PHOTRONICS INC — Call Transcript 2026

Thank you for standing by. Welcome to the Photronics Q2 Fiscal Year 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ted Moreau, Vice President of Investor Relations. Please go ahead. Thank you, operator. Good morning, everyone. Welcome to our review of Photronics' fiscal second quarter 2026 financial results. Joining me this morning are George Macricostas, Chairman and Chief Executive Officer, Eric Rivera, President and Chief Financial Officer, and Frank Lee, Senior Executive for Asia. The press release issued earlier this morning, along with the presentation materials accompanying our remarks, is available on the investor relations section of our website and on the Form 8-K filed with the SEC. This call includes forward-looking statements that involve risks and uncertainties, which could cause Photronics results to differ materially from management's current expectations. We encourage you to review the forward-looking statements disclosure included in our earnings release and in our most recent SEC filings. In the coming weeks, we will be participating in investor conferences hosted by Bank of America in San Francisco, Three Part Advisors in New York, D.A. Davidson in Nashville, and Singular Research in Las Vegas. With that, I will now turn the call over to George. Thank you, Ted. Good morning, everyone. In Q2, global photomask dynamics reflected a mix of supportive long-term drivers alongside temporary headwinds. Industry demand for leading-edge memory and logic chips for AI applications remains exceptionally strong. Manufacturing these chips requires a significant number of high-end photomasks, which creates a compelling multi-year growth opportunity for Photronics. We are taking several strategic actions to strengthen our position in this growing market, which I will discuss later in more detail. Importantly, as a reminder, photomask demand is more closely aligned with semiconductor design releases than to wafer starts. In the near term, several factors have delayed design releases, including elevated fab utilization rates, memory supply constraints, and geopolitical uncertainty. Eric will further elaborate on these factors. 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. As a result, our IC business decreased 5% year-over-year to $148 million, resulting in total fiscal Q2 revenue of $210 million, which was essentially flat year-over-year. Despite the near-term industry headwinds, we continue to execute against our investment priorities and strengthen our position in the robust high-end market segment. Our ongoing investments in our U.S. and Korea operations are designed to strengthen Photronics' long-term competitive position as we expand site capabilities into more advanced technology nodes. Both expansion projects remain on track, and over the next several years, we expect these investments to help us capture photomask demand and support a more geographically diverse revenue base. Strategically, these investments align us with the industry's ongoing manufacturing regionalization trends. They also position us to benefit from increased outsourcing opportunities from captive photomask producers, which will further shift our product mix towards more advanced geometries that carry higher ASPs. At our Korea facility, we are preparing our clean room for the arrival of key equipment to extend our capabilities down to 8 nm and below, and we expect installations to begin later in the fiscal year. At our Allen facility, we are beginning production of qualification masks and continue to target initial revenue late in the fiscal year with a more meaningful contribution to revenue growth in 2027 and beyond. Over time, we expect the site will become an important mask supplier for U.S. onshore mainstream semiconductor manufacturing. For leading-edge AI chips, our high-end U.S. facility in Boise is qualified to produce masks at the 7 nm node, and our teams are working closely with customers on even more advanced nodes. Photronics facility in Taiwan and the U.S. are also well-positioned to capture the increasing opportunities in advanced chip packaging applications. Turning to FPD, revenue of $62 million increased 13% year-over-year, reflecting our capability to produce more complex, larger mask sizes and our strong differentiation in AMOLED. Our market-leading high-end capabilities in the dynamic China market remain strong and should support display revenue growth in the coming years. In Korea, where we maintain strong market share, positive seasonality returned during fiscal Q2 after a slower start to the calendar year. The launch schedules of high-end consumer electronics, particularly in smartphones and smartwatches for Western markets, remain on track. Encouragingly, these high-end consumer electronics have not been impacted by tight memory conditions. Our recently installed FPD mask writer is entering production. This tool is expected to maximize our opportunity in G8.6 AMOLED, which carries higher ASP mask layers and is anticipated to be more widely adopted later in the calendar year. We expect continued strength in the Korea FPD market ahead of this higher resolution upgrade cycle. Returning to IC, while we are observing some signs of order recovery, near-term visibility regarding the timing of certain design releases remains limited. For the medium and long term, secular demand trends remain positive, as highlighted at the beginning of my prepared remarks. We are excited about the benefits our expansion projects are expected to provide, with initial U.S. revenue anticipated late in fiscal 2026, and initial revenue from our Korea expansion by the end of fiscal 2027. Both expansion projects are expected to