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Hutchinson Technology, Inc. (NASDAQ:HTCH)

F1Q2012 Earnings Conference Call

January 24, 2012 5:00 PM ET

Executives

Charles Ives – Director of Investor Relations and Treasurer

Wayne Fortun – President and Chief Executive Officer

Rick Penn – Senior Vice President and President of the Disk Drive Components Division

Dave Radloff – Vice President and Chief Financial Officer

Analysts

Sherri Scribner – Deutsche Bank

Richard Kugele – Needham & Company

Matt Swope – Gleacher Securities

Tom Lewis – High Road Value Research

Mark Miller – Noble Financial

Shawn Boyd – Westcliff Capital Management

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Hutchinson Technology first quarter results conference call.

During today's presentation, all parties will be in a listen-only mode. And following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Tuesday, January 24th, 2011.

I would now like to turn the conference over to Mr. Charles Ives, Treasurer and Director of Investor Relations. Please go ahead.

Charles Ives

Good afternoon, everyone. Welcome to our first quarter results conference call. On the call with me today are Wayne Fortun, our Chief Executive Officer; Rick Penn, President of our Disk Drive Components Division; and Dave Radloff, our Chief Financial Officer.

Wayne will provide an overview of the business, Rick will provide an update on our Disk Drive Components Division, and Dave will speak to our financial results and guidance.

As a reminder, we will be providing forward-looking information on demand for and shipments of disk drives and the company's products, product mix, pricing, production capabilities, assembly operations in Thailand, the impact of flooding in Thailand, capital spending, product costs, operating expenses, product commercialization and adoption, manufacturing, consolidation and restructuring and the company's cost structure, operating performance and financial results.

These forward-looking statements involve risks and uncertainties as they are based on our current expectations. Our actual results could differ materially as a result of several factors that are described in our periodic reports on file with the SEC.

In connection with the adoption of SEC rules governing fair disclosure, the company provides financial information and projections only through means that are designed to provide broad distribution of the information to the public. The company will not make projections or provide non-public information through any other means.

We issued our first quarter results announcement just after the market close this afternoon and it is now posted on our website at, www.htch.com. I'll turn the call over to Wayne now for his opening remarks.

Wayne Fortun

Thanks Chuck. Good afternoon everyone and thank you for joining us today. Our first quarter suspension assembly shipments were in line with our guidance we provided in our November 1st conference call. As we’ve reported at that time the historic flooding in Thailand has temporarily suppressed the overall production capacity of the hard disk drive supply chain. And this is resulted in material decrease in our suspension assembly demand. Thankfully, we have been able to offset the capacity that was damaged in our Thailand operation with the available capacity in our vertically integrated U.S. operations to meet customer’s requirements.

Our assembly operation in Thailand is dry now and repair and restoration work is underway. After reviewing the flood mitigation plans of the Thai government and of the industrial park where our plant is located we are proceeding with plans to restore our Thai operation and expect to resume operation by the end of June. Longer term we will closely monitor the implementation of the plant flood mitigation measures while we ramp the production capacity of our Thailand facility. We expected it will take until the middle of fiscal year 2013 to return the operation to pre flood output levels.

Now, I will turn the call over to Rick for a recap of the disk drive components division first quarter.

Rick Penn

Thanks Wayne. During our fiscal 2012 first quarter we shipped $89.3 million to suspension assemblies, which was down 30% from $127.4 million in the preceding quarter and in line with our guidance. The decline resulted from flood related capacity constrains at our customers. We believe that our competitors also experienced declines in their volume and that we maintained our overall market share we had approximately 20%.

Thanks to the efforts of our employees here in the U.S. and abroad we’ve been able to leverage the existing capacity of our vertically integrated U.S. operations to meet customer’s needs. This available capacity also positions us well to respond to increased demand as the industry recovers.

For the fiscal 2012 first quarter our mix of product shift was as follows suspensions for 3.5- inch ATA applications decreased 56% sequentially and accounted for 35% of our shipments compared with 55% in the preceding quarter. Shipments from mobile applications increased 11% sequentially and accounted for 42% of our shipments up from 27% in the preceding quarter and shipments for enterprise applications decreased 9% sequentially and accounted for 23% of our shipments, compared to an 18% in the preceding quarter.

