Q2 2021 Photronics Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Photronics Q2.2021 earnings results Conference call. At this time, all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference call is being recorded Wednesday May 26, 2021, I would now like to turn the conference over to Troy Dewar Bye.
President of Investor Relations.
Thank you Whitney.
Morning, everyone welcome to our review of Photronics 2021 second quarter financial results.
Joining me. This morning are Peter Kirlin, our Chief Executive Officer, John Jordan, Our Chief Financial Officer, and Chris <unk>, Our Chief Technology Officer.
The press release, we issued for where this morning, along with the presentation material, which accompanies our remarks are available on the Investor Relations section of our webpage.
Comments made by any participants on today's call May include forward looking statements that include such words as anticipate believe estimate expect forecast in our view.
These forward looking statements are based upon a number of risks uncertainties and other factors that are difficult to predict actual results may differ materially from those expressed or implied and we assume no obligation to update any forward looking information.
At this time I will turn the call over to Peter.
Thank you Troy and good morning, everyone.
For Q2 performance was strong as we achieved record revenues with growth across both IC and SPD.
The 1 exception was mainstream SPD for.
Our customers continue to focus on current LCD production, rather than releasing new displays.
Little to no impact on our business.
Because our FTE capacity was sold out predominantly making higher value masks.
For amyloid and L. P. P S mobile displays.
Business across the Silicon Doctor and display industries with strong for nearly all participants from Q2.
Driven by wafer starts and where capital equipment investment.
The total mass market has joined the party as design activity as well as installation of lean manufacturing line.
On an uptick in demand.
We expect this will continue.
On our position as the largest merchant photo mask manufacture should enable us to continue to invest and grow with these industry trends.
Margins improved in the quarter.
We were able to leverage higher revenue index.
Spanning gross and operating margins.
This has been an area of focus for us.
I'm pleased with the solid progress we made during the quarter.
As we look into the future we expect margins to continue to expand based on our plant underpinned by 3 initiatives.
The first is to grow our top line and realize the benefits from higher operating leverage once we exceed the fixed cost.
Our model.
There are several opportunities we are pursuing for revenue growth.
1 is to win the lion's share of the market in China as our customers execute against the countries made in China 2025 policy.
This drives demand for both IC and <unk> sit on that.
We have built and ramp 2 manufacturing plants in China, both of which are fully equipped the initial wave of tools and all free operating profitably with momentum.
Beyond those Greenfield investments, we were adding point tools to many of our sites.
To address specific market needs and customer commitment.
Finally, we anticipate expansion of cat that outsourcing is EV technology grants.
The need for these customers to outsource more of their non.
E V radicals.
The second component of our margin expansion is to leverage our market and technology leadership, especially in the us from mobile displays driving better mix and better margins.
Oh It panel capacity is growing especially in China is more mobile displays adopt this technology.
Not only smartphones, but also laptops.
And tablets.
There's an increasing proliferation of both manufactures and products.
Career rich environment for new designs in there for new masks.
We are the recognized leader in amyloid mass technology.
We'll use is positioned to maintain and expand our market share.
Will drive higher revenue and product mix is on.
On carry from the best Asps across our product line.
The final piece of our margin improvement plan is to leverage our scale to drive cost out.
2 areas, we are focused on our materials and equipment maintenance.
By far our largest spend on materials is blanks.
And we are driving to standardization.
Thereby eliminating complexity and cost.
As well as to help newer sectors for example, G 10, 5 plus 2.
To mature.
Which is improving which improves our suppliers efficiency and cost.
On service, we are expanding our use of self maintenance.
On this to optimize the amount we spend on service contracts.
It lowers total cost and improves uptime.
Because we can more quickly respond to and fix issues.
We operate on a high fixed cost environment.
On the same 1 fifth of our cost of goods sold is depreciation.
Because of this.
In addition to intensely managing the variable cost items I, just discussed above and many I did not.
We would sneak solid investment decisions.
Like spending on capital equipment.
This requires a disciplined investment strategy put us on the best path.
For improving returns on investment.
We are now entering the next stage of our investment strategy, which is based on a phased approach.
We completed phase 1 by building 2 new facilities in China.
And equipping them with tools to enable initial product ramps.
We're now executing phase 1 E and F. P D bye.
