TTM Technologies Inc (TTMI) 2004 Q1 法說會逐字稿

Good afternoon, and welcome, ladies and gentlemen to TTM Technologies' first quarter conference call. At this time, I would like to inform you that this conference is being recorded and all participants are in a listen-only mode.

At the request of the company, we will open up the conference for questions and answers after the presentation. I will now turn the conference over to Ms. Stacey Peterson, Chief Financial Officer of TTM. Please go ahead, ma'am.

Thanks. Good afternoon, and thanks for joining us for our first quarter conference call.

As we stated in our news release, we reported earnings per share of 15 cents for the quarter. Revenues were 57.7 million, an increase of 6% sequentially and 46% year-over-year. Let me read the following statement before Kent provides more detail:

During the course of this call, we will make forward-looking statements, subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Such risks and uncertainties include, but are not limited to, fluctuations in quarterly and annual operating results, the volatility and cyclicality of the various industries that the company serves and other risks described in TTM's most recent registration statement on form S-3. The company assumes no obligation to update the information provided in this conference call.

Now let me turn the call over to our CEO, Kent Alder.

Thank you, Stacey. As you heard from Stacey, we posted an exceptionally strong first quarter. We continued to gain share in an expanding market.

Prices strengthened, we enjoyed an excellent mix as we continued to move up the technology curve. We operated at high levels of efficiency, and we demonstrated our strong operating leverage and high incremental margins.

As for success on the revenue line, we're continuing to gain market share by capturing new programs, as well as expanding existing ones with current customers. And we continue to win new customers. During the first quarter, we added 39 new accounts. And we continue to capitalize on our cross-selling opportunities between our three specialized and integrated manufacturing facilities.

In the first quarter, our production continued to reflect a high value -added mix, with the layer count statistics up from fourth quarter levels. Products with 12 layers or more accounted for 65% of revenues, up from 62% in the fourth quarter.

Even more dramatically, products with 20 layers or more increased to 37%, up from 32% in the fourth quarter. The average layer count was 14.7 compared to 14.4 in the fourth quarter of 2003. Our quick-turn business remains strong in the first quarter of 2004, despite the typical seasonal weakness, with revenues increasing 25% year-over-year.

On a percentage basis, our quick-turn represented 24% of revenues, down slightly from 27% in the fourth quarter and 28% in the year-ago period. Sequentially, the decline in the quick-turn percentage reflected the typical first quarter seasonal slow down.

Year-over-year, while quick-turn revenue increased, the quick-turn percentage declined due to the relative outperformance of our Chippewa Falls facility. The first quarter 2003 was the first period in which the Chippewa Falls facility was part of TTM.

Due to our successful cross-selling and operational success, the growth rate has exceeded the corporate average. As for customer concentration, sales to our five largest OEMs constituted 54% of revenues in the first quarter compared to 51% in the fourth quarter of 2003. Our top five customers in alphabetical order were: Cisco, HP, IBM, Juniper and Sun.

Now, let me update you on the expansion at Chippewa Falls, which we announced in late February. We're on track with Phase 1 of the expansion, which will increase Chippewa Falls' capacity by approximately 55% by the end of 2004 at an estimated cost of $10 million.

We regard this as a low-risk, high-return expansion opportunity. Once we’ve completed the expansion, we only expect it to add a modest $200,000 per quarter in depreciation expense.

And because we are expanding an existing operation, we can leverage the existing management and employee infrastructure and keep start-up costs at a minimum. Furthermore, we expect the expansion to improve overall operational flow and efficiency throughout the entire Chippewa Falls facility.

After we have completed Phase 1, any additional capacity can be brought on stream rapidly and in response to market conditions. For example, in Phase 2 of our expansion project, we retain the flexibility to add up to 30% of additional incremental capacity. This decision will be revisited throughout 2004 and beyond.

Finally, with respect to our secondary offering, we are currently going through the SEC review process. We continually review our capital requirements due to our strong cash flow in the first quarter, which we currently expect to continue throughout the remainder of this year, our capital needs are less than originally contemplated, and we are sensitive to the issue of dilution. Now, Stacy will fill you in on some details of the quarter and discuss the near-term outlook.