These changes in our product mix were a result of the flood related capacity constraints at our customers and caused our average selling price to increase from $0.58 in the preceding quarter to $0.60 in the fiscal 2012 first quarter. Our first quarter shipments TSA+ suspension assemblies decreased 39% sequentially to $47 million and accounted for 52% of our shipments, down from 60% in the preceding quarter.

Despite the flood related volume decline we’ve further reduced our TSA+ variable and fixed costs per part as we benefited from manufacturing consolidation actions completed in the previous quarter. We expect to realize significant future cost savings as the transition to TSA+ products resumes in coming quarters.

Our prototyping activity for dual stage actuated or DSA suspension assemblies is increasing. We continue to work with multiple customers on DSA programs and we still expect demand for DSA products to develop gradually in the current fiscal year. All of our DSA capacity is currently at our U.S. site and we are well positioned to meet customer demand as it materializes.

Turning to our repair and restoration efforts in Thailand, we currently expect to resume suspension assembly production in our Thai operation by the end of June, because we can handle current and anticipated levels of near term customer demand with our U.S. based capacity.

We are able to proceed with our restoration work prudently assuring timely requalification of this site while avoiding expediting costs for possible. Among the more significant tasks is the requalification of our clean room at the site, which must be completed before production can resume.

Our plans call for that qualification process to be completed in our June quarter. We estimate that we will spend $25 million to $30 million in fiscal 2012 and an additional $5 million in fiscal 2013 to restore our Thai assembly operation to pre flood capacity levels and to cover the incremental costs of manufacturing in the U.S. during the recovery period.

These costs will be partially offset by $25 million in insurance proceeds all of which we had now received. With respect to our outlook we expect our fiscal 2012 second quarter shipments will total 90 million and 100 million as the effects of the flooding in Thailand continue to constrain our customer’s capacity. Our shipments should further increase in the third and fourth quarters as the disk drive industry supply chain continues its recovery.

I will turn the call over to Dave now for a discussion of our financial results.

Dave Radloff

Thanks Rick. Net sales for the fiscal 2012 first quarter totalled $58.5 million down 21% from $74.4 million in the preceding quarter. The revenues percentages for our top customers in the quarter were as follows SAE/TDK 49%, Western Digital 22%, Hitachi GST 12% and Seagate 10%.

Net sales for the quarter included BioMeasurement division revenue of $416,000 up from $283,000 in the preceding quarter. The sequential quarter growth reflects increased sales in InSpectra StO2 monitors and Spot Check Systems.

Our total gross profit in the quarter was $2.3 million or 4% of net sales. The sequential decline of $2.8 million resulted primarily from the lower volume in the quarter as well as the lower mix of TSA+ products and approximately $1 million of incremental cost for U.S. versus Thailand manufacturing.

First quarter depreciation and amortization totalled $9.3 million compared with $10.4 million in the preceding quarter. R&D expenses in the quarter were $3.9 million up $800,000 from the preceding quarter in part due to higher product and program development costs. First quarter SG&A expenses decreased to $7.2 million from $7.9 million in the preceding quarter.

SG&A expenses this quarter included the benefit of a gain on some asset sales in the U.S. versus a loss in the previous quarter. This gain is A typical and as a result we expect our SG&A expenses to increase in the second quarter.

Our fiscal 2012 first quarter operating loss totalled $8.1 million compared with $6.3 million in the preceding quarter. Included in fiscal 2012 first quarter operating loss are the following unusual items. Flood related costs of $13.7 million including $8.3 million of non-cash impairment charges for damaged property plant and equipment, $2.8 million of inventory write downs, and $2.6 million of Thai operating and site restoration costs.

Second item is flood insurance recoveries of $13.7 million including $9 million of cash proceeds received during the first quarter and $4.7 million of accrued proceeds. And finally the $900,000 reversal of previously accrued severance expenses partially offset by $200,000 of other costs related to manufacturing consolidation.

Our consolidated operating loss also includes the BioMeasurement division operating loss at $1.1 million down from $1.4 million in the preceding quarter as a result of further expense reductions in the division. Interest expense in the fiscal 2012 first quarter was $4.3 million up from $4.1 million in the preceding quarter.

First quarter interest expense included $1.7 million of non-cash interest on our convertible debt flat with the preceding quarter. Our net loss for the quarter totalled $12.5 million or $0.53 per share compared with the net loss of $7.2 million or $0.31 per share on the preceding quarter.