By adding point tools to supplement operations and selectively expand capacity in China.
What was the other locations.
Better balance to our global factory.
Our IC phase 1 a little occur primarily during fiscal 2022.
New point tools to enhance operating capacity and efficiency.
Due to the need for equipment.
We purchase.
And the capacity of each tool. This phased approach enables us to effectively manage capacity increases.
While keeping inefficiencies and bottlenecks to a minimum.
This investment strategy has not executed in a vacuum noon.
New investments are timed to come online in a robust business environment.
Along with customer commitments to mitigate investment risk.
We have already demonstrated how this approach leads to improved ROI.
Before concluding I would like to briefly address another topic that really comes up during investor conversations.
Many chip manufacturers have announced plans to develop or expand semiconductor manufacturing in the U S and Europe.
Yeah.
While it is premature to discuss the specific impact these new Fabs may have on our business I believe there is reason to be optimistic.
If manufacturing of semiconductors increases.
The increase in demand for FID on that.
We have a strong global presence.
Our credit to partner with these customers.
To satisfy their mass demands.
Again, there are many steps between here and there but.
But the impact for us could be meaningfully positive.
For the first half of 2021, we are ahead of last year's pace.
Our outlook suggests sequential growth throughout the balance for the year.
Which would place US ahead of the record revenue in 2020.
More importantly margins are improving and we are on track to achieve for a long term financial targets.
We are a manufacturing company.
Records sooner happened with everyone rowing in cadence.
I would like to thank all of our employees for your solid execution against our goals in Q2.
At this time I would like to turn the call over to John.
[laughter]. Thank you Peter good morning, everyone.
Strong revenue growth in the quarter across our markets enabled us to achieve record revenue of $159.8 million.
This is a significant accomplishment and net of demonstrates excellent execution on accelerating demand momentum.
As new tools are coming on line now and over the next several quarters.
I see revenue improved 7% sequentially and 16% over last year to $120.112 million with growth in both high end and mainstream nodes.
Logic demand was the main driver of high end growth with strong demand from foundries, primarily in Taiwan and China.
Mainstream demand was also strong and provided pricing power in some nodes revenue for shipments to customers in China, which includes both high end and mainstream technologies improved 23% quarter over quarter and 53% over last year.
China has been a vital market over the last several years since 2018, our revenue from products shipped into China has more than doubled for both IC and F. P D.
With continued business development efforts on strategic investments, we anticipate continued growth in the region.
Demand for mobile displays on smartphones tablets and Pcs was the primary driver of continued strong F. P. D demand, helping to increase revenue, 1% sequentially and 4% over last year's second quarter to $47.8 million.
Amyloid and L. T. P. S technologies are in high demand as more consumer electronics now use these higher valued displays.
We have benefited from this inflection is a leader in F. P. D photo mask technologies selling mass into many product offerings, including premium smartphones that will hit the market. This fall.
This high end growth in SPD more than offset decreased mainstream FPGA revenue.
As we've pointed out for the last 2 quarters demand for mainstream LCD remains low as the panel producers maximized output and profitability of current products should take advantage of strong market dynamics.
Internally, we prioritize production of higher value <unk> and LTE EPS mess.
To optimize for financial results from our capacity.
Our demand outlook for both IC and <unk> is positive with growing confidence as we enter the second half for the year.
It appears to us that the trends we've been monitoring over the last few quarters are continuing.
And our expectations are solidifying for sequential growth to continue throughout the rest of the year.
As more F. P D tools come online during the second half of the year, we expect.
They will quickly ramp to full production by the end of Q4.
And I see the E beam 9000 in German as well along in its production ramp and we have a number of tools coming online over the next several quarters to expand mainstream capacity, which should support continued growth going forward.
As our top line improved we were able to leverage that growth into expanded profitability.
Gross margins improved 450 basis points to 24, 6% and operating margins improved 530 basis points to 13%.
The margin improvement is testament to the effect of our operating leverage and cost improvement efforts together with pricing actions. We took on some mainstream IC nodes, resulting in sequential incremental margins of 113% and 117% respectively.
We are pleased with these results as they show the capability, we have to improve to deliver improved profit margins and places in the range of our long term target model.
There is still work to be done, but this validates our progress and strengthens our confidence that we are well on our way towards delivering on our targets.
