Q4 2023 Photronics Inc Earnings Call
Yeah.
Good day and welcome to the Fertronics Q4 FY23 earnings call. At this time, all participants are in listening mode. Later, we will conduct the question and the instructions will be given at that time. As a reminder, this conference is being recorded Wednesday, December 13, 2023. I would now like to turn the conference over to Rachelle Burr, Chief Administrative Officer.
Good day and welcome to the Photronics Q4, FY2023 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.
As a reminder, this conference is being recorded Wednesday December 13th 2023.
Speaker Change: I would now like to turn the conference over to Rochelle, Burke Chief administrative officer.
Thank you Michelle. Good morning everyone. Welcome to our review of Botromics Physical 2023 worth quarter results. Joining me this morning are Frank Lee, our Chief Executive Officer, Chris Frogler, our Chief Technology Officer, John Jordan, our Chief Financial Officer, and Eric Rivera, our Chief of Cali Officer in Corporate Control and the press release that we issued earlier this morning together with the presentation material that accompanies our remarks are available on the Investor Relations section of our Board.
Rochelle Burke: Thank you Michele good morning, everyone welcome to our reveal photronics fiscal 2023 fourth quarter results. Joining me. This morning are Frank Lee, Our Chief Executive Officer, Chris Kreidler, Our Chief Technology Officer, John Jordan, Our Chief Financial Officer, and Eric are there Chief accounting officer and corporate control.
Rochelle Burke: The press release that we issued earlier this morning together with the presentation material that accompanies our remarks are available on the Investor Relations section of our web page.
Comments made by any participant on today's call may include four of the King's statements that include such words as anticipate, believe, estimate, expect, or test, and in our view.
Made by any participant on today's call May include forward looking statements that include such words as anticipate believe estimate expect forecast and in our view.
These forward-looking statements are based upon a number of risks, uncertainties, and other factors that are difficult to protect.
Rochelle Burke: Forward looking statements are based upon a number of risks.
Rochelle Burke: Certainties 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.
Rochelle Burke: Actual results may differ materially from those expressed or implied and we assume no obligation to update any forward looking information.
During the course of our discussion, we will refer to certain non-GAAP financial networks.
Rochelle Burke: During the course of our discussion we will refer to certain non-GAAP financial metrics.
These numbers are useful for analysts, investors and management to evaluate ongoing performance. A reconciliation of these metrics to GAAP financial results is provided in our presentation materials. At this time, I will turn the call over to Frank. Thank you, Richard, and good morning.
Rochelle Burke: Numbers are useful for analysts investors and management to evaluate ongoing performance.
Rochelle Burke: A reconciliation of these metrics to GAAP financial results.
In our presentation materials at this time I will turn the call over to Frank.
Frank Lee: Thank you Michelle and good.
Frank Lee: Good morning, everyone.
The photonics team had another outstanding year in 2023, and it is a record revenue for the sixth consecutive year.
Frank Lee: There's much more honest here.
N D E R 23.
Yeah.
Frank Lee: Great.
Yeah.
Over the last 60 years, we have achieved a compound annual revenue growth rate of over 12.5%
Frank Lee: Over the past six area.
We have achieved a compound annual revenue growth rate.
Frank Lee: We're at 12%.
For fall 2023, revenue growth 8% year over year.
Frank Lee: Well for 'twenty to 'twenty three.
Frank Lee: Revenue grew 8% year over year.
while the photo market overall was fresh.
Frank Lee: While the auto market.
Frank Lee: All right.
And the send-me-convakter industry overall is expected to contract by up to 12%. The folks.
And the semi conductor industry overall.
Frank Lee: Expect it to a contract.
Frank Lee: At two o'clock.
Frank Lee: Therefore for termination.
once again offers testimony to the tendency of design-driven photomass demand.
Frank Lee: Gross.
Frank Lee: Once again offers.
Frank Lee: Only two of the tendency of up you got to you guys.
to be less cyclical than the industry in general.
Frank Lee: And then two.
Frank Lee: It will be that they could equal BANDAI industry.
Frank Lee: Got it.
Frank Lee: Okay.
Most recent indications from industry leaders and from our customers is that the current semiconductor cycle contraction should transition to the next phase of growth around the middle of the next year.
Frank Lee: Most recently indications from industry either in front of our customers.
The covenants semiconductor cycle contractually short transition toward our next phase of growth.
Let me go off next year.
Thus, your pay cycles and current observations can be considered indicators. Photo mask demand should resume a more robust growth phase during for Chinese second to third physical court.
Frank Lee: Gosh, you pay cycles and it couldn't be done.
