TTM Technologies Inc (TTMI) 2004 Q2 法說會逐字稿

Good day and welcome to the TTM Technologies second quarter earnings release conference call.

Today’s call is being recorded.

For opening remarks and introductions I would like to turn the conference over to the Chief Financial Officer, Ms. Stacey Peterson.

Please go ahead Ma’am.

Good afternoon and thanks for joining us for our second quarter conference call.

TTM posted another good quarter, a combination of the solid market environment and the success of our strategy and ability to capture market share.

Revenues were $61.6m, an increase of 7% sequentially and 50% year over year.

Earnings per share were 17 cents after a restructuring charge, and 18 cents before the charge.

Before we get ahead of ourselves, let me read the following statement then turn the call over to Kent.

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 S3.

The company assumes no obligation to update the information provided in this call.

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

Thanks Stacey.

As you heard from Stacey we posted another excellent quarter.

Once again we gained share in an expanding market.

We operated at high levels of efficiency.

We continued to actively and aggressively improve our technological and operational capabilities, enabling us to achieve a more favorable mix and move up the technology curve.

And we demonstrated our strong operating leverage and high incremental margins.

As for our success on the revenue line, we are continuing to gain market share by capturing new programs, as well as expanding existing ones with current customers.

We continue to execute our time and technology strategy by capitalizing on cross-selling opportunities between our three specialized and integrated manufacturing facilities.

And we continue to win new customers.

During the quarter we added 32 new accounts.

In the second quarter, our production continued to reflect a high value added mix with layer accounts statistics up from the first quarter, up from first quarter levels.

Products with 20 layers or more increased to 40% of revenues, up from 37% in the first quarter.

Products with 12 layers or more accounted for 69% of revenues up from 65% in the first quarter.

The average layer account increased to 15.7 compared with 14.7 in the first quarter of 2004.

Quick turn represented 22% of revenues, down from 24% in the first quarter and 29% in the year ago period.

However, our quick term business continued to expand, with revenues up 16% year over year in the second quarter.

But our standard lead time high technology business grew at an even faster pace.

While our quick turn business remained favorable during the quarter, we experienced lower ramp to volume business towards the end of the quarter.

Overall order trends were healthy in July with an increase in our back-log and improved book to bill ratio.

Lead times remained fairly constant throughout the quarter.

Lead times are 8-9 weeks in Chippewa Falls, 4 weeks in Redmond and 3 weeks in Santa Ana.

And of course we can accommodate any quick turn customer requirements at our Santa Ana facility.

Capacity utilization was basically unchanged during the quarter, Chippewa Falls running at 90%, Redmond at 70% and Santa Ana at approximately 55%.

As for our Chippewa Falls expansion, we remain on schedule.

We expect phase one to be completed late in the fourth quarter.

We are proceeding with this expansion for several reasons.

First, our confidence in TTM’s strategy and optimism regarding the future of hi-tech and time-sensitive segments of the printed circuit board market.

Second we will need the capacity to meet anticipated customer demands, and finally the nature of the expansion makes it a low risk project with significant upside potential.

As for customer concentration, sales to our 5 largest OEM’s constituted 53% of revenues in the second quarter, compared with 54% in the first quarter.

Our top 5 customers in alphabetical order were Cisco, Credence, HP, IBM and Juniper.

Now Stacey will fill you in on some of the details for the quarter and near term outlook.

Thanks, Kent.

As I said at the beginning of the call, second quarter revenues increased 7% sequentially to $61.6m.

Volume, as measured as total panel production, was up 2% and we produced more layers as indicated by the rising average layer count.

On the pricing front, the environment remained favorable.

The average price per layer fell 2%, marginally due to product mix changes.

But the more important measure, average panel price was up 5%.

Gross margins increased to 31% in the second quarter of 2004, comparing favorably with 15.7% in a year ago period and 30% in the first quarter.

As planned, we achieved a solid margin improvement at our Redmond facility, and with a high level of operating efficiency and the benefits of higher layer counts, we were able to absorb a pay increase this quarter.

As you would expect, with our strong top line growth, we leveraged sales and marketing expense across a larger sales base.

Sales and marketing expense declined at 5.1% of revenues from 6.4% in the year ago period and 5.3% in the first quarter of 2004.

