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

February 04, 2010 | About:
10qk

10qk

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MultiFineline Electronix Inc. (MFLX) filed Quarterly Report for the period ended 2009-12-31.

Multifineline Electronix Inc. has a market cap of $590.7 million; its shares were traded at around $23.44 with a P/E ratio of 13.4 and P/S ratio of 0.8.

Highlight of Business Operations:

Net sales into the wireless sector increased to $152.6 million for the three months ended December 31 2009, from $149.5 million for the three months ended December 31, 2008. The increase of $3.1 million, or 2.1%, was primarily due to changes in product mix. For the three months ended December 31, 2009 and 2008, the wireless sector was comprised of both smart phones and feature phones, which accounted for approximately 93% and 7%, and 58% and 42% of total sales into the wireless sector, respectively. Sales into the wireless sector comprised approximately 66% and 69% of total net sales for the three months ended December 31, 2009 and 2008, respectively.

Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales decreased to 84.1% for the three months ended December 31, 2009 compared to 84.7% for the three months ended December 31, 2008. The decrease in cost of sales as a percentage of net sales of 0.6% was primarily attributable to favorable product mix changes and cost reductions from improved manufacturing yields resulting from operational improvement initiatives, offset by price changes and the increase of average material content from new programs in the current fiscal year. As a result, gross profit increased to $36.5 million for the three months ended December 31, 2009 versus $33.1 million for the three months ended December 31, 2008, or 10.3%. As a percentage of net sales, gross profit increased to 15.9% for the three months ended December 31, 2009 from 15.3% for the three months ended December 31, 2008. We expect quarterly gross margins to trend downward in the second fiscal quarter of 2010 due to a lower projected sales volume resulting in decreased cost absorption.

General and Administrative Expense. General and administrative expense decreased by $1.1 million to $5.9 million for the three months ended December 31, 2009, from $7.0 million for the three months ended December 31, 2008, a decrease of 15.7%. The decrease was primarily attributable to a decrease of $0.5 million in audit and professional fees due to the timing of services provided, decreases in training and travel expenses of $0.4 million, and a net decrease of other general and administrative expenses of $0.2 million. As a percentage of net sales, general and administrative expense decreased to 2.6% of net sales for the three months ended December 31, 2009 from 3.3% in for the comparable period of the prior year, attributable to the favorable leveraging impact on our operating expenses from the increased net sales. We expect general and administrative expense to fluctuate modestly throughout the fiscal year.

Income Taxes. The effective tax rate for the three months ended December 31, 2009 and 2008 was 22.6% and 22.3%, respectively. We continue to expect our tax rate to remain in the low 20% range, however, it could vary if current U.S. tax regulations are changed.

For the three months ended December 31, 2009 and 2008, 66% and 69%, 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 31% and 27%, 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., Research in Motion Limited and Sony Ericsson Mobile Communications. In the fiscal years ended September 30, 2009, 2008 and 2007 approximately 96%, 95% and 93% respectively, of our net sales were to these four customers in the aggregate and 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 88% of our net sales in the three months ended December 31, 2009. The loss of a major customer or a significant reduction in sales to a major customer 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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