Hutchinson Technology expects to complete its headcount reduction of 20-25 percent by the end of January 2009. The company employs about 4,500 people worldwide.
A spokeswoman said the moves are part of a bigger restructuring effort, and the company cannot yet say how many workers it will shed from its three Minnesota facilities. Those facilities add up to about half of the office and manufacturing space the company uses in the U.S. The firm also has operations in Sioux Falls, S.D. and Eau Claire, Wisc.
Workers who remain at Hutchinson Technology after the layoffs will take a 5 percent pay cut. In addition, the company has imposed mandatory time off, and plans a two-week shutdown during the upcoming holidays.
"It's probably a judicious thing to do, in my opinion," said Mark Miller, an industry veteran who, until recently, covered Hutchinson Technology as a securities analyst.
He said the company's main product is a key component inside a computer hard drive.
"A disk drive is like a record player," Miller said. "Think of an old record player, there's a disk that holds data, that's a magnetic alloy, and then there's what's called a head, which is like a phonograph needle, but the head, besides picking up the data, also records the data. And these are very complex things."
Hutchinson Technology makes the arm that holds the head.
Miller said Hutchinson Technology's business started to suffer a couple years ago when one of the company's competitors merged with a customer. Hutchinson lost some business and its market share declined.
"They also expanded capacity very aggressively a couple years ago, and they've never been able to fill that capacity, partly because of the share loss, and that's resulted in higher costs for them," Miller said.
After that, another merger of rivals made the environment yet more competitive. In addition, Miller notes, Hutchinson Technology started losing money on a newer division that makes a product unlike the company's main offering, a new product geared toward the medical field.
Miller said Hutchinson is still the technology leader for suspension assemblies, but now the economic downturn is reducing demand for disk drives.
"Typically the disk drive industry, in terms of units, posts a 5 to 8 percent growth in the December quarter," Miller said. "Current projections are flat, down to 5 percent. So they are being hit."
At the close of trading Tuesday, Hutchinson Technology's stock was trading at $2.62 per share. That's down from a five-year high of $42.40 in 2005.
Hutchinson Technology is in the district represented by Republican state Senator Steve Dille of Dassel. He was not surprised to hear the news of the company's layoffs, given recent dips in its stock value. But he said this is bad news for his district.
"There's a lot of agriculture in the district, and agriculture has done very well this past year, so that's a positive factor in the economy," Dille said. "There's of course significant signs the economy is weakening in my district. But this layoff would be by far the biggest sign is not doing well in my district."
Hutchinson Technology and 3M are the biggest employers in Hutchinson. And Bill Corby, president of the chamber of commerce in Hutchinson, said if a large number of layoffs hit the Hutchinson facility, those workers may have a tough time finding new work in the area.
"Just like everybody else in the state and the nation, we're all experiencing those layoffs," Corby said. "And where people aren't laying off, they're of course freezing their hiring. So right now I'd say the job prospects are pretty limited."
In a statement, Hutchinson Technology's president and chief executive officer, Wayne Fortun, said the company is confident it can address the economic environment by managing cost structure and cash position in a way that will still "achieve long term profitable growth."