Thanks, Kent. As I said at the beginning of the call, first quarter revenues increased 6% sequentially to 57.7 million.

Volume, as measured by average panels per day, was flat due to the seasonal slowdown we typically experience in the first quarter relative to the fourth. We produced more layers, as indicated by our rising average layer count, and prices continued to strengthen, driven partially by a strong mix and a move up the technology curve.

On a sequential bases, the average panel price was up 7% and the average price per layer was up 5%. Gross margins expanded to 30% in the first quarter 2004, comparing favorably with 11.4% in the year-ago period and 26.1% in the fourth quarter.

As we said in the release, our strong margin performance was due to our significant operating leverage, combined with a favorable product mix, rising prices and particularly strong operating efficiency achieved during the quarter.

As an update to last quarter's discussion about margins at Redmond, we did experience margin improvement there in the first quarter. But there was still significant margin upsides in the second quarter and beyond.

As you would expect with our strong top-line growth, we were able to leverage sales and marketing and general and administrative expenses across a larger sales base. Sales and marketing expense declined 5.3 -- to 5.3% of revenues, from 6.4% in the year-ago period and 5.5% in the fourth quarter of 2003.

General and administrative expense was 6.1% of revenues, compared to 6.2% in the fourth quarter 2003, and 7.1% in the year-ago period. These factors resulted in earnings per diluted share of 15 cents in the first quarter, compared with a break-even performance of the year-ago period and 11 cents per share in the fourth quarter 2003.

As we've said repeatedly, quarter after quarter, our balance sheet strengthened even further. We ended the first quarter with cash and short-term investments of 37.2 million and debt of 7.8 million, translating to a net cash position of 29.4 million. That represents an increase for net cash of 23.9 million at year-end 2003.

Before I move on to our second quarter outlook, let me run through some important statistics for the quarter. Depreciation was approximately $2 million. Cash flow from operations was approximately $7.5 million and net capital expenditures were roughly $2.9 million.

Looking ahead to the second quarter of 2004, we are forecasting sequential revenue and earnings improvement. Our second quarter guidance for revenues is $59 to $62 million, and we're estimating GAAP earnings per share of 16 to 18 cents. Implicit in our guidance for the second quarter of 2004, we expect gross margins to be flat to up slightly, sales and marketing should remain at about 5.3% of revenues and we expect G&A expense to be about $3.5 million.

Finally, as we've said in the release, we expect favorable market conditions to continue through the second half of the year. Our forecast, guided by input from customers, point to higher volumes in the second half of 2004 than in the first.

With that, let me open the all to your questions.

Thank you, ma'am. The question-and-answer session will begin at this time. If you're using a speaker phone, please pick up the handset before pressing any numbers. Should you have a question, please press star 1 on your push-button telephone.

If you wish to withdraw your question, please press star 2. Your questions will be taken in the order they're received. Please stand by for your first question.

Our first question comes from Matt Scheron of Thomas Weisel Partners. Please go ahead, sir.

Yes, thank you. If I can just ask about the gross margin, the incremental gross margin quarter-to-quarter was obviously very strong, and then you guided to sort of flattish gross margin.

If you could just tell us what the components of that kind of gross margin guidance are, and then if you can talk also about raw materials and the impact there?

Sure. In terms of the gross margin guiding roughly flat, there are a couple of reasons for that. One, we had an incredibly good mix in the quarter. So we had an extra, you know, a lot of premium work, really strong pricing. We operated very, very efficiently.

One of the things that's going to happen in the second quarter that's already taken place is, we had our annual pay increases for our employees, and that took -- it took effect at the beginning of the quarter.

Then in addition to that, we do have a slight increase in raw materials, but the bigger driver by far is the pay increase that we gave to all employees, beginning on that first day of quarter.

Okay, and that pricing -- that panel price number -- you said up 5% in the quarter?

Yes.

Okay, and -- could you just talk about pricing trends and then also if you could talk about quick-turn mix. You said you were at 24%. Where do you see that going? And if you could also talk about the premium pricing, which is the larger number.

