Analyst Conference Summary

conference date: May 5, 2011 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2011 (first quarter)

Forward-looking statements

Overview: Seasonal results about as expected.

Basic data (GAAP) :

Revenues were $342.8 million, down 8% sequentially from $373.4 million, but up 148% from $138.2 million year-earlier.

Net income was $29.1 million, down 20% sequentially from $36.5 million, but up by a factor of 6 from $4.5 million year-earlier.

EPS (earnings per share) were $0.33, down 20% sequentially from $0.41, but up 230% from $0.10 year-earlier.

Guidance:

For Q2 revenue estimated between $350 and $370 million. GAAP EPS $0.28 to $0.37; non-GAAP EPS $0.36 to $0.45. Gross margin 21% to 23%, lower due to higher materials costs and wages in China, but over time will pass on some expense to customers.

Conference Highlights:

"First quarter results were in line with our expectations and reflected normal seasonality." Compared on a pro-forma (combined companies before the merger) basis, revenues were up 16% from $296.5 million year-earlier. Asian factories are getting strong demand for PCBs (printed circuit boards) used in tablets and smartphones. Results were in line with prior guidance.

Asian operations did a bit better than expected, where capacity utilization is high. Sales $202.5 million, down sequentially from $220 million due to Chinese New Year, but up from $159 million year-earlier. North American operations met expectations with sales of $142.3 million, down sequentially from $156.4 million, but up from $138.2 million.

Non-GAAP net income was $33.3 million, EPS $0.40, down sequentially from $39.7 million and $0.49 per share. EBITDA was $66.5 million down from $76.5 million in Q4.

Gross margin was 23.9%, flat q/q despite revenue decline. Advanced PCB technology products were a higher share of the mix.

Networking 34% of sales, down from 37% in Q4, which was a very strong quarter.

Computing, storage, and peripherals, 27% of sales, vs. 22% in Q4. Flat in U.S., up in Asia due to touch pad demand.

Aerospace & defense, 16% in Q1 and in Q2, all in north America.

Cellular phone end market was 9% of total, down from 12% in Q4, due to normal seasonality in this consumer business. Mix is moving to more smartphones

Medical & industrial 8% of sales, flat from Q4.

Other end market was 6% of sales, up from 5% in Q4.

Top five 33% of sales, with one 13% customer. Apple, Cisco, Ericson, Huawei, and ? were the top five customers.

Sees no material impact from Japan situation. Prices for inputs will impact margins, but can compensate by mix shift.

$115 cap ex expansion program in Asia for 2011 is being allocated more to highest technology products.

Cash and equivalents balance ended at $202.3 million, down $13.8 million in the quarter. $32.1 million was used to pay down debt. Net debt ended at $321 million. Cash flow from operations was $37 million. $26.5 capital expense in quarter. $15.7 million depreciation.

Cost of goods sold was $260.9 million, leaving gross profit of $81.9 million. Selling and marketing expense was $9.0 million, general and administrative expense $23.1 million, and amortization of intangibles $4.2 million. Total operating expenses were $36.2 million leaving operating income of $45.7 million. Interest and other expense net $5.3 million. Income tax provision $11.3 million. Net income attributed to non-controlling interests was $2.0 million.

Q&A:

North American revenue by end market? All revenue changes in Q1 were driven by Asian Pacific region. North America, including defense, was steady. Asia impact was just seasonality, maybe some change from cell phones to smartphones. Networking demand was weak, but mostly seasonal, so that should improve, especially in Q3. Q2 flat to 1% down guided for North America is still up y/y, and is overall, not any particular segment.

Asian Q2? Expect most sectors to improve in Q2, especially cell phones after a weak Q1.

Drop in margin guidance? Labor costs increased by 18% in Asia. We plan to move up in price mix with high density (HDI) components. Gold price we can pass on quickly, others are harder to pass on. Long term we will pass more costs on and have a higher price mix, so we should see some impovement in margins in Q3 and Q4.

Purchasing of remaining 10% of Meadville? We have 3 joint ventures in Asia, we always had this particular buyout planned for January 2013. It should have no impact on the balance sheet.

Capital budget? Still $115 million for Asia Pacific, $20 million for U.S. HDI (high-density) product demand could cause us to pull in more capital expansion from 2012, but we have not made that decision yet.

HDI was about 66% of Asia in Q1.

Do you have capacity for new customers in tablets and smartphones? We are taking care of current customers first. We are working with new customers, but none of them are making a dent on the tablet side yet.

Bookings improved in North America, with January weakest, March strongest in the quarter, April about the same as March.

Yields for HDI products? Our margins are higher than our peers, yields are satisfactory in the 60 to 85 range, but could be improved and vary by product.

Seasonality, we were down just 5%, that compares well with past years down 6 to 8%.

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