General and administrative expense was 6.2% of revenues, compared to 6.1% in the first quarter of 2004, and 6.7% in the year ago period.

G&A expense was a bit higher than our projections, and we absorb costs associated with the proposed secondary stock offering.

As you probably saw, we amended our SEC registration statement, limiting the offerings to 4.4 million shares to be sold by Thayer Capital and Brockway Moran.

No shares will be offered by the company or management.

As a result, we had to expense offering-related costs of $350,000 in the second quarter.

The bottom line result was earnings per diluted share at 17 cents in the second quarter.

Earnings per diluted share were 18 cents in the second quarter, after excluding a restructuring charge of $855,000 or 1 cent per share.

That compared with earnings of 1 cent per share in a year ago period and 15 cents per share in the first quarter of 2004.

The restructuring expense in the second quarter of 2004 was a non cash charge associated with a write-down of our Burlington facility which we closed 2 years ago, and are holding for sale.

Our balance sheet strengthened even further during the second quarter.

We ended the period with cash and short term investments at $47.1m and debt of $6.7m, translating to a net cash position of $40.4m.

That’s up from a net cash position of $29.4m at the end of the first quarter.

Before I move on to third quarter outlook, let me run through some important statistics for the second quarter.

Depreciation was $2.1m, cash flow from operations was $14.1m and net capital expenditure were $3.6m.

Looking ahead to the third quarter of 2004, we are forecasting solid revenue and earnings.

Order transfer remains healthy across all segments of our business, and there is a consensus among our customers that third quarter and second half volumes will remain solid.

With that backdrop, our third quarter guidance is for revenues of $62-64m and we are estimating GAAP diluted earnings per share of 18-20 cents.

Implicit for our guidance of the third quarter 2004, we expect gross margins to be roughly flat, sales and marketing should remain at about 5.1% of revenues and we expect G&A expense of about $3.5m.

With that let me open the call to your questions.

Thank you if you would like to ask a question please press the star key followed by the digit one on your touchtone telephone.

If you are using a speakerphone please make sure you mute function is turned off to allow your signal to reach our equipment.

Once again that is star one for any questions.

Our first question comes from Matt Sheerin, with Thomas Weisel Partners.

Yes, thank you.

Just if we can get back to the issue of quick turn being lower than you expected at the end of the quarter, it looks like things dipped a bit.

Is that a concern to you, or I guess you said that things bounced back a little bit in July, but what happened there do you think?

Matt, I believe that the quick turn work is if I look at the new jobs we are doing we’re still producing a healthy number of new jobs.

Some of the order sizes are down and certainly the ramp to volume work is not there yet, so as we look at the amount of quick turn work we do we feel like that, while it’s down there is still some upside there.

And as a percentage, as we explained during the call, it’s down because of our high technology we’re being up so significantly.

So we believe as we move into the third and fourth quarter, there is some upside with our quick turn and high mixed work.

And you mentioned that your book to bill was positive, how much over one was it?

Our book to bill during the quarter was just slightly under one, about 99.99, but in the July month we bounced back to 1.04 for the month of July.

In your commentary, it looks like things are playing out just as you’ve expected over the last couple quarters and that conflicts pretty sharply with what both Sanmina and Merix have been saying.

Where do you think the gap there is and why is your business playing out as you expected and doing very well and the other companies are having issues?

I think there is probably some, maybe customer specific issues with our competitors there.

As we look at our strategy, we’ve had a constant strategy since the beginning of TTM with time and technology.

That’s been our focus, we have not strayed from that.

We’ve been in our area of expertise, and we continue to develop that expertise.

If you look at our layer count going up from 14.7 to 15.7, I think that’s evidence of how well we’re doing with our operations side of our business and moving up the technology scale.

And as we move up, that creates opportunities for us.

So that part is working extremely well and won’t comment I guess, on the issues with our competitors, but I think it is pretty clear that our strategy and our employees are working very hard to execute that strategy and it’s a solid strategy.

We have three facilities to execute that strategy and it, it’s going to provide us with a real solid future as we go forward.

And I also, just to enhance just a little bit of what Kent said, not to comment too particularly on the competitors, but there are probably maybe some different customers that the competitors deal with.

Remember at Sanmina we really only compete with the Owego facility.