Sure. In terms of pricing going forward, we still see prices -- they remain strong. It's kind of hard to, you know, say we're going to project up 5, or whatever percent that we had for this quarter.

And also for competitive reasons, we're a lot more sensitive about disclosing that information. So that's why, you know, roughly we expect it to be flat to slightly up for the quarter. Then in terms of the premium mix, it was about what we saw last quarter, it was a roughly 60% four weeks and under.

But remember, we also get premium for work above four weeks and under our standard lead time. So we saw both in Santa Anna, -- some in Redmond and mostly in Chippewa -- we saw a lot of compressed lead time coming there this quarter.

And what do you see the quick-turn percentage this quarter?

I would probably see it kind of getting back up to maybe the 26, 27% number. We were seasonally down at 24%.

Okay. Thank you.

Our next question comes from Tom Dinges of JP Morgan. Please state your question.

Hi, quick question for Kent. Can you give us a little bit more color on the 39 new accounts that you landed, in terms of where the bulk of those are coming from, in terms of end-market; and maybe, you know, kind of characterize if you could separate out the -- either the sequential or the year-on-year -- the growth rates that you've seen here -- how much of that came from, you know, similar new wins which you've got here, where you had a large number of new customers come in.

And how much is coming soley from, you know, stronger organic demand that you're seeing? And then I have a follow-up.

Mmm-hmm. Yeah, I think if you look at our new customers, the 39 we added this quarter, that breakdown on those customers, it was a little heavier concentration in industrial medical at 37%, high-end computing, 38%, networking, about 18%. Overall, they added about a million and a half dollars to our top-line of revenue.

We would anticipate as we go forward the industrial medical is a little heavier than normal and that we might return to more in line with our traditional end-market breakdown.

Okay. And then on the -- switching over to the balance sheet real quickly, for Stacey or for Kent, either one -- you saw a very big spike here relative to the growth rate in sales on what you saw on the inventory side.

Was there anything going on there in terms of raw material stocking, or are you guys having to actually add -- hold a little bit more inventory for your customers here? They're expecting better demand, or just a little bit more color on -- we saw a pretty big spike, it was up about 20% quarter-to-quarter. And that's it.

Yeah, in terms of our inventory base, you’re right., it went up slightly this quarter and it's, as you described, we're holding a little bit more inventory for the customers now.

Did that change to mix it all, if I may, on kind of what you're holding on in terms of finished goods relative to raw materials there?

Is more disproportionally in the finished goods area. or are you having to stock more material in the program?

I think there was more in the finished goods area in this particular quarter.

Yeah, yeah. Uh-huh.

That's where most of it is.

Okay. Thank you.

Our next question comes from David MacGregor of Longbow Research. Please state your question.

Yes, good afternoon. I wonder if you could just -- you'd talked a little bit about the expectation for seeing more industrial medical.

I wonder if you could just walk us through the other segments in your the end-market mix and just give us a little bit of color on what you're seeing in each of those. Thanks.

Sure. Our -- in our end-market concentration, it was 40% of the networking this quarter, that's just down slightly from the prior quarter. High-end computing at 34%, up from 30% in the prior quarter and about even with the first quarter of a year ago, and industrial medical at 13%.

So, we're still seeing about the same trends that we have spoken of in the past, and I think some of these percentages might change a little bit based on just timing on when orders get placed or product gets shipped and so forth.

But as we look at our customer base and our potential new customers and a lot of the programs that are going on within existing customers, I wouldn't anticipate much changes within our end-market segment. A lot of our growth is going to continue to come from the networking, the networking segment, and some from the high-end computing.

Now if we look at the high-end computing for this next quarter, that might be a little softer than other quarters, but then return to a more normalized environment in the third and fourth quarter. But I don't anticipate any major changes in the end market breakdown.

You talked a little bit about seeing more compressed lead time in 1Q. Was there more correlation between that increase in any one of these end markets?

The compressed lead time, again, we -- I guess if I go back and think through that, that came mostly in the top two segments for us, the networking and the high-end computing segments of the marketplace.

And we thought, across a pretty big number of customers, too.

