Ultra Clean Technologies, Sloppy Operations

By Anders Bylund | More Articles
February 15, 2011 | Comments (1)

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Ultra Clean Technologies (Nasdaq: UCTT ) is one of the most volatile stocks in the tech sector. The company lived up to that reputation today as its shares plunged as much as 21% after last night's fourth-quarter report.

The $120 million of sales was a pleasant surprise, but that didn't translate into strong profits. CEO Clarence Granger noted that gross margins were weak and will "remain a focus" for Ultra Clean in coming quarters, compounded by a higher tax rate.

Ultra Clean's woes didn't affect the chip-making equipment industry to any great degree. Companies like Benchmark Electronics (NYSE: BHE ) , Sanmina-SCI (Nasdaq: SANM ) , and Flextronics (Nasdaq: FLEX ) that compete against subsystems made by Ultra weren't affected by the company's earnings miss and tepid guidance.

There's no doubt in my mind that audacious manufacturing buildout plans from Intel (Nasdaq: INTC ) , Samsung, and Taiwan Semiconductor Manufacturing (NYSE: TSM ) will keep the industry prosperous for at least another year or two, and many investors seem to agree.

No, this crash was Ultra Clean's personal disaster and not an indictment of the sector in which it works. Fellow Fool John Keeling sees low-quality earnings in Ultra Clean, and the company has plans to raise as much as $100 million by way of dilutive stock sales. That's a lot of new shares for a $240 million micro-cap company.

In short, Ultra Clean's operations and management hardly inspire a lot of confidence. How this manages to be a five-star CAPS stock (out of five) is beyond me.

If you can explain that mystery to me, the comments box is waiting below.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. Intel is a Motley Fool Inside Value pick. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended buying calls on Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On February 15, 2011, at 11:22 PM, Javair wrote:

For the most part the management in the past has performed well especially in the middle of a recession. They were able to reduce their debt. Which is a good thing and then expand their product lines while returning to profitability. They just may be a case of trying to do too much to quickly. Thus the operational issues. Is giving these guys more capital to work with a good thing. I think so but it will be a while before shareholders experience the benefits.

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