Semiconductor photomask manufacturer Photronics (NASDAQ:PLAB) announced better-than-expected results in the Q1 FY2023 quarter, with revenue up 11.2% year on year to $211.1 million. However, guidance for the next quarter was less impressive, coming in at $210 million at the midpoint, being 1.87% below analyst estimates. Photronics made a GAAP profit of $29 million, down on its profit of $31.7 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) Q1 FY2023 Highlights:
- Revenue: $211.1 million vs analyst estimates of $201 million (5.02% beat)
- EPS: $0.23 vs analyst expectations of $0.40 (42.5% miss)
- Revenue guidance for Q2 2023 is $210 million at the midpoint, below analyst estimates of $214 million
- Free cash flow was negative $3.42 million, down from positive free cash flow of $13.3 million in previous quarter
- Inventory Days Outstanding: 36, up from 36 previous quarter
- Gross Margin (GAAP): 36%, up from 31.5% same quarter last year
“We made a great start to 2023 and grew revenue sequentially, as both IC and FPD high-end businesses improved due to ongoing design-driven demand,” 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 13.7% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $189.8 million to $211.1 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).
While Photronics beat analysts' revenue estimates, this was a very slow quarter with just 11.2% revenue growth. This marks 8 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 2.68% YoY next quarter, and Wall St analysts are estimating growth 3.79% over the next twelve months.
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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 36, which is exactly around the five year average, suggesting there isn't any unusual buildup of inventory at the moment.
Key Takeaways from Photronics's Q1 Results
With a market capitalization of $1.11 billion Photronics is among smaller companies, but its more than $374 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. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results still seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $18.02 per share.
Should you invest in Photronics 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.