open additional leading-edge opportunities. I will now turn the call over to Eric to review our second quarter results and provide third quarter guidance. Thank you, George. Good morning, everyone. Second quarter revenue came in at $210 million, roughly flat year-over-year and down sequentially following the strong performance in fiscal Q1 leading up to the Chinese New Year holiday. IC revenue of $148 million represented 70% of total revenue. High-end represented 38% of IC, while mainstream IC revenue was $91 million. Design releases and associated revenue, particularly from our foundry customers, were shaped by several factors during the period. First, the semiconductor industry is currently experiencing higher than normal fab utilization rates. As a result, fabs have been unable to accommodate additional design releases from some of their customers because of this limited capacity. Additionally, many chip OEMs have prioritized revenue and profitability from existing products, which has led them to continue wafer production on current designs while delaying new releases. The recent surge in memory prices and related supply constraints have contributed to delays in the launch of several new consumer electronic products as OEMs have worked to secure memory supply and manage rising product costs. The final factor contributing to delays for design releases is geopolitical developments, including the U.S.-Iran conflict, which has increased macroeconomic uncertainty. Looking ahead, we expect our capital investments in the U.S. and Korea to begin generating revenue at the end of 2026 and 2027, respectively. As the new capacity goes into full production, we expect our revenue mix in fiscals 2027 and 2028 to shift in two ways: by node towards high-end IC, and geographically towards the U.S. and Korea. These investments are consistent with our long-term strategy to further diversify our revenue mix by geography and technology node. Turning to FPD. Fiscal Q2 revenue of $62 million increased 13% year-over-year and represented one of the strongest quarters in the history of our display business. Demand remained strong in the China market as activity shifted towards the high-end category. In Korea, we saw a re-acceleration of business activity as customers prepare for regularly scheduled consumer electronic launches this fall. We foresee accelerated display market growth over the next several years following the increasing trend of G8.6 AMOLED applications. Display market growth is concentrated in China and Korea, which are competitive strongholds for Photronics. Gross margin of 31% reflects the combination of operational leverage inherent in our financial model, driven by our significant fixed cost infrastructure as well as product mix. Operating margin was 20%. Diluted GAAP EPS attributable to Photronics shareholders was $0.54 per share. Excluding foreign exchange impacts, non-GAAP diluted EPS was $0.42 per share. The strong performance of our display operations contributed to our earnings during the quarter. Operating cash flow of $47 million equates to a healthy 22% of revenue. CapEx was $46 million, reflecting investments in Korean expansions to support 8 nm production, the installation of new equipment in Allen, Texas, end-of-life tool upgrades, and facility optimization initiatives. As we have previously discussed, we have entered a period of elevated capital investments to drive future organic growth. Our initiatives in the U.S. and Korea, as endorsed by our customers, will further strengthen our ability to capitalize on growth trends, including surging AI applications, increased captive outsourcing, high-end node migrations, geographic diversification, and regionalizations. We maintain our fiscal 2026 CapEx guidance of $330 million, with elevated CapEx focused on strategic investments in the U.S. and Korea, along with peak end-of-life tool upgrades. Given the favorable long-term secular growth outlook of the photomask market, we continue to evaluate additional investment opportunities to further support our strategic priorities and long-term growth objectives. We will provide additional details as appropriate if and when we decide to move forward with these potential projects. Total cash and short-term investments remained flat at $638 million, including $477 million held within our joint ventures, in which we hold a 50.1% ownership interest. Our capital allocation strategy remains focused on three priorities: reinvestment in the business to support organic growth, pursuing strategic opportunities, and returning capital to shareholders. We will continue to evaluate the most effective use of our cash and remain disciplined and opportunistic in our capital allocation decisions, prioritizing investments that offer the highest expected returns. With respect to internal reinvestment, we will continue to emphasize projects that support future revenue growth and enhance long-term shareholder value. Before providing guidance, I'd like to remind you that demand for our products is inherently variable. Visibility remains limited with a typical backlog of only one to three weeks. Additionally, high-end mask sets carry significantly higher ASPs, meaning even a small number of orders can materially impact revenue and earnings. Demand is also influenced by IC and display design activity, and to a lesser extent, by wafer and panel capacity dynamics. Given current market conditions and the influence of elevated AI demand on fab utilization, and therefore design starts, we expect fiscal Q3 revenue to be in the range of $207 million-$215 million. Based on those revenue expectations and our operating model, we estimate fiscal Q3 operating margin between 18% and 20%, and non-GