Photronics (NASDAQ:PLAB) Reports Weak Q1, Stock Drops

Kayode Omotosho /
2024/05/22 6:39 am EDT

Semiconductor photomask manufacturer Photronics (NASDAQ:PLAB) fell short of analysts' expectations in Q1 CY2024, with revenue down 5.4% year on year to $217 million. Next quarter's revenue guidance of $225 million also underwhelmed, coming in 6.3% below analysts' estimates. It made a GAAP profit of $0.58 per share, down from its profit of $0.65 per share in the same quarter last year.

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Photronics (PLAB) Q1 CY2024 Highlights:

  • Revenue: $217 million vs analyst estimates of $231 million (6.1% miss)
  • EPS (non-GAAP): $0.46 vs analyst expectations of $0.55 (16.4% miss)
  • Revenue Guidance for Q2 CY2024 is $225 million at the midpoint, below analyst estimates of $240 million
  • Gross Margin (GAAP): 36.5%, down from 38.6% in the same quarter last year
  • Inventory Days Outstanding: 36, up from 34 in the previous quarter
  • Free Cash Flow of $56.49 million is up from -$1.81 million in the previous quarter
  • Market Capitalization: $1.79 billion

“Second quarter revenue and gross margin were in line with the first quarter as positive seasonality trends were offset by business headwinds primarily related to temporary soft demand following the Chinese New Year holiday and the impact from earthquakes in Taiwan beginning in early April,” 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.

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 mediocre, averaging 13.1% annually. This quarter, its revenue declined from $229.3 million in the same quarter last year to $217 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 Total Revenue

Photronics had a difficult quarter as revenue dropped 5.4% year on year, missing analysts' estimates by 6.1%.

Photronics's revenue inverted from positive to negative growth this quarter, but its management team thinks this is but a blip. For the next quarter, Photronics is guiding to 0.4% year-on-year revenue growth. Analysts also think this outcome is likely, as they're projecting 9.1% 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.

Photronics Inventory Days Outstanding

This quarter, Photronics's DIO came in at 36, which is 2 days 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 Q1 Results

We were impressed by Photronics's strong operating margin improvement this quarter. On the other hand, its revenue and EPS both missed by a meaningful amount this quarter. To add insult to injury, guidance for next quarter missed analysts' expectations. Overall, this was a mediocre quarter for Photronics. The company is down 8.6% on the results and currently trades at $25.85 per share.

Photronics may have had a tough quarter, but does that actually create an opportunity to invest 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.