Frank Lee: I should kind of be a country that indicate to us.
Frank Lee: I'm asking men shortly soon.
Frank Lee: All robots cordless space.
Frank Lee: But you only sacred to said C J code quarters.
Frank Lee: Yeah.
Margins for the quarter and year were also outstanding.
Margins for the quarter and year, well also I'll stand it.
We achieved an operation margin of 28.5% for the fourth quarter and 28.4% for the full year 2023.
We achieved operating margin of 28, 5% for the fourth quarter and 28.
Frank Lee: All cause and for the full EUR 223.
the best year in the history of the country.
Frank Lee: Betsy are in there.
History of the company.
The combination of the following has continued to support the sustainability of this margin table.
Frank Lee: The combination of the following has continued to support the sustainability of this module in Danville.
Frank Lee: The Hyatt operation very rich.
stable pricing from our long-term purchase agreement.
Frank Lee: Stable pricing from our long term purchase agreement.
Our focus on delivering the best quality masks.
Frank Lee: I'll focus on deep learning and the best quality mask.
and our driving for being a low cost produced.
Frank Lee: And I want to drive in for being a low cost producer.
as a result of the study, operation results, and the contributions from below the line item.
Frank Lee: As a result of that salary operation results and the contribution from below the line items.
We add in Q4, 72 cents per share on our gap places, and 60 cents per share on our long gap.
Frank Lee: We added in Q4 seven.
Frank Lee: 17 cents per share on a GAAP basis.
Speaker Change: <unk> 16 cents per share I don't know lung cancers.
Frank Lee: Yeah.
Trump cash flow was generated in 2020, contributing to a stronger balance sheet.
So on cash flow was generated in 2020 three.
Contributing to our stronger balance sheet.
Now, Inquison our cash position was reducing debt. We continued
Frank Lee: And your question allocation, particularly with reducing debt.
Frank Lee: We continue to invest in growth.
position us to continue the past several years strong performance.
Frank Lee: Fisher nut to continue over the past several years strong puzzle.
Frank Lee: So it's not my right.
We achieved another record year in 2023. Go in Germany.
Frank Lee: We achieved another great question.
Frank Lee: 23.
Frank Lee: Revenue when you frame market.
Our team performed well and our customers continue to trust us as their entire 2021 hostess.
Frank Lee: Our team performed well.
Frank Lee: All of the cuts customers continue to trust us.
Frank Lee: They are both of them as a partner.
We are investing in hybrid-tone projects and our position to continue to outgrow the market and create value for our shareholders.
Frank Lee: We are investing in high return projects in a position to continue to outgrow the market and create value for our shareholders.
I'm proud of our accomplishment and excited about our future.
Frank Lee: I'm proud of our accomplishment.
Frank Lee: And excited about our future.
And I would especially like to express my gratitude to the more than 1800 employees that have worked hard to achieve this result.
Frank Lee: And I would especially like to express my gratitude put up more than 800 employees.
That has worked hard to achieve.
Frank Lee: Charles.
At this time, I will turn the call over to John to discuss the results further. Thank you.
Frank Lee: At this time.
Frank Lee: Under our call over to John to discuss the results further.
John Jordan: Thank you Frank good morning, everyone.
Our fourth quarter finalized another great year for folk traffic.
John Jordan: Our fourth quarter finalized another great year for photronics.
In my comments, I'll first discuss the fourth quarter results. Then the results for the full fiscal year.
In my comments I will first discuss the fourth quarter results.
John Jordan: The results for the full fiscal year.
Fourth quarter revenue of $227.5 billion increased 8% over fourth quarter of last year and 1% sequentially.
John Jordan: Fourth quarter revenue of 227, $5 billion increased 8% over fourth quarter of last year and 1%.
John Jordan: Essentially.
For chronic sports quarter, always ends on October 31st, which may add or subtract days to the standard 91 day, 445 fiscal calendar.
John Jordan: Photronics fourth quarter always ends on October 31st, which may add or subtract days to the standard that he would be 445 fiscal calendar.
This year, fourth quarter was boosted by an extra two days in the quarter. It was our second highest quarterly revenue ever. Only 1% of the record established in Q2 of fiscal year 2023.
This year fourth quarter was boosted by an extra two days in the quarter.
John Jordan: It was our second highest quarterly revenue ever only 1% off the record established in Q2.
Three years 2023.
Our revenue into China in Q4 declined from 53% of total revenue in Q3 to 44%. Replace by revenue with...
John Jordan: Our revenue into China in Q4 declined from 53% of total revenue in Q3 to 44%.