So comparing to all of Sanmina’s PCB operations probably isn’t appropriate.

And then, like I said I think we have a broader customer base, that we attract and can appeal to because of the three facilities, because of the broad product offering.

So I think that is what makes it a little different.

Ok, thanks very much.

Our next question comes from Thomas Hopkins with Bear Stearns

Yes, good afternoon.

Just wanted to talk, Kent, you mention market share gains that was in the press release, as well, you mention and I think you said 32 new customers, is that right?

Right.

I am just wondering, maybe you don’t have the numbers but if you were to think about the quarter and think about next quarter without the market share gains, would your business be flat, would it be down, would it still be up.

Well, yeah, Tom, we continue to gain customers every quarter.

The new customers this quarter represented over $1m of our top line revenue.

So as we move forward we’ll expect to continue to gain new customers and have them contribute to the top line.

If you look at the quick turn business and our high mixed business, that is when most of the new customers enter our customer base, and that is how we recruit these customers and grow our market share.

We’re looking at our other larger customers and some of the programs that we’re able to win and actual allocation of different programs within those customers, we feel like we are actually capturing market share with existing customers with new programs.

Ok, and then just a follow up.

I think you guys said that panel price by average, panel price was up 5% is that right?

That’s correct.

Which is you know, that’s more than people probably thought.

I don’t know if that is more than you guys thought at the beginning of the quarter, what.

There is a lot of noise in the environment that does not seem to jive with what is being said out there.

Well you know what, Tom, it’s a tricky one because panel price, they can be comprised of different types of panels as you know.

So our price per layer was down 2%, so what I would say if I was just to give you a general flavor of pricing would be a corruptly flatish environment but that, what you are saying the difference between those two metrics is due to mix.

When you have your average layer count move one and a quarter, that’s a pretty dramatic shift and it is a great shift for us.

It doesn’t quite you know sometimes we are able to be more efficient even though the price per layer went down in net production, but it would drive the average panel price up by producing more layers.

Does that kind of make sense?

Yes, nah, I understand.

It makes sense, so then maybe …

It’s about flat when you wash it all out.

It’s kind of how we feel.

It is not a perfect metric but it helpful to think of it that way.

, Right, too.

And maybe when people talk about, you know, some of the difficulties at a Merix or Sanmina versus some of the results at DDI or a TTM, maybe part of it is the companies that are more truly quick turn companies are able to differentiate their financial results in the current market.

I think that’s true, but I would also say in our standard lead time high mix business we really outperform there, but we think that’s our growth there.

For one, I think for many reasons we think about those three facilities and our ability to, we are able to work with some of our customers, to actually move that work around among the facilities.

That leads to greater efficiencies, I think it also leads to being able to execute for our customers a lot better.

In addition, like I said, I think we have a little bit more high-end diversity than some of the competitors we have out there.

And I think that helps because there is no doubt out there, you know we’ve heard the news from a couple of the competitors and we take that into the way we think about the market, too.

And not all of that news has been good.

And so I think you can see choppiness with the customers who, but maybe it doesn’t hurt us quite as badly because of the diversity.

Okay great, thanks.

Our next question comes from Michael Walker with Credit Suisse First Boston.

Thanks a lot.

This question on the PC sales, I think the registration statements that have quite some time.

Can you give us an update on progress of those sales and if there is a time frame associated with that registration.

Actually Michael, there is really not.

That’s up to the shareholders in the private equity firms.

I mean, we’ve made the commitment that the company and management are’nt going to be selling that.

You really probably have to talk to them to know what their intentions were.

In the past they have moved things in a very orderly manner, but once again that is just the history.

They are both very familiar with the industry and so anyway, everybody knows they hold a relatively low percentage of our shares now.

That’s the last statement, I guess.

I think that’s an accurate way to look at it.

Okay, second question is on your phase one addition, I think you talked in the past about the potential revenue and I think you might have talked margin opportunities as well associated with your capacity additions, can you bring us up to date on that.

The expansion of Chippewa Falls is moving ahead as planned.

The construction is on target to come on line in the fourth quarter.

We will probably have a significant impact in the first quarter.

That overall capacity is an increase of 55% from the baseline that we established, I believe was in January of this year.

So we have added capacity with some head counts in between January and now.

But we are looking forward to that capacity coming on line.