Excluding the unusual items that I spoke to previously and non-cash interest expense of $1.7 million our net loss for the quarter was $11.5 million or $0.49 per share. Cash generated by operations totalled $12.5 million in the first quarter including the $9 million of insurance proceeds that we received. Subsequent to the end of our first quarter we received the remaining $16 million of insurance proceeds from our $25 million of flood coverage.

Capital expenditures in the first quarter totalled $5.4 million and we also used $10.4 million of cash to repay borrowings on our revolving line of credit. Our cash in short-term investments at quarter end totalled $55.8 million compared to $59.2 million at the end of the preceding quarter. The principle amount of our outstanding debt at quarter end was $161.4 million down $10.4 million from the end of the preceding quarter. Our share count at year end was approximately $23.4 million resulting in book value per share of $8.28.

Turning now to our outlook, as Rick mentioned we expect our second quarter suspension shipments to total 90 million to 100 million, compared to our shipment rates for 11 weeks after the severe flooding in Thailand this represents 7% to 19% increase in shipments. We expect further volume increases in our fourth; I’m sorry in our third and fourth quarter (Inaudible) production capacity and supply chain recovery.

Suspension assembly pricing is likely to remain competitive without the product mix changes we experienced in the first quarter our average selling price would have been flat compared with the preceding quarter. Industry wide, there is currently sufficient suspension assembly capacity to meet customer needs so there are no supply constrains to exert upward pressure on suspension assembly prices.

We expect gross profit to improve as our shipment volume increases; we also expect our cost of goods sold to include additional quarterly cost of approximately $2 million compared to $1 million we experienced in the first quarter, while we are reliant on our U.S. assembly and operations for the majority of our production.

We estimate that our SG&A expenses will be approximately $8 million per quarter for the remainder of this fiscal year. Our R&D expenses should be about $4 million for the quarter. Depreciation and amortization expense is expected to be approximately $11 million to $12 million per quarter.

Our interest expense is expected to remain at about $4.3 million per quarter including $1.7 million of non cash interest expense. All of this guidance for our quarterly expenses is based on our 13 week quarter however our fourth quarter of fiscal 2012 will be a 14 week quarter. This will result in another week of revenue and expenses during the fourth quarter and you should keep this in mind for modelling purposes.

Our tax rate is still expected to be near zero in fiscal 2012. We estimate that our fiscal 2012 capital expenditures will total approximately $35 million including costs related to restoring operations in Thailand.

I will turn the call over to Wayne now for his closing comments.

Wayne Fortun

Thanks Dave. Thanks to our available capacity in the United States we were able to meet the customer’s requirements and maintain our market share during the last quarter despite the temporary loss of our Thai assembly operation. Our U.S. operations have us well positioned to accommodate demand growth as the industry supply chain recovers and while we proceed with the work required to bring the Thai assembly operation back into production.

As we anticipated that work is going to take several quarters and we expect to begin production again by the end of our fiscal 2012 third quarter. The impact of the flood related disruption to our business is delaying the full realization of the benefits that our cost reduction and manufacturing consolidation actions are expected to bring. Nevertheless, we remain on the path that we expect to be, that we expect will enable us to become the industry’s lowest cost producer of suspension assemblies that is integral to our winning the preferred supplier positions on our customer’s new disk drive programs and further improving our financial performance.

That concludes our prepared remarks. Douglas please begin the polling for questions.

Question-and-Answer Session

Operator

(Operator Instructions) and our first question comes from the line of Sherri Scribner with Deutsche Bank. Please go ahead.

Sherri Scribner – Deutsche Bank

Hi, thank you. I was hoping you can give us a little bit of detail on your expectations for how much industry units are expected to grow over the next couple of quarters. I know you said you expect them to continue to increase but do you have any sense of what the count will be?

Rick Penn

Sherri, this is Rick. We are, our view of this quarter is what you know other industry analysts have projects and it’s in the 130 to 140 range. And beyond that we are kind of waiting to see how things really ramp up and how the recovery goes. So we don’t have a lot of insight and WD might be able to better answer that question although I think they are even sort of looking at the total market and not sure what that looks like. So it’s just hard to say but we are ready to ramp however fast it comes up.

Sherri Scribner – Deutsche Bank

Okay and then looking at our cash profile you used a little bit of the cash overall this quarter. I think you mentioned you’ve paid down debt I believe you indicated you were going to buy back some of the convertible bonds that you have on your balance sheet. Can you give us a little bit detail on that and the motivation for that and what your plans are for that? Thank you.

