Sunday, February 15, 2009

TTM Technologies (TTMI) Holds Up

TTM Technologies (TTMI) released its fourth quarter results and held its analyst conference on February 10th. Somewhat to my surprise, revenues are holding up pretty well in the face of what has been a disaster for many technology companies. NVIDIA, for instance, reporting at the same time as TTMI, had revenues for its quarter ending January 25, 2009 down 46% sequentially and down 60% from year earlier [see my Nvidia Q4 fiscal 2009 analyst conference summary for details].

TTM had revenues for its fourth quarter ending December 31, 2008 of $164.9 million, down 2.5% sequentially from $169.0 million and down 1.5% from $167.5 million year-earlier.

TTM's stock price is way down despite its ability to maintain revenue and profit, so it had to write off a bunch of goodwill. This $117 million non-cash charge resulted contributed to a GAAP net loss of $68.5 million.

Normally I like to use GAAP numbers, which are more conservative and realistic than non-GAAP numbers. However, lately a lot of companies have been taking big charges (mostly goodwill impairments) based solely on changes in their stock prices. I think these charges obscure the real picture.

So for TTM it is important to note that excluding the charge and tax benefits from it, non-GAAP net income was $14.5 million. Cash balances at the end of December were $17.1 million higher than at the end of Q3.

Why is TTM doing so much better than NVIDIA and many other technology companies? Both companies have excellent management teams. The main difference is the markets they serve.

TTM makes printed circuit boards, and they are not your grandfather's PCBs. The boards that hold the chips now are technological marvels in themselves, with multiple layers, tiny connecting lines, and holes that are drilled by lasers. You might think that with consumer electronics goods selling poorly, which hurt NVIDIA, a maker high-end graphics chips, PCB manufacturing would be down sharply too. And it is in Asia, where most volume production is done.

TTMs customers tend to need smaller quantitites of PCBs, they often want engineering assistance, and their PCB's are among the hardest to make. They also are constantly engaged in research, which requires prototype PCBs in small numbers with quick turnaround. Cisco is an example of a company that is a top 5 customer for TTM. Cisco is continuing its pace for new product production despite a slump in demand for end products.

TTM also serves military contractors like Northrup and Raytheon. Barack Obama's administration has shown no inclination to back off the military spend that was beefed up for the "war on terror." Military end market revenue is actually growing for TTM and has been for a couple of years.

Could a worsening of this depression hurt TTM? Sure. There is always risk from the economy in any investment.

Might I buy more TTM stock? It is on the short list. It appears to be a reliable source of cash profits. The main risk, it appears, is stock price fluctuation based on fear. With today's market capitalization of $245 million (at $5.73 per share), and $14 million in earnings in a soft quarter, the return on investment is about 23%. You are not going to get that in a corporate bond or treasury. Earnings may go down in the first half of 2009, but they should recover nicely when the economy recovers.

See also my summary of the TTM Technologies analyst conference for Q4 2008.

It is an amazing time to be an investor. TTM is not the only stock that is underpriced. So...

Keep diversifying!

TTM Technologies web site
NVIDIA web site
stock list, analyst conference summaries

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