Hutchinson Tech. Cuts to Save $50M-$55M Annually

For the quarter that ended in March, the company reported a net loss of about $20.5 million on net sales of $63.3 million; its president says that a planned restructuring will help it return to positive cash flow.

Hutchinson Technology said Tuesday that a previously announced restructuring and consolidation will cut annual costs by $50 million to $55 million starting in March.

The Hutchinson-based disk-drive component maker last month announced plans to move some of its component manufacturing-which now takes place in its namesake city and in Eau Claire, Wisconsin-to Thailand. The remaining manufacturing will be performed at the company's existing Eau Claire facility, which is large enough to handle the current demand for its products.

The restructuring is expected to result in a 30 percent to 40 percent decrease of the company's work force-or between 683 and 910 positions.

Hutchinson has been working on moving some of its assembly operations to Thailand in order to reduce operating costs and to be in closer proximity to its customers, many of which are overseas. With a faster-than-expected transition from Hutchinson's current component manufacturing process in Hutchinson and Eau Claire to a more automated one in Thailand, fewer employees are needed to meet customer demands.

“As we transition more of our assembly operations to our Thailand site, our cost position will improve, further adding to our confidence that we will be the industry's lowest-cost supplier of suspension assemblies,” Rick Penn, president of Hutchinson's disk-drive components division, told investors in a Tuesday conference call.

Last month, when Hutchinson announced its planned restructuring, the company said that it expected the moves to reduce annual costs by $45 million to $60 million.

Over the past few years, Hutchinson has struggled amid weak demand for its products. During the fiscal second quarter, which ended in March, Hutchinson shipped 102.3 million suspension assemblies, down 4 percent from the previous quarter.

A suspension assembly holds a computer chip that reads data above a spinning hard disk in desktop computers, PCs, and enterprise server systems.

The company reported a net loss of $58.7 million on net sales of $347.2 million for the fiscal year that ended in September 2010.

For the just-ended fiscal second quarter of 2011, the company reported a net loss of about $20.5 million-which was affected by severance provided to laid-off employees-on net sales of $63.3 million.

“We recognize that we must be the lowest-cost producer of suspension assemblies to be positioned to compete profitably for market share and to return to positive cash flow generation,” Hutchinson President and CEO Wayne Fortun said in the Tuesday conference call with investors. “We believe our vertically-integrated model provides the best means to get to and sustain the lowest cost position while sustaining the capability's core to competitive position in future growth.”