Okay, and then just secondly, if you could just give us your cap utilization, your lead times by -- broken down by the three plants, that would be helpful. Thanks.

Our capacity utilization, again, not much change there. Again, Chippewa Falls ran about 90%, Redmond, 70, Santa Ana, 55 to 60%.

Overall, we're pretty close to about a 75%, maybe slightly higher than that, capacity utilization. I think the important thing to keep in mind as we throw these numbers out is, every quarter we have been increasing our capacity, so we're shipping more and also increasing our capacity at the same time, so that compresses these capacity utilization rates somewhat.

Now also, because we are increasing our capacity, that's had a somewhat impact on our lead times. At Chippewa Falls, we're about eight-week lead time with some flexibility there. Redmond is at four weeks, Santa Ana, again, is about two weeks, two to three weeks. And with Santa Ana, though, keep in mind that we always maintain the ability to deliver any lead time that our customers ask of us.

Okay. Just one additional quick question. You talked about seeing a little bit of raw material price increase, not as much as perhaps from the annual pay increases.

And then on pricing, you were talking about flat to slightly up. Is there going to be a problem in terms of passing through whatever incremental raw material prices you see this quarter?

No, I don't think so. We, you know, our pricing has gone up the last quarter and this quarter. If you look at our raw material price increases, they are fairly insignificant in the bigger scheme of things.

I think in an overall basis, they won't amount to more than, say, 2% on a total basis. So -- and if you look at our pricing, that's been able to -- we have been able to raise prices more so than the raw material costs have gone up.

And just for clarity, that 2% of direct materials is not a cost-to-goods sold, Because Direct materials is roughly, you know, 25 to 30% of our costs to goods sold. So it's only in the direct materials category.

Got it. Thanks very much.

Our next question comes from John McManus of Needham & Company. Please state your question.

Yes, are you starting to see the quick-turn business increase in growth rate compared to say, the high-end business?

The quick-turn business -- say that again, John, the quick-turn business?

Just, are you starting to see that the rate of growth start to increase more versus the high-end business?

Let's see. I don't think -- I don't have a real solid answer for that, because I'm trying to think through this, and I don't -- I don't think so, John.

No, I think -- I think, John, where we're trying to go is, are we seeing a lot more ramping, than people bringing new product to market.

And we did see some good, healthy, you know, compressed lead-time work, and that looks good, but I wouldn't say right that now that we'd be comfortable making an all-out statement to say, yes, this course is accelerating faster than the others.

Do you see OEM inventory still very low?

I think -- I don't know about very low. I think it's firmed up a little bit. I think there's some firming in the inventory.

As we talk with our customers, they are still very optimistic about their business first half of the year compared to the second half -- meaning that it's almost unanimous across the board that our customers are indicating to us that the second half of the year will be much stronger than the first half of the year.

Also, John, in terms of inventory, you know -- I think we had a question earlier from Tom -- but you know, we saw our inventory days stretch out by about two days this quarter from 19 in the third quarter to 21 this quarter, and that's still relatively low.

It goes back to the third quarter of last year when we had, you know, had inventory at that level. So, you know, it's still -- the turnover for us year-over-year has improved. It was just up slightly from Q4.

My last question is, you indicated in the high-end computing sector that it looks like there might have been some vendor slicing. Does that business come back -- with a follow-on business -- come back as early as the third quarter?

When -- in our conversations with our customers, you're correct with that, that it would come back in the end of the third quarter and into the fourth quarter.

So as we run out of one program, there is a slight gap, but -- that is a short-term gap, and then we continue onward and upward with those customers in the third and fourth quarter.

Do you see more quick-turn work in the field when they come back?

I think we're going through a lot of the quick-turn for some of those projects right now. So, I don't think we'll see more quick-turn that is related to those new programs coming on and replacing that. I think we're experiencing that right now.

I mean, our quick-turn work, as we major in 10 days and less, is down a couple of percentage points. But you got to keep in mind, our Chippewa Falls facility is exceeding our expectations, which compresses that -- that on a percentage basis.

But if you look at it in raw dollars, we're happy with where we're at on our quick-turn work and also the projections as to where we're going with the quick-turn.

