Photronics (PLAB 9.15, -0.43, -4.49%) is trading lower today after reporting 4Q18
(Oct) earnings this morning. Photronics
is a supplier of photomasks, which are high precision quartz plates that contain microscopic
images of electronic circuits. A key element in the manufacture of semiconductors and
flat panel displays, photomasks are used to transfer circuit patterns onto
semiconductor wafers and flat panel display substrates during the fabrication
of integrated circuits and some flat panel displays.
Of note, PLAB is building a state-of-the-art manufacturing facility in China for high-end and mainstream flat panel display (FPD) photomask production. This should position PLAB as the largest merchant FPD photomask supplier in China, with leading edge technology for large format displays, including G10.5+, and AMOLED for mobile displays. Production should start in early spring 2019.
Turning to the OctQ results, EPS rose 125% yr/yr to $0.18, which was at the higher end of prior guidance of $0.14-0.19. Revenue rose 20% yr/yr and 6% sequentially to a record $144.7 mln, which was a good bit above prior guidance of $133-141 mln. In terms of guidance for 1Q19 (Jan), PLAB expects EPS of $0.01-0.07 and revenue of $120-130 mln. Both metrics are below market expectations.
PLAB achieved record revenue, with growth in both IC and FPD, as mask demand remained strong and PLAB continued to benefit from the successful repositioning of the business. Record revenue in FPD was accomplished through growth in high-end AMOLED, strong demand in Korea and solid demand in China. Within IC, high-end memory increased sequentially while high-end logic decreased as customers experienced softening demand in their end markets.
While revenue increased, margins were slightly down due to tool relocation expenses, startup costs in China, and shifts in product mix. PLAB believes all of these are temporary and margins should improve as high-end IC strengthens and its China startup is complete. Operating margin declined to 12.5% from 15.0% in Q3 (Jul).
In sum, this was a nice quarter for PLAB. However, the stock is trading down on the disappointing guidance for JanQ. It sounds like PLAB is encountering some short-term expenses in 1Q19 that should hopefully dissipate later in 2019. The stock has been range-bound in the $8-11 area over the past 18 months.
The company is going through a transition period, focusing on higher margin products and building a new production facility. A metric to watch is FPD revenue, which was a record $33.8 mln in OctQ on strong high-end AMOLED demand. PLAB is going up the value chain in FPD by focusing on higher end products like AMOLED. PLAB operates in cyclical businesses and is in the midst of a start-up period for its new facility. As such, expect some bumps along the way but hopefully there will be smoother sailing in 2019.
- OUR VIEW
- LEARNING CENTER