Ladies and gentlemen, thank you for standing by, and welcome to the TTM Technologies Third Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, November 1, 2012. And I would now like to turn the conference over to Diane Weiglin, Executive Assistant of TTM. Please go ahead.

During the course of this call, the company will make forward-looking statements that relate to future events or performance. These statements reflect the company's current expectations, and the company does not undertake to update or revise these forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in this or other company statements will not be realized. Furthermore, we wish to caution you that these statements involve risks and uncertainties, many of which are beyond the company's control, which could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include, but are not limited to, the company's dependence upon the electronics industry, contemplated significant capital expenditures and related financing requirements, the company's dependence upon a small number of customers, the unpredictability of and potential fluctuation in future revenues and operating results and other risk factors set forth in the company's most recent SEC filings. The company also will present non-GAAP financial information in this call. For a reconciliation of TTM's non-GAAP financial information to the equivalent measures under GAAP, please refer to the company's press release, which was filed with the SEC and which is posted on TTM's website. Participating on today's call are TTM's President and Chief Executive Officer, Kent Alder; TTM's CFO, Steve Richards; and Canice Chung, President of TTM's Asia Pacific business unit. I would now like to turn the call over to Mr. Alder. Please go ahead, Kent.

Okay. Thank you, Diane, and good afternoon and thanks for joining us for our third quarter 2012 conference call. As usual, I'll begin with a review of our business, and then Steve will follow with a discussion of our financial performance. And then we'll open the call for your questions. So let's start with a review of the highlights for the quarter. Net sales were $339 million; gross margin, 15.4%. Non-GAAP net income was $18.1 million or $0.22 per diluted share. GAAP net loss attributable to stockholders was $208.3 million or $2.54 per share. Adjusted for onetime expenses, GAAP net income would have been $8.3 million or $0.10 per diluted share, and we'll add some more color and give more details later on in the call. We're disappointed with our results for this third quarter. While a number of anticipated product launches occurred during the quarter, key program launches took place later in the quarter than we expected. Higher labor costs and other manufacturing inefficiencies associated with bringing on workers to support the delayed programs negatively impacted our gross margin for the quarter. Consequently, our third quarter results did not improve as we expected. The global softening of demand for printed circuit boards also impacted our performance in what was typically a seasonally strong quarter. Our North American results declined from Q2 due to softer demand, and our Asia Pacific performance was affected by program timing for a couple of customers. During the third quarter, the percentage of advanced HDI product remain unchanged from the last quarter, comprising approximately 23% of our Asia Pacific segment's revenue. Our HDI percentage did not increase as expected due to the delays in program timing. With the continued ramp of multiple customer programs that utilize advanced HDIs in the fourth quarter, we expect that…

Thanks, Kent, and good afternoon, everyone. Third quarter net sales of $339 million increased $11.6 million or 3.5% from the second quarter net sales of $327.4 million. Gross margin was 15.4% in the third quarter compared to 16.7% in the second quarter. Selling and marketing expense was $8.7 million in the third quarter compared to $9 million in the second quarter. As a percentage of net sales, selling and marketing expense in the third quarter was 2.6%, down from 2.8% in the prior quarter. Third quarter G&A expense was $23.7 million or 7% of sales compared to $23.5 million or 7.2% of net sales in the second quarter. Amortization of intangibles was $4.1 million in both the second and third quarters. Operating loss for the third quarter was $202.7 million compared to operating income in the second quarter of $18.1 million. Included in operating results for the third quarter of 2012 were noncash charges of $218.4 million to write down goodwill, customer-related intangibles and property, plant and equipment. As the result of our declining financial performance and stock price, we had to evaluate several assets, including goodwill, for potential impairment. Excluding these asset impairment charges, operating income for the third quarter would have been $15.7 million. The Asia Pacific segment's third quarter operating loss before amortization of intangibles was $206.8 million compared to operating income of $11.2 million in the second quarter. Excluding the impairment charges, third quarter operating income before amortization of intangibles for the Asia Pacific segment would have been $11.6 million. The North America segment's operating income before amortization of intangibles in the third quarter was $8.2 million compared to $11.1 million in the second quarter. Interest expense was $6.4 million in both the second and third quarters. In addition, we recorded a loss on extinguishment of…

[Operator Instructions] And our first question comes from the line of Paramveer Singh from Stifel, Nicolaus. Paramveer Singh - Stifel, Nicolaus & Co., Inc., Research Division: So looking at your guidance, it seems that you're guiding gross margin somewhat flat. And I mean, I would think with the higher mix of HDI coming on, that should shift positively. I mean, if you could give a little more color on that, that'd be great.

