Hutchinson Technology Third Quarter Earnings Per Share Total $0.22; Quarter's Earnings Include $0.10 Per Share Increase on Resolution of Supplier Dispute.

HUTCHINSON, Minn. -- Hutchinson Technology Incorporated (Nasdaq/NMS:HTCH) today reported net income of $5,838,000, or $0.22 per diluted share, on net sales of $169,599,000 for its fiscal third quarter ended June 25, 2006. The company's fiscal 2006 third quarter net income includes an increase to operating income of $5,000,000, or $0.10 per diluted share, resulting from the resolution of a dispute with a former supplier. Excluding this increase to operating income, the company's fiscal third quarter net income would be $3,126,000 or $0.12 per diluted share.

In the comparable fiscal 2005 period, the company reported net income of $19,642,000, or $0.65 per diluted share, on net sales of $169,676,000. Net income for the fiscal 2005 third quarter was increased by $2,792,000, or $0.09 per diluted share, as a result of a refund, with interest, of certain Minnesota corporate income taxes paid for the years 1995 through 1999 and the reversal of a related tax reserve, offset in part by an adjustment to the carrying value of net operating loss carryforwards. Excluding these items, the company's fiscal 2005 third quarter net income would have totaled $16,850,000, or $0.56 per diluted share.

For the 39 weeks ended June 25, 2006, Hutchinson Technology reported net income of $19,756,000, or $0.72 per diluted share, on net sales of $540,152,000. Net income for the 39-week period includes the increase to operating income noted above. Excluding this increase, net income for the 39-week period would be $17,044,000, or $0.63 per diluted share.

In the comparable fiscal 2005 period, the company reported net income of $48,224,000, or $1.63 per diluted share, on net sales of $473,336,000. Net income for the fiscal 2005 39-week period includes the tax refund and related items noted above. Excluding these items, the company's net income for the 39 weeks ended June 26, 2005 would have totaled $45,432,000, or $1.54 per diluted share.

The company shipped approximately 192 million suspension assemblies in the fiscal 2006 third quarter compared with approximately 188 million in the fiscal 2005 third quarter and approximately 205 million in the preceding quarter. Wayne M. Fortun, Hutchinson Technology's president and chief executive officer, said the company believes the decline in volume compared with the fiscal 2006 second quarter resulted from seasonally lower demand for disk drives used in desktop applications and certain head-gimbal assemblers and disk drive manufacturers managing existing suspension assembly inventories. Overall average suspension assembly selling prices in the fiscal 2006 third quarter decreased to $0.84 compared with $0.86 in both the preceding quarter and the fiscal 2005 third quarter as a result of a higher mix of mature products with lower selling prices.

Gross margin for the fiscal 2006 third quarter was 19 percent, compared with 22 percent in the preceding quarter and 30 percent in the fiscal 2005 third quarter. The decline in third quarter gross margin was primarily the result of underutilization of manufacturing capacity added in the last year and the associated increases in depreciation and overhead. The negative impact of the underutilization was somewhat mitigated, however, by improvements in yields and labor productivity.

"During the third quarter, we made substantial gains in yields on advanced TSA products," said Fortun. "Our overall TSA yields in the fiscal 2006 third quarter were among the highest we have ever achieved. In addition, compared with the preceding quarter, we made improvements in labor productivity in all of our manufacturing processes."

Research and development expenses in the fiscal 2006 third quarter totaled $13,906,000 compared with $13,370,000 in the preceding quarter and $9,571,000 in the fiscal 2005 third quarter. "The increase in research and development spending reflects continued commitment to developing our additive processing capabilities, strong demand for new suspension assembly designs and product prototypes and continued investment in the company's InSpectra(TM) StO(2)Tissue Oxygenation Monitor," said Fortun. In a separate announcement today, the company said it has received U.S. Food and Drug Administration clearance to begin marketing this product, which is designed for clinical use in trauma and emergency medicine settings.

The company generated $11,871,000 in cash from operations during the fiscal 2006 third quarter. At quarter end, the company's cash, cash equivalents and securities held for sale totaled $323,494,000 compared with $370,868,000 at the end of the preceding quarter. The decline is primarily the result of capital expenditures that totaled $59,743,000 in the quarter. Fortun said the company now expects to reduce capital spending for the full year to about $250,000,000 as the company manages its capacity and capital spending to align with near-term demand. He said the majority of planned capital spending for the remainder of fiscal 2006 is focused on development of additive processes required for next-generation suspension assemblies.