John Jordan: Replaced by revenue with other customers.
It might be worthwhile to add some further color we got into China.
John Jordan: It might be worthwhile to add some further color regarding the China business.
Although we derive a great portion of revenue from China as do others in the semiconductor display industry.
John Jordan: Although we derive a good portion of the revenue from China as do others in the semiconductor and display industry.
What makes try to, what makes me try to business somewhat unique?
John Jordan: What makes us trying to do what makes the China business is somewhat unique.
is that there is a significant number of new designs and fabs in China driving photographs to bear.
John Jordan: Is that there is a significant number of new designs and Fabs in China driving photo mass demand.
And since there is a much smaller captive market in China, the preponderance of the photo mass production is being provided by merchant manufacturers like Fortronic.
And since there is a much smaller captive market in China.
John Jordan: Preponderance of the photo mass production is being provided by Richard manufacturers like Photronics.
The business by Major Category, I see revenue of $164.5 million in the fourth quarter, was up 1% to clentially in 5% year over year.
John Jordan: The business by major category I see revenue of $164 $5 billion in the fourth quarter.
John Jordan: It's up 1% sequentially and 5% year over year.
Our high-end revenue defined as IC map.
John Jordan: Our highest revenues defined as I see masks, using 28 nanometer and smaller technology.
using 28 nanometer and smaller technology to increase with 27% sequential growth growth, which more than offset the reduction in mainstream revenue.
John Jordan: Greece, with 27% sequential growth growth, which more than offset the reduction in mainstream revenue.
High end revenue was strong and family logic in both US and Asia.
John Jordan: Revenue was strong in foundry logic in both U S and Asia.
The 9% decrease in mainstream revenue resulted in large profit from lower delivery premiums due to somewhat moderate in demand and more normalized lead times for those products.
John Jordan: The 9% decrease in mainstream revenue resulted in large part.
John Jordan: For lower delivery premiums due to somewhat moderate and demand.
John Jordan: More normalized lead times for those products.
For the FPD product category, fourth quarter FPD revenue was a record $63 million up 3% sequentially and 17% year over year.
John Jordan: So the SPD product category fourth quarter, MPD revenue was a record $63 million up 3% sequentially and 17% year over year.
7% increase in high-end revenue.
John Jordan: A 7% increase in higher Ed drove at Duke.
We find this LTPS, Ambulent and G10.5 large area vats.
John Jordan: Find has L. T P S L a N.
John Jordan: In G 10, five large area basks drove the increase from strong demand for AMOLED display masks used and mobile displays where we have technology leadership.
drove the increase from strong demand for AMOLED display masks used in mobile displays where we have technology leadership.
The additional FPD production devoted to high-end mass production then resulted in 13% lower mainstream revenue.
The additional MPD production devoted to highest and best production does result in 13% lower mainstream revenues.
Gross margin was solid at 37.3% although slightly lower and do substantially to the decreased premiums for expedited delivery of the mainstream ICMF.
Gross margin was solid at 37, 3%, although slightly lower than due substantially to the decrease premiums for expedited delivery of the mainstream IC masks.
Operating expenses decrease somewhat and decline as a percentage of revenue to less than 9%. Helping us achieve an operating margin of 28.5% in the quarter.
Operating expenses decreased somewhat and declined as a percentage of revenue to less than 9% they'll be has achieved an operating margin of 28% in the quarter.
Gap net income in the quarter was $44.6 million or 72 cents per deluded share. None Gap net income, which eliminates foreign currency effects primarily unrealized, was $37.2 million or 60 cents.
John Jordan: GAAP net income in the quarter was $44 $6 million or 72 cents per diluted share.
GAAP net income, which eliminates foreign currency effects, primarily unrealized was $37 $2 million or 60 cents a share.
For reference, our reconciliation of gap to non-gap the results is included in the press release and supplemental slide.
John Jordan: For reference a reconciliation of GAAP to non-GAAP results is included in the press release.
Supplemental slides.
For the year, total revenue of $892.1 million was 8% higher than the 824.5 million reported in fiscal year 2022. The sixth straight year of record revenues, as Frank mentioned, a compound annual growth rate of 12% over the last six years.
John Jordan: For the year total revenue of 890 $221 million was 8% higher than the 824 and a half million reported in fiscal year 2022.
Frank Lee: Sixth straight year of record revenues as Frank mentioned, our compound annual growth rate of 12% over the last six years.
Remedue in fiscal year 2023 was nearly double the revenue of fiscal year 2017 when we repositioned the business and initiated the targeted investments to address where we anticipated growth to be in the photo mass space.
