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MultiFineline Electronix Inc. Reports Operating Results (10-Q)

August 05, 2010 | About:
10qk

10qk

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MultiFineline Electronix Inc. (MFLX) filed Quarterly Report for the period ended 2010-06-30.

Multifineline Electronix Inc. has a market cap of $633 million; its shares were traded at around $24.8 with a P/E ratio of 14.6 and P/S ratio of 0.9. Multifineline Electronix Inc. had an annual average earning growth of 0.9% over the past 5 years.MFLX is in the portfolios of Paul Tudor Jones of The Tudor Group, Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Net sales into the wireless sector decreased to $126.2 million for the three months ended June 30, 2010, from $134.3 million for the three months ended June 30, 2009. The decrease of $8.1 million, or 6.0%, was primarily caused by a change in product mix resulting in an increased volume of shipments of one program with lower flex content. For the three months ended June 30, 2010, the wireless sector was comprised of both smart phones and feature phones, which accounted for approximately 98% and 2% of total sales into the wireless sector, and for the three months ended June 30, 2009, accounted for approximately 87% and 13% of total sales into the wireless sector, respectively. Sales into the wireless sector comprised approximately 70% and 77% of total net sales for the three months ended June 30, 2010 and 2009, respectively.

Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales increased to 87.7% for the three months ended June 30, 2010 compared to 85.7% for the three months ended June 30, 2009. The increase in cost of sales as a percentage of net sales of 2.0% was primarily attributable to the ramp up on a new program being more difficult than anticipated, resulting in lower yields and higher scrap, along with a more competitive pricing environment. Gross profit decreased to $22.2 million for the three months ended June 30, 2010 versus $25.0 million for the three months ended June 30, 2009, or 11.2%. As a percentage of net sales, gross profit decreased to 12.3% for the three months ended June 30, 2010 from 14.3% for the three months ended June 30, 2009. We expect quarterly gross margins to be in the 13% to 15% range in the fourth fiscal quarter of 2010 due to a higher projected sales volume resulting in increased cost absorption and gradual improvement in yields.

approximately 95% and 5% of total sales into the wireless sector, and for the nine months ended June 30, 2009, accounted for approximately 76% and 24% of total sales into the wireless sector, respectively. Sales into the wireless sector comprised approximately 67% and 72% of total net sales for the nine months ended June 30, 2010 and 2009, respectively.

Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales increased to 85.7% for the nine months ended June 30, 2010 compared to 85.4% for the nine months ended June 30, 2009. The increase in cost of sales as a percentage of net sales of 0.3% was primarily attributable to the ramp up on a new program being more difficult than anticipated, resulting in lower yields and higher scrap, along with a more competitive pricing environment. As a result, gross profit decreased to $81.0 million for the nine months ended June 30, 2010 versus $82.7 million for the nine months ended June 30, 2009, or 2.1%. As a percentage of net sales, gross profit decreased to 14.3% for the nine months ended June 30, 2010 from 14.6% for the nine months ended June 30, 2009.

For the nine months ended June 30, 2010 and 2009, 67% and 72%, respectively, of our net sales were derived from sales to companies that provide products or services to the wireless industry, including wireless handsets, and approximately 30% and 24%, respectively, of our net sales were derived from sales to companies that provide products to the consumer electronics industry during those same periods. In general, the wireless and consumer electronics industries are subject to economic cycles and periods of slowdown. Intense competition, relatively short product life cycles and significant fluctuations in product demand characterize these industries, and both industries are also generally subject to rapid technological change and product obsolescence. Fluctuations in demand for our products as a result of periods of slowdown in these markets (including the current economic downturn) or discontinuation of products or modifications developed in connection with next generation products could reduce our net sales.

For the past several years, a substantial portion of our net sales has been derived from products that are incorporated into products manufactured by or on behalf of a limited number of key customers and their subcontractors, including Apple Inc., Motorola, Inc. and Research in Motion Limited. In addition, a substantial portion of our sales to each customer is often tied to only one, or a small number, of programs. In the fiscal years ended September 30, 2009, 2008 and 2007 approximately 96%, 95% and 93% respectively, of our net sales were to only four customers in the aggregate. Approximately 43%, 45% and 57% of our net sales in each of the fiscal years ended September 30, 2009, 2008 and 2007, respectively, were to one customer (not the same customer in each of the three years) and approximately 80%, 65% and 82% of our net sales were to two of our customers in each of the three years, respectively. In addition, two customers constituted approximately 86% of our net sales in the nine months ended June 30, 2010. The loss of a major customer or a significant reduction in sales to a major customer, including due to the lack of commercial success or a product failure of a customers program upon which we were relying, would seriously harm our business. Although we are continuing our efforts to reduce dependence on a limited number of customers, net sales attributable to a limited number of customers and their subcontractors are expected to continue to represent a substantial portion of our business for the foreseeable future.

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