In updated forecasts, industry analysts now expect calendar year 2006 disk drive shipments to grow between 14 to 17 percent compared with calendar year 2005. "We continue to expect worldwide demand for suspension assemblies to track the rate of growth in disk drive shipments over the long term," said Fortun.

For its fiscal 2006 fourth quarter, the company currently expects suspension assembly shipments to range from 195 to 210 million units. Overall average selling prices are expected to range from $0.83 to $0.84, generating net sales of approximately $170 to $185 million. At the currently expected level of fourth quarter production volume, the company's manufacturing capacity will be further underutilized, resulting in fiscal 2006 fourth quarter gross margin of 15 to 20 percent. Net earnings per share are expected to range from a loss of $0.15 to a profit of $0.15.

Hutchinson Technology is the leading worldwide supplier of suspension assemblies for disk drives. Hutchinson Technology's BioMeasurement Division provides health professionals with simple, accurate methods to measure the oxygen in tissue.

This announcement contains forward-looking statements regarding demand for and shipments of the company's products, the company's manufacturing capacity and capital expenditures, research and development spending and worldwide disk drive and suspension assembly demand and shipments, selling prices, results of operations and operating performance. The company does not undertake to update its forward-looking statements. These statements involve risks and uncertainties. The company's actual results could differ materially from those anticipated in these forward-looking statements as a result of changes in market demand and market consumption of disk drives or suspension assemblies, the company's ability to produce suspension assemblies with features at levels of precision, quality, variety, volume and cost its customers require, changes in its utilization of capacity, changes in product mix, changes in required investment to increase manufacturing capacity and develop process capabilities, changes in expected data density and other factors described from time to time in the company's reports filed with the Securities and Exchange Commission.

The company will conduct a conference call and webcast for investors beginning at 4:00 p.m. Central Time (CT) on July 20, 2006. Individual investors and news media may participate in the conference call via the live webcast. The webcast will be available through the Investor Relations page on Hutchinson Technology's web site at www.htch.com. Webcast participants will need to complete a brief registration form and should allot extra time before the webcast begins to register and, if necessary, download and install audio software. A replay of the call will be available beginning at approximately 6:00 p.m. CT on July 20 until midnight CT Saturday, July 22, 2006. To access the replay, dial 800-405-2236 and enter 11064340# at the reservation number prompt.

Hutchinson Technology Incorporated
                          (Nasdaq/NMS:HTCH)

                                              Thirteen Weeks Ended
                                          ----------------------------
                                           June 25, 2006 June 26, 2005
                                           ------------- -------------
Net sales                                  $169,599,000  $169,676,000
Gross profit                                $32,111,000   $51,434,000
Income from operations                       $2,942,000   $20,713,000
Net income                                   $5,838,000   $19,642,000
Net income per common share:
  Basic                                           $0.23         $0.77
  Diluted                                         $0.22         $0.65
Net income - excluding dispute settlement    $3,126,000
Net income - excluding tax benefit                        $16,850,000
Net income per common share - excluding
 dispute settlement:
  Basic                                           $0.12
  Diluted                                         $0.12
Net income per common share - excluding tax
 benefit:
  Basic                                                         $0.66
  Diluted                                                       $0.56
Weighted average common and
 common equivalent shares outstanding:
  Basic                                      25,648,000    25,378,000
  Diluted                                    30,872,000    31,103,000

                                             Thirty-Nine Weeks Ended
                                           ---------------------------
                                           June 25, 2006 June 26, 2005
                                           ------------- -------------
Net sales                                  $540,152,000  $473,336,000
Gross profit                               $113,272,000  $140,072,000
Income from operations                      $14,129,000   $53,451,000
Net income                                  $19,756,000   $48,224,000
Net income per common share:
  Basic                                           $0.77         $1.92
  Diluted                                         $0.72         $1.63
Net income - excluding dispute settlement   $17,044,000
Net income - excluding tax benefit                        $45,432,000
Net income per common share - excluding
 dispute settlement:
  Basic                                           $0.67
  Diluted                                         $0.63
Net income per common share - excluding tax
 benefit:
  Basic                                                         $1.81
  Diluted                                                       $1.54
Weighted average common and
 common equivalent shares outstanding:
 Basic                                       25,598,000    25,107,000
 Diluted                                     30,869,000    30,724,000


                                    At June 25, 2006 At Sept. 25, 2005
                                   ----------------- -----------------

Total assets                         $1,058,539,000      $799,538,000
Cash and cash equivalents               $78,436,000       $33,733,000
Securities available for sale          $245,058,000      $172,778,000
Total shareholders' investment         $579,033,000      $552,539,000



