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

February 03, 2011 | About:
10qk

10qk

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MultiFineline Electronix Inc. (MFLX) filed Quarterly Report for the period ended 2010-12-31.

Multi-fineline has a market cap of $680.5 million; its shares were traded at around $28.5 with a P/E ratio of 17.9 and P/S ratio of 0.9. Multi-fineline had an annual average earning growth of 1.9% over the past 5 years.Hedge Fund Gurus that owns MFLX: Paul Tudor Jones of The Tudor Group, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors. Mutual Fund and Other Gurus that owns MFLX: John Rogers of ARIEL CAPITAL MANAGEMENT LLC, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Net sales into the smartphones sector increased to $223.7 million for the three months ended December 31, 2010, from $144.1 million for the three months ended December 31, 2009. The increase of $79.6 million, or 55.2%, was primarily due to a higher consumer demand for smartphones. For the three months ended December 31, 2010 and 2009, the smartphones sector accounted for approximately 93% and 63% of total sales, respectively.

Net sales into the feature phones sector decreased to $5.1 million for the three months ended December 31, 2010, from $9.3 million for the three months ended December 31, 2009. The decrease of $4.2 million, or 45.2%, was primarily due to the decision to utilize our resources for higher value-added assemblies in the smartphone sector. For the three months ended December 31, 2010 and 2009, the feature phones sector accounted for approximately 2% and 4% of total sales, respectively.

Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales increased to 85.7% for the three months ended December 31, 2010 compared to 84.1% for the three months ended December 31, 2009. The increase in cost of sales as a percentage of net sales of 1.6% was primarily attributable to higher labor costs in China, the appreciation of the Chinese Yuan and increased pricing pressures from customers. As a result, gross profit decreased to $34.5 million for the three months ended December 31, 2010 versus $36.5 million for the three months ended December 31, 2009, or 5.5%. As a percentage of net sales, gross profit decreased to 14.3% for the three months ended December 31, 2010 from 15.9% for the three months ended December 31, 2009. For the second fiscal quarter of 2011, we expect gross margins to range between 13 and 15 percent based on our projected product mix and sales volume.

General and Administrative. General and administrative expense decreased by $0.8 million to $5.1 million for the three months ended December 31, 2010, from $5.9 million for the three months ended December 31, 2009, a decrease of 13.6%. The decrease was due to efforts in the prior fiscal year to realign functions and reduce external general and administrative costs on a global basis. As a percentage of net sales, general and administrative expense decreased to 2.1% of net sales for the three months ended December 31, 2010 from 2.6% in for the comparable period of the prior year. We expect general and administrative expense, as a percentage of net sales, to remain relatively flat throughout the fiscal year.

For the three months ended December 31, 2010, 2009 and 2008, approximately 93%, 63% and 41%, respectively, of our net sales were derived from sales to companies that provide products or services into the smartphone industry; approximately 2%, 4% and 28%, respectively, of our net sales derived from sales were to companies that provide products or services into the feature phone industry; and approximately 4%, 32% and 26%, respectively, of our net sales were derived from sales to companies that provide products or services into the consumer electronics industry. In general, these 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 the 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, 2010, 2009 and 2008 approximately 98%, 96% and 95% respectively, of our net sales were to only four customers in the aggregate. Approximately 43%, 43% and 45% of our net sales in each of the fiscal years ended September 30, 2010, 2009 and 2008, respectively, were to one customer (not the same customer in each of the three years) and approximately 85%, 80% and 65% of our net sales were to two of our customers in each of the three years, respectively. In addition, two customers constituted approximately 85% of our net sales in the fiscal year ended September 30, 2010 and 82% of our net sales in the three months ended December 31, 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, a product failure of a customers program upon which we were relying or limited flex content in a program on 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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