FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Hutchinson Technology, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HTCH)") else Response.Write("(NASDAQ: HTCH)") end if %>
40 W. Highland Park
Hutchinson, MN 55350
(320) 587-3797

UNION CITY, Ca., November 4, 1996/FOOLWIRE/ --- Hutchinson Technology released fourth quarter 1996 results this morning. Net income was $1,409,000 or $0.25 per share on net sales of $91,890,000. That is compared to a net income of $8,661,000 or $1.55 per share on net sales of $86,722,000 in the comparable period of 1995. The fiscal 1996 fourth quarter was a 14-week period while the comparable 1995 quarter was a 13-week period.

For the fiscal year, net income of $13,802,000 or $2.46 per share on net sales of $353,186,000 this year compared to a net income of $21,078,000 or $3.84 per share on net sales of $299,998,000 for fiscal 1995.

SELLING PRICE AND PRODUCT MIX. The average selling price (ASP) for the quarter was about $0.63 and certainly feels like it has about bottomed out. It is actually up about a penny from the previous quarter. But, given the product mix they have and where they are in the product lifecycle on the other products, that is probably about right. As far as product mix, their sales dollars for "nano" heads (one-billionth of an inch) for Q4 were 82% and sales dollars for "pico" heads (one-trillionth of an inch) were 16%.

The customer breakdown for the quarter was: Seagate was 43% versus 31% in Q3, Yamaha was 16% versus 17% in Q3, SAE Magnetics was 12% versus 15% in Q3, IBM was 8% versus 9% in Q3, and Read-Rite was 6% versus 15% in Q3.

SHIPMENT VOLUME. Average weekly shipments of suspension assemblies for the entire fiscal year were 10.2 million compared to 7.6 million for fiscal 1995. Results for fiscal 1996 and 1995 include respectively $0.69 and $0.31 per share charges against earnings, reflecting recognition of fixed commitments to IBM under a technology sharing agreement. Their average weekly shipments dropped from $11.2 million in the third quarter to $10.2 million in the fourth quarter due to a decline in the demand as previously reported.

However, for the first four weeks of fiscal 1997, average weekly shipments were 11.9 million suspensions. They are not sure what is driving their customers but they are seeing a pickup pretty much across the board. It is a broad-range demand by just about everyone they do business with. The decline in the fourth quarter and the fiscal year net earnings were due to the combined effects of the reduced demand, increased overhead resulting from additions to manufacturing capacity at the Au Claire Wisconsin and Plymouth Minnesota plants, and increased costs related to accelerated development of their TSA products (suspension assemblies incorporating integrated electrical leads) or those that contributed to the reduction in earnings.

NEW PRODUCT DEVELOPMENT. In response to their growing customer interest in TSA products, the company has accelerated its development efforts and is supplying parts at pre-production levels. The TSA products are gaining acceptance from their customers and they expect to begin shipping qualified products to multiple customers within 90 days. They expect to have capacity to produce over 2 million TSA parts per week by the Fall of 1997.

About $2 million per year is going into medical R&D and don't have anything they want to talk about yet in terms of a product offering but think that within 1997 they will be making an announcement talking about an entry into the marketplace.

MARGINS. Margins dropped to 20% in Q4 from 24% in Q3 due to the decline in demand leaving them with excess capacity. Their target range is still 24-26% and think they should be operating at that level by the end of the year. Their Au Claire plant is doing well and they no longer look at it as a start-up. It is almost performing at the same productivity levels as their very seasoned plant in Sioux Falls.

Their suspension demand is up, but even though their customers project further strong demand they are being as conservative as possible in their plans. Also, TSA has created an accelerating interest in their customers and they expect that should translate into strong demand. While their volume and margins are up, they reminded that the start-up costs for TSA are going to be present throughout the year. However, they do believe that 1997 will be a year of increased earnings and that, with the introduction of TSA, 1997 will be a year of very solid positioning for the long term.

COMPETITIVE LANDSCAPE. They think this downturn had an effect on their competitors and, at worst case they believe they did not lose any market share. They suspect that it is possible that they picked up market share during this downturn. As they look at TSA, they only have one viable competitor with a product to offer and they think they are doing pretty well against that competitor in that they are ahead of schedule and ahead of that competitor in most cases. In Thailand, they think KRP is faring a little better than MagnaComp, but if Hutchinson judges by their pricing strategies out there, they think both companies are very hungry for product, because their volumes went down. Neither of those companies has a TSA product. The only other company with a TSA-type product, which they call CIS is NHK in Japan. Their understanding is that NHK is focusing primarily on one customer and is not very broad-based in their TSA type product. They increasingly believe that their approach to TSA is ultimately more cost effective and they are finding that it is giving their customers more design flexibility. They think they are very well positioned with TSA and are delivering substantially more than the competition today.

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