Analyst Conference Summary

conference date: August 4, 2011 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2011 (Q2, second quarter)

Forward-looking statements

Overview: solid growth quarter. One-time accounting charge hurt GAAP net income and EPS.

Basic data (GAAP) :

Revenues were $366.1 million, up 7% sequentially from $342.8 million and up 18% from $310.2 million in the year-earlier quarter.

Net income was negative $20.3 million, way down sequentially from positive $29.1 million, and down from positive $4.9 million year-earlier.

EPS (earnings per share) were negative $0.26, down sequentially from $0.33 and down from $0.06 year-earlier.

Guidance:

Revenue between $365 and $385 million. GAAP EPS $0.24 to $0.33, non-GAAP $0.32 to $0.41.

Conference Highlights:

Revenues increased due to continued demand for advanced technology PCBs (printed circuit boards), with particular strength in the networking/communications end market. Demand in Asia for higher tech PCBs for tablets and smartphones remained firm.

There was a non-cash impairment charge of $48.1 million, writing off the value of obsolete capital equipment in a particular factory.

Non-GAAP numbers: net income $32.9 million, EPS $0.40. In Q1 net income was $33.3 million, EPS $0.40. EBITDA was $64.2 million, down sequentially from $66.5 million.

Asian sales were $226.2 million, up sequentially from $202.5 million. 21.7% gross margin, a sequential decrease due too labor costs, material costs, and some price concessions in computer end market. Up 14% y/y. ASPs in Asia continue to increase due to more advanced product mix.

North American sales were $142.3 million, flat sequentially. 19.9% gross margin, down slightly sequentially due to mix change to higher material costs products. Up 2% y/y.

Networking and communications end market were 38% of revenue, up sequentially from 34%. Gains were largely for equipment going to Europe. Expect segment to gain again in Q3.

Computers and peripherals end market were 23% of sales, down sequentially from 27%. Units shipped increased, but prices were lower. Expect flat or up slightly in Q3.

Aerospace and defense 17% of sales, up sequentially from 16%. Stronger than anticipated, and expected to return to normal in Q3.

Cell phones 9% of sales flat sequentially, but an increase in dollars. Mix included more smartphones. Expected flat in Q3.

Medical and Industrial instrumentation 7% of sales, down from 8% sequentially, but stable revenue and expected to remain stable in Q3.

Other market 6%. Based on an advanced HDI consumer product, we expect other to increase in Q3.

Top 5 customers accounted for 33% of sales. One customer 10% of sales. In alphabetical order: Apple, Cisco, Ericson, Huawei, and ?TE.

Cash and equivalents balance ended at $235.9 million, up sequentially $33.6 million. Long term debt was $432.3 million. $67 million cash flow from operations. $44 million capital expenditures. $16.8 million depreciation.

Cost of goods sold increased due to wage increases and higher materials costs, but believes the should be flat for the rest of 2011.

Cost of goods sold was $288.8 million, leaving GAAP gross profit of $77.3 million. Operating expenses of $85.9 million consisted of $9.2 million for sales and marketing, $24.1 million general and administrative, $4.3 million amortization of intangibles, and the $48.1 million impairment charge. Interest and other net expense was $3.3 million. Income tax provision $8.5 million.

Analyst day will be September 29.

Q&A:

Gross margin trends beyond Q3? We had hoped to have higher Q2 margins, and the price concessions did hurt. In Q3 we will see higher mix in Asia, higher revenue, and higher margins. In North America Q2 product mix had higher material content than usual, in Q3 pressure will continue because some high margins programs have ended. In long run moving to higher technologies should cause margins to trend up.

Customer price concessions in Asia? It was a one-time event. But prices are always negotiated.

The projects on hold are in aerospace/defense.

Computers and peripherals details? Most price concessions were targetted, impacting our advanced HDI work. So it was high ASP work negotiated down in price. There is some surplus capacity (with competitors) in Asia, but that capacity should get utilised over time, bringing prices back up to normal.

Normal July increased demand appears to be pushed out.

Magnitude of price cuts? Double digits.

Tablets? Thinks gaining market share with advanced HDI for tablets. Also HDI in other categories. In between product cycles there can be price pressures. There are a few HDI competitors.

Typical seasonality in Asia? Pick up in July-August. But local China customers say the pick up will be last four months of year. Q4 likely to be better than Q3.

.96 book to bill in U.S., was .99 in Asia. In July we were just under 1.

Chinese labor cost went up 18% in the quarter, but that should be it for the year.

HDI sales as a percent of Asia sales? 40%.

Linearity of quarter? Pretty even through the quarter, July was a bit soft, but lately picked back up.

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