Analyst Conference Summary

conference date: November 2, 2011 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2011 (Q3, third quarter)

Forward-looking statements

Overview: Solid quarter.

Basic data (GAAP) :

Revenues were $358.3 million, down 2% sequentially from $366.1 million, and about flat against $356.8 million in the year-earlier quarter.

Net income was $24.5 million, up sequentially from negative $20.3 million, but down 16% from $29.1 million year-earlier.

EPS (earnings per share) were $0.30, up sequentially from negative $0.26, but down 17% from $0.36 year-earlier.

Guidance:

Estimated revenue for Q4 between $345 and $365 million, GAAP EPS range $0.19 to $0.28, non-GAAP EPS $0.27 to $0.36.

Conference Highlights:

The macroeconomic environment was challenging and several orders were pushed out beyond the end of the quarter, leading to "lower than expected revenue for the quarter... We remain confident that the underlying long-term drivers for advanced PCBs, such as the proliferation of converged mobile devices and the surge in networking applications, remains unchanged." Revenue was about 2% below guidance, but hit EPS guidance.

Non-GAAP numbers: net income $31.0 million, EPS $0.38, gross margin 19.7%. Operating margin 10.1%. EBITDA was $59.3 million. Excluded non-cash stock based compensation total was $2.1 million.

HDI (high-density) demand was solid but there was weakness in conventional boards, including in China. Advanced HDI became a larger part of the product mix. Labor rates and material prices were steady, excepting gold.

Cash and equivalents balance $207.7 million, down $28.2 million sequentially. Long term debt $366.7 million. Net debt $305.2 million, down sequentially from $318.1 million. Cash flow from operations $42.6 million. Capital expenditures $28.3 million, mostly in Asia. Depreciation $17.2 million.

Aerospace/Defense end market accounted for 16% of revenue, down from 17% in Q3. Aerospace increased, defense decreased in the quarter. Expects flat Q4.

Cellular phone end market accounted for 10% of revenue from 9% in Q2. Smartphone sales to Chinese manufacturers increased, and mix continues to move to smartphones. Expects Q4 growth.

Computing/Storage/Peripherals end market accounted for 21% of revenue, down from 23% in Q2. But sales to the largest customer increased slightly. Expect seasonally softer Q4.

Medical/Industrial/Instrumentation end market accounted for 7% of revenue, flat from Q2 as a percent, down slightly in revenue. Expecting flat Q4.

Networking/Communications end market accounted for 38% of revenue. Believes will grow long term to support growing bandwidth requirements, but expects a sequentially lower Q4.

Other end market accounted for 8% of revenue from 6% in Q2 driven by a new customer in the e-reader market. Expects to be up significantly in Q4.

By operating segment, Asia Pacific had $222.3 million revenue, down 2% sequentially from $226.2 million, but up 5% from $211.5 million year-earlier. North America had $137.4 million, down sequentially from $142.2 million and down from $148.3 million year-earlier.

Top five customers the same: Apple, Cisco, Ericsson, Huawei and ZTE. One customer was 11% of sales, total for the 5 was 36% of sales.

Lead times were normal at 4 to 6 weeks. Some pricing weakness, but ASPs steady in Asia, down slightly in North America due to product mix.

Cost of goods sold was $$287.6 million, leaving gross profit of $70.7 million. Total operating expenses of $34.3 million include: $8.7 million for selling and marketing, $21.3 million for general and administrative, $4.3 million amortization of definite-lived intangibles. Interest expense $6.6 million. Other income $1.2 million. Income taxes $4.9 million. Net income attributable to noncontrolling interest $1.6 million.

Connecticut plants have been closed for 3 days due to the power outage from the snowstorm, but should reopen soon and have no material impact on Q4.

Q&A:

Networking and communications guidance? It is hard to say how much of the weakness was from demand vs. inventory reduction. Some customers are showing improvement, others not.

Book to bill? .96 North America, but 1.09 in October. In Asia 1.05, but in October .95.

Copper prices? Will see some benefit in Asia in Q4. North America benefit won't be until Q1. Gold peaked around $1900, but buying at different prices throughout the quarter. If gold stays down it will have a beneficial impact. Lately it has been hard to pass gold prices on.

10% plus customer, same as Q1 and Q2? Yes.

Computer segment down despite largest customer up? Some other customers had good increases, especially advanced HDI customers. Depends on particular products. Desktop and notebook were very soft. Thailand flood also will have an impact on Q4.

To the extent we have a variety of customers, we benefit if any of them breaks through with a new product, like our e-reader customer.

Cell phone revenue down y/y? Mostly that was slowing demand for feature phones in China due to the fiscal tightening them. We are shifting to smartphones, where we expect to gain market share.

Can margins be improved at this level of revenue? We are always looking to keep costs down. Since it is an ongoing practice, we don't think there are major cost savings in the near future. We have been spending cap ex to take care of bottlenecks, which saves in the long run. We do have global scale that can drive margins down in the long run as business improves.

Cap ex? Evaluating the capital program to bring it into line with 2012 needs.

Tax rate for Q4? 24%. In Q3 we had the R&D credit, so it was lower than the run rate.

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