Dave Radloff

Hi Sherri, this is Dave. Yeah, we are just going to have to refer you to the press release we issued on January 13 and there is really not more we can say on that at this point in time.

Sherri Scribner – Deutsche Bank

Okay, thank you.

Wayne Fortun

Douglas do you have another question?

Operator

I apologize my phone was on mute. Our next question comes from the line of Richard Kugele with Needham & Company. Please go ahead.

Richard Kugele – Needham & Company

Thank you. Good afternoon. Three questions for me. First, Wayne you know you talked about going back to Thailand as you’ve listened to the government and there are various plans I guess to prevent flooding in the future is there any other clarity you can provide on what kind of gives you comfort that this can be prevented or reduced in terms of impact in the future? Does it make sense to go back there?

Wayne Fortun

Yeah, absolutely I think it does Rich and I will let Rick chime in here as well. But we wouldn’t be putting the money into it if we didn’t believe so. We are convinced that and as well as a aggregate of companies that have been, that are operating in Thailand have pulled together and has made demands on the industrial park as well as the government in general. And the view is that in all likelihood even with the rains that we had this last year had the government approached their flood management differently there probably would not have been a flood in Rojana park where we are. And the government is really committing towards taking actions that will prevent that mismanagement from ever happening again.

Secondly, the park has shown us plans for providing a flood wall I will call it that is very, very convincing, the engineering is done well. This type of flood wall has been used elsewhere in other countries and it’s really appears robust in terms of being able to handle high water should come again. And so with that we are now confident that even if there was the flooding that rose high enough to be, would have made us wet this year, this time it would be up another almost 2 meter and a half or there about from the high water mark that we saw this year. So, no I think it’s a sensible move for us to expand in Thailand and we think that the between the government and the Rojana Park we will be quite secure in saying we are going to be flood free.

Richard Kugele – Needham & Company

Okay, that’s helpful. Dave, do you think that you will be able to get insurance on this facility once it’s brought back and the new dam is in place?

Dave Radloff

I think it’s early for us to know for sure Rich how that will go. We are going to have those discussions in the not too distant future and some of it may have to do with the timing of the flood mitigation and also what’s the price in what level of coverage. So I don’t think it’s a binary answer but it’s early for us to give you any real clarity on that.

Richard Kugele – Needham & Company

Okay.

Dave Radloff

But certainly something we are working on.

Richard Kugele – Needham & Company

And then Rick you mentioned that the competitors were also impacted and that your share stayed the same in the quarter. Do you have any sense on if their ability come back is in the same time frame as yours or are they going to come back quicker or slower?

Rick Penn

Well, they are, yeah there is really no constrains Rich at the suspension level and the supply chain for the most part at this point. You know their numbers were down because their customers numbers were down primarily there may have been a little bit of a hick up at MPT because of their, the flooding that occurred there.

But it’s really I think between the three of us we’ve got capacity to handle what comes at each of us and so I think MPT is up and running NHK was not affected much of at all. And you know we are ready to handle it well from the U.S. so now it’s just how do our customers recover and our recoveries will be connected with that.

Richard Kugele – Needham & Company

Okay, my last question is just on ASPs the can you just explain again the, what product line was not there that made growth the ASP increase. I mean should we assume that this is does TSA get the lower ASP or can you just clarify?

Rick Penn

Yeah it’s just a big mix down on the desktop side of the business and that with such of low pieces of mix when you add all that up the ASP was a bit higher.

Richard Kugele – Needham & Company

Okay, great. Thank you very much.

Wayne Fortun

Thanks Rich.

Operator

Thank you. The next question comes from the line of Matt Swope with Gleacher Securities. Please go ahead.

Matt Swope – Gleacher Securities

Hi guys, on Seagate your share number remains pretty low there. Is there anything in the product cycle or has been moved forward maybe with the acquisitions that have gone on in your customer base that help improve that Seagate number?

Rick Penn

Yeah Matt, this is Rick. The first of all on the Seagate front we are supplying to their enterprise business the enterprise drives and have been for sometime we are working real closely with their technical teams. Our technical team we’ve got a technical team on new programs and it’s all going very well. There are some technology transitions at the drive level as they move to the next programs and the next year (Inaudible) points that can create some openings for us. And so I can’t tell you anything real specific about our Seagate progress other than the momentum is very good.