Revenue in fiscal year 2023 was nearly double the revenue.
Frank Lee: Full year 2017, when we repositioned the business and initiated the targeted investments to address where we anticipated growth to be in the photo best space.
I see revenue for the year with a record and grew 9.8% as drawn to man-for-mainstream masks for a good part of the year. I've set a slight decrease in high-end revenue primarily in the US.
I see revenue for the year was a record and grew nine 8% as strong demand for mainstream asks for a good part of the year I've set a slight decrease in high end.
Frank Lee: Primarily in the U S.
Near term, our investment will be primarily in IC capacity to continue outgrowing the market and take advantage of our market strength and close customer relationship.
Frank Lee: Near term our investment will be primarily an ICU capacity to continue outgrowing the market and take advantage of our market strength and close customer relationships.
FPD revenue is also a record for the year up 4%, with high end growth consistently driven by AMOLED.
Frank Lee: F. P. D revenue was also a record for the year up 4% with high end growth consistently driven by able to demand.
We anticipate this trend to continue into fiscal 2024.
Frank Lee: We anticipate this trend to continue into fiscal 2024.
Gross margins for the year were 37.7% 200 basis points over the strong gross margin in fiscal 2022. And we anticipate that gross margin will remain in the current range due to stable pricing, cross controls, and operating leverage.
Frank Lee: Gross margins for the year was 37, 7% 200 basis points over the strong gross margin in fiscal 2022.
We anticipate that gross margin will remain in the current range to the stable pricing cost controls and operating leverage.
maintenance of this level of gross margin in the face of erosion of delivery premiums during the lot of half of the year indicates a pricing and operating environment that supports the sustainability of the
Frank Lee: Maintenance of this level of gross margin in the face of erosion of the delivery premiums during the latter half of the year indicates a pricing and operating environment that supports the sustainability of the margins.
Upreading expense of the year was nearly unchanged for the prior year, up less than $800,000, and declined as a percentage of revenue to 9.3% from 10% in the prior year.
Frank Lee: Operating expense for the year was nearly unchanged from the prior year up less than $800000.
Frank Lee: Declined as a percentage of revenue to nine 3% prototype percent in the prior year.
Operating margin was 28.4% compared to 25.7% in fiscal 2022. And operating income in fiscal 2023 was $253 million.
Frank Lee: Operating margin was 28, 4% compared to 25, 7% in fiscal 2022.
Frank Lee: Operating income and fits in fiscal 2023 was $253 million.
During our six years of 12% revenue growth, operating income has grown at a compound annual growth rate of 41%. And operating margins.
Frank Lee: During a six years, a 12% revenue growth operating income has grown at a compound annual growth rate of 41%.
Frank Lee: And the operating margin quadrupled.
Gap EPS for the year was $2.03, and adjusted for the effects of foreign exchange variations, non-gap EPS was $2 and forced-
Frank Lee: GAAP EPS for the year was $2.03 and adjusted for the effects of foreign exchange variations non-GAAP EPS was $2.04.
DAPPS similarly has grown at a keger, compounded in a growth rate of 48% during the six years that revenue has increased 12.
Got P. P. S. Similarly has grown at a CAGR compound annual growth rate of 48% during the six years, our revenue has increased 12%.
Operating cash for the 106.6 million for the quarter and 302.2 million for the year were also records for the company, resulting from higher net income and effective management of working cash.
Frank Lee: Operating cash flow of $106 6 billion for the quarter and $302 2 million for the year were also records for the company's resulting from higher net income and effective management of working capital.
CapEx shall record it was $21.1 million and $131.2 million for the year, which resulted in free cash flow for the year of $170.9 million.
Frank Lee: Capex for the quarter was $21 $1 million and $131 2 million for the year, which resulted in free cash flow for the year was $179 million.
For 2024, we expect to invest $140 million in CapEx, primarily in both high-end and mainstream ICs to address current and anticipated demand growth.
Frank Lee: For 2024, we expect to invest 140 million in Capex, primarily in both high end and mainstream IC to address current and anticipated demand growth.
We'll also be taking delivery of a new multi-pean photography tool in the US for development, then phase in to high-end production and excellence, then leading edge development during our first- NHF ?? Super ?n
Frank Lee: We will also be taking delivery of a new multi people with either be tool in the U S for development.
Frank Lee: And to the high end production enhancements than leading edge development during our fiscal year 2025.
We entered the year where the cash balance of $499.3 million and short term investments of 12.9 million.
We ended the year with a cash balance of $499 $3 million in short term investments of <unk>.
$12 9 million.