Other income in the P&L reflects a credit to interest expense from subsidy receipts in accordance with on China investment agreement somewhat offset by an unrealized FX loss.
Net income attributable to Noncontrolling interest increased significantly based upon higher earnings from our IC Jv's, Inc.
Improved income and lower share count resulted in 17 cents of earnings per diluted share.
Cash was $256 million at the end of the quarter with $114 million in long term debt.
The increase in debt. This year was due in large part to new low fixed rate 2 leases.
We generated $32 million on operating cash flow on invested $56 million in Capex, while also receiving $5 million in government incentives for equipment investments in China.
We returned an additional $10 million to shareholders on share repurchases, which brings to 3.7 million shares and $41 million spent to date of the 100 million authorization that began in September 2020.
For fiscal 2021, we've increased our expectation for capex from our previous guidance on.
$100 to approximately $120 million.
As we now plan to strategically invest in point tools to increase mainstream IC capacity.
Before I provide third quarter guidance I'll remind you that our visibility is always limited as our backlog is typically only 1 to 3 weeks and demand for some of our products is inherently uneven and difficult to predict.
Additionally, the Asps for high end mask sets are high.
And as this segment of the business grows a relatively low number of high end orders can have a significant impact on our quarterly revenue and earnings.
Government actions to address health concerns for trade policy May also have an impact on our results.
Given those caveats, we expect third quarter revenue to be in the range of $162 million to $172 million.
Key indicators for our markets suggest strong demand will continue throughout the third quarter and likely beyond.
Thus, we are expanding our capacity to align with these trends and expand our share of the growing market.
Based upon our year to date performance on guidance for Q3, we anticipate meeting our 2021 revenue guidance of high single digit percentage growth.
Based on those revenue expectations in our current operating model, we estimate earnings per share for the third quarter to be in the range of 19.
225 per diluted share.
Implied in that model as an operating margin of 13% to 16%.
On pace to hit our 2021 target.
Our second quarter performance was a meaningful step up from the first quarter as market demand grew and our earnings profile improved we expect.
Another step forward in Q3 further aided by the additional capacity.
We are pleased with our performance through the first 6 months of 2021 and look forward to continued success for the rest of the year.
I'll now turn the call over to the operator for your questions.
Ladies and gentlemen, if you have a question at this time. Please press the star and then the number 1 key on your Touchtone telephone you for your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Okay.
Our first question comes from the line of Patrick Ho with Stifel.
Thank you very much and congrats on a nice quarter and outlook Peter maybe first off in terms of the pick up in the mainstream business. That's not much of a surprise, but I guess I was pleasantly surprised to hear about the price increases.
Can you discuss how sustainable they are giving current market trends and potential on strong demand that goes into 2022 are these pricing increases are sustainable.
Okay.
Yeah, so the debt.
Nice increase.
We implemented a price increase in the mainstream in China and Taiwan.
And we did debt is.
It is the industry not just solar but the industry's capacity is.
Hold out.
So.
There's no place for the business to go.
Parts of the business you know.
It's sticky.
And.
Our market intelligence tells us that our largest competitor has followed us.
So that also points to.
Our price increase that is going to be.
Be sticky.
And regarding how it impacted our financial performance at the consolidated level was about 1 gross margin point.
Last quarter and given that price increase was implemented over the quarter. It should be another gross margin point.
On a consolidated level for the company in the coming quarter.
So with the demand.
Demand being as strong as it is with the industry.
So domestic industry in the mainstream being sold out.
With the competitors large ones in particular, you know participating.
All that points to.
Our price increase that is going to be with us for quite some time.
Yeah.
Right that's helpful and maybe as my follow up question I E. You.
Noted that you saw strong demand on the logic side of things, particularly at the Lehigh angle on the advanced nodes that can you discuss what you're seeing on the memory front as that marketplace starts to show some signs of improvement as well is that going to help contribute overall to revenues as well as the margin.
Paul.
Yes so.
You know just.
To go back.
We actually wrote it in the script and took it out because no 1 seems to care what happened last quarter or the quarter before the current quarter.
But I think what we said last quarter on the call was the logic business not the memory.
But our high end logic business was behaving like.
It used to when you had in.
Cycle that was.
Heavily loaded at the front end.
For the inventory build.
