Ultra Clean (UCTT)… Not Really

Ultra Clean Holdings, Inc. (NASDAQ:UCTT) is getting to find out tonight that in-line guidance at the lower end doesn’t cut it.  Its press release says "Ultra Clean Technology Reports Third Quarter Revenue and Earnings in Line With Guidance" but the shares are getting a wrestling smack down in after-hours trading.

Revenue for the third quarter of 2007 totaled $95.5 million (compared to $104.7 million in the second quarter ended June 29, 2007, a decrease of 8.8% from the June quarter and an 8.2% decrease year over year). The company recorded net income of $3.5 million, or $0.16 EPS (down from $0.23 the prior quarter and down from $0.25 year over year. Gross margin for the third quarter of 2007 was 14.0% (compared to 15.1% the prior quarter and 14.8% for the same period a year ago).

First Call had revenue expectations at $99.5 million and EPS targeted at $0.20.  Shares closed down close to 2% today, but shares in after-hours are trading down another 12% at $13.51 in after-hours trading.  Its 52-week trading range is $11.20 to $19.99.  You can keep reading if you choose, but it just gets worse ahead.

Ultra Clean Holdings engages in the development, manufacture, and supply of critical subsystems for the semiconductor capital equipment industry.

Clarence Granger, UCT’s Chairman and Chief Executive Officer commented:"While this continues to be a challenging time for the industry, we arepleased with the company’s operating performance and cash generation inthe third quarter. We hit our guidance range for both revenue andearnings per share, despite significantly lower than expected industrydemand. We increased our cash reserves equal to that of our third partydebt. And we continued to execute on the new product awards announcedin the first half of this year."

Granger added, "In addition, we secured orders from two new strategiccustomers; Axcelis Technologies and Photon Dynamics. During Q3, webegan shipping gas delivery systems to Axcelis Technologies and we wereawarded a process module contract from Photon Dynamics. We expect toship the first Photon Dynamics process module in Q1 2008 from one ofour U.S. facilities and to transfer the manufacturing of this module toour Shanghai facilities in Q2 2008. These new customer wins reflectfurther successes toward our stated objectives to grow faster than theoverall industry and to expand our operations in Shanghai."

Commenting on UCT’s corporate outlook, Granger noted, "We expect thatrevenue for the fourth quarter of 2007 will range between $87 millionand $95 million, and net income per share to range between $0.08 and$0.14 per share, inclusive of an expected $0.01 per share charge foramortization of intangibles and $0.04 per share charge related to SFAS123. This projection reflects the expectation of a further decline inindustry demand in the fourth quarter of 2007. We remain confident inour strategic direction and our long term ability to grow faster thanthe industry."

That is soft guidance too….. First Call has estimates at $0.24 EPS and $102.4 million in revenues. Ouch.

Jon C. Ogg
October 22, 2007