A single quality issue crimped margins at TTM Technologies Inc. during the second quarter, adding to the series of challenges facing the printed-circuit board manufacturer even as it tries to widen offerings to include advanced technology products and deepen relationships with some of the electronics industry’s leading OEMs.
Costa Mesa, Calif.-based TTM reported net income of $13 million, or 16 cents per share, in the second quarter, compared with $7.4 million, or 9 cents per share, in the 2012 comparable quarter. Revenue rose to $338 million in the recent quarter, up 3 percent, from $327 million in the year-ago period. Profits were boosted by a gain of $17.9 million from the sale of one of the company’s assets during the quarter, lifting operating income on a Generally Accepted Accounting Principles (GAA) basis to $28.3 million vs. $18.1 million in the second quarter of 2012.
TTM should have reported better results but the company’s performance suffered as a result of some unspecified “quality” issues that impacted a customer during the quarter, according to Kenton Alder, CEO. The company worked with the customer to quickly fix the problem but that wasn’t the only challenge TTM experienced during the quarter. Plant capacity utilization continued to be problematic although it pushed this up in North America during the quarter to 69 percent from 65 percent in the immediately preceding quarter. Capacity utilization in Asia-Pacific remains stuck at 67 percent and margins continued to be pressured in the region, the company said.
“Gross margin for the Asia-Pacific segment was 12.3 percent, compared to 15.6 percent in the first quarter,” said Todd Schull, TTM’s chief financial officer in a presentation to analysts. “The decline in gross margin was primarily due to the previously discussed quality issue, higher labor expenses and lower utilization.”
The news is not all negative, though. TTM is adding to sales from its top 5 customers -- Apple, Cisco, Ericsson, Huawei and Jupiter – which together accounted for 38 percent of the company’s sales during the second quarter, up from 35 percent in the previous quarter. Sales to these companies are expected to continue rising and will probably surge over the next two quarters as they ramp sales of tablet PCS and smartphones for the holiday season. TTM is also seeing increasing demand from networking and communications equipment customers as it moves up the value chain.
“We continued to benefit from our capital investments in advanced technology, which enable us to expand our business in handheld devices,” said Alder, while presenting the second quarter results to analysts. “In 2013, our capital expenditure investments are focused on enhancing our advanced technology position with capital capacity expansions in our advanced HDI, rigid-flex and substrate business, as well as further productivity improvements and maintenance.”
These investments, combined with the sale of the company’s controlling interest in a plant in China and continuing push into higher margin advanced technology products market, should propel TTM to its long-term gross profit margin goal of 19 percent. “We’ve got to have the right product mix, and we’ve got to have our facilities pretty close to fully loaded. So if we can get the right mix with the right capacity utilization, we can achieve the 19 percent [gross profit margin] and 10 percent [operating margin] goals,” Alder said.
TTM said it expects third quarter sales will be between $335 million and $355 million.