Hutchinson Tech will cut 1,125 jobs

  • Article by: STEVE ALEXANDER , Star Tribune
  • Updated: December 9, 2008 - 9:05 PM

Remaining workers' pay will be reduced 5 percent. Slow demand for PCs has weakened sales of the firm's disk-drive components.

As the recession tightens its grip on the manufacturing sector, disk-drive component maker Hutchinson Technology Inc. said Tuesday it will slash its workforce 20 to 25 percent -- cutting as many as 1,100 of the company's 4,500 jobs -- because of slowing demand.

Remaining employees will have their pay cut 5 percent, and the company also is planning a two-week shutdown with mandatory time off starting later this month.

The company isn't saying where the cuts will fall, but about 2,300 of the company's employees work at its headquarters campus in Hutchinson, Minn. The city's other major employer, 3M Co., is planning 2,300 job cuts of its own, including 400 in the Twin Cities area.

Hutchinson Technology is hurting because of slow sales of personal computers. The company's main product is a "suspension assembly" that holds a computer chip above a spinning hard disk, so the number of PCs sold directly affects Hutchinson's sales.

"Over the last month, the suspension assembly demand outlook for fiscal year 2009 has weakened significantly," CEO Wayne Fortun said. Shipments in the company's first quarter, which ends Dec. 28, are likely to drop more than 20 percent from the fourth quarter, he said.

The company had a $105.5 million fourth-quarter loss, compared with an $18.6 million profit a year ago. The company's shares have lost 90 percent of their value this year, and they closed Tuesday at $2.62 a share, down 59 cents. The news was announced after the markets closed.

Hutchinson also has been troubled in the past year by market-share losses and expensive new product development projects, but spokeswoman Connie Pautz said those problems are largely behind the company now. Capital spending during fiscal 2009 will be reduced to $40 million from $60 million.

Besides the operations in Hutchinson, the company has plants in Eau Claire, Wis., with 1,350 employees, and Sioux Falls, S.D., with 575. Smaller operations are in Plymouth and in Asia and Europe. Employees affected by the cuts will be notified by mid-January.

The employment reductions, to be completed by late January, will enable the Hutchinson-based firm to reduce its annual costs by $65 million to $80 million, Pautz said. Hutchinson also expects to take a $12 million to $16 million restructuring charge in its first quarter.

Analysts see more rough road ahead for Hutchinson Technology.

"The outlook for the PC market is not very positive for the foreseeable future," said Jayson Noland, an analyst at Robert W. Baird & Co. in Milwaukee. Both consumers and businesses are deferring PC upgrades "because everybody is really nervous about what the economy has in store for next year."

While Hutchinson isn't saying how it expects product demand to affect the rest of its 2009 fiscal year, company executives believe the firm will be correctly sized after the restructuring announced Tuesday, Pautz said.

But some analysts aren't sure whether the current round of cost-cutting will be enough.

Christian Schwab, an analyst at Craig-Hallum in Minneapolis, believes the current cuts will be sufficient.

"They had to realign their cost structure to meet current demand," Schwab said. "Without that, it would be extremely difficult for Hutchinson to get back to making money for the long term."

Noland said it's too soon to know how much Hutchinson will save because it isn't clear what parts of the company are being cut back the most. But he was surprised at the size of the overall workforce reduction.

"I hadn't expected them to cut this deeply," Noland said. "It's pretty painful."

Steve Alexander • 612-673-4553

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