We talked earlier, that a lot of demand is coming to our company in the high–tech segment of the business and that is most of the work that we produce at Chippewa Falls.

So, we are excited about meeting some anticipated new demands with our customers in the last half of the year and that is a very low risk expansion that has a lot of upside for us.

Do you break out the percentage of sales that is associated at Chippewa Falls?

We do not specifically, but it’s over 50% of the business.

Okay and then my last question is, just to get on the ramp to volume business, I was wondering if there was anything to be read in on that in terms of what that means for future volumes, sounds like quick turn is getting done which means that a lot of new design drafts, there are a lot of prototypes that are out there, but people are not turning those prototypes into volume business, is that a fair characterization and the next step is, does that worry you at all?

I think the ramp to volume work if it can be said that customers might be bringing product to market on a slower basis.

But at the current time we don’t think that is an issue and we believe that it’s probably dampened somewhat by some of the negativity or the macro environment that seems to exist out there.

But as we move forward in our industry, we believe that that will return to us at some point in time, as well as the improvement in some of our quick turn and high mix work that we do in our Redmond and Santa Ana facilities.

Yeah we believe that is an upside to where we are from today, as opposed to you know being a leading indicator of anything else.

Quick turn is one of those kind of business that you know you will see months and periods where we are really ramp on you fast and then we slow down a little bit, we ramp and slow down.

It is kind of the nature of the business.

Obviously it would be better if we saw more ramps but to me I look at it as an upside right now.

Yeah I think with the strength that we’re seeing in our high tech standard lead time product, it’s actually surprising to us that there is not more strength in the quick turn.

So I do believe that that is upside for us as we move forward into the third and fourth quarter.

Thanks a lot.

We will go next to Keith Dunne with RBC Capital Markets.

Hi guys, great quarter.

It just ceases to amaze me, you just continue to outperform the group, and I guess that is what it takes for the seasoned athlete.

Cash flow, you’ve done an awesome job of $30m positive cash flows in the last nine months and some of your competition has actually absorbed $6m in that time.

What do we look at as cash flow going forward, can you keep up this $10m of free cash flow kind of stuff a quarter or should we be looking at something a little bit different, because that’s just great performance?

You know what Keith, I think in terms of the operating lines we should stay relatively good.

Now it depends a little bit on the mix of business, how much working capital would be consumed.

But I think the first couple of quarters in there that it seems reasonable to expect something of that level.

Remember in the second half of the year we spent more on the CapEx for Chippewa Falls than we did in the first half of the year…

And that is one of the questions I wanted to ask you too, what do you think your full year CapEx in the second half and full year will end up being in CapEx?

Well I think we are going to hit that around that $19 or $20 million mark.

So what do we have right now, we have about $6.5 million for the year, and then there are the last two quarters.

So you’re going to have 13/14?

So that will dampen the free cash flow slightly.

You know, obviously, there is a bit higher CapEx associated with that.

Have you found it you know in this last period where the market earlier in the year got very excited and actually ordered a lot of semiconductors probably or probably pre- ordered semiconductors etc. and at the same time people were running out of capacity and some were having manufacturing problems.

Did you find that was an easier climate?

Or has it been easier in the last five months to get new customers because you had capacity to be able to perform and to meet your objectives?

Or do you find no change in the ability to secure new wins?

Yeah, Keith, I think as we capture new customers, it seems like it’s for different reasons throughout different conditions that exist in the marketplace.

But to say it was easier over the last couple of months, I don’t think it was any easier.

I think we continue to have an advantage over maybe our competitors because we have three specialized facilities and we can satisfy customer needs and requirements from different directions and meet all of their needs.

That gives us the ability to load our facilities efficiently.

I think you’ve heard these stories before but those three facilities cannot be over emphasized as to the advantage that that provides TTM in the marketplace.

Not only from the ability to serve our customers much more efficiently than anyone else in the industry, but also allows us to operate more efficiently as we match the needs of the customers that bank with the facility.

Each facility has its own specialized marching orders and they carry out those orders especially effectively.

So, it’s a win win for our customers and for TTM.

And that allows us to capture a share throughout most or any type of market condition.

But I think that’s evidence by our past history.

