Semiconductor photomask manufacturer Photronics (NASDAQ:PLAB) announced better-than-expected results in the Q2 FY2023 quarter, with revenue up 12.1% year on year to $229.3 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $229 million at the midpoint, 4.09% above what analysts were expecting. Photronics made a GAAP profit of $59.3 million, improving on its profit of $43 million, in the same quarter last year.
Is now the time to buy Photronics? Access our full analysis of the earnings results here, it's free.
Photronics (PLAB) Q2 FY2023 Highlights:
- Revenue: $229.3 million vs analyst estimates of $211 million (8.68% beat)
- EPS: $0.65 vs analyst estimates of $0.45 (46.1% beat)
- Revenue guidance for Q3 2023 is $229 million at the midpoint, above analyst estimates of $220 million
- Free cash flow of $55.4 million, up from negative free cash flow of $3.42 million in previous quarter
- Inventory Days Outstanding: 35, down from 36 previous quarter
- Gross Margin (GAAP): 38.6%, up from 34.3% same quarter last year
“We achieved record revenue in the second quarter with growth across IC and FPD as demand for our design-driven product remained high,” said Frank Lee, chief executive officer.
Sporting a global footprint of facilities, Photronics (NASDAQ:PLAB) is a manufacturer of photomasks, templates used to transfer patterns onto semiconductor wafers.
The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers and data storage. The growth of data and technologies like artificial intelligence, 5G networks and smart cars are also creating a next wave of growth for the industry. To keep up with ever changing customer needs requires new tools that can design, fabricate and test at ever smaller sizes and more complex architectures, and that is driving the demand for semiconductor capital manufacturing equipment.
Sales Growth
Photronics's revenue growth over the last three years has been mediocre, averaging 14% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $204.5 million to $229.3 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).
This was an OK quarter for Photronics with revenues growing 12.1%, ahead of analyst estimates by 8.68%. This marks 9 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.
However, Photronics believes the growth is set to continue, and is guiding for revenue to grow 4.12% YoY next quarter, and Wall St analysts are estimating growth 1.18% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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 inventory days came in at 35, 1 days below the five year average, showing no indication of an excessive inventory buildup at the moment.
Key Takeaways from Photronics's Q2 Results
With a market capitalization of $1.08 billion Photronics is among smaller companies, but its more than $412.9 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
We were very impressed by the strong improvements in Photronics’s gross margin this quarter. And we were also glad to see the improvement in operating margin. Zooming out, we think this was a strong quarter. The company is up 4.76% on the results and currently trades at $18.04 per share.
Photronics may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.