                  Hutchinson Technology Incorporated
     Condensed Consolidated Statements of Operations - Unaudited
                (In thousands, except per share data)

                         Thirteen Weeks Ended  Thirty-Nine Weeks Ended
                         --------------------- -----------------------
                          June 25,   June 26,    June 25,    June 26,
                            2006       2005        2006        2005
                         ----------- --------- ------------- ---------

Net sales                  $169,599  $169,676      $540,152  $473,336

Cost of sales               137,488   118,242       426,880   333,264
                         ----------- --------- ------------- ---------

   Gross profit              32,111    51,434       113,272   140,072

Research and development
 expenses                    13,906     9,571        40,023    25,488

Selling, general and
   administrative
    expenses                 20,263    21,150        64,120    61,133
                         ----------- --------- ------------- ---------

Dispute settlement           (5,000)        -        (5,000)        -
                         ----------- --------- ------------- ---------

   Income from
    operations                2,942    20,713        14,129    53,451

Interest expense             (2,522)     (395)       (4,995)   (1,636)

Interest Income               3,903     3,020         9,138     5,725

Other income, net             1,352     1,283         3,859     3,585
                         ----------- --------- ------------- ---------

   Income before income
    taxes                     5,675    24,621        22,131    61,125

Provision (benefit) for
 income taxes                  (163)    4,979         2,375    12,901
                         ----------- --------- ------------- ---------

   Net income                $5,838   $19,642       $19,756   $48,224
                         =========== ========= ============= =========

Basic earnings per share      $0.23     $0.77         $0.77     $1.92
                         =========== ========= ============= =========

Diluted earnings per
 share                        $0.22     $0.65         $0.72     $1.63
                         =========== ========= ============= =========

Weighted average common
   shares outstanding        25,648    25,378        25,598    25,107
                         =========== ========= ============= =========

Weighted average common
   and diluted shares
    outstanding              30,872    31,103        30,869    30,724
                         =========== ========= ============= =========


                  Hutchinson Technology Incorporated
          Condensed Consolidated Balance Sheets - Unaudited
                  (In thousands, except shares data)

                                              June 25,   September 25,
ASSETS                                          2006         2005
                                             ----------- -------------
Current assets:
  Cash and cash equivalents                     $78,436       $33,733
  Securities available for sale                 245,058       172,778
  Trade receivables, net                         89,412        85,019
  Other receivables                              13,950        11,181
  Inventories                                    86,791        54,780
  Deferred tax assets                             8,434         7,206
  Prepaid taxes and other                         7,449         5,430
                                             ----------- -------------
        Total current assets                    529,530       370,127
Property, plant and equipment, net              449,346       350,520
Deferred tax assets                              57,544        61,078
Other
 assets                                          22,119        17,813
                                             ----------- -------------
                                             $1,058,539      $799,538
                                             =========== =============

LIABILITIES AND SHAREHOLDERS' INVESTMENT

Current liabilities:
  Current portion of long-term debt              $1,230            $-
  Accounts payable                              $53,212       $56,128
  Accrued expenses                               18,452        13,238
  Accrued compensation                           23,814        24,873
                                             ----------- -------------
        Total current liabilities                96,708        94,239
Long-term debt, less current maturities           5,613             -
Convertible subordinated notes                  375,000       150,000
Other long-term liabilities                       2,185         2,760
Shareholders' investment:
  Common stock $.01 par value, 100,000,000
   shares
      authorized, 25,617,000 and 25,450,000
      issued and outstanding                        256           254
  Additional paid-in capital                    397,360       390,680
  Accumulated other comprehensive income           (655)         (712)
  Accumulated earnings                          182,072       162,317
                                             ----------- -------------
        Total shareholders' investment          579,033       552,539
                                             ----------- -------------
                                             $1,058,539      $799,538
                                             =========== =============


                  Hutchinson Technology Incorporated
     Condensed Consolidated Statements of Cash Flows - Unaudited
                        (Dollars in thousands)

                                              Thirty-Nine Weeks Ended
                                              ------------------------
                                                June 25,    June 26,
                                                 2006         2005
                                              ------------ -----------
Operating activities:
  Net income                                      $19,756     $48,224
  Adjustments to reconcile net income to
      cash provided by operating activities:
          Depreciation and amortization            87,463      49,057
          Stock-based compensation                  2,688
          Deferred income taxes                     2,340      14,301
          Loss on disposal of assets                  231          52
          Changes in operating assets and
           liabilities                            (25,765)     10,569
                                              ------------ -----------
            Cash provided by operating
             activities                            86,713     122,203
                                              ------------ -----------