When you look at us and go back to any time frame you want to go back to, I think you’ll see that we are effective in our ability to outperform and provide a nice return to shareholders, employees and customers.

I don’t think you have to go back too far just look at some of your competition.

Your margins are 20 points higher than theirs.

Quick turn, you said you were a little bit surprised that--actually it wasn’t more quick turn business.

Quick turn normally, from my understanding, and you can confirm that it turns up in the third quarter and is seasonally stronger and is that the case?

And how would you characterize your assumptions with quick turn?

Would you say you’re expecting a normal seasonal uptick or a little more conservative in the uptick?

Can you give us any more color on that please?

Yeah, and I base my statement on a surprise that it’s not stronger just comparing it to the strength we have in the high-tech segment.

So it’s a little bit out of balance which says there should be some more upside.

As far as seasonality goes - - you’re right Keith, it is a little stronger in the third, towards the end of the third quarter, and into the fourth quarter.

We’ve taken that into consideration but with some of the other kinds of negative comments that are out there, we’ve been conservative in our forecasting.

So, we want to remain somewhat cautious in how we forecast for the quick turn - - how that turns out in the third quarter for us.

And what you’re seeing - - my last question is you said there is an uptick in July booked to bill to 1.04.

Is the mix comparable to what we saw in the second quarter?

Are we seeing any change in the nature of the mix in the first several weeks of July?

No.

It mainly again, was in the high-tech technology segment.

So, it’s about the same mix.

Yeah, roughly the same.

Great, keep up the good work.

Thanks very much.

Then next is John McManus of Needham and Company.

Yes.

Good afternoon.

Hi John.

When you bring on the new phase, the first phase in Wisconsin.

Do you actually - - would you actually have 55% more capacity at that time?

No.

That would be--that would come on an incremental basis, John, and if you recall the 55% capacity was based on run rate that we were producing in our January time frame, I believe, is the numbers that we had our baseline at.

We’ve increased our capacity 15% to 20% with additional head count.

So, the capacity will come on-line to basically match whatever the market place gives us at that time and how we’re capturing and executing our strategy.

The $10.5 million that we’re spending on the phase one, half of that or $5.5 million comes from the building itself, another 2 million is coming from the plating line and those are the two long lead time items.

The rest of the equipment can be purchased kind of on an incremental basis although we plan on at this point bringing that balance on pretty quickly.

So, that expansion and - - realize, too, that we’re going to leverage off the existing management team, the existing waste treatment, water treatment, all the infrastructures in place.

It’s a very incremental expansion if the depreciation we add is about $200,000 a quarter.

The upside that gives us is fairly tremendous in meeting future anticipated demands from our customers.

Well could you just give us an idea on a dollar basis there, you know, from today, how much capacity, in dollars there, would that lead to?

Yeah, John, we’ve kind of referred to that as far as percentages, so.

And the reason we do that, is its hard to predict what the mix will be at that time, and how fast it comes on-line but if you look at where we’re running in say, January, and move up 55% from there that will give you a fairly good idea of when the first quarter, of where we anticipate that first phase will take us.

And you indicated that new customers there contribute about $1m of revenue in this quarter.

Is that typical and normal?

Or was that an exceptionally good mix that you had?

That’s probably just a little bit on the high side John but not way out of line.

New customers usually run from, I’d say, $700,000 to a little more $1.1m a quarter, right in there.

I notice that Sun was not one of your top five customers, although you did mention they’re, competing with Sanmina and their Owego facility.

Can you tell us, are you shipping boards there to their new product line that they are coming on with later this year?

Yeah we are not shipping anything on the new product line.

Yes there is an end of life on the programs that we’ve participated on, and the new replacement programs are anticipated to come on in the fourth quarter.

But you are on those programs?

We have built prototypes and are on those programs, and have received an allocation so as those programs come on stream with Sun, we should participate in those programs probably in the fourth quarter.

Thank you.

Our next question comes from Jim Savage with Wells Fargo.

Let me just follow-up on John’s question.

Will Sun likely get back into the top five customers in 2005.

It depends on how fast that program comes on-line and the strength there, if that comes on as anticipated, they could return to the top five.

Okay, and,,,

Just let me qualify that just a little more, though.

It depends on what the other customers do, that – I guess they would be competing with for that top five or four spot.

Okay.