Yes, thanks for the question. And we're experiencing what we anticipated with our advanced HDI. We think that will have some pretty nice growth in the fourth quarter and the profit margin associated with that are in place. The offset to that is the headwinds that we got with our conventional printed circuit boards and the underutilization in our facilities on the conventional facilities, both in Asia Pacific and North America are putting a drag on our earnings. So it's hard for, I guess, hard for everyone to see the positive impacts we're having with our advanced HDI work. And as we look forward, and hopefully that as the macro environment improves and we can have some of our underutilized facilities become more utilized, that will make a dramatic impact on our profits. We have a lot of leverage in our model, as you know, and that is the offset to the advanced HDI. Paramveer Singh - Stifel, Nicolaus & Co., Inc., Research Division: Great. Also, I just wanted to get color on your HDI margins. Are you seeing assumed gross margin on the HDI side that you were seeing a year or so ago? Or is it lower margin on new product ramps? We've heard a lot of guys for a smartphone customer seeing lower gross margin in the current quarter. I was wondering if you guys are seeing the same thing.

Yes, I think if you go back in history with our advanced HDI and several years ago when that was relatively new technology, there were some pretty significant margins that were attached to that product gross margins. And they got negotiated down pretty, I guess, significantly, if you will. And so when we look at it today, the gross margins we get on our advanced HDI products are still the most attractive for us out of all of our products that we manufacture. But as the capacity has with HDI increased, the negotiation process or prices with HDI are probably similar to the negotiations for the other products we produced. However, there are still fewer competitors with advanced HDI, so I think you can see that helps our margins overall. So we're still pretty enthusiastic about HDI, the growth opportunities and the aspects there and the opportunities we have to grow our business and compete in the printed circuit board marketplace.

And our next question comes from the line of Shawn Harrison from Longbow Research.

I guess to follow up on the long-term targets, those were the GAAP targets, right, Steve?

Yes.

So we'd add about 150 basis points to that to kind of get the long-term non-GAAP targets?

Yes, you'd still have amortization of intangibles. Although given the impairment of our intangible balance, that number is declining. So it was $4.1 million in Q3. We estimated about $2.5 million for amort of intangibles in Q4.

Okay. Wait, could you say that again, I'm sorry, Steve?

You've been adding back $4.1 million of amort of intangibles to your noncash numbers in the past. That would be going down about $2.5 million going forward because we reduced the balance of intangibles in the third quarter.

And then you have the $2.5 million of stock-based comp every quarter as well?

Yes, that's pretty consistent.

Okay. And then I guess second, just in terms of the guidance, I'm trying to triangulate this a bit. SG&A at 10% of sales, what's that -- what do you -- what's that on a non- GAAP basis. And the same thing with the interest expense. Is it still $2 million of noncash in there?

Yes, so the convertible debt we have that has that noncash interest expense, that will keep accreting over time through May 2015 when that debt matures. So that's still a consistent number. It'll actually add up a little bit each quarter over time. In terms of the 10% of SG&A expense, the only piece that's really noncash there is going to be the stock-based comp expense. So that's probably no more than 1%.

Okay. Okay. And then I guess I just wanted to talk about the demand environment, particularly smartphones, tablets, et cetera, given that you had some delays in kind of launching what seems to be those products in what looks to be a pretty robust demand environment, how would you expect that to go into kind of the new year? Typically, I know you see a sharp falloff. But is there enough demand to kind of mitigate some of the typical seasonality?