Investing activities:
  Capital expenditures                           (191,705)   (137,182)
  Purchases of marketable securities           (1,428,247)   (413,983)
  Sales of marketable securities                1,355,990     422,370
                                              ------------ -----------
            Cash used for investing
             activities                          (263,962)   (128,795)
                                              ------------ -----------

Financing activities:
  Repayments of long-term debt                     (1,012)          -
  Repayments of capital lease obligation                -           -
  Net proceeds from issuance of convertible
   subordinated notes                             218,971           -
  Net proceeds from issuance of common stock        3,992      20,637
                                              ------------ -----------
            Cash provided by (used for)
             financing activities                 221,951      20,637
                                              ------------ -----------

Net increase in cash and cash equivalents          44,702      14,045

Cash and cash equivalents at beginning of
 period                                            33,733      33,704
                                              ------------ -----------

Cash and cash equivalents at end of period        $78,435     $47,749
                                              ============ ===========


                  Hutchinson Technology Incorporated
              Earnings Per Share Calculation - Unaudited
                (In thousands, except per share data)

                                    Thirteen Weeks   Thirty-Nine Weeks
                                         Ended             Ended
                                   ----------------- -----------------
                                   June 25, June 26, June 25, June 26,
                                     2006     2005     2006     2005
                                   -------- -------- -------- --------

Net income (A)                      $5,838  $19,642  $19,756  $48,224
Plus:  interest expense on
 convertible
       subordinated notes            1,008    1,008    3,025    3,025
Less:  additional profit sharing
 expense and
       income tax provision             75      358      687    1,046
                                   -------- -------- -------- --------
Net income available to common
 shareholders (B)                   $6,771  $20,292  $22,094  $50,203
                                   ======== ======== ======== ========

Weighted average common shares
 outstanding (C)                    25,648   25,378   25,598   25,107
Dilutive potential common shares     5,224    5,725    5,271    5,617
Weighted average common and
 diluted shares
                                   -------- -------- -------- --------
       outstanding (D)              30,872   31,103   30,869   30,724
                                   ======== ======== ======== ========

Basic earnings per share ((A)/(C))   $0.23    $0.77    $0.77    $1.92
Diluted earnings per share
 ((B)/(D))                           $0.22    $0.65    $0.72    $1.63


                  Hutchinson Technology Incorporated
  Reconciliation of Non-GAAP to GAAP Financial Measures - Unaudited
                (In thousands, except per share data)

                                    Thirteen Weeks   Thirty-Nine Weeks
                                         Ended             Ended
                                   ----------------- -----------------
                                   June 25, June 26, June 25, June 26,
                                     2006     2005     2006     2005
                                   -------- -------- -------- --------

Net income - GAAP                   $5,838  $19,642  $19,756  $48,224
Less dispute settlement             (5,000)           (5,000)
Increase in incentive compensation
 expense related to dispute
 settlement                            538               538
Income taxes expense on dispute
 settlement                          1,750             1,750
                                   --------          --------
Net income - excluding dispute
 settlement                         $3,126           $17,044
                                   ========          ========

Less adjustment to provision for
 income taxes for refund of state
 income taxes(1)                             (1,676)           (1,676)
Increase in incentive compensation
 expense related to refund of
 state income taxes                             133               133
Less interest income related to
 refund of state income taxes
Net income - excluding tax benefit           (1,249)           (1,249)
                                            --------          --------
Net income per common share -
 excluding dispute settlement(2):            16,850            45,432
                                            ========          ========

Basic earnings per share             $0.12             $0.67
Diluted earnings per share           $0.12             $0.63

Net income per common share -
 excluding tax benefit(3):
Basic earnings per share                      $0.66             $1.81
Diluted earnings per share                    $0.56             $1.54
Weighted average common and common
 equivalent shares outstanding:

Basic                               25,648   25,378   25,598   25,107
Diluted                             25,845   31,103   30,869   30,724

(1) Amounts reflect the refund of certain Minnesota corporate income
    taxes paid for the year 1995 through 1999 and the reversal of a
    related tax reserve offset in part by an adjustment to the
    carrying value of net operating loss carryforwards.

(2) Net income per common share - excluding dispute settlement, basic
    and diluted, is calculated by dividing net income - excluding
    dispute settlement by weighted average common and common
    equivalent shares outstanding basic and diluted, respectively.

(3) Net income per common share - excluding tax benefit, basic and
    diluted, is calculated by dividing net income - excluding tax
    benefit by weighted average common and common equivalent shares
    outstanding basic and diluted, respectively.