As a supplier to semiconductor manufacturers, Photronics (NASDAQ:PLAB) is a bit of an odd duck. While other suppliers have been making a living off memory manufacturers lately, Photronics has been left out in the cold.

Photronics makes masks that are quartz plates, onto which have been printed the image necessary to make a portion of an integrated circuit. Despite the strong growth in semiconductor sales over the past several years, the firm has not benefited much. This is partly because memory producers can use masks for a larger number of wafers than can other semiconductor manufacturers. Over the past three fiscal years revenue from semiconductor manufacturers has been roughly flat, and all of the growth has been due to masks made for the flat-panel display industry.

Unfortunately, the flat-panel business fell apart in the second half of last year and has yet to pick up. Its performance explains the relatively weak results reported for its first fiscal quarter of 2007. Photronics recorded sales of $106 million for the quarter versus $111.9 million a year ago. Net income totaled $7.9 million or $0.17 per share, although that amount includes a gain of $2.3 million from the sale of a manufacturing facility. A year ago the firm managed to earn $9.7 million or $0.21 per share.

Management does hope that the flat-panel display market will improve later this year, but it also hoped this last August after reporting a slowdown -- give management an A for optimism, if not accuracy. For the current quarter, Q2, Photronics hopes to reach $107 million-$117 million in revenue and earnings of $0.11-$0.20 per share. The top end of the revenue range matched analysts' hopes, but the top end of the earnings per share came up $0.02 short.

Photronics continues to invest in its business to develop the technology to service the semiconductor industry's thirst for scaling down its chips. But the firm faces some stiff competition in semiconductor masks from Dai Nippon Printing and Toppan Photomasks, both of which are larger comapnies. Photronics also has to contend with the in-house mask manufacturing of companies like IBM (NYSE:IBM), Taiwan Semiconductor (NYSE:TSM), Samsung, and LG Phillips LCD (NYSE:LPL).

Given that this company faces stiff R&D costs in the future and hasn't exactly enriched investors over the past decade, it might be best to tread a cautious path as far as the stock is concerned. On the other hand, if you know this company, and industry, well enough to understand how it will generate some growth, or are nimble enough to sell at the right time, then you may be rewarded with a handsome gain.

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Fool contributor Dan Bloom owns shares of Taiwan Semiconductor. He also owns a couple of masks, but only gets them out at Halloween. The Fool has a disclosure policy.