Shawn, that's a good question. And if I start with maybe the fourth quarter, when we looked at our backlog, you look at our backlog for the end of the second quarter, compare our interim backlog at the end of the third quarter, we're $40 million higher on backlog, which is why we're confident on the $250 million revenue line that we're forecasting for this quarter. And then if you go out beyond that and look into the first quarter, there will be some seasonal downturns there. How much, we're not sure. But there is always the seasonal downturns. Some of the products that we make for the smartphone, touchpad tablet, it seems like demand tails off there around -- a little bit after Thanksgiving and so forth. But now given the fact that some of these product launches happened late in the third quarter, demand could hold and maybe have a little more benefit in the first quarter. So -- but what I'll do is I'll ask Canice to, who's a little closer to that, give you his feedback on that. So Canice, are you there?

I'm here. I'm here. I'm here. [indiscernible] and I call back, okay. In Asia Pacific, okay, what we see is that we drive [ph] on the new product launches and then the momentum, the order booking are still very strong. And unlike in Q3, which we are expecting more order to come in the later part of the quarter, but then in Q4, we did have a much more order already comes in, in the early part of the quarter which we will -- relatively fewer [ph] for the quarters.

And then Canice, how do you think it looks in the first quarter relative to past quarters?

I think the running in of the mobile phone business is very helpful for us because the mobile phone demand is far higher than that of the tablets demand globally, okay. So running into the first quarter, it's -- there are also issues with the holiday shutdown in China, that the working days were not exactly very, very long, okay, in Q1, for everybody in the Q1. So I'm not expecting there will be any significance of the drop-back in the Q1 there.

And our next question comes from the line of Steven Fox from Cross Research.

Just a couple of questions regarding some of the new product ramps. I was wondering if there's any way to sort of quantify some of the cost pressures that you talked about on gross margins. You mentioned increased headcount, and then I guess you had underutilized equipment though in the third quarter. So just trying to understand those headwinds and how they turn maybe into sort of benefits to gross margins this quarter. And then I had a follow-up.

Okay. Yes, Steven, and when we look at our headcount, if I go back into March in Asia Pacific, we had just over 14,000 employees. And then you realize that we had to add some more employees to comply with some of the social laws and so forth. So when we look at our headcount in June, we were up to $15.3 million and a lot of that was to counteract the reduced overtime and so forth. And then in August, in preparation for these programs release, we were at $16.7 million. So we went up another $1.4 million or 1,000 in headcount. So that's pretty significant labor cost that we bring on, get trained and make sure we're ready for these product ramps. And then when they don't happen, you sit there with a little bit of a labor cost that you don't have. And then every time you run into a program launch and so forth, smoothing out the first passes and developing the process flows, making sure your yields are in line and so forth, there's somewhat of a learning curve that you go through. And in the first -- and so as you introduce these new products, you go through that learning curve and then you just get better and better and better, and your yields and margins and inefficiencies kind of decrease. And so that's what the challenge was that we had in the third quarter. Now we're into the fourth quarter, I think we've got the right amount of labor involved and the inefficiencies are now behind us. So we're pretty optimistic on what can happen with our advanced HDI work in the fourth quarter.

Okay. And then just looking at where utilization is on the advanced HDI business maybe exiting the fourth quarter. Can you talk about where it can go and then the implications for your capital spending next calendar year? And then just very lastly, it seems like the flexible board and rigid-flex business started to become a little bit sizable. Can you just give a little color on the type of growth you're expecting and why maybe over the next 12 months there?

Sure. Yes, I think on the -- I forgot the first question, though.

Utilization...

Utilization. Yes, sorry about that. On our HDI utilization, in Asia Pacific, we ran at about 85%. When we exited the quarter, we were up to the 95%, pretty much at maximum capacity with HDI. And then of course, the conventionals, the facilities, the capacity utilization continue to decrease down to maybe the high 60s, 68% so that's where we're at on capacity utilization. Our substrate business, we are growing that business. It's a niche business. It's doing really well for us, and it ties right in with the smartphones and touchpad tablet products. It ties into the handheld products and so forth. We also on the rigid-flex and the flex business, there again, that are opportunities that come to us as we service our smartphone and touchpad tablet customers. And it's not mainstream type of flex, if you will. It's more specialize and more particular right to the customers that we are serving. And we continue to look at that business and service our customers as part of a broad product offering to our customers. So we anticipate that, that will continue to grow. A portion of our CapEx has gone into expanding that capability. And it's the portion of the business that came to us pretty naturally. But as that grows and we get more efficient and more capable in that, we're starting to look and see if we can expand that business. So it's went from like 5% to 12% of our revenue in the fourth quarter, and we anticipate that, that will continue to grow. On the CapEx, we're in the process here of putting together our CapEx numbers for next year. There's a couple of directions we could go, but it's pretty clear to us that the investments that we made in the past will…

And our next question comes from the line of Amitabh Passi from UBS.

