Orange County’s workhorse circuit board makers are back in favor.
Two bigger publicly traded players,Santa Ana-based TTM Technologies Inc. and Anaheim’s DDi Corp.,have watched their shares climb 50% or more in the past six months.
The companies make circuit boards that go into computers, networking gear and for the aerospace and medical device industries.
Their surge comes as OC’s other major circuit board maker, Multi-Fineline Elec-tronix Inc., crumbled on Wall Street last week.
Multi-Fineline, known as M-Flex, lost about 30% of its market value, which now stands at about $1 billion. The company fell short of estimates for the recently ended quarter and guided analysts lower for the current one.
M-Flex, which is more specialized and provides flexible circuit boards primarily to Motorola Inc., saw its shares soar more than 300% in the past year.
TTM and DDi are seeing robust sales to companies such as Cisco Systems Inc. and Hewlett-Packard Co.
“You’re starting to see some pretty good end-market strength,” said Amit Daryanani, an analyst with RBC Capital Markets.
That hasn’t been the case for much of the decade. Weak demand and falling prices pushed more circuit boards to mass production factories in Asia.
DDi itself was forced to file for bankruptcy reorganization in 2003.
Now DDi and TTM are reaping the benefits of being the only game in town for companies that want boards made quickly in the U.S., Daryanani said.
The other major publicly traded company is Forest Grove, Ore.-based Merix Corp. TTM is by far the largest by market value at about $644 million. DDi counted a recent market value of $133 million.
“It appears (TTM’s) position as one of the last men standing in the North American (printed wiring board) industry is paying off,” wrote Thomas Dinges, an analyst with J.P. Morgan Securities Inc.
Quick Turn
The companies learned they could survive by focusing on business that was more difficult to send overseas,orders for boards on short notice, known in the business as quick turn.
Those orders typically are filled in a matter of a few days to meet emergency needs from big manufacturers.
The sheer distance between Asia and the U.S. makes it nearly impossible to turn around a big circuit board order quickly.
“You just can’t do that in 10 days,” Daryanani said.
DDi, TTM and others are getting more savvy, focusing on complex boards that require 15 or 16 layers of electronics compared to the more typical two or three layers produced in Asia.
TTM, one of the sector’s strongest players, has been trying to do more quick-turn projects. About 20% of its $240 million in yearly sales come from quick orders, analysts said.
In the first quarter, TTM said earnings nearly doubled from a year earlier to $8.8 million. Analysts were expecting $7.5 million.
The company reported sales of $73 million, up 23% from a year earlier and 15% from the prior quarter. Analysts had $70 million in mind.
Profit margins look nearly as good as they did back in the heyday of the tech bubble in 1999 and 2000, J.P. Morgan’s Dinges said.
TTM’s shares have doubled in the past six months.
DDi’s shares have climbed about 50% in the past six months. The company turned in improved numbers in the first quarter, though it still is losing money.
Its net loss narrowed to $2.3 million in the quarter from $3.9 million a year earlier, excluding a gain early last year from the sale of DDi’s European business.
The improvement came from sales growth. DDi’s revenue rose 13% from a year earlier to $51 million.
About half of DDi’s sales come from quick turn projects, which tend to be more profitable.
But the future still looks tough for circuit board makers.
The sector is known for ups and downs and steep price declines and losses when demand turns south. That goes for market star TTM, wrote Shawn Severson, an analyst with Raymond James & Associates Inc.
“Although TTM might be benefiting from some market share gains, the company’s fate is still primarily driven by end-market demand and the cycle,” he said. “The very nature of such business is short term and can be volatile.”