Subinvestments of cash that were previously classified as short term investments have been reinvested in short term instruments that are now classified as cash equivalents and included in the cash and cash equivalence balance at October 31st, 2023.
Frank Lee: Some investments of cash that were previously classified as short term investments.
Frank Lee: Haven't been reinvested in shorter term instruments that are now classified.
Frank Lee: As cash equivalents and included in the cash and cash equivalents balance at October 31st 2023.
The aggregate of cash and cash improvements in short-term investments increased from $358.5 million at year end 2022 to 512.2 million at October 31st, 2023.
Frank Lee: The aggregate of cash and cash equivalents and short term investments increased from $358 billion at year end 2022 to $512 2 million at October 31st 2023.
Our only remaining debt consists of low cost equipment leases of $24.6 million. And that cash position of $475 million provides ample liquidity to fund investments in organic growth.
Frank Lee: Our only remaining debt consists of low cost equipment leases of $24 6 million, our net cash position of $475 million provides ample liquidity to fund the investments in organic growth.
It also has continued to provide resilience against uncertainties inherent in an industry downturn.
It also has continued to provide resilience against uncertainties inherent in an industry downturn.
We have $32 million remaining of our previous $100 million authorization to repurchase our common stock, and we will continue evaluating when to resume the share repurchase initiative.
Frank Lee: We had $32 million remaining of our previous $100 million of optimization to repurchase our common stock and we will continue evaluating when to resume the share repurchase initiative.
Before I provide guidance, I remind you that our visibility is always limited as our backlog is typically only one to three weeks.
Frank Lee: Before I provide guidance I'll remind you that our visibility is always limited as our backlog is typically only one to three weeks and demand for some of our products is inherently uneven and difficult to predict.
and demand for some of our products is inherently uneven and difficult to predict.
Additionally, the ASP's Ryan mask sets are high. And as this segment of the business grows relatively low number of high end orders can have a significant impact on our quarterly revenue and earning.
Frank Lee: Additionally, the E S. P. As 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.
Given those caveats, we expect first quarter revenue to be in the range of 217 to 225 million dollars
Given those caveats, we expect first quarter revenue to be in the range of $217 million to $225 million.
First quarter revenue from four electronics is typically seasonally lower than fourth quarter. And as I mentioned, this year's first quarter has fewer days than normal, 89 versus 91 in a typical four-profile fiscal calendar. Two-fourth quarter ended on October 31st, which is, I mentioned, put 93 days into the fourth quarter and shortened the first quarter.
Frank Lee: First quarter revenue from Photronics is typically seasonally lower than fourth quarter and as I mentioned this year's first quarter has fewer days than normal 89 versus 91 at a typical four five fiscal calendar.
Frank Lee: Fourth quarter and they got on October 31st because as I mentioned put 93 days into the fourth quarter and shortened the first quarter.
Portronics has continued to increase revenue during the entire semi-downturn, while many in the industry are reporting revenue declines. And the industry as a whole anticipates about a 12% decline in 2023 revenue.
Frank Lee: Photronics has continued to increase revenue during the entire semi downturn.
Frank Lee: While many in the industry are reporting revenue declines and the industry as a whole we anticipate about a 12% decline in 2023 revenue.
Due to the design driven somewhat counter-sickrical nature of the business, we expect to continue to do well in the current semiconductor and display environment, continue to report year-over-year revenue growth, and increase our market leading position.
Frank Lee: Due to the design driven somewhat counter cyclical nature of the business. We expect to continue to do well in the current semiconductor and display environment continued to report year over year revenue growth and increase our market leading position.
Based on those revenue expectations and our current operating model, we estimate non-gap earnings per share for the first quarter to be in the range of 45 to 53 cents per diluted share.
Frank Lee: Based on those revenue expectations and our current operating model we.
Frank Lee: We estimate non-GAAP earnings per share for the first quarter to be in the range of 45 to 53 cents per diluted share.
We believe that the increasing trend of both high-end IC and FPD and our admissions to capacity will continue to support healthy, gross margin.
Frank Lee: We believe that the increasing trend of both high end IC and F. P D and our additions to capacity will continue to support healthy gross margins.
Our discipline cross control will help ensure that the gross profit flows down to operating income and earnings to continue to build shareholder value. I'll now turn the call.
Our disciplined cost control will help ensure that the gross profit flows down to operating income and earnings to continue to build shareholder value.
Speaker Change: I'll now turn the call over to the operator for your questions.
Thank you. If you would like to ask a question, please press star 11.
Speaker Change: Thank you if you would like to ask a question. Please press star one one.
If your question has an answer and you like to remove yourself in the queue, please press star one one again.
