Analyst Conference Summary

conference date: October 29, 2008 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2008 (3rd quarter)

Forward-looking statements

Overview: Holding up well so far despite macroeconomic slowdown.

Basic data (GAAP) :

Revenues were $169.0 million, down 3% sequentially from $173.0 million, but up 4% from $163.1 million year-earlier.

Net income was $9.46 million, flat sequentially from $9.45 million and up 15% from $8.2 million year-earlier.

EPS (earnings per share) were $0.22, flat sequentially from $0.22 but up 16% from $0.19 year-earlier.

Guidance:

Revenues for Q4 should range between $156 million and $164 million, EPS $0.14 to $0.19.

See below for factors that may influence these ranges.

Conference Highlights:

Only a slight decrease in revenues as the aerospace & defense segment showed continued strength.

Gross margin of 19% declined from Q2's 21.1%. Operating income was $15.5 million, down sequentially from $19.1 million. EBITDA was $22.2 million, down sequentially from $24.1 million.

Cash and investments increased $16.3 million in the quarter, ending at $135 million. A $0.6 million unrealized loss on $20.1 million Reserve Primary Fund holdings was recorded, reducing EPS by $0.01.

PCB Manufacturing seqment sales were $148 million, versus $149.6 million in Q2. Average price per panel increased by 2% sequentially due to a better mix, but panel production declined by 7%. Average layer count was 13.8. High-tech product mix continues to grow, but quick-turn dropped to 11% of revenue from 13% in Q2. Lead times decreased by about 1 week, now at 3 to 8 weeks.

Backplane Assembly sales were $29.3 million, down 6% from $31.2 million in q2.

PCB book-to-bill ratio ended at .98. This is still above the industry average.

Cost of goods sold was $137 million. Gross profit $32 million. Selling and marketing expense $7.5 million, General and Administrative $8 million, amortization of intangibles $1 million. Interest expense was $1.6 million, interest income $0.7 million, other loss $0.4 million, income tax provision $4.8 million. $1.4 million of expense was non-cash stock-based compensation.

Medical and industrial end markets were weak and were 11% of total sales. Test equipment was particularly weak.

Aerospace and defense became 39% of total sales. Network & communications slipped to 39% of total sales due to expected decline with a particular Chinese customer. That customer is now ordering, but we won't see resumed revenues until Q1 2009.

No customer represented more than 10% of sales. Top 5 customers were BAE, Cisco, Hamilton Sundstrand, Juniper, and Raytheon.

We are managing with a tight grip on cost control while looking to long term growth. Capital expense is being cut back, but we are well-equiped for the present. 2008 capital expense will total about $15 million.

In Q4 we expect a roughly 5% decline in PCB business, with backplane sales flat.

Q&A:

Q4 margins, aside from lower revenues? Quick turn was soft at the end of Q3. Some times quick turn is strong in Q4 until the holidays. So far we are stronger than usual. We should have a better mix, but won't compensate for revenue decrease effects. We think networking & communications will be down some in Q4. Aerospace & defense flat, but hard to forecast. Computing and storage flat because we have backlog their. Medical instrumentation looks softer for Q4.

Cost cutting? The first thing you do is take out discretionary spending. Trimmed capital expense. The main area for cutting would be hours worked. We believe materials costs will come down because commodities prices went down, but that won't flow through the system until Q1 2009.

How much down for medical & industrial? Down $2 to $3 million in Q4.

Network and communications? Weakness is in communications infrastructure for North America. China is going to be flat this quarter. What we do in Shanghai is almost all network and communications. With key customer back, Q1 2009 could be up. Down about $2 to $3 million from this quarter. For the total downward guidance, throw in the general economic weakness.

Any market share gains? We are the leader in aerospace. We are optimistic we will continue to grow in this segment. 2009 defense budget was signed, there is a lot of work in the pipeline. Defense side is showing more growth than commercial aerospace.

Q4 capital expense should be around $3 million.

October book to bill? We have not looked at that, but we believe we are flat in October.

Acquisitions, cash, warrants? Buying warrants back is a viable option, but best thing to use the cash for would be to grow the business through an acquisition in Asia. No specific acquisition at this point.

Has pricing begun to weaken? No.

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