Our relationship is solid we are working on new programs with them. And we will see how it goes from here but we are very optimistic on the Seagate front. I guess overall on your share of question we across the board are qualifying on many of the new programs across all segments, several of them are dual stage programs and all of that is going very, very well. So we think we are positioned to move our share up and as we look forward over the next year, 18 months and so on.

Matt Swope – Gleacher Securities

Does dual stage help specifically with Seagate?

Rick Penn

It could and I don’t want to make any specific comments about customer programs.

Matt Swope – Gleacher Securities

Okay, that’s a very interesting answer. On the insurance proceeds that have come in you said you’ve gotten the whole 25 at this point. How much you guys have said the full 2012 number out the door is going to be 25 and 30 how much of that went out in the first quarter if any?

Dave Radloff

Few million not a lot.

Matt Swope – Gleacher Securities

Okay, so from a net cash perspective we are going to see the 16 come in, in the second quarter but most of that 25 to 30 and then another 5 or so next year is yet to be spent.

Dave Radloff

Correct, so we receive 9 in the first quarter, we spent a few million of direct cost. It depends on if you want to allocate any of that to the loss of business, which in my few million I’m not. But as we go forward we will receive an additional $16 million and then yeah we will spend the 25 the substantial portion that 25 to 30 over the next three quarters.

Matt Swope – Gleacher Securities

In the, I’m sorry the loss of business would be few million that’s obviously separate.

Dave Radloff

No it’s not in there, that’s in any of the numbers that we have included is the effect of the lost revenue that’s in our outlook but it’s not in any of the insurance calculations.

Matt Swope – Gleacher Securities

Sorry, I’m sorry to interrupt that revenue that you think went to somebody else or?

Dave Radloff

No, industry constrains overall.

Matt Swope – Gleacher Securities

So, maybe we will see that come back in the future? Maybe those were just for us?

Dave Radloff

Possibly, it depends on how you be there. Yes.

Matt Swope – Gleacher Securities

And then just one other one for me, the, you paid down the revolver in the quarter. Why did you, how are you going to use this revolver now that you have it in? Why did you draw it at the first place given the cash that you had on and then why did you pay it down?

Dave Radloff

Sure, so we put the revolver in place to provide additional liquidity as we look out into the January 2013 time frame and the debt that can be put to us then we saw we wanted the additional flexibility of that additional revolver capacity. As we entered into that revolver, we indicated we would drawn it and we did then we had the flood and we felt that as we were working through the difficulties of the flood and there was a covenant issue related to business interruption actions, that we were better off not to have an outstanding balance with the bank while we were working through that. So we paid it off.

Matt Swope – Gleacher Securities

Got it. Thank you that’s helpful. Well I guess maybe just one last one you gave us some guidance for your cost and CapEx lines for the year. Do you think free cash flow so cash flow from operations remind that CapEx for the year can be a positive number?

Dave Radloff

Yes, for the year that’s yes.

Matt Swope – Gleacher Securities

For the whole 2012?

Dave Radloff

Yes.

Matt Swope – Gleacher Securities

Great, thanks guys.

Dave Radloff

You bet.

Operator

Next question is from the line of Tom Lewis with High Road Value Research. Please go ahead.

Tom Lewis – High Road Value Research

Hi, just a couple of questions. First of all yesterday listening to Western Digital get it they said what I thought was another clear message that this, the flooding has then, had induced some rethinking about the nature of the supply chain and they talked in terms of it being more robust and geographically diverse as terms that come to mind. Can you tell us, can we assume that that’s a an industry wide sentiment and maybe talk a little bit about what this might mean for us Hutchinson going forward?

Rick Penn

Tom, yeah I think it’s an industry wide sentiment every one of our customers is relooking at their chain and where their key components are located and what you know if there is a disaster in one area how well is their risk mitigated. So I think it’s definitely a theme across the industry and I think they will stick to that theme. I think frankly it bodes well for us I mean we have capacity in the U.S. we will have capacity again in Thailand.

We are rethinking our Thai facility, which we were intending to actually take out a wall and expand on that particular site and put more assembly units and we are not going to do that now we will pick another site an higher ground maybe in Thailand maybe Malaysia maybe somewhere else. But we are certainly thinking about where that next Asia site is but we don’t want to put too much production in any one single site. So it’s definitely a theme in the industry we think that we are positioned well even as we sit today and we are thinking about it as we think about our expansion.