I apologize if you gave this number out, what was the percentage of HDI and advanced HDI in your Asia Pac business?

The percentage of...

Well, the advanced HDI was 23% this quarter, same as last quarter. And I believe the regular HDI was like 18%, for a total of 41%.

Right.

Okay. And then the utilization rates you gave us for the conventional PCB side in the high 60s, was that applicable to North America as well? Or was that just your facilities in Asia?

That was just in Asia. Our capacity utilization rate in North America is running at 65%. It's down about 10% from the prior quarter.

Okay. And then Kent, I was just curious, maybe you could just help us understand demand terms in your networking and comms segment. During the quarter, how did orders generally proceed? And if you can give us any incremental insight into the December quarter between the networking and wireless segments.

Yes, in the networking and telecommunication, I mean, it's still a very tough end market for us, and we have yet to see any buildout of the Internet infrastructure. And we're forecasting that in the fourth quarter, we don't see anything that's going to make any difference for us in the fourth quarter. Now having said that, if you look at that business longer term, with the amount of data and other transmitted over the Internet, we believe that that's still, at some point in time, will be a solid Internet infrastructure for us. So we've seen within that the kind of the high-end routers, the slow in demand, sometimes the midrange for routers and switches have been okay.

And just my final question, Steve, for you, what should we expect for potential wage inflation into 2013? Should we expect a similar pattern where, going into the second quarter, we tend to see a bit of a spike?

Yes, it's a bit too soon to say given kind of the softening of the Chinese economy and growth-related change in government there. But I do think that we'd see some further wage pressures probably in the same time we did this year and last year about Q2. We, of course, would see that kind of augmented by Code of Conduct changes as well. So I think there'd be just the kind of government-mandated wage increases, and I would hope they'd be in that 10%-ish range, maybe less, but it's just too soon to say.

[Operator Instructions] And our next question comes from the line of Rich Kugele from Needham & Company. Richard Kugele - Needham & Company, LLC, Research Division: Just one last question on the networking side. Obviously, a couple of the Asian customers that you dealt with in the past were a focal point of Washington recently, and I'm just wondering if you changed your strategy in dealing with them at all, if you expect it to impact to your growth opportunities with them or if you think you can offset it elsewhere.

Yes, Rich, that's a good question. And certainly, we listen to the comments coming out of Washington and the committees and the recommendations there. We don't think -- we think it's way too early in the process to make any changes in our strategy, and that doesn't -- and it hasn't impacted our relationship with those customers. And those customers, I think they have some growth opportunities we'd like to take advantage of and be part of. And so as far as we can see right now, there is no change in any relationships, and there is no intentions on our side or the other side to alter what we do.

And at this time, there are no further questions in my queue. I would like to turn the conference back over to Mr. Alder for closing comments.

Okay. Well, again, thank you very much for everyone in attending. We certainly appreciate the questions. If you have follow-up questions, let Steve or myself know, and we'll be very happy to answer those questions for you. And I would like to -- just hope that everyone that's been impacted by the storm on the East Coast is faring well, and hopefully life gets back to normal for all those that are impacted. We watch the news, and wish everyone the best there. So with that, we'll conclude this call and look forward to seeing you next quarter. Thank you very much.

Ladies and gentlemen, this does conclude our conference for today. If you would like to listen to a replay of today's conference, it will be available until November 6, 2012, at midnight. You may access the replay system at anytime by dialing 1 (800) 406-7325 or (303) 590-3030 and entering the access code of 4572041 pound. We thank you, all, for your participation. And at this time, you may now disconnect.