And that is indeed, exactly what happened you know the mass demands about a quarter or so lag behind.
The ramp in the.
Capital equipment.
So our logic business recovered.
So nicely in the current quarter. So we took high end mainstream business off our high end tools and replace it with.
High end business because demand is built.
In you know.
More or less as we expected it to based on no long years.
In the industry as far as our memory business is concerned.
It was more or less.
Level as we would expect it to be.
Stepped up last quarter.
Leveled.
As the memory market improves.
There could certainly.
It could certainly be reflected in better.
Demand for more demand not better but more demand.
For Photronics, the key for US right on managing that high end business is.
Making sure that we have the capacity in place to handle it.
And.
This current quarter, we have a 9 K.
In China.
That just touch the last month for the current quarter was installed in October we've been rushing.
To get it qualified and should contribute meaningful revenue this quarter and of course in the fourth quarter are significantly more so we have incremental high end capacity.
In Asia.
As needed to.
Dressed in the memory market likewise.
We have the capacity in Boise.
That can address and will address an uptick in memory demand.
So yes.
Yes memory gets it gets better.
I think have the best merchant technology in memory.
And.
We ought to be able to effectively exploited.
Thank you very much like yeah, Chris would you like to make any comments about our position in memory.
Well I mean, I can just debt.
It knows the memory is on a trajectory really very strong this year, maybe it's going to hit a new all time record total memory chip market in 'twenty 'twenty 2 so trajectory is very good.
It will also notice that the litho equipment spend skewed towards logic.
Memory people do not seem to be adding capacity.
Or for you that would close.
Sidra oversupply situation, which is off from what happened so mark it seems very healthy.
Fairly stable.
As Peter said on memory technology, we believe is at least the node.
Ahead of our competitors on the commercial side, we have a joint development agreement for the leading memory company working.
And I'm with them on process of record development now for the 1 seen node, which is a very bad technology. So memory is good good story for us a market as stable as far as the growth potential that is that it's harder to say I'd think.
You know on memory people are going to keep capex and capacity is a little bit.
So I would say slow steady increase in node migration in our memory business, which is actually a healthy thing.
Great. Thank you very much.
Thank you Patrick.
Your next question is from the line of Gus Richard with Northland.
Yes. Good morning, Thanks for taking the question I just wanted to dig into the Capex a little bit.
Could you give us the split.
This year and from last quarter from.
E D and.
I see.
Okay.
Yeah, So I'll answer the question Jeff.
Generally.
In the current quarter.
We have.
In the current quarter. So last quarter, we are as I mentioned, we have.
We have a 9000 zone.
Installed actually in October.
Coming on line the current quarter.
I think capacity predominantly in F. P D.
With 1 litho tool being installed.
It's actually advanced laser writer in Taiwan in.
In the ICT market.
So this quarter is dominated by U S. P D.
We had 1.
What I would call opportunistic pad to the mainstream IC business in Taiwan.
For the market is strong.
So someone else.
1 of our competitors are captive changed.
Changed their mind about that order.
And it was a tool that was already built in the IC side of the business than we were.
You know very anxious to.
Grabbed it so we did.
So it affected.
For Capex planning for the year.
As far as <unk> concerned.
Those 3 tools.
That are being installed in the current quarter or next quarter.
We announced them geez more than a year ago. They are targeted at the amyloid market more.
More or less.
Where we're sold out.
And they are backed by.
At the time, we announced they were backed by 3 contracts with no more than $40 million a year annual business commitments.
Well on the current quarter, we actually got another.
Customer to sign a 3 year contract for.
For a hammer.
The weighted capacity that raises that commitment level up to <unk>.
$55 million, which means those tools are sold out.
For the foreseeable future as soon as we can get them running.
Yes, so that's that's kind of the that's a quick summary of.
For the money is going.
Okay and then.
You know in terms of your IC spend some of it is going to go for leading edge some of our new capacity. Some of it is going to go for Debottlenecking mature.
How much can you increase tumor tour output.
Debottlenecking some of your lines.
Yes.
That said that's a point in time question.
Because right now again right the mainstream.
What's unique about the mainstream market versus the high end is normally the first 2 vehicles need to be delivered within 24 hours. So that you can build them and ship them.
Not affectively.
B Hill locally so where the mainstream market is sold out.