If your question has been answered and you'd like to remove yourself from the queue.
Speaker Change: Please press star one again.
Speaker Change: One moment for questions.
Our first question comes from Tom Difflee, which he a Davidson accompany. Your line is open.
Speaker Change: Our first question comes from Tom <unk> with D. A Davidson <unk> company. Your line is open.
Yes, good morning. I appreciate the chance to ask a question here. First question on the mainstream market. Could you talk a little bit more about the health of this market in terms of both the manned and pricing?
Tom: Yes, good morning, I appreciate the chance to ask a question here.
First question on the mainstream market could you just talk a little bit more about the health of this market in terms of both demand and pricing.
Okay, Tom, the mainstream business, especially in the eight-inch factory business, as many factory company report has slowed down quite a bit, which is a very kind of low-wif-effect digitalization growing.
Tom: Okay.
Tom: Tom.
Tom: Nah managed trend our business, especially in the acreage our voluntary business.
Tom: I spent a good company report.
Tom: Oh down quite a bit.
Tom: We used to have very kind of low wafer fab utilization rate.
And with the slower market demand, our premium...
Tom: And we used that as a market demand our premium.
Charge in this follow settlement has reduced since Q4 last year 2000, and twent.
Tom: Charge in this a part of that.
Tom: And has reviews.
Tom: Q4 last year Taki-taki Shri.
So, we believe the mainstream business slow may continue for another quarter or two.
Tom: So I.
We believe that managed to visit is Oh.
Tom: May continue for another quarter or two.
However, the business from 12-inch welfare says to stabilize and start to recover in terms of photo-match demands. So I think our compound SP should...
Tom: However, our business from a 12 inch wafer fab.
Tom: There's tool stabilize and start to recover in terms of what Tomas demand.
Tom: So I think Oh compound.
Tom: Sure.
Yeah.
be able to sustain even our premium charge in the measuring has reduced to certain low level.
Tom: Being able to sustain even olive premium charge you end up mass trade has a great deal as a co sometimes.
Tom: The lower table.
I'd like to supplement that a little as well, just in terms of pricing. So as Frank mentioned, the premiums have essentially, not quite disappeared, but eroded significantly.
Tell me I'd like to supplement that a little as well just in terms of pricing.
So as Frank mentioned, the premiums have essentially not quite disappeared, but eroded significantly.
Nonetheless, the pricing I sort of compare it to the inflation a picture of the U S where are the inflation rate is tapered off to three 3%, but nonetheless, the prices are still 17% higher than they were a two to three years ago.
The pricing, I sort of compare it to the inflation picture in the U.S.
The inflation rate has taken off to 3.5%
But nonetheless, the prices are still 17% higher than they were two to three years ago.
So we've wound up with the same situation with IC pricing where, although the premiums have really almost evaporated, the pricing is still at a level. I kind of referred to that in my comments. We were still able to maintain this upper 30.
Tom: So we wound up with the same situation with IC pricing, where although the premiums have really almost evaporated. The pricing is still at a level that I kind of referred to that in my comments, where it was.
Tom: We were able to maintain this upper 30, you know.
You know, mid to high 30% across margin though.
Tom: Mid to high 30% gross margin level.
Tom: Yeah.
Okay, maybe just to follow up on that, is pricing still below where it would cost to buy a new tool in the marketplace to build extra capacity?
Okay, and maybe just to follow up on that is pricing is still below where it would cost to buy a new tool in the marketplace to build extra capacity.
Such that it should remain a fairly stable market for you over the next few years.
Such that it should remain fairly stable market for you over the next few years.
Tom: Yes actually.
As per mentioned, our price for a measuring has increased by quite a certain percentage two years ago. And during these two years, a price elotion is very minimal, even the premium discharge. So for a measuring...
Tom: That's the foundation all price Oh, I've managed trade has increased.
Tom: By quite a bit.
Tom: Page two is two years ago.
Tom: And do you envisage that two years.
Tom: Our price erosion is very many months, even a premium discharge.
Tom: All four managed trade it in the news.
Our major capital investment basically will be in a replacement for the end-of-life tour. There will be not much new capacity, especially in the mentioned area. So the only capital spending will be for the end-of-life tour with the president.
Tom: Oh, a major catatonia best men facing whether it be in no big credits matters for the end of life toward there.
There will be not much new capacity, especially in as I mention area. So oney cantos spending wherever your floor and unlocked or if the president.
And current pricing will sustain our current margin day.
And our current pricing, whereas has 10 all cut out March March and April.
