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Suntron Corporation Reports Third Quarter 2005 Results

15 November 2005

Suntron Corporation (Nasdaq: SUNN - News), a leading provider of integrated electronics manufacturing solutions, today reported revenue of $80.4 million, gross profit of $5.5 million and an operating loss of $0.4 million for the third quarter of 2005. Gross profit increased $1.6 million and operating loss improved $2.7 million in the third quarter of 2005 as compared to the second quarter of 2005.
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Gross profit as a percentage of net sales improved to 6.9% for the third quarter of 2005, compared to 4.7% on net sales of $81.8 million in the second quarter of 2005 and 5.9% on net sales of $128.5 million in the third quarter of 2004. These gross profit results include restructuring charges of $0.5 million for the second quarter of 2005, $0.3 million for the third quarter of 2005 and $0.1 million for the third quarter of 2004. The improvement in gross profit for the third quarter of 2005 compared with the second quarter of 2005 was primarily attributable to the cumulative impact of restructuring and cost containment actions that were initiated in the second and third quarters of 2005. Changes in product sales mix also contributed favorably to the improved performance in the third quarter of 2005.

Selling, general and administrative expense (SG&A) decreased to $5.7 million for the third quarter of 2005 compared to $6.1 million for the second quarter of 2005, primarily due to a decrease in bad debt expense. SG&A decreased by $0.1 million in the third quarter of 2005 compared to SG&A of $5.8 million for the third quarter of 2004. The $0.1 million decrease in SG&A was primarily attributable to decreases in salaries and benefits of $1.2 million, partially offset by net bad debt recoveries of $0.7 million and legal fees of $0.4 million related to our lawsuit against Applied Materials.

Operating loss for the third quarter of 2005 improved by $2.7 million to $0.4 million, compared to $3.1 million for the second quarter of 2005. The improvement in operating loss in the third quarter of 2005 compared to the second quarter of 2005 was a result of the lower cost structure implemented in the second and third quarter of 2005 and higher margin sales mix. For the third quarter of 2004, operating income was $1.4 million which was primarily attributable to better factory utilization associated with higher net sales

Net loss for the third quarter of 2005 was $1.5 million, an improvement of $2.2 million compared to second quarter of 2005. Consequently, earnings per share (EPS) improved by $0.08 per share to a loss of $0.06 per share for the third quarter of 2005. For the third quarter of 2004, net income was $0.1 million and earnings per share was less than $0.01 per share.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter of 2005 improved by $2.1 million to $1.6 million, as compared to EBITDA of negative $0.5 million reported for the second quarter of 2005. EBITDA for the third quarter of 2004 was $3.6 million.

Cash flow from operating activities for the third quarter of 2005 was $1.3 million compared to operating cash flow of $4.2 million in the second quarter of 2005. Operating cash flow for the third quarter of 2004 was negative $2.4 million. The primary reason for the improvement in operating cash flow in 2005 compared to 2004 was a decrease in working capital requirements associated with lower net sales. At October 2, 2005, the Company had debt outstanding of $49.6 million as compared to $53.5 million at July 3, 2005.

"We have made significant strides to reduce costs, and improve asset utilization which resulted in our second consecutive quarter of improved financial results," stated Paul Singh, Suntron's president and chief executive officer. "As we look ahead to the fourth quarter, we expect up to 5% higher net sales and further improvement in our financial results," said Mr. Singh. "Our management team is focused on improving operational performance, exceeding customer expectations and returning us to profitability," concluded Mr. Singh.

About Suntron Corporation

Suntron delivers complete manufacturing services and solutions to support the entire life cycle of complex products in the aerospace and defense, industrial, semiconductor capital equipment, networking and telecommunications, and medical markets. Headquartered in Phoenix, Arizona, Suntron operates seven full-service, manufacturing facilities and two quick- turn manufacturing facilities in North America. Suntron is involved in product design, engineering services, cable and harness production, printed circuit card assembly, box build, and large scale and complex system integration and test. The Company has approximately 1,620 employees and contract workers.

Income Statement Summary
(In Thousands, Except Per Share Amounts)

Q3 Q2 Q3
2004 2005 2005
Net Sales $128,542 $81,758 $80,383
Gross Profit 7,629 3,874 5,515
SG&A Expense 5,762 6,136 5,652
Operating Income (Loss) 1,397 (3,060) (369)
Net Income (Loss) 110 (3,745) (1,534)
Earnings (Loss) Per
Common Share 0.00 (0.14) (0.06)

Selected Financial Data
(In Thousands)

Q3 Q2 Q3
2004 2005 2005
EBITDA $3,567 $(538) $1,616
Cash Flow Provided (Used)
by Operating Activities (2,396) 4,234 1,295
Restructuring Charges:
Included in Cost of
Goods Sold (50) (475) (296)
Other (282) (611) (44)
Working Capital (End of Period) 17,390 12,341 12,829

The primary measure of our operating performance is net income (loss). However, the Company's lenders and many investment analysts believe that other measures of operating performance are relevant. One of these alternative measures is Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"). Management emphasizes that EBITDA is a non-GAAP measurement that excludes many significant items that are also important to understanding and assessing Suntron's financial performance. Additionally, in evaluating alternative measures of operating performance, it is important to understand that there are no standards for these calculations. Accordingly, the lack of standards can result in subjective determinations by management about which items may be excluded from the calculations, as well as the potential for inconsistencies between different companies that have similarly titled alternative measures. In order to illustrate our EBITDA calculations, we have provided the details of the calculation as follows:

Calculation of EBITDA
(In Thousands)

Q3 Q2 Q3
2004 2005 2005
Net Income (Loss) $110 $(3,745) $(1,534)
Interest Expense 991 1,187 1,199
Income Tax Expense -- -- --
Depreciation and Amortization 2,466 2,020 1,951
EBITDA $3,567 $(538) $1,616

Balance Sheet Summary
(In Thousands)

September 26, July 3, October 2,
2004 2005 2005
Cash and Equivalents $13 $23 $97
Trade Receivables, Net 55,120 46,061 48,695
Inventories, Net 85,160 65,316 63,002
Other Current Assets 1,484 1,191 1,242
Property, Plant &
Equipment, Net 36,524 30,399 28,583
Goodwill 10,390 10,918 10,918
Other Assets 3,207 2,735 2,545
Total Assets $191,898 $156,643 $155,082

Accounts Payable $41,879 $33,677 $33,252
Accrued Liabilities 14,110 12,260 13,637
Outstanding Checks in Excess of Cash6,758 853 3,717
Bank Debt 61,640 53,460 49,601
Other Long-term Liabilities 443 411 339
Stockholders' Equity 67,068 55,982 54,536
Total Liabilities and
Stockholders' Equity $191,898 $156,643 $155,082

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This release contains forward-looking statements that relate to future events or performance. These statements reflect Suntron's current expectations, and Suntron 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, readers are cautioned that these statements involve risks and uncertainties, many of which are beyond Suntron'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, general economic conditions and specific conditions in the electronics industry, including the semiconductor and aerospace segments of the electronics industry; Suntron's dependence upon a small number of customers; the Company's ability to attract new customers and maintain existing customers; cash availability/liquidity; changes or cancellations in customer orders; the risks inherent with predicting cash flows, revenue and earnings outcomes as well as other factors identified as "Factors That May Affect Future Results" or otherwise described in Suntron's filings with the Securities and Exchange Commission from time to time.