5. Photronics, Inc. (NASDAQ:PLAB)
Number of Hedge Fund Investors In Q1 2024: 19
Photronics, Inc. (NASDAQ:PLAB) makes and sells one of the most important chip manufacturing materials, the photomask. A photomask is what allows companies like TSMC and Samsung to use NVIDIA’s chip designs and transfer them to a silicon wafer to manufacture a chip. A slowdown in the broader semiconductor market, covering display, mature nodes, and other regions led to a weak materials market in 2023. This was also evident in China, where businesses are struggling with an economic slowdown as well. Since the sector takes some time to recover after a slowdown, Photronics, Inc. (NASDAQ:PLAB) might struggle in the future as well. These trends were also evident during its latest earnings report, which saw the firm’s adjusted EPS of $0.46 miss analyst estimates of $0.55.
Photronics, Inc. (NASDAQ:PLAB)’s two key business divisions deal with integrated circuits (ICs) which cover CPUs and other chips and high end LPDs (liquid phase deposition) used in display manufacturing. The firm shared details for both these divisions during the latest earnings call where it shared:
IC sales improved quarter-over-quarter while LPD decreased. Compared with the first quarter, gross margin was similar and operational margin was largely lower as we had higher R&D expense driven by an increase in qualification activity. As a result, reported EPS was $0.58. On an adjusted basis, EPS was $0.46. Cash flow was good during the quarter and we further strengthened our balance sheet to position us to invest in the market [indiscernible] growth opportunity we have, especially in IC. I would like to recognize the dedication of the global Photronics team this quarter to achieve these results, especially those in Taiwan that responded to added challenges. Turning to the market, reversing a trend seen over the previous three quarters, our IC mainstream sales increased, mainly driven by market share gains.
High end was down primarily due to lower U.S. demand. Consistent with most of the end users, we see the overall semiconductor environment gradually improving into our fiscal Q3 and Q4 across most IC segments and regions. High end LPD was softer as AMOLED design demand has [indiscernible] ahead of new premium smartphones that should begin production ahead of fall launches. Longer term, we remain optimistic regarding positive demand trends for both IC and LPD. IC customers in Asia continue to migrate to smaller design nodes, including 32 and 28 nanometers. We are well positioned to capture this business. We also expect megatrends, such as AI, to drive chip design activity to handle AI workloads and edge processes. We expect a wide range of IC types be developed in support of this AI ecosystem from GPU, CPU and ASIC, to high band memory and power electronics.