Okay, thank you for that. And then just curious on the high end IC side, what are some of the end market drivers that you're seeing for it?
Speaker Change: Okay. Thank you for that and then I'm just curious on the high end IC side, what are some of the end market drivers that youre seeing for it.
... DFB
Stay in that case and market drivers.
We see a lot of demand still from the MLA driver IC, which use 22 to 28 nanometer technology.
Speaker Change: Yeah.
Speaker Change: Uh huh.
Speaker Change: We see a lot of demand steel from our mrna our driver IC.
Speaker Change: <unk> used 22 to 28 nanometer technology.
And this is our strength. We are a major, much more supplier for these technology notes and the applications basically made you for a trial or IC.
Speaker Change: And these days are our strengths we are there.
Speaker Change: Major nurturing my supplier for is technology node and.
<unk> is basically a menu for a childhood I state Chris you want to add some commentary yeah. Thanks, Tom It's a it's pretty pretty wide actually but like.
Chris, you want to add some counter to this? Yeah, thanks Tom, it's pretty...
Pretty wide actually, but like some of the companies we follow a lot of us down, some others like TI, or pretty good auto demand, but definitely still driving some tape out activity, particularly in the compound semiconductor area. A lot of the fast utilization is kind of bottom, but it's running pretty low, still historically, in the maybe high 60s.
Speaker Change: Like some of the companies we follow the auto's down.
Some others like T I reported pretty good.
Speaker Change: The other man, but definitely that's still driving some tape out activity.
Speaker Change: And the compound semiconductor area a lot of affairs, utilizations kind of bottom, but it's running pretty low still historically and then maybe high sixties. So theres a lot of new product development going on in consumer electronics in those fields that youre driving tape out demand, but not so much waiting for volume.
So there's a lot of new product development going on in consumer electronics and those fields that are driving tip out demand, but not so much waiver volume.
Particularly in Q4, there was a fair amount of design activity on the consumer side. Industrial is still pretty weak.
Speaker Change: Particularly in Q4, there was a fair amount of design activity on the consumer side industrial is still pretty weak everything around the circle AI ecosystem is pretty healthy. So we don't build a lot of photo mask sets, although some for direct AI processors, but all the.
Everything around these simple AI ecosystem is pretty healthy. So we don't build a lot of photo mass sets, although some for direct AI processors, but all the ancillary chips that go around these AI applications were quite strong as you can imagine following the industry. So there's no segment that I think we see really spiking back strong, but it's a...
Speaker Change: Ancillary chips that go around these AI applications were quite strong as you can imagine is falling in the industry. So theres no segment.
Speaker Change: I think we see really spiking back strong but it's.
It's relatively broad and a lot of design activity to try to refill wafer capacity. Because inventories also have been worked out. So there's some rewaters and things like that and pipeline as well.
Speaker Change: It's relatively broad and a lot of design activity to try to refill wafer capacity because inventory has also been worked out so there's some reorders and things like that.
Memories still pretty weak, but all pricing stabilized. And memories still pretty weak. Particularly our 3D man business was down fairly strongly and has not fully recovered yet.
Speaker Change: As well.
Speaker Change: Memories is pretty weak.
Speaker Change: <unk> pricing stabilized with memory still pretty weak, particularly our three D. NAND business was down.
Speaker Change: Fairly strongly.
Speaker Change: Fully recovered yet.
Okay, yeah, I mean, the reason I ask the question is, we've basically heard that most of the segments are bouncing along the bottom here. It's pretty impressive. You've been able to keep your revenue flow as you have despite the slowdown. And most people expect that starting maybe mid next year, we start to see some recoveries and it's pitching a good position for that. So I guess on that same front, where do you see capacity constraints right now and where are you gonna focus 140 million of CAPEX? Okay.
Okay, Yeah, no I mean, the reason I asked the question as you know, we basically heard that most of the segments are bouncing along the bottom here and it's a pretty impressive you been able to keep your revenue flow as you have despite the slowdown in most.
Most people expect that starting maybe mid next year, we start to see some recoveries and it just puts you in it gets positioned for that so I guess on that same front, where do you see capacity constraints right now and where are you going to focus $140 million of Capex.
Speaker Change: Oh.
Major investment will be number one, as I mentioned, the end of life tour with President. The other one is that we are positioning ourselves to the main in 22 and 28 photo masks demands, especially in China. And also we are going to enhance our US-20,
Speaker Change: Joe your restaurant, whether it be number one.
Speaker Change: As I mentioned at the end of the live tour a bit crazy idea.
Speaker Change: The other one is that we are positioning our SaaS tools.
