Are you invested in the semiconductor sector? If so, there's a new friend I'd like you to meet. Fool, Photronics (Nasdaq: PLAB ) -- Photronics, Fool. Now shake hands.
The photomask maker will report third-quarter earnings Wednesday night. Shareholders of Texas Instruments (NYSE: TXN ) , Micron (NYSE: MU ) , National Semiconductor (NYSE: NSM ) , or Maxim Integrated Products (Nasdaq: MXIM ) should perk up their ears and listen in, because as Photronics goes, so go its customers, and that includes all of the above luminaries.
What analysts say:
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Buy, sell, or waffle? Ten analysts follow this stock. Four of them are buyers and the other six have a neutral opinion. In our own Motley Fool CAPS database of everyday analysts, 18 users out of 60,000 have offered an opinion, which led to a two-star rating.
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Revenue. Wall Street expects about $102.5 million, on average. That's down a bit from last year's $108.2 million, and near the upper end of the official guidance of $101 million to $103 million.
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Earnings. The earnings consensus estimate points to about $0.04 per share -- far below the $0.15 per share seen a year ago. That's the very top of management's guidance of $0.01 to $0.04.
What management says:
Those guidance figures for revenue are revised from the original $110 million to $120 million. That's because of a soft and swiftly changing flat-panel market, as several of the company's largest customers are in the midst of refreshing their production lines to next-generation processes.
"Visibility in our business has always been limited," said CEO Michael Luttati, "typically one to two weeks, since we operate with minimal backlog, thereby introducing a degree of uncertainty quarter to quarter." Hold that thought -- we'll revisit it below the fold.
What management does:
What you see here is that a decrease in sales volume can create underutilization of manufacturing capacity. Because the industry has high fixed costs, a slight impact on utilization can have a huge impact on gross margins. That, in turn, can let the air out of the earnings balloon mighty fast. You can also tell that Photronics is doing something about it -- battening down the hatches, barring the kitchen door, and generally running a tighter ship to protect the bottom line, and the cash flows. Net income bounced off its rock bottom last quarter thanks to the newfound cost discipline, and with any luck, it will stay afloat for a while.
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Margins
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1/06
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4/06
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7/06
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10/06
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1/07
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4/07
|
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Gross
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33.1%
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33.3%
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32.4%
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32.3%
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31.3%
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28.4%
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Operating
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13.4%
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13.6%
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12.2%
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13.1%
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12.4%
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10.3%
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Net
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9.7%
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8.4%
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6.3%
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6.4%
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6.1%
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8.3%
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FCF/Revenue
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(1.0%)
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(2.6%)
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0.5%
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4.7%
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11.5%
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14.2%
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Y-O-Y Growth
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1/06
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4/06
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7/06
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10/06
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1/07
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4/07
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Revenue
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11.2%
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8.6%
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4.2%
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3.2%
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(0.6%)
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(4.2%)
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Earnings
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63.0%
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22.4%
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(25.3%)
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(24.1%)
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(37.2%)
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(5.7%)
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All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
Photronics plays a vital part in the manufacturing cycle of flat-panel displays and semiconductors because it makes the photomasks that let its customers etch their silicon with nanometer-scale precision. The company's short-order lead times mean that we can gauge the health of its end markets -- again, that's flatscreen displays and broad-line semiconductors -- by looking at the order flow coming through Photronics.
So right now, the chip guys are holding steady but display makers have hit a rough patch. You might want to rethink that investment in LG.Philips LCD (NYSE: LPL ) you had planned, then -- especially if your investment thesis had a flat-panel focus. See how that works?
So there's your new friend. Go have a chat over lunch, get to know each other. This could be the beginning of a beautiful friendship -- even if you never invest in Photronics itself.
Follow that weather vane:
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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the prognosticator of prognosticators.
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