Yeah, and year over year, the quick-turn dollars were up 25%.

I think what we are experiencing is just some of this compressed lead-time work on a temporary basis is not as strong, but we don't -- we don't worry about those little quirks that happen on a weekly-type basis.

So we're pretty optimistic about the quick-turn environment, just based on our current work and where we see that going.

Thank you.

Our next question is from Keith Dunne of RBC Capital Markets. Please state your question.

Hi, yeah. A few of them, please. Cap Ex this year, what are you thinking it is for ’04? Is it going to be less than you prior thought? Can you give us some color there?

Probably still going to be around 19 million. The comment in the script was that we had more cash flow than we expected.

Okay.

So any external needs are probably lower.

Yeah, our plans there have not changed, Keith. Still $10 million for the expansion and about 9 million on normalized ongoing Cap Ex.

Okay, I misunderstood. The percent for the top 10, please, and do we have two customers over 10%, or can you give us any color there?

The top -- the top 5 are 54%, top 10, 64%, top 25, 76% and two customers over 10% -- Cisco and IBM.

Okay. And as far as the G&A, that was higher than I would have expected in dollars. Can you give us some color of what would be the primary reasons that it went up versus the fourth quarter after, you know, a fairly decent pop in the fourth quarter?

Can you give us any color on how we should view that going forward?

Yeah, it's an incentive comp and it should be roughly flat quarter-over-quarter. We had -- because we're -- you know, obviously, versus like the first quarter of last year, for example.

It's been -- [speakers overlapping] it's going to comp the core, but it's really up versus the fourth quarter also.

So we can look at the full-year being somewhere between, you know, 14, 14 1/2, just kind of multiplying by four and adding a little?

Sounds roughly correct, yes.

Okay. And as far as the full-year tax rate, I saw that that was down a little bit from what I expected and less than last year.

Does that stay in the 37-1 area or is there some other number we should be thinking of?

It should be in 37 -- it's a projection. And we believe that at this point it will be 37% for the whole year. 37, 37.1 is accurate. And one quick clarification on the G&A just to make sure everybody's on the same page.

That three -- we talked about 3 1/2 million probably for the next quarter -- that does not include the amortization of intangibles.

Right. Which is 300, and that won't change either.

That won't change, but I just wanted to make sure everybody on the call understood that.

Sure. And can you give us any color of the quarter as it progressed, DSOs was a little -- up a little bit more than I thought.

And does that tell us anything, that it got a lot stronger as the quarter ended, or can you give us any color on that?

Well, that is -- that's part of it, and basically what happened is a little bit more customer mix, and then we had, with one of our larger customers, they had a processing problem in terms of EDI, which slowed us down a bit too. So those things kind of all added up together. There was an acceleration.

Obviously, because of the seasonality aspect, the quick-turn, the quarter was a little bit back-end loaded. Then in addition, like I said, we -- you know, the customer mix had something to do with it. And then finally, there was the one issue with a large customer.

Part of that is the -- just a little bit of few days in a timing issue.

Exactly.

So it looked like they were coming back to the, you know, 45 area or something like that?

Yeah, I would expect it to be back down in that area. Because I do consider that an aberration for the first quarter.

And my last question is, I have actually gotten a fair amount of calls about people concerned with the SEC review, and if there is any -- they should give this world of, you know, accounting that we've had. Hard for me to imagine that.

But can you give us any color on when that review might be over and if, you know, if there are any items here that we should be aware of?

Sure, it's a routine review. As you probably know, Keith, we have not been reviewed since we went public. So that's -- they tend to want to review at least every three to four years, so we pretty much expected that this was coming.

But it's very routine. We have done all of our submissions and we're waiting to hear back from the SEC. There is no real defined timeline that they have to get back to you in. So I can't comment on that, but we're waiting to hear back from them.

Okay, thanks very much.

Our next question comes from Scott Robertson of Stanford Group Company. Please state your question.

Yeah, you have a nice bump down in tax rate this quarter, down to -- back in the 37% range, and just trying to look out for modeling purposes, is this a -- do you think you keep it down here or is it going to incrementally improve a little bit over the year?

