Photronics (NASDAQ:PLAB) reported fiscal second-quarter 2026 revenue that was roughly flat from a year earlier, as strength in its display photomask business offset a decline in integrated circuit revenue tied to delayed semiconductor design releases.
Chairman and Chief Executive Officer George Macricostas said global photomask demand reflected “supportive long-term drivers alongside temporary headwinds.” He pointed to strong demand for leading-edge memory and logic chips used in artificial intelligence applications, which require a large number of high-end photomasks. However, he said several factors delayed design releases in the near term, including elevated fab utilization, memory supply constraints and geopolitical uncertainty.
“Given these unexpected near-term headwinds for certain chip design releases, the seasonal recovery following Chinese New Year has not occurred to the extent anticipated,” Macricostas said.
IC Revenue Falls as Design Releases Slow
Total revenue for the quarter was $210 million, essentially flat year over year. Integrated circuit revenue declined 5% from a year earlier to $148 million and represented 70% of total revenue. Within IC, high-end products accounted for 38% of revenue, while mainstream IC revenue was $91 million.
President and Chief Financial Officer Eric Rivera said revenue from foundry customers was affected by several conditions. He said higher-than-normal fab utilization limited the ability of fabs to accommodate additional design releases from some customers. He also said some chip OEMs prioritized revenue and profitability from existing products, continuing wafer production on current designs while delaying new releases.
Rivera also cited a surge in memory prices and supply constraints as contributors to delays in new consumer electronics launches. In addition, he said geopolitical developments, including the U.S.-Iran conflict, increased macroeconomic uncertainty during the quarter.
During the question-and-answer session, Rivera said visibility became more cloudy during the quarter around the time of the U.S.-Iran conflict. Frank Lee, Photronics’ senior executive for Asia, added that the slowdown after Chinese New Year lasted longer than expected and began near the end of February.
Lee said the delays were not orders already in Photronics’ pipeline, but rather a slowdown at the beginning of the design-release process by design houses before tape-outs reach foundries and mask suppliers. He said customers remain optimistic about the midterm outlook, while near-term visibility remains limited.
Display Business Delivers One of Its Strongest Quarters
Flat overall revenue was supported by strong performance in flat panel display photomasks. FPD revenue rose 13% year over year to $62 million. Rivera described the quarter as one of the strongest in the history of Photronics’ display business.
Macricostas said the company benefited from its ability to produce more complex and larger mask sizes, along with differentiation in AMOLED. He said demand remained strong in China as activity shifted toward high-end applications, while Korea saw a return of positive seasonality after a slower start to the calendar year.
Macricostas said launch schedules for high-end consumer electronics, particularly smartphones and smartwatches for Western markets, remained on track and had not been affected by tight memory conditions. He also said a recently installed FPD mask writer is entering production and is expected to support the company’s opportunity in G8.6 AMOLED, which carries higher average selling prices and is expected to be adopted more widely later in the calendar year.
Margins Reflect Fixed Cost Structure and Product Mix
Photronics reported gross margin of 31% and operating margin of 20% for the quarter. Diluted GAAP earnings attributable to Photronics shareholders were $0.54 per share. Excluding foreign exchange impacts, non-GAAP diluted earnings were $0.42 per share.
Rivera said the company’s financial model includes significant fixed-cost infrastructure, making margins sensitive to revenue levels and product mix. In response to an analyst question about possible cost levers if demand remains soft, Rivera said there were “very little levers” the company could pull because a large portion of costs are fixed.
Operating cash flow was $47 million, equal to 22% of revenue. Capital expenditures were $46 million in the quarter, reflecting investments in Korea to support 8 nm production, installation of new equipment in Allen, Texas, end-of-life tool upgrades and facility optimization initiatives.
U.S. and Korea Investments Remain Central to Growth Plan
Management emphasized that Photronics is continuing with elevated capital investments intended to support long-term growth in high-end photomasks. The company maintained its fiscal 2026 capital expenditure guidance of $330 million.
Macricostas said Photronics’ U.S. and Korea expansion projects remain on track. In Korea, the company is preparing cleanroom space for equipment that will extend capabilities to 8 nm and below, with installations expected to begin later in the fiscal year. At the Allen facility, Photronics is beginning production of qualification masks and continues to target initial revenue late in fiscal 2026, with a more meaningful revenue contribution expected in 2027 and beyond.
Rivera said the company expects its U.S. and Korea investments to begin generating revenue at the end of 2026 and 2027, respectively. As those investments move into full production, he said the company expects its revenue mix in fiscal 2027 and fiscal 2028 to shift toward high-end IC nodes and toward the U.S. and Korea geographically.
Lee said the Allen expansion is not only a capacity project but also a technology upgrade that will allow the site to produce masks it cannot currently make. He said Photronics also plans to transfer some lower-end high-end and mainstream work from Boise to Allen, freeing Boise capacity for higher average selling price orders.
Third-Quarter Guidance Reflects Limited Visibility
For fiscal third quarter 2026, Photronics expects revenue of $207 million to $215 million. The company projected operating margin of 18% to 20% and non-GAAP diluted earnings per share of $0.39 to $0.45.
Rivera cautioned that demand for Photronics’ products is inherently variable, with typical backlog of only one to three weeks. He said high-end mask sets carry significantly higher average selling prices, meaning a small number of orders can materially affect revenue and earnings.
Despite the near-term uncertainty, management said secular demand trends remain positive. Macricostas said the company is positioned to benefit from AI-related chip demand, outsourcing opportunities from captive photomask producers, geographic diversification and regionalization of semiconductor manufacturing.
About Photronics (NASDAQ:PLAB)
Photronics, Inc is a leading global supplier of photomask products used in the manufacture of integrated circuits, flat panel displays, microelectromechanical systems (MEMS), and advanced packaging applications. Photomasks, also known as reticles, are critical templates that carry the precise circuit patterns required for semiconductor lithography processes. The company offers a comprehensive range of mask solutions, including binary masks, attenuated phase-shift masks, reticles for micro-optics, and specialized products for high‐resolution applications.
Founded in 1969 and headquartered in Brookfield, Connecticut, Photronics has grown through organic expansion and strategic investments in high‐end lithography technology.
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