Is your two – I guess your two leading customers remain Cisco and IBM, they’re both over 10%?

Right.

Were there any other customers over 10%?

No.

Okay, and you’ve talked about the ability that you have with your expansion to leverage your existing infrastructure book, your management infrastructure and your facilities infrastructure.

As you ramp that production, where do you think the incremental margin will be?

Is it going to be still in the 40’s of the gross margin, or do you think it could even be higher than that?

Well I think it depends on the market conditions at the time but it should replicate about what we have to day, which like you said around in the 40s – it should because, remember, the incremental depreciation with this 200,000 that’s six, and we’re going to be bringing the employees and the other costs on it as demand isthere.

So you’re hiring people, I would assume – incremental people starting in the fourth quarter, with production actually starting in the first quarter or production starting in the fourth quarter.

Well, yeah,– Jim, we’ve been hiring people to kind of move that capacity up, I think we were up about 30 people the third quarter and hired some additional people here in the month of July to meet the increasing demands from that facility and we are already, you know, we’ve broken ground, we’ve got the concrete out, we’re putting up walls and we’re still running that efficient – that facility very efficiently through with the construction project going on.

So, I think that speaks highly of our employees and the management team back in Chippewa Falls and their ability to execute through an expansion project.

And that gives me a lot of confidence because that facility comes on line, that it will do everything that we anticipate that it will do.

Okay.

One of your competitors has obviously, Sanmina, has announced that they are moving, they acquired an operation in China, and they’re moving some production into their Malaysian facility.

Do you currently have any plans for expanding into Asia in terms of production?

I think the strategy that we are adhering to is our time and technology strategy, and currently, we can be very effective in operating that strategy here stateside.

And we are always looking at and keeping tabs on our competitors whether they are here locally or on a global basis.

We know what our competitors are capable of, what their strategies are, their strengths, weaknesses and as we evaluate that, we think our strategy is pretty solid for the next two to three years.

Now, that doesn’t mean that we will put our heads in the sand and not pay attention to what’s going on in Asia.

And we’ll be traveling to Asia hopefully this quarter, to talk with companies and competitors over there to confirm our current thinking.

But as far as our time and technology strategy goes, we think that’s very healthy and will continue to be healthy and we’ll see fewer and fewer competitors in our space.

Okay.

And one other thing, Sanmina has planned closure of their Massachusetts facility, do you anticipate if that would have any impact on you, or any impact on pricing in the industry, either negative or positive?

I don’t know about the pricing, Jim, but I do know that is some upside for us.

Whenever you have a closure like that, and customers have to change facilities, that’s an opening for us to capture some market share, and I think because of that closure, well we don’t have anything specific to talk about nor would we talk about it as we go forward.

We do have a couple of things we’re working on because of that closure.

Thank you Kent.

Thanks.

We’ll go next to Mark Hassenberg with Nottingham Capital.

Good afternoon I apologize for another question related to quick turn.

On the ramp-to-volume, obviously very important on a long term basis, but I think it would be difficult to take the month of June and try to use that as a long term forecast of where we’re going.

I think we’re talking about a million or million and a half maybe for the quarter from what you might’ve expected.

When you look at June was there overall, over a broad number of customers that changed in the quick-turn business, I mean the ramp-to-volume – was it one customer that may have just shifted things from one quarter to another?

And just how many meaningful do you feel that number is?

Yes Mark, I think as the quick-turn arena still it’s just a little bit surprising that, that has not picked up because of the strengths we’re experiencing works in the other segments of our business.

Whether the--if the ramp comes back to us as far the way we run our business and look at our forecast, and projected the third quarter and are preparing for the fourth quarter, that is just all upside for us.

And we continue to operate our business to match the quick-turn that is given to us.

And if you go back in time, the quick-turn has been extremely healthy at different segments of time, and it should be coming around, just based on historical trends and needs of customers as you go throughout the industry and where we need to go.

I think there’s some upside in our quick-turn, while we’re not being aggressive in forecasting that upside.

And one other question, something I haven’t asked you for a long time is in terms of your marketing efforts and how they’ve changed and what you’re doing to ensure that you continue to capture new customers and new business and expand with existing customers?

We---our sales force is comprised of independent reps and directs sales people, we have a significant number of technical sales, support people that work with our customers on an on-going basis.