I think it's probably going stay in about the same range as 37%.

We were able to take advantage of some good tax money opportunities for this year. But that's a projection based -- you know, right now, it's our best estimate, but we believe it will hold for the full year.

Okay. And moving into the next year, modeling kind of the same, or should we bump up as we had, or as I was prior?

You know what, at this point, I would leave it the same. Once again, that's an estimate, but I think that's pretty accurate.

Okay. Thank you.

Our next question comes from Thomas Hopkins of Bear Stearns. Please state your question.

Great, yes, good afternoon. Most of my questions have been answered. Just trying to lean a little bit on the strength you guys said you saw at Chippewa Falls and the uptick in the inventory, and just kind of what we have seen from the guys that do a lot of work, like Selectron and Jabil for Cisco.

Could you just comment -- a little more color on the strength at Chippewa, you know. Is it -- just to make sure it's not customers maybe double ordering a bit, if it's real demand or, you know, kind of how you see yet.

Well, I'll take a stab at that first of all, and then let Kent address it. But to us it's not customers double ordering, because it has to be a PO.

So it's a PO and our customers will own it within a certain amount of time. And yet, it may be up 20%, it's really not that dramatic in terms of turnover in relation to our sales.

If you look at our inventory turnover in the third quarter of '03, it was 21 days, the first quarter of '03 it’s 19, and it's back up to 21. So, while it is a build, I'm not sure it's telling us any kind of meaningful story at this point. Because I think it got, you know, maybe artificially lower in the fourth quarter of '03. But a year ago, the turnover, first quarter of '03, was 25.

I am giving those statistics to say it's an interesting trend, but I'm not sure how you can extrapolate our trends into maybe some of the people who have a lot more inventory. Because it really hasn't moved that much, really, in relation to our sales.

Okay.

Let me add just a little more color to what Stacey has said there. If you look at Chippewa Falls -- and that facility has exceeded our expectations. It's had a very nice ramp over the last significant portion of the year.

We're proceeding with the expansion out there because we anticipate, given what our feedback is from customers, that we'll need that expansion in the future, so we're pretty excited about where we're going with Chippewa Falls and we're -- we believe that the strategy we have in place is the correct strategy to satisfy the needs of our customers in the future.

Okay. And just to be clear, would you characterize the -- upside there coming from the networking, the high-end computing, the industrial medical, and I haven't actually crunched numbers on the segments, but would it be the networking -- would it be correct --

Most of the Chippewa Falls is the networking and high-end communication.

That's right.

Okay. Great. Thanks.

Our next question comes from Jim Savage of Wells Fargo Securities. Please state your question.

Hi. Chippewa Falls is now at 90%, maybe 90%-plus capacity utilization, and your timetable when you can get the new capacity up and running is still, what, the first of 2005?

It will be around the first, Jim, the first of the year.

Okay, and you're expecting growth the second half of the year and you're expecting to have the ramp of the new high-end computing programs.

Yeah.

Are you going to -- do you think you're going to be seeing real constraints in terms of being able to deliver what your customers need?

I think our timing is pretty good with regards to when this capacity expansion will come online, and we can expand from where we're at right now with a few more incremental pieces of equipment and some additional hires. So we can, I think, cover the customer needs between now and then and then bring that capacity online mid-December, certainly the first part of January.

Okay. The -- the new customers that you talked about, I assume are not Chippewa Falls customers then?

Some of those, some of those new customers are Chippewa Falls customers.

How do you -- are you actively marketing for Chippewa Falls at this point, or are you actively marketing for Chippewa Falls for 2005?

Well, that's all part of our cross-selling efforts, Jim. With our three facilities, you know, we can really specialize and provide customers what they need with each one of those facilities. And as we do that, they're -- that just opens doors for us to be able to cross-sell into different customers. So we're not focusing on any specific customers, say, for Chippewa Falls. We look at the marketplace.

We look at the high-growth segments, high-growth programs within existing customers, and we design our business around those high-growth programs so that we can appropriately satisfy our customer demands. And we're also cross-selling from Chippewa Falls into the Redmond facility.

