PHOTRONICS Q2 FY26 earnings call PLAB

Photronics is actively investing in its US (Allen) and Korea operations to enhance its position in the high-end photomask market. The Korea facility is preparing for equipment installation later in FY26 to extend capabilities to 8-nanometer and below, with initial revenue expected by the end of FY27. Concurrently, the Allen facility has begun producing qualification masks, targeting initial revenue late in FY26 and a more significant contribution to revenue growth in 2027 and beyond, aiming to become a crucial supplier for US mainstream semiconductor manufacturing.

The IC business experienced a 5% year-over-year decrease, contributing to flat total revenue. This decline was primarily attributed to several near-term headwind^📎s, including elevated fab utilization rates that limited new design releases, memory price surges and supply constraints delaying consumer electronic product launches, and increased macroeconomic uncertainty^🌐 due to geopolitical developments like the US-Iran conflict. The anticipated seasonal recovery following Chinese New Year did not materialize to the expected extent, indicating a prolonged slowdown in tape-outs.

In contrast to the IC segment, the FPD business demonstrated strong performance, with revenue increasing 13% year-over-year to $62 million, marking one of its strongest quarters. Demand remains robust in the China market, particularly for high-end AMOLED applications. In Korea, business activity reaccelerated in preparation for scheduled consumer electronic launches. A newly installed FPD mask writer is entering production, poised to capitalize on G 8.6 AMOLED opportunities, which feature higher ASP mask layers and are expected to see wider adoption later in the calendar year.

Photronics continues to advance its technology capabilities, with its high-end US facility in Boise qualified to produce masks at the 7-nanometer node. The company's teams are actively collaborating with customers on even more advanced nodes, demonstrating a commitment to pushing technological boundaries. Additionally, facilities in Taiwan and the US are strategically positioned to capture increasing opportunities in advanced chip packaging applications, aligning with industry trends.

The company generated $47 million in operating cash flow, representing 22% of revenue. Capital expenditures totaled $46 million, directed towards the Korea expansion for 8nm production, new equipment in Allen, Texas, end-of-life tool upgrades, and facility optimization. Total cash and short-term investments remained stable at $638 million, including $477 million held within joint ventures. Photronics' capital allocation strategy prioritizes reinvestment for organic growth, pursuing strategic opportunities, and returning capital to shareholders.