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Legs That Go For Days

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October 17, 2007 – Comments (2)

The company has two divisions. In one division they design and manufacture a tissue oxygen monitor and in the other division they manufacture disk drive suspension systems.

That reminds me of me.

By day, I'm a dedicated and consciences employee, willing to help with whatever problem arises. But by night I'm a marauding pirate on the high seas, taking from the rich and giving to the poor.

My ship has mighty sails and a strong bow and I am master of my own destiny, living for the fight, for the...okay so it's a rubber float I play with in the bath tub...the pirate thing could still happen...someday...maybe.

The name of the company is Hutchinson Technology, Inc. (Nasdaq: HTCH) and yes, they really do have two business segments.

What They Do

As I said, one business segment makes disk drive suspension assemblies, the precise electro-mechanical components that hold a disk drives recording heads at the precise distances from the recording disks.

The other business segment makes tissue oxygen monitors, which are attached to a patient's hand. These devices provide trauma care staff with a simple and efficient way to monitor tissue oxygenation using near-infrared spectroscopy.

What They Did

In June the company made the decision to eliminate about 500 jobs at their facilities in Hutchinson and Plymouth, Minnesota, Eau Claire, Wisconsin, and Sioux Falls, South Dakota, based on the estimated demand for suspension assemblies.

My Reasonable Value Estimate

I have the company on my watch list with a reasonable value estimate of $28, based on the company's latest 10-K for year end 09/06 and a 3-5 year hold. I have a buy target of $14, a first sell target at $27 and a close target at $29.

Market Opportunities

The stock closed on 10/16 at $23.59 with overhead resistance at $25.65, first support at $23.44, and second support at $21.53, giving the stock an upside potential of about 9%, an initial downside risk of about 1% and an overall downside risk of almost 9%, putting the odds of making short term money on this stock at current pricing levels at almost 50:50.

My Opinion

Once upon a time I owned shares of Hutchinson. It wasn't a bad investment, but it wasn't a very good one either. While the company is moving to diversify with it's oxygen monitor, the majority of it's sales are still from its disk drive suspension business, and is the case with many technology companies, change is never ending, with sales of suspension systems used for the 3.5" ATA drives falling, while at the same time expenses continue in an effort to get a new manufacturing process in place and running that will serve the next generation hard drive suspension market.

As these shifts occur, manufacturing capacity becomes under utilized. Such is the case with Hutchinson with manufacturing capacity utilization at 60%.

I'm not going to go into inventory issues and margin reductions as the suspension market moves between different technologies, but suffice it to say, my issue with Hutchinson is the same as it is with most technology companies, little to no upward movement in the stock, and like it or not, the vast majority of investors buy a technology stock just for the price appreciation, something I don't think I'm going to see much of with Hutchinson.

My Rating


I'm rating this stock a SHUFFLE, which means there isn't any real hurry to take a position, especially as I think the price is going to get lower before it gets higher.

It also means have a seat on a park bench and just stare at the grass, which I think is going to get higher a lot quicker than the price of this stock.

Wax

2 Comments – Post Your Own

#1) On October 17, 2007 at 8:35 AM, TMFHelical (98.84) wrote:

Nice commentary.

zz

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#2) On October 18, 2007 at 5:48 PM, wax (97.13) wrote:

zz;

thanx for that.

wax

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