Hutchinson Technology is the leading supplier of suspension assemblies, a key component in a computer hard drive. The company describes the assemblies as "precise metal springs that hold a disk drive's recording head at microscopic distances above the drive's disks.
Falling prices are a fact of life in the industry, but this is a tough year for the company, which lost about $4 million in its most recent quarter and expects to post a loss for the entire year.
"There's overcapacity throughout the industry," company spokeswoman Connie Pautz said. "So, pricing becomes even more intense. We have been competing aggressively and will continue to do so by reducing our cost structure so we can again compete and do it profitably." The job cuts and other cost-saving measures announced on Tuesday will save the company about $35 million a year.
About 10 percent of the company's roughly 5,000 workers will be losing their jobs. That includes about 225 employees in Hutchinson, Minnesota, where the company is headquartered. Twenty or so workers in Plymouth will also be let go. Other job cuts will come in Eau Claire, Wisconsin; and Sioux Falls, South Dakota.
"Their competitors were pricing very aggressive taking some share away from them," said analyst Richard Kugele of Needham and Company.
Hutchinson Technology's customers, the companies that make disk drives, have been facing intense pressure to cut their own prices. And that's been compounding the price squeeze on parts suppliers.
Mark Miller, an analyst with Brean Murray and Carret, said Hutchinson Technology hurt itself greatly by overestimating market demand for its components.
"They expanded capacity beyond where they should, plus for the first time they are getting significant share competition from their competitors.," he said.
Still, Miller expects Hutchinson can maintain its lead over its rivals. And keep jobs in the United States instead of shipping them overseas to save on labor costs.
"Hutchinson is still the dominant firm in the business," he said. "It's a very impressive outfit. Very meticulous. Of course, labor costs are a lot cheaper overseas. But they're able to do some ingenious innovations and keep some of their proprietary advantage over competitors."
Miller said Hutchinson is probably facing more job cuts to help the company recover from the current industry downturn.