We're doing quick-turn work in Santa Ana that previously was not done in any of our facilities. But now that we can cross-sell customers into Santa Ana, we're capturing some market share just with our quick-turn capabilities.

Great. There is one other thing, which, is -- you've had some pretty good price increases over the last six months. You're talking about a flattening in the June quarter.

Do you think that based on what you're seeing at this point and your pricing for new programs going forward, that average pricing will continue to rise in the second half of the calendar year?

I think, Jim, if you look at where we're at right now, and we expect the second half to be stronger than the first half, that should provide us with some opportunities on the pricing front.

And also remember, Jim, that the pricing for this next quarter has to do with some of the mix we talked about in the premium work.

Right, and that has do with just normalizing lead times at this point.

Exactly, and some of that. And also, in one other comment on following up on the capacity question, I think everybody's clear with this, that this the first time we've actually had a conference call since we announced our Chippewa Falls expansion.

Remember, we still have the option if the demand would exceed what we expect it to be, the question that you were kind of getting at, Jim, we have Phase 2 of that expansion, which is just equipment, and we believe we can bring that on really quickly in three to six months, and that's another 30% capacity addition.

Right, but that will be definitely -- that would be like a second half 2005 story.

Not necessarily. I mean, the reality is that if demand started to really accelerate --

Uh-huh.

-- we could put it, it's all equipment. Because what's taking us in the first phase longer is that we have to -- we have to modify a building, and then put the equipment in it. But the reality is that if demand got to a point where we said, wow. We need it sooner, we can go ahead and order the equipment and get it on at about the same time.

That's what we like about our plan. It's really a good plan in terms of risk because we can bring things on just incrementally as we have that building. Once the building is there, you can add a drill, you can add, you know, a tester, you can add just different pieces of equipment and up the capacity pretty quickly.

So if we were to see demand patterns change quickly, yeah, we could bring it on faster.

Yeah, and I think between now and December, though, as we previously stated, we can bring capacity on with a few -- just a few pieces of incremental equipment.

You can bring a little bit of additional capacity.

Yeah.

But not --

I mean, enough to satisfy our customers.

Okay. And I guess one last question. Is there any -- anything further in terms of an Asian strategy for you? Have there been any changes in your expectations about moving into China or --

We continue to explore what is taking place in Asia and look at that, the market in Asia.

Keep in mind, our strategy is time and technology. We're very committed to that strategy. We believe that we execute that strategy more effectively than any of our competitors, and if that strategy will work in China, then we will move to the low-cost providers and execute our strategy there.

We certainly will not be another me-too provider of circuit boards and try to compete with the established business that is already there.

So, we are in contact with our -- with many people there as we research the marketplace there, and we'll continue to do so and make certain that we are prepared to move that direction ahead of the -- ahead of the necessity.

Great. And I guess the one, I'm sorry I keep doing this, but one last thing. I assume that your expectation is that your -- your margin structure, along with the revenues, will improve in the second half of the year as you get increased operating leverage.

That's true. That's accurate.

Uh-huh.

Okay. Thank you very much.

Our next question comes from Mark Hassenberg of Nottingham Capital. Please state your question.

Good afternoon. You mentioned that you were gaining market share. I believe you were gaining market share and cross-selling lots of other things or working.

One of the things I was hoping was that as lead times got tighter and as new products started to move forward, that domestic capacity would be looked on more favorably than it might have been during the downturn. Can you see signs of that happening?

I think if you go back in the -- in the last quarter, some of the compressed lead time work that we captured, I think, was because we were able to do that and no one else could do that on a worldwide basis.

So if you look at what we are capable of, we can certainly compete anytime you have a need on a time basis or technology. We can compete. So, we did have experience that fact, where we were able to provide customers with products that we could do because we had the high technology capacity and can do it in a timely basis.

Thank you.

Our next question is from Michael Walker of CSFB. Please state your question.

Thanks, good afternoon. Two clarifications, if I could. The first is around the secondary. I know you said it's still in registration, it’s under review right now. But then you said that your needs weren't quite as drastic as I guess you had first thought. So, I'm a little confused.

Should we still assume that the secondary is on the table here near-term, or are you going to be a little more focused on potential dilution, and I guess defer it is what I'm asking.

