Photronics Incurred FY Q2 Decline in Gen 10.5 Photomasks for Large TVs

Photronics sustained record revenue growth for the fifth straight quarter, as “demand across the board has remained strong,” said Chief Financial Officer John Jordan on an earnings call Wednesday for its fiscal Q2 ended May 1. The company supplies integrated-circuit and flat-panel display (FPD) photomasks to chipmakers and panel manufacturers, and is a bellwether of semiconductor and display industry conditions.

Photronics is investing heavily in technology that’s “aligned with market drivers,” said Jordan. Establishing long-term purchase agreements with customers enables Photronics to “quickly and profitably ramp new tools, while maintaining high utilization on existing tools,” he said.

IC revenue in fiscal Q2 was $145.8 million, up 12% sequentially from Q1 and 30% higher than in the year-earlier quarter “on strong global demand for our photomasks,” said Jordan. “High-end demand was driven by foundries in Asia and the U.S., as semiconductor content in consumer goods continues to increase.”

With higher semiconductor content in electronics, automotive, appliances and many more applications, “new designs continue being released to satisfy this demand,” said Jordan. The rollout of 5G network deployments is another “catalyst in demand growth,” said the CFO. “This proliferation of chips is a driver of photomask demand.” As the use of semiconductors “continues to proliferate,” and demand growth exceeds “the capacity to supply it,” that creates “a change in the pricing environment, primarily in trailing-edge masks, but also in the high-end business, that is helping us to further expand margins,” he said.

Revenue in the Photronics FPD photomask business was $58.7 million, down 2% from Q1, primarily due to a decrease in “mainstream” LCD panels, said Jordan. High-end FPD photomask revenue was “slightly higher” than the mainstream segment, “thanks to continued strong mobile demand,” he said. Growth in displays for mobile applications “offset the decline” in Gen 10.5 photomasks for large-screen TVs, he said. Photronics expects demand to remain strong in AMOLED and low-temperature polycrystalline silicon displays for mobile devices, said Jordan. It also forecasts “some increase” in Gen 10.5 photomasks, plus “continued reliable demand for mainstream LCD displays,” he said.

Revenue from photomasks shipped to customers in China “achieved another record quarter,” increasing 8% sequentially from Q1 and 58% year over year, said Jordan. “Our past business development and operational expansion initiatives are reaping the benefits we anticipated.” The COVID-19 lockdowns "initially slowed down all business activities in China, especially in the Shanghai area," said CEO Frank Lee on his first earnings call since taking the Photronics helm in mid-May. "The situation has been gradually recovering, and recently new orders have started to come in." The negative impact from the lockdowns "was short, and should be fully recovered already," he said.