Local circuit board manufacturers are bucking the down stock market trend.
The three biggest circuit board makers in Orange County—Anaheim’s Multi-Fineline Electronix Inc., Santa Ana’s TTM Technologies Inc. and Anaheim’s DDi Corp.—are sporting double- or even triple-digit growth in their stocks this year.
The health of printed circuit board makers—which are loaded with chips and built into consumer electronics, networking gear and industrial devices—is often viewed as a leading barometer for demand.
“We are starting to round the bend,” said Steve Richards, chief financial officer at TTM Technologies.
As a group, local circuit board makers are a unique lot. They’ve been able to stay competitive here by designing and building more specialized boards in small batches for jobs that often have to be turned around quickly.
Other board makers—mostly in Asia—produce less complex boards that can be made in large volumes on the cheap.
The local companies have been some of the best-performing technology stocks here this year.
Since January, Multi-Fineline’s shares are up 120%, TTM’s are up 100% and DDi’s are up 40%.
Multi-Fineline Electronix, which makes specialized flexible boards for cell phones, smart phones and other handheld devices, is the biggest of the bunch with a recent market value of around $675 million.
For the current quarter, Multi-Fineline said it expects sales of $190 million to $205 million. It didn’t give a profit outlook.
Analysts, on average, are looking for profits of $9 million on sales of $192 million.
The company is seeing increased productivity at its existing factories and is finishing construction of a new factory at its campus in Suzhou, Jiangsu, China. To meet demand, the company said in a recent call with analysts that it’s set to begin construction of another factory during 2010 in Chengdu, Sichuan, China.
“Improving labor efficiency, as well as yields, has helped us to offset some of the pricing pressure the industry has seen,” finance chief Tom Ligouri said.
Chief Executive Reza Meshgin said the company is seeing a boost as its larger customers ramp up production ahead of the holiday season.
Multi-Fineline is in talks with a new unnamed customer in Asia that’s among the top five biggest cell phone makers.
The strongest part of Multi-Fineline’s business, according to analysts, is from customers Research in Motion Ltd. and Apple Inc., which are set to come out with new devices ahead of the holidays.
“We believe the iPod Touch should ramp aggressively in the third and fourth quarters, adding to continued strong sales growth with Research in Motion,” said Amit Daryanani, an analyst at RBC Capital Markets Corp. in San Francisco, part of the investment bank arm of Royal Bank of Canada.
The weaker part of Multi-Fineline’s business comes from traditional cell phone makers, including Sony Ericsson Mobile Communications AB, which makes up 7% of the company’s sales, and Motorola Inc., which makes up 4% of sales.
TTM
Santa Ana’s TTM Technologies makes circuit boards for military and aerospace uses, which has been its main source of growth lately.
It also makes circuit boards for routers and switches made by one of its biggest networking customers, Cisco Systems Inc. But those orders have declined as of late, according to Richards.
“We have a major position in aerospace and defense and it has been the bulwark of our strength in the last few quarters as a lot of our commercial orders slowed down,” he said. “Commercial networking orders kept sliding a bit in the first half of the year, but our aerospace and defense customers kept ordering at their usual run rate and sometimes more strongly.”
Last year, TTM landed a multimillion-dollar contract from Britain’s BAE Systems PLC.
Northrop Grumman Corp. was TTM’s biggest customer during the second quarter. Others include Raytheon Co., Boeing Co. and other big contractors.
TTM’s boards go into radar systems, aircraft and handheld electronics that are used by troops to diffuse roadside bombs.
Some of them require a lot of engineering because they often are required to be shapes other than flat—some are conical to fit inside a missile and others are cylindrical to go inside a torpedo.
TTM is a bit more conservative on its outlook.
For the September quarter, it’s expecting profits of $4 million to $7 million on sales of $134 million to $142 million.
Wall Street analysts, on average, are looking for profits of $7 million on sales of $138 million.
“We are optimistic for the back half of the year, but it is still against a challenging backdrop,” Richards said.
The commercial side of TTM’s business is beginning to pick up, according to Richards.
TTM landed more aerospace business when it bought Tyco International Ltd.’s printed circuit board unit for $226 million in 2006.
The company is focused on getting in to new programs with the government while others are being phased out.
“We aren’t worried or anxious about decreasing defense spending, but we aren’t putting our heads in the sand, either,” Richards said. “Certain programs we’ve been involved in are ramping down, but others are accelerating.”
DDi
DDi seemed to have taken a bigger hit to its business than its local competitors.
Sales and profits decreased during the second quarter after the company saw a falloff in orders for its commercial business.
“During the second quarter we continued to see the overall impact of the slower commercial markets,” Chief Executive Mikel Williams said in a call with analysts.
Williams, who declined to comment for this story, didn’t give a financial outlook but said he expects the company to return to “positive growth” during the current quarter.
It’s lightly traded these days and only tracked by one analyst. It had a recent market value of around $90 million.
About a third of DDi’s business is in aerospace and defense.
For the six months through June, the company’s defense business grew 50% from the same period last year. Still, it doesn’t appear to have offset declines on its commercial side.
“I realize that in this market we must continue to push ahead,” Williams said in a conference call.