Tom Lewis – High Road Value Research

Okay, thanks for that. And also can you remind us where you have that guided outcomes that are going on for InSpectra for some time now. Can you tell us when that data might be out both for a evaluation of what you got there and more to the point of becoming a useful element and being able to increase sales?

Wayne Fortun

Hi Tom, this is Wayne. We really expected the earliest to likely be by the time that the statistical analysis was done would be in last part of March or into April. The, there has been some work on the interim analysis but the election has been to proceed with the study and they are still putting patients through and so it will be a while before they will have completed all the patients and then done the analysis on the data.

Tom Lewis – High Road Value Research

Okay, so March April suggest that maybe you will have something to say about this on the next call?

Wayne Fortun

Maybe.

Tom Lewis – High Road Value Research

Okay, well I will hope so. That’s it for me. Thanks.

Wayne Fortun

You bet.

Operator

(Operator Instructions) and our next question comes from the line of Mark Miller with Noble Financial. Please go ahead.

Mark Miller – Noble Financial

Just looking at your products at gross margins at this level of shipments it does look like you mentioned improvements. I know you were talking prior to flood a significant reduction in your breakeven level. I’m just curious at one time I’m trying to gauge that around 125 million to 130 million units. Can you provide us any insight what would be your breakeven suspension shipment level?

Rick Penn

We are not going to do that right now Mark. The things are really moving that affect any guidance like that that would be that precise are just the time of the industry recovery. And then we also have the TSA+ mix that’s moving and then our Thai operating cost and the Thai ramp. And so we are leery providing anything that’s going to be moving and moving on the timeline would be that precise. So those are the things to consider but we are not going to give that guidance right now.

Mark Miller – Noble Financial

And are you able to tell us at this level of shipments, which are factory utilization I’m assuming around 55% to 60%.

Dave Radloff

I think it’s about right.

Mark Miller – Noble Financial

And again just historically your margins have been very normal and you are aware that they would come up say 15% to 20% and gross margins would be significantly higher maybe 15% to 20% is that really the possibility.

Dave Radloff

Yes, certainly we are targeting to get there around the end of the year we would like to be at least in that teen mid teen range.

Mark Miller – Noble Financial

Okay, thank you.

Operator

(Operator Instructions) we do have a follow up from the line of Mark Miller with Noble Financial.

Mark Miller – Noble Financial

When you just mentioned you could be at significantly higher margins by the end of the year was that calendar year or fiscal year?

Dave Radloff

Both kind of.

Rick Penn

Kind of depends in the volumes Mark.

Mark Miller – Noble Financial

Okay.

Rick Penn

But in the volumes we look at we could see being in the mid teens optimistically maybe in the end of the fiscal year hopefully certainly by the fourth calendar quarter.

Mark Miller – Noble Financial

Did you make any new, I should ask did you make any new qualifications during the quarter or is they are just trying to get stuff as it were?

Wayne Fortun

I’ve been thinking about that Mark, I think it’s mostly people are trying to get stuff off the door and about the qualification efforts are also marching along.

Mark Miller – Noble Financial

Thank you.

Operator

And there are no further questions in queue. I would like to turn the call back over for closing remarks. Excuse me there is one final question from the line of Shawn Boyd with Westcliff Capital Management. Please go ahead.

Shawn Boyd – Westcliff Capital Management

Thanks if I could Western Digital indicated yesterday that they are still on track with the acquisition of Hitachi here in the March quarter. Can you just remind us to what areas of Hitachi you serve now and how you see that changing if at all as that acquisition consummated?

Wayne Fortun

Yeah, Shawn we supply suspensions to Hitachi’s enterprise business. And we see the combination is generally being a good thing for us as you probably know we have a great relationship with WD they are by far the customer and we are qualifying nicely across all of these segments. And so as they become bigger and stronger we think that’s a good thing for us certainly our competitors will be fighting to grab as much of that business as they can as well. We are working very hard to earn a stronger position and in fact are doing that WD so as they become bigger we think this is a good thing and we will just have to see how that plays forward.

Shawn Boyd – Westcliff Capital Management

Okay, thank you.

Operator

And there are no further questions at this time I would like to turn the call back over for closing remarks.

Wayne Fortun

Well thank you folks for tuning in today. And we appreciate your questions and the interest in the company. And we look forward to speaking to you again. Thanks.

Operator

Thank you ladies and gentlemen that does conclude our conference for today. I would like to thank you for your participation and you may now disconnect.

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