Hutchinson Technology eliminating 500 jobs

Article by: GREGORY A. PATTERSON , Star Tribune

Updated: June 5, 2007 - 10:00 PM

The maker of disk drive components is being hit hard by price wars throughout the

computer industry.

Facing increasing competition and overcapacity in some of its markets, Hutchinson Technology Inc., based in Hutchinson, Minn., said Tuesday it is eliminating 500 jobs.

Most of the jobs will be cut at four manufacturing facilities, two of them in Minnesota . The layoffs represent about 9.3 percent of its workforce at those facilities.

The company's largest facility, in Hutchinson, will be hit hardest, with 225 jobs cut from a workforce

of 2,744. In Plymouth, 25 jobs will be cut from a workforce of 247. The total includes production and support jobs at headquarters and throughout Hutchinson's operations, and is expected to yield annual cost savings of $35 million.

Hutchinson, which makes suspension systems for computer disk drives, said the cuts will require it to take a pretax charge of $5 million, or 11 cents per share, in its third fiscal quarter, which ends June 30. The company said it plans to complete the layoffs by the end of this month.

Hutchinson Technology's sales and profits have been hurt by intense competition from Asian -based

manufacturers and from its own overcapacity, industry watchers said Tuesday.

"We believe that Hutchinson is facing a virtual 'perfect storm' of challenges," industry analyst Richard

Kugele of Needham & Co. wrote in a research note issued shortly after the Hutchinson announcement. Analysts said the job reduction were expected, given industry conditions and the company's performance.

Computer price wars have hurt profits throughout the industry. The pricing pressure is most severe

in the desktop business, because those disk drive suspension systems are technically easier to make, providing fertile ground for low-cost competitors to gain a foothold. The company has been losing market share to NHK Spring Co., in Japan, and Magnecomp Precision Technology, in Thailand, industry watchers said. But the company said Tuesday it is not contemplating moving

production overseas. Hutchinson's financial performance also is affected by its investment in new product development, which the company said it will continue. Launching more sophisticated disk drive suspension systems and moving forward developing its biometric products for medical technology markets -- where competition is thinner and profit margins fatter -- is key to Hutchinson's future performance, company and industry officials said.

The company reconfirmed that it expects to post a loss for its 2007 fiscal year, ending in September. But executives believe the cost cuts could help them reach their goal of profitability in 2008, Hutchinson spokeswoman Connie Pautz said. "The disk drive business is intensely competitive, and we need to reduce our cost structure to be more competitive," Pautz said.

The laid-off workers will be given severance packages of 2½ weeks' pay for up to four years of

service, and 1½ weeks' pay for each additional year. The company will continue their health and dental benefits for two months.

In addition to layoffs in Hutchinson and Plymouth, the company is laying off 90 people in Sioux Falls,

S.D., where it has 696 employees, and cutting 165 jobs in Eau Claire, Wis., where it employs 1,666.

Hutchinson Technology shares closed Tuesday down 40 cents, or 2 percent, at $18 per share.

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