TEMPE, AZ, July 28 -- Three-Five Systems today reported a second-quarter net loss of $6.7 million on sales of $37.6 million. 

The loss worsened from the March quarter ($6.6 million) and a year ago $(4.9 million). CFO Jeffrey Buchanan blamed product pricing and mix issues at the EMS firm's Redmond, WA, facility and the integration of Integrex, another EMS company.

Gross margin was 5.4%, excluding writeoffs and the Redmond plant results. Overall the gross margin showed a loss of 0.5%.

For the quarter, operating cash outflow was $5.4 million and net capital expenditures were $5.1 million. At quarter's end TFS had $18.7 million in cash, vs. $26.5 million sequentially.

Sequentially, sales outstanding improved by three days, to 59 days. Inventory turns slowed to 5.4 from 5.7

TFS guided for third-quarter sales of $38 million and $41 million and a net loss of 24 to 26 cents. Q4 revenue of $48 million and $60 million is expected.