Well, Michael, just for classification, yeah, we're generating really strong cash flow. As you know -- you guys can do the math. We don't need the funds from the secondary to actually complete our capacity expansion.

So, that's where the issue of dilution comes up. We're really sensitive to issuing shares and diluting, and then, we're getting better cash flow than we needed, so we might not need as much money.

Okay.

I think another important point to make along with that is that it doesn't change our strategy, that there’s been absolutely no change in where we're going with the company.

Okay, and then my second question is, just if you could tell again, the next shift that happens in queue that causes pricing to be a little less aggressive than it was in 1Q, and I think I heard you say your quick-turn percentage should go up in Q2, I may be wrong about that. And if so, how does that help with your pricing?

It helps, but then you have your premium work, which was really high going down.

Okay.

Because premium and quick-turn are different. Remember that.

Okay, great. Thanks.

Yeah.

Our next question is from Doug Rudisch of Brookside Capital. Please state your question.

Hi, just another question on the pricing environment. It's a little unusual at this stage in the cycle to see ASPs lever off, or sliding out so quickly in terms of the shortage of time into the upturn, especially coming off as a sharp item where so much capacity is left.

What do you think is different this time versus in the past, where you saw a prolonged period of continual ASP expansion? Is it the competitive environment? Is there more capacity that has come online than we've realized, or is the bad behavior of buyers just different?

Or could you just give me a sense what you think is is different about this cycle versus previous ones where we saw prolonged periods of ASP expansion? Thanks.

Well, one issue, and then I'll let Kent handle it is, I think one thing that makes it really difficult about talking about prices when you throw mix in there, because we had such a healthy price increase in the first quarter. A lot of it was very mix-driven.

I mean, there were good underlying markets trying. I don't think that's changed. So I am saying past cycles, you would not have had such a mixed driver in an early part of the cycle.

Yeah.

That's one reason for it. Now, remember that mix can really distort what is happening in the underlying market, and we have the three facilities that do very, very different things, and so it can get very convoluted, whereas if you just had one facility, it's a lot easier to talk about than three, which kind of covers a broad spectrum of the time and technology products, which are premium-priced products anyway.

Yeah, I mean, there's a lot of factors that we just boil down into a one figure of a price per panel.

It's hard to encapsulate all of those into that one price, and the mix has a majority impact on that, but if you go back to our rally that we've been experiencing here for the seven or eight months, we have had pretty nice growth in our pricing in this quarter and the last quarter.

I don't think that rate will continue forever, but there is a positive -- I think it could be -- can be stronger and will be stronger in the second half of the year, so if you look at the ramp that we had, I think what we're experiencing with regard to pricing is somewhat temporary.

And just a -- you might have addressed and I might have missed it. But -- and again, why is mix changing so much over the course of one quarter?

I think because -- my guess is, I mean, you know, you can't really always tell. There's not perfect information out there, but there could be any number of reasons of why people needed to accelerate product. That's what premium pricing does. I know a couple of our competitors mentioned a similar trend. They could have needed inventory really quickly, they could have been ramping new product. And so it somewhat -- can be in cycles Because remember when we were talking about an example for us is, we have a couple of customers that are end of their product life and in the second quarter that we expect to come back with the new product in the third and fourth quarter, and some of that could be premium or compressed to lead time.

That's why. That's why mix is not always just quick-turn, it's mix among our plants and it's mix quick-turn premium, because premium is anything under standard lead time. When people ask you to give it to them in five weeks versus eight or 10, you're going to get a lot more revenue dollars for that.

And we had exceptional strength in that area that we didn't even expect this period. But you can't expect that to continue. That's more opportunistic.

Thank you.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1 at this time.

If there are no further questions, I will now turn the conference back to Mr. Alder. Please go ahead, sir.

Well, I thank you very much. I would just like to take an opportunity to thank you for your interest again in TTM. We appreciate the questions and we look forward to the future, and we'll see you in about three months.

Thank you very much.

Ladies and gentlemen, this concludes the conference call for today. Thank you all for participating and have a great day. All parties may now disconnect.