Uh huh.
Is tiny in Taiwan.
China, China, and Taiwan, I'm, sorry, we.
Can.
By Debottlenecking lines.
Raise our mainstream capacity.
Somewhere in the 30 day $60 million.
Without having to install new lines.
That's about as much I think as we can possibly hope.
Hope to get.
Now for the mainstream market being sold out would become a global phenomenon.
That would be a different question and I don't have a good answer to that question right now.
Yeah.
Got it.
And then.
Last 1 for me.
With the increase in Capex.
Will it be a headwind you've got pricing uplift in gross margins in the coming in this quarter is there any headwind from increased depreciation in the current quarter due to the added capex.
Yeah.
If it if there is any there'll be very fleeting because when the tools are installed they can immediately be.
Loaded the good thing about mainstream is.
If the high end is difficult because qualification times are 9 to 12 months.
Main stream qualification times, usually 30 days or less.
Sometimes zero.
So we may see a little phase lag.
1 quarter.
There may be it depends right 1 quarter that might be a little bit of a drag but in the next quarter it will be completely gone and likely not at all.
Marcia will be margins would be diminished in the first quarter for that particular tool.
But.
Given how quickly mainstream tools ramp.
Would be a very fleeting effect.
Is that simple the tailwind from Skus because.
Some of the tools are coming off.
Depreciation they are reaching the end of their depreciable lives, so that kind of offsets the increases from some of the new tools.
Okay.
That was obviously our objective is always to.
[noise] minimize or eliminate effects that we have.
As I reiterated.
We always have cost reduction.
Programs running I, just got off a 2 hour conference call last night, where.
We discussed our global efforts for any waste the best place in this company.
If the PD is better than I see generally, but mainstream IC is even better than SPD.
Well from the standpoint of.
Speed to qual.
Qualification so for us right.
Like Nirvana.
Used to be adding mainstream tools, because if you add them into a strong market day ramp to volume.
Very quickly.
And Thats, where the margin leverage is there isn't.
Okay for the questions generic across all your Capex, including D day.
My takeaway from your answers, so you're going to see minimum.
Headwinds from increased depreciation in the coming quarter.
Correct.
That's correct.
Okay. That's it for me thank you.
Thank you guys.
Your next question is from Tom definitely with D. A Davidson.
Yeah. Good morning. Thanks for taking my question first question is on the flat panel display business, obviously, a very healthy today.
That's about capacity constraints are strong amyloid market, but I'm curious what the activity was like for the Gen 10, 5 and is it enough to fully utilize those tools for what their best debt.
Okay.
Yeah, So last quarter. The G 10, 5 market was.
Frozen.
There was virtually no debt.
And across the.
The industry.
In the current quarter, we're expecting market demand to pick back up.
10.5.
Uh huh.
With our SPD <unk> capacity.
We're not billing G 10.5 gen.
Generally for those tools building ambulate radicals.
Which.
Maybe it hurts the top line, a little bit but it improves.
The profitability so it's a balancing.
It's a balancing act.
But.
I guess to answer your question those tools RFP day factory was capacity was completely consumed in the quarter.
For 82% high end is the highest number I can remember.
Here at Photronics, so I've been here.
For almost 13 years now so the mix of the business was.
Really good and that was essentially with a frozen G 10.5 market.
So.
Sure.
As I said expecting and already seeing actually as we sit here we've already shipped.
Either shipped per head and with more G 10, 5 business now than we did all quarter last quarter. So.
That's.
The market is coming back.
Okay, that's great to hear.
And then just a broader question Peter when you look at the margin structure.
Hum wholly on flat panel display business the joint venture on the IC side.
How do you decide when to make the investments in your 1 phase 1 is between the 2 and is there a market difference between margins.
With the wholly owned versus the Jv's.
But generally there's a lot of you know.
Moving.
There's a lot of moving pieces.
And in our various businesses high end mainstream SPD.
I see.
Over a long period.
Right.
<unk> or integrated over time.
You know if you look at the mainstream business.
Depreciation is really low materials costs are higher as a percentage of revenue.
And I see it kind of washes out.
In the SPD business.
Yeah.
Right.
Sure.
It's a it's a much more dynamic market.
So demand in pricing for different products tends to move.
