Orange County’s printed circuit board makers are hoping the second half of 2005 is better than the first.
Excess manufacturing capacity, tempered electronics demand from consumers and falling prices for personal computers,which consume a lot of circuit boards,have conspired to slow DDi Corp. and Multi-Fineline Electronix Inc., both of Anaheim, and Santa Ana’s TTM Technologies Inc.
Many board makers reported either weaker than expected profits or sales in the quarter ended June 30.
“There’s still some very aggressive pricing out there,” said Scott Robertson, an analyst with Miami-based Halpern Capital Inc.
Pricing pressure caused Robertson to downgrade his rating on TTM after it reported a 7% sales decline in the quarter ended June 30 to $57 million. TTM’s operating profit dropped by 56% to $4.8 million in the period.
DDi similarly saw sales fall 9% to $45.5 million in the June quarter, versus a year ago. The company posted an operating loss of $38 million in the period, including a onetime charge of $31 million to reduce the value of some assets. DDi earned a profit of $453,000 in the June quarter last year.
TTM and DDi make boards on short notice, usually for a computer or other electronics maker trying to fill an unanticipated spike in orders. When technology product sales are slower than expected,as they were in the second quarter,TTM and DDi face a slowdown, too.
In its recent quarterly conference call with analysts, TTM said it was looking for ways to cut costs.
Longbow Research analyst Shawn Harrison upgraded TTM shares late last month to “neutral” from “sell.” Harrison cited price stabilization and higher expected demand for the upgrade, though he noted TTM wasn’t entirely out of the dark yet.
DDi, meanwhile, has been cutting costs amid the sales slowdown. It plans to close an Arizona plant and a corporate support center in Colorado. Some human resources jobs are set to move from Colorado to Anaheim. Most of the Arizona work is going to a Virginia plant.
DDi also said recently that it is offering shareholders the right to buy another 3.86 shares at 75 cents a share for each share they own,a sign of the company’s need for cash. DDi shares slumped 30% on the news.
“It could be a tough road ahead,” Robertson said of DDi.
Circuit boards are a staple of OC’s technology sector.
The county’s biggest contract electronics makers, many of which make circuit boards, employ more than 3,360 workers, according to a Business Journal survey last fall.
The boards house chips and make up the innards of computers, mobile phones and other electronics. They’re low-profit components made either in large batches or on short notice.
Board makers took a big hit in the tech downturn of 2000 but enjoyed a turnaround last year as electronics makers dramatically upped orders.
As demand for computers, networking gear and other products returned, companies turned to quick-turnaround board makers rather than signing long-term supply deals.
The spike in demand was enough to revive DDi, which filed for bankruptcy protection in 2003. TTM saw its shares surge by 50% in early 2004.
Since then, however, demand and pricing issues resurfaced. Take Multi-Fineline, or M-Flex as it’s known.
While sales to wireless phone makers helped drive a second-quarter sales increase, the company’s operating profit fell amid pricing pressure. The company reported an 18% revenue increase to $84 million in the period, with profit down 7% to $11 million.
But there are positive signs for M-Flex, which makes flexible printed circuit boards for cell phones and other electronics.
Longbow Research recently upgraded M-Flex shares to “neutral” from “sell.” Shares rose 10% on the late August report.
Analyst Harrison said weak sales volume along with tough pricing had been driving profits lower. Too much supply has been a big factor, he said.
The good news: “We’ve seen some stabilization in all that,” he said.
Last week M-Flex said it plans to expand its plant in China by 38% amid rising demand from cell phone makers.
M-Flex is set to build a 200,000-square-foot plant next to an existing company facility, said Phil Harding, M-Flex chairman and chief executive. The company will have 700,000 square feet of plant space in China when the new facility is built.
Shares of M-Flex rose 5% to $27.4 following the news.