Speaker Change: They may in 'twenty, two 'twenty eight photo mask demand, especially in China.
Speaker Change: And also are we.
Speaker Change: We are going to enhance our U S. A.
sharp capacity and credibility.
Speaker Change: Shop.
Speaker Change: He had kind of ability.
Army of theirs and well be in the States withSec.
Speaker Change: Hello, Sammy of Vectren unworthy and in the states for us, our Boise and Ed on site.
Okay, great. And final question, maybe for Chris, a few years ago you talked about the EUV consortium and how you're part of that. Any update on how that activity is going or what potential role you might play there?
Speaker Change: Okay, Great and then final question maybe for Chris.
Speaker Change: Yeah, a few years ago, you talked about the E V consortium, and how you're part of that.
Speaker Change: Any update on how that activity is going or what potential.
Speaker Change: Well you might play there.
I mean, overall, the EU business continues to grow year over year and even quarter over quarter. From the OEM side of that business is probably the strongest and then classified as we call fab products is also fairly strong because there's a lot of EUV scanners entering the industry. And then the third category of ice masks, either prototype and demo masks also.
I didn't say I mean overall, our Asia business.
Speaker Change: To grow year over here and even quarter over quarter.
Speaker Change: Mmm side of that business is probably the strongest.
Speaker Change: Class a product we called Fab products is also fairly strong because there's a lot of these scanners entering the industry and then the third category device masks either prototyping demo mass also.
growing. So, consistent with ASMLs reports, we see a lot of strength in EUV and the merchant market gradually evolving up and we're in pretty good position for that. As far as consortia, we're still in discussions with...
Speaker Change: Growing so consistent with Asml's reports, we see a lot of a strengthening U V.
Speaker Change: Merchant market gradually evolving up and we're in pretty good position for that as far as concern here, we're still in discussions with.
various groups, you know, pretty well plugged into the New York Create program and it just announced a very large state-sponsored funding infusion into that project.
Speaker Change: Various groups you know, we're pretty well plugged into the.
Speaker Change: New York creates program and they just announced a very large state sponsored.
Funding infusion into that project.
Speaker Change: There's also.
Speaker Change: Consortium, forming in Japan, we are starting to have conversations with as well around the Providence project. So the only thing I think we can announce right now but.
There's two or three different avenues, we're pursuing out to enjoy it onto these consortium initiatives.
Speaker Change: Alright, well, great well I think all three of you for your time today.
Take a new time. Thanks very much for coming onto the call.
Speaker Change: Thank you, Tom and thanks, very much for coming onto the call.
Thank you, as a reminder to ask a question, please press star 111.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one.
Yeah.
Ladies and gentlemen, there are no further questions at this time. I will now turn the call over to Frank Lee for closing comments.
Speaker Change: Ladies and gentlemen, there are no further questions at this time I will now turn the call over to Frank Lee for closing comments.
Thank you for joining us this morning.
Speaker Change: And so at Michigan.
Speaker Change: Thank you for joining us this morning.
with the firmware in 2023 and our position to continue this performance in 2020.
Speaker Change: We put homeaway in plenty of time to Sri and opposition to continue.
Speaker Change: In Tucson and tried your floor.
Long term M-Mapets are expected to grow sick in New York.
Speaker Change: Long term our end market.
Speaker Change: <unk> to gross take on himself.
As the merchant for the march days, we are in a great position to continue to outgrow the market.
Speaker Change: And I'm not sure I'm photo master data.
Speaker Change: We are using a quick.
To continue to outgrow the market.
leveraging our competitive advantage to serve our growing.
Speaker Change: Reaching our compared to our competitive advantage to serve all growing.
Global customers.
I'm proud of our team's performance in 2023, the delivery record revenue, and for me, a stab with your fraternities as an emerging photo-mod partner of choice.
Speaker Change: I'm proud of our team's performance in 2023.
Speaker Change: Very very quick revenue and firmly establish airports.
Speaker Change: Is it a merger with both of them as partner of choice.
We are optimistic regarding our future growth opportunities and look forward to updating you as we make progress. Have a good day.
Speaker Change: We are optimistic regarding our future growth opportunities.
Speaker Change: And look forward to updating you.
Speaker Change: As we can.
Speaker Change: Yes.
Speaker Change: Good day and thank you.
Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please connect your line. Good day.
Speaker Change: Ladies and gentlemen that concludes the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
Speaker Change: Good day.
Speaker Change: Take care.
Speaker Change: Youre very welcome.
what
Okay.
Speaker Change: [music].
Speaker Change: Uh huh.
Speaker Change: Okay.
Speaker Change: Okay.