Much more rapidly than in the IC business and an S. P. D didn't 1 occasion, we actually have pricing power for <unk>.
<unk> periods, but then.
In a market.
Wings again, so anyways.
When we look at our <unk>.
Investment decisions Gen.
Generally what we're doing is.
Looking at.
Where our capacity is fully utilized.
So we prefer to add obviously had tools into technology nodes and locations.
Where we had the highest confidence we can ramp those tools too.
Volume quickly.
And.
1 of the key factors in that is do we have customer commitments.
Contracts are not.
So over the last several years, we've aspired to get customer commitments.
To load our tools.
Before we actually buy them.
So and as you pointed out.
There's some financial.
Ramifications as to whether we make investments in wholly owned businesses.
For.
Your line ventures.
It is a very complicated matrix that we.
Go through when.
And what.
We decided to make.
Incremental investments there.
General.
Writing principles at the very highest levels, our ROI and market share.
And there's a whole host of issues below that.
That are considered based on.
Not straightforward.
Okay.
No that makes sense and then I guess, along the same lines John when you look at the minority interest in with we assume that we would have sequential growth through the end of the year would you expect that line item to continue to rise as well.
I think so Tom.
Okay.
And then lastly.
Yeah.
Go ahead.
Last question then.
When you look at the $120 million of Capex I think at some point you had said that once you get that capacity installed you would already have enough capacity to meet your long term your 3 year target model.
I think what we said was we would have enough capacity to get into the bottom sort of into the matrix right for a 3 year target model yes.
Great Alright, thanks for your time.
Thank you Tom.
Again to ask a question press star 1 on your telephone keypad your.
Your next question is from the line of Orin Hirschman with AI G H.
Congratulations on the progress on.
Just a very general question you know 1 of the things. They obviously had an effect on Q1 and Q2 is that the industry like you said the semi industry was so busy.
Mindset.
I'll make the most of the existing products that.
That would be shipped.
Just to reiterate is that process. When you go on to change a little bit where all of this on their busy on new designs, which is a positive for you on the industry on the whole.
Yeah, there is a dynamic shift occur.
Occurring.
In our ICEE.
Business, particularly in logic.
Fair enough.
Particularly in the foundry business.
Customer, we're not releasing new design unless they can get wafers doesn't make any sense.
So.
Historically, if you look back 15, or 20 years ago, when the industry was very different.
When we would see an industry up cycle.
Demand would always phase lag.
An uplift in the semiconductor industry because of the very first step was to replenish inventory.
So we we've seen that before.
On the industry matured.
And growth generally compounded annual growth for the industry came down.
That phenomena.
Oh for sure, but you'll have a tight dance.
This cycle and logic again, not in memory IC looked like in the old days and our business.
Here, we are a quarter later.
And behaving like the old days.
There are starting to see a shift so yeah, it's a dynamic shift in the business.
At an SPD.
They were different drivers why the business.
At the beginning of our first quarter.
It's a bit soft.
And those had more to do with it.
U S sanctions continually ratcheting up against fall away and their impact.
On the mobile display market in general that's also worked at.
Way through so.
We arent seeing those.
<unk> in our business today.
As you know more dynamic and more in line with the industry.
<unk> just generally.
Uh huh.
And on that point.
I'll handle that.
The screens on its getting much more complex.
With with features built into the screen.
Like fingerprint recognition et cetera, how does that play into it.
You met the man.
It plays into it beautifully if you look at a at a rigid AMOLED display like.
That we would have seen in our leading edge mobile phone.
Say 5 years 3 to 5 years ago tape.
Maybe 12 to 13 years levels to make that display.
If you look at the leading edge.
Pamela display today.
You can easily.
The more.
The number the advanced kind of somewhere around 20 could be as high as 25 levels.
So let me cancel almost doubled because of he had features that are being built into flexible displays today.
So yes, that's a very positive I didn't speak to that.
That's a very positive trend in our.
Handle that business and of course.
There's a very large korean customer of ours.
That is leading the charge on building more and more complexity and more.
More and more capability into you know amyloid displays.
And on the left.
But it's a 2 part question. It just shows the capacity across the industry in both segments, obviously, its very tight the document it and digitize and other places.
Describing.
It's almost no secret, although I'm sure, there's a little bit of a secret here on there in terms of competitors.
