide disk-drive shipments to increase 12 percent. However, the company said only 30 percent of the revenue decline was because of its loss of market share. The rest was due to a seasonal slowdown for the disk-drive manufacturers, such as Seagate Technology and Western Digital, who are its customers.

Hutchinson predicted it would lose money in the fiscal year ending Sept. 28, compared with a profit of $7.3 million last year, on revenue that would be down 10 to 15 percent from last year's $716 million.

"The report was well below consensus estimates," said Mark Miller of Brean Murray, Carret & Co. in New York. "They have been losing market share over the last year and a half, and it doesn't seem that is reversing itself. I see no light at the end of the tunnel for the next couple of quarters."

"The results are disappointing compared to our expectations," said Christian Schwab, an analyst at Craig-Hallum Capital Group in Minneapolis. "We view their cost-cutting positively, but the workforce reductions alone will not be enough to return the company to sustainable profitability. They need to regain market share in the desktop computer market."

In the past two years, Hutchinson's overall share of the worldwide disk-drive market has dropped to 40 percent from well over 50 percent, Schwab said. The company's new product, a more precise component for next-generation disk drives, won't help much until the second half of the 2009 fiscal year, he said.

Hutchinson's $6.2 million loss for the quarter ended March 30 amounted to 25 cents per share. Analysts surveyed by Thomson First Call had expected a quarterly profit of 9 cents per share.

Hutchinson Technology stock sank $1.53 in after-hours trading Tuesday to $15.10. In regular trading before the announcement, shares fell 20 cents, or 1.2 percent, to $16.63.

Steve Alexander • 612-673-4553

2nd quarter FY2008, 3/30

6 months

Figures in millions except for earnings per share.