Photronics (NASDAQ:PLAB) Misses Q2 Sales Targets

Semiconductor photomask manufacturer Photronics (NASDAQ:PLAB) missed analysts’ expectations in Q2 CY2024, with revenue down 5.9% year on year to $211 million. Next quarter’s revenue guidance of $217 million also underwhelmed, coming in 1.4% below analysts’ estimates. It made a GAAP profit of $0.55 per share, improving from its profit of $0.44 per share in the same quarter last year.

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“Market softness in some segments during the quarter impacted photomask demand, reducing both IC and FPD revenue,” said Frank Lee, CEO.

Sporting a global footprint of facilities, Photronics (NASDAQ:PLAB) is a manufacturer of photomasks, templates used to transfer patterns onto semiconductor wafers.

Semiconductor Manufacturing

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.

Sales Growth

Photronics’s revenue growth over the last three years has been unremarkable, averaging 12% annually. This quarter, its revenue declined from $224.2 million in the same quarter last year to $211 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Photronics had a difficult quarter as revenue dropped 5.9% year on year, missing analysts’ estimates by 6.2%. This could mean that the current downcycle is deepening.

Photronics’s revenue growth has slowed over the last three quarters and its management team projects revenue to fall next quarter. As such, the company is guiding for a 4.6% year-on-year revenue decline, but Wall Street thinks there will be a recovery next year. Analysts’ estimates call for 5.2% growth over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Photronics’s DIO came in at 37, which is one day below its five-year average. These numbers show that despite the recent increase, there’s no indication of an excessive inventory buildup.

Key Takeaways from Photronics’s Q2 Results

We were impressed by Photronics’s strong operating margin improvement this quarter. On the other hand, its revenue and EPS missed and its revenue guidance for next quarter fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $24.10 immediately after reporting.

So should you invest in Photronics right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.