Analyst Conference Summary

conference date: February 7, 2012 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2011 (Q4, fourth quarter)

Forward-looking statements

Overview: Revenues up sequentially but down y/y, and at high end of prior guidance. Goodwill impairment charge hit GAAP earnings.

Basic data (GAAP) :

Revenues were $361.5 million, up 1% sequentially from $358.3 million, but down 3% from $373.4 million in the year-earlier quarter.

Net income was $8.4 million, down 66% sequentially from $24.5 million and down 75% from $33.0 million year-earlier.

EPS (earnings per share) were $0.10, down 66% sequentially from $0.30 and down 76% from $0.41 year-earlier.

Guidance:

Q1 revenue dropping to $310 to $330 million due to seasonality, Asian holidays, and closing a plant for upgrades. GAAP EPS $0.11 to $0.20. Non-GAAP EPS $0.19 to $0.28.

Softness in Asia likely to continue through Q2, but compensated for by more HDI demand.

$100 to $120 million capital expense in 2012 mainly for smartphone and tablets HDI PCBs.

Conference Highlights:

Non-GAAP numbers, which exclude a $15.2 million goodwill impairment charge: net income $27.7 million. Gross margin 19.7%. EPS $0.34. EBITDA was $60.2 million, up sequentially from $59.3 million.

The non-cash impairment charge related to the Shanghai backplane assembly plant.

"Performance in each of our end markets was generally consistent with expectations." Advanced HDI PCB demand for tablets, smartphones, and e-readers was high. The shift to HDI products helped offset weaker demand for conventional PCBs. Expects continued strong HDI product demand.

"Our global footprint is expanding our customer engagements and helping us grow market share." For the full year 2011, revenue set a record. Based on customer new product introduction plans, second half of 2012 should be strong.

The Dongguan plant will be closed for parts of Q1 and Q2 for maintenance, upgrade and repair work. Lost revenue estimated at $3 to $6 million per quarter. Costs about $6 million. Most production can be moved to other plants.

Asian revenues were $218.4 million, down from $220.2 million year-earlier. North American revenues were $144.1 million, down from $156.4 million year-earlier. Yet gross margin improved due to better mix. Capacity utilization in low 80% range.

Segments:

Aerospace/defense represented 15% of revenue. Defense customers declined, but commercial customers increased.

Cellular Phones represented 14% of revenue. Increased strongly due to increases of smartphones in the mix in China, but Q1 will be seasonally down.

Computing, storage and peripherals were 20% of revenue. Down slightly sequentially due to softer shipments with a key customer. Believes customer will increase orders in Q1. High-end computing and storage markets relatively strong in North America.

Medical and industrial were 8% of revenue. Expects to be stable in Q1.

Networking and communications was 33% of revenue, down significantly both sequentially and from year-earlier. Advanced technology router demand was strong, but communications infrastructure market was weak.

Other revenue increased to 10% of revenue. Grew due to a new product launch, an e-reader, but expect minimal production of that in Q1.

ASPs were up 2% due to better mix.

Top five customers: Apple, Cisco, Ericsson, Huawei and ZTE. Accounted for 31% of sales.

Cash and equivalents balance ended at $196.1 million, down 11.6 million. Long term debt was $389.3 million. $317.2 million net debt. Cash flow from operations $32 million. Capital expenses $42 million. Depreciation $19.9 million.

Cost of goods sold was $290.1 million, leaving GAAP gross profit of $71.4 million. Operating expenses of $53.7 million included: $9.9 million selling and marketing; $24.2 million general and administrative; $4.5 million amortization of intangibles; and $15.2 million impairment of goodwill. Leaving operating income of $17.6 million. Interest and other income negative $0.4 million. Income taxes $4.1 million.

Q&A:

Plant closing reasoning? It is mainly an infrastructure rebuild with some repairs. Will extend the life of the building; it is one of our oldest facilities. Chose to do all at once because of low demand for conventional circuit boards. Should be ready for return of higher demand in second half of year.

Demand drivers going forward? Networking was solid in Q4. Telecom is still soft in both U.S. and Asia, and we expect it to remain soft into Q2.

Days in Q1? Had 96 in Q4, will have 86 in Q1, in Asia Pacific.

Conventional board weakness products? Rigid PCB in Asia is mainly for networking, including European companies. But North American networking sales are doing well, and we mostly support their advanced technology products.

Margin issues? Improved American margins was from networking demand. Asian margins were weaker, mostly due to underutilization of conventional PCB facilities. Our Asian headcount in down about 10%. The opportunity is in rigid-flex and HDI. Material costs came down overall in Q4, with even gold down from prior highs.

Defense contractor outlook for 2012? War work is coming down. Base budget work should be about flat in 2012. Specifics depend on programs; we are involved in high technology products. We don't see growth, but we don't see a big negative either. Should still be around 15% of sales in Q1.

There could be some Q2 upside if our expectations for the second half are accelerated. This is about programs we are discussing with customers now. Any economic recovery would be on top of that.

Cell phones and smartphones are very seasonal, so Q1 will fall off from Q4. However, our mix is shifting from feature phones to smartphones.

End markets for 2nd half demand? Smartphones with existing customers. Tablets and high-end servers. Our capital expense is to support that, we are already at 90% capacity.

What is normal seasonal day loss? It is 5 days. We end Q1 before the end of March to comply with Chinese issues.

Labor cost in China? We expect roughly a 15% increase around April 1. There is no way to directly mitigate it, but we are always looking to improve margins in other areas.

Cash use? We have $105 million in debt we have to pay down this year, so that would be our primary use of cash flow.

Price discounts with customers? Does not expect price discounts similar to one given to a particular customer last year.

There was no 10% customer in Q4, but in Q1 2012 we will probably have a 10% customer again.

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