We have inside technical sales people, customer service staff, such that we are continually improving the value add that we provide with our customers.

We have the incentive programs in place that I think continue to work and motivate our sales force to bring the right type of work into our operations.

And we have been discussing ways to constantly improve in that area, as we do all areas of the company.

When we talk about some of the upside we have in our high mix and our quick-turn area, I think that that truly represents upside not only from---not only by waiting for the marketplace to give us that upside but also some actions that we can take internally here with the company to make that number go up.

Great.

Thanks a lot.

Very nice quarter.

Our next question comes from Scott Robertson with The Stanford Group.

Thank you.

Clearly over the last year and I think a little more recently, you’ve been taking market share away from, especially in the quick-turn side, from other competitors who that’s not there traditional core business.

But with the re-emergence of DDI, how much are you seeing them, they were a traditional quick-turn kind of shop, they have sequential improving results and I just want to know how much you’re seeing them out there when you’re bidding on the new quick-turn programs?

Yes I think the comment with DDI is they’ve always been a good competitor even when they went through the difficulties they had with their bankruptcy and so forth, they never went away.

So they’ve always been a competitor and probably will continue to be a competitor, we welcome that competitive nature.

And so there’s not really much change with regards from our perspective, with regards to DDI whether it’s last quarter or couple of quarters ago.

Okay great thank you.

Our next question comes from David MacGregor with Longbow Research.

Actually Shawn Harrison for David.

Just first question.

Looking at the different segments and understanding the sequential weakness in high-end computing with the end of life program, but computer peripherals just had a little bit more than I had anticipated.

Is there something going on I guess that we should be aware of, beyond anything normal?

Computer peripherals is mainly in our memory module business and that’s---if there’s anything seasonal in our business it’s the memory module work.

And so we’re into the down, kind of the down time for the memory module business.

The other and you talked about the high-end computing being down with Sun going into life, the networking is doing well, lot of strength in the networking, industrial and medical.

Medical has been fairly constant, kind of improving quarter over quarter, and our industrial is, we had some customers in the industrial section that had some very nice up-ticks in the last quarter.

Secondly just on the working capital, it looks like DSOs have picked up a little bit this quarter.

I think higher than you had been expecting.

What can we look like for improvement in the second half of the year, I guess just in terms of working capital metrics, how much further can we go?

Unless mix shifts, you won’t see a whole lot of change in that.

That has to do with specific, in term with different -- specific types of customers.

Alright, Thank You.

It just pulls our mix-change to more bigger customers that sell us a little bit different.

Alright thanks a lot and great quarter.

Thank you.

[Operator Instructions] Our next question comes from Bryan White with Kauffman Brothers.

Good afternoon.

Looking at in the September quarter what end markets do you think are going to experience the greatest sequential growth.

It looks like networking was strong in the June quarter, but can that continue in the September quarter?

When we look at the customers that comprise our networking segment, we think that’s going to continue to be strong, computing, the story is the high end computing, as Sun comes back online in the fourth quarter, and some choppiness goes out of a couple of other customers, we think that would probably return to us in a more strong aspect in the fourth quarter.

But in the third quarter we think networking will continue to be the main driver with some broad increases in the other segments.

Okay and how about industrial?

Can strength in the industrial medical continue next quarter?

I think as I look at again the customers that brought us strength in the second quarter, I would think that they might not be that strong in the third quarter.

But as you know we have a very broad customer base and there’s a number of customers in each one of these segments that seems to step forward every quarter and give us some good positive results.

But if you ask me right, now I’m not sure the industrial section would continue to grow at the same rate it did in the second quarter.

Alright thanks a lot.

We will go next to from Michael Ellis with Thomas Weisel & Partners.

Good afternoon I just have a follow up question for Matt.

I was just wondering if you can give us your thoughts on how inventories look and how it is in the supply chain perhaps are your customers?

And also do you have any comments on the buying patterns of your customers now?

Are they still just buying exactly what they need and seem to be managing their inventories pretty well?

That’s correct they are.

I think the industry has learned over the last 3 to 4 years to manage this more efficiently, more effectively both with the OEMs and the EMS providers.

And so we see a lot of the - a lot more sophistication in managing the inventories.

That does not appear to be an issue for us.