Putting you in that group you know knowing there weren't a lot of time left on the merchant side, knowing who's ordering what in terms of capacity.
Knowing that the lead times on these tools.
You can stretch.
That's reflective of a price increase that you put in which we're on.
Price increases in recent times wherever.
What does this all go on the next 2 quarters.
Continuing to see price increases just because they just didn't capacity of course anybody on the merchant side period.
And again it plays into the last question, if you're going to need more men.
So it gets harder and everything sold out across the board.
That means as well.
Okay, well, yeah, yeah. So the price increases we put in the last quarter.
Implemented were in mainstream IC in Taiwan, and China, because this is where the market.
Is.
The market's oversold, if you look at the SPD business.
I don't believe or we don't believe any 1 of our competitors.
We sold out in.
In the prior.
This in our Q2.
The reason for that is although the ambulance business is very vibrant.
The LCD business.
It is not so.
What what is happening in the LCD business as the industry as a result of the G 10.5.
And.
Its impact on the display business nearly.
Nearly everyone a year ago LG is probably you know public company or AUO are no go look they were losing money.
Because the inherent cost to produce a G 10, 5 is substantially lower.
China investing in G 10, 5 price has dropped dramatically on large format displays for Tvs and everybody lost money.
And Covid created an upsurge in demand.
For.
It displays in particular, which is the same capacity that's used to make television displays.
And all of a sudden.
Everybody is now making money if you look in the last 12 months the price of a 32 inch display has tripled.
Tripled.
And the price of a 65 or 55 interest 75 inch display has doubled.
So all of those people on all our customers and are in the LCD market that we're starving.
You know, our <unk> are making hay, while the sunshine so to speak trying to replenish their.
Our balance sheet.
So the demand for new masks in L. C. D's is actually not all that strong.
We are the technology leader by a mile in the S. P. D market. It allows us to be sold out when no 1 else is.
So yeah.
Yes, I do think if you look at.
The industry.
That we're going to see.
LCD Pat.
Panel prices peaked maybe in the third quarter.
And then again, we will start to slowly leak away that actually will be a very good time for EMEA acres, because when that happens.
The industry's response again, we've been doing this for a very long time is to try to win market share with new products. So there will be a design.
There will be a design bubble.
That actually occurs when panel price is start declining in the LCD sector.
And I suspect at that time.
Tire industry.
For SPD will be sold out and that will be the time to raise prices there.
Okay. Thank.
Thank you very much.
Yeah.
Your next question is a follow up from Tom <unk> with D. A Davidson.
Yeah. Thank you for a follow up question. This is more of a technology question maybe for Chris.
So earlier you talked about how the rise of E. B is absorbing some of the capacity of the industry and.
Perhaps lead to some overflow work for you. So the question is do you use the standard writing tools to create these mass and if so could you, possibly do with E V mezz debt overtime.
Yeah. Thanks, Tom So the easy math today are built with the standard writing tools.
And also it's probably the largest use case for this kind of a new generation of so called multi beam.
That's grading tools. So those boats, we anticipate most of the highest end kind of captive easy math today are built on multi beam that's grading tools.
For photronics.
Fairly robust development that I would say revenue generating pilot program.
Already getting we use our standard writers for that.
We are a development partner, it's been publicly announced with IBM.
In New York, we build we don't know, but we think the vast majority of E beam mask I think you've seen the announcement. They just made on the 2 nanometer transistor demo. So we are embedded in the UV kind of learning and development cycle on that way.
You know kind of our core clients, who said.
Day for that.
For commercial Basketmaking turnkey E Z line.
We think that has some bit of time.
Time to evolve so we're watching it closely.
At that time more than likely a multi beam sources.
Writing systems will be necessary really to meet the cycle times and productivity for those easy baskets.
Okay, great. Thanks, Chris I appreciate it.
Youre welcome.
Ladies and gentlemen, there are no further questions at this time I will now turn the call over to Peter Kirlin for closing remarks.
We were glad youre able to join US This morning, and appreciate your interest in Photronics. The first half of 2020 has been marked with good.
Good market demand strong performance across our organization.
And improving financial results.
Anticipate the second half for 2012, even better and look forward to updating you on our progress.
Yeah.
Yeah.
Ladies and gentlemen that concludes the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.