Analyst Conference Summary

conference date: July 29, 2008 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2008 (2nd quarter)

Forward-looking statements

Overview: Down sequentially, up year-over-year.

Basic data (GAAP) :

Revenues were $173.0 million, down 1% sequentially from $174.1 millon but up 7% from $162.0 million year-earlier.

Net income was $9.4 million, down 35% sequentially from $14.4 million but up 52% from $6.2 million year-earlier.

EPS (earnings per share) were $0.22, down 35% sequentially from $0.34 but up 47% from $0.15 year-earlier.

Guidance:

Q3 2008, estimated revenues in a range of $163 million to $171 million with earnings in a range of $0.19 to $0.25 per share. 19 to 21% gross margin.

Conference Highlights:

Sales were in line with guidance and 21.1% gross margin was above guidance. A convertible debt offering allowed the term loan debt from the Printed Circuit Group acquisition to be retired, but costs from the transaction impacted margins. The military and aerospace segment continued to be strong, as was demand for high-end services. Performing well in challenging economic environment.

Excluding the $3.1 million costs related to loan repayment in Q2, and the $3.7 million benefit from metal reclamation in Q1, net income rose sequentially.

EBITDA was $24.5 million, down from $31.0 million in Q1.

PCB Manufacturing Segment revenues were $149.6 million.

Backplane Assembly Segment revenues were $31.2 million.

Cash and equivalents ended at $118.7 million, up from $32.6 million, due to the convertible debt offering. Long term liabilities listed as $177 million. $5.5 million was used for capital expenditures.

Cost of goods sold was $136.4 million, leaving gross profit of $36.6 million. Selling and marketing expense was $7.8 million; general and amortization expense $8.8 million; amortization of intangibles $1.0 million. Total operating expenses were $17.5 million, leaving operating income of $19.0 million. Interest and other expnese was $4.1 million. Income taxes were $4.4 million.

3.9% increase in price per panel, but 2% less panel units.

By end market: networking/communications down to 40% of sales, with networking soft; aerospace/defense up to 36% of sales; computing/storage flat at 11%; medical and instrumentation 13% of sales.

Cisco, Honeywall, ITT, Juniper, and Walway were top customers.

Quickturn was 13% of revenue, up from 11.8% in q1.

Book to bill was 1.0 at end of quarter.

3.25% interest rate on convertible debt.

Q&A:

Soft guidance, end markets? Network and communications is seeing some seasonality and softness in networking equipment; slowdown in Shanghai with back planes. Aerospace and defense looks solid, expect it to continue to grow, has strong backlogs. Computer storage and peripherals looks soft. Medical and industrial instrumentation is showing churn, seasonal softness, no major issues.

Margins? There is some upside for quick turn business.

We feel more confident about the 4th quarter than the 3rd quarter.

Foothold in Asia? We are constantly evaluating Asian companies; we believe the best strategy is to become a global company, but it is a long-term decision. It takes some time to find the right companies.

Olympics are having a negative impact on the Shanghai operation. A lot of orders were accelerated into the first half of the year, which will hurt us in q3.

We had a $4.5 million use of cash to increase inventory. Part was an increase in raw materials for military/aerospace. Will probably see cash flow from inventory in q3.

Bookings since end of Q2? Bookings have been steady so far in July. Lead times are also steady.

A year ago you had layoffs around this time? We don't see any need for that this year.

Pricing? 3.9% price increase per panel in quarter, but that was due to higher-price product mix, not an increase on like items. Prices are flat, there are some spotty cost increases to us. Freight costs are going up.

G&A expense? We had an increase in stock-based compensation expense of about $400,000 over Q1.

BAE program? They are a top ten customer, may not break into top 5. $8 million program was awarded in April. It is a military contract.

Computer segment softness? There was some weakness, I think it will come back, but don't expect it to go up in a big way. We are exposed to more pricing pressure in this segment.

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