I think customers are not building inventories and their ordering patterns are such that they are not going to loose any comp line but yet they are not going to build up inventory.

So there is a lot of eyes on the inventory in our industry now that are keeping that in check.

We look at the inventory levels that our customers have.

While there might be some short term fluctuations up and down, here and there -- I think that inventories at this point in time are basically a nonissue for us.

Now, we actually have the inventories that we hold in the hub go down quarter over quarter.

Have you noticed over time, though, more of your customers are asking you to maintain higher level inventory for them?

With our larger customer and EMS providers we have some inventory typeagreements, so there is some pressure there to maintain higher levels of inventory, but as we try to keep our customers happy and satisfy them on both sides, I think we work through some agreements that are workable for us, to meet their needs and then also protect us from any situations that might arise.

Thanks, and lastly I was wondering if you could comment on just the overall visibility that your customers are giving you these days?

Do you think its better or I don’t know the same as what’s seen three months ago.

Well I – yes it’s really hard to – with our customer base again, the larger customers have forecast – growing forecast that we look at.

And I think as you just move forward in time, those forecasts become a little more accurate.

But the majority of customers just in sheer numbers are coming to us in the four week lead time, three week lead time, and so forecasting out is not really something that they do or have the ability to do, other than just the comments and the surveys that we conduct to see where we’re going with those customers.

I know the types of lead times that Kent just described are high mix and quick term work, not in the high technology area.

As we work with those customers that don’t have the longer lead times, though, I think we get a pretty accurate picture as to where they are going at least as far as they know with the longer lead the forecasting that takes place in our larger customers, of course, that gives us a lot clearer view points because it’s all on paper and we can look at that and run our business accordingly.

Thank you.

Our next question comes from Michael Walker of Credit Suisse First Boston.

Thanks.

Just a couple of follow ups.

I was wondering if you see that same 5% price improvement clip continuing into Q3.

No, Mike that price is flat.

Okay second question.

Just a little bit of modeling up on the Cap Ex line you mentioned that G&A popped up.

Does that mean it goes back down in the dollars?

Yes just about 3.5m and that 3.5m does not include the $300,000 quarterly amortization.

Okay.

So do we stay at 3.5 from here on out or does that kind of go up a little bit over time?

You know it can go up slightly as we have increased performance because that also has some incentive comp plans in it.

Also as you see revenue grow it will also have that debt expense which would keep all of their metrics the same, if it tends to rise, you have higher sale.

But it’s nothing that would get completely out of whack or anything like that.

It could may be go as high as $200,000 more if either the profitability improves significantly and the top line grows pretty quickly.

Okay and Michael one comment on that 5% increase on the panel price.

Keep in mind that our layer count went up but the price per layer was down 2%, so we’re looking at kind of a flatish situation with prices in the third quarter, or excuse me in the second quarter.

Exactly.

And we’re forecasting about the same for the third quarter.

So there is really from a pricing perspective not a lot of difference between the second and the third quarter.

Right, you’re not talking about a 5% decline as we move from the second to the third quarter.

As Kent said it’s roughly flat.

Okay, lastly, the $200,000 depreciation associated with new expansion.

That was a quarterly number correct?

That’s correct.

Right and that won’t really start until you might have a little of it in December of this year so a little bit in the fourth quarter.

But the first quarter that you’ll have the whole $200, 000 will be the first quarter of 2005.

Okay, thank you.

Our next question comes from Keith Dunne, RBC Capital Markets.

Just a few follow up questions.

Top 10 customers, please, how much were they?

They were 65%?

No they were 53%.

That was top five……

The top 10 were 65% and the top 5 were 53%.

53.

Okay, great, and then the rest of my questions were answered there in between thanks very much.

There appears to be no further questions at this time.

I would like to turn the conference back over to Mr. Kent Alder for any additional or closing remarks.

Yes thank you Stephanie.

Just a few comments.

We’re pleased that you joined us today.

Thank you for your interest in TTM.

We’re excited about our company, the position, how we’re performing and how we’re executing.

I think that’s a strong testament to the management teams and employees that we have working for us.

So we are, at this point, very optimistic about the future.

Thanks for joining us and we’ll talk to you next quarter.

This does conclude today’s teleconference.

We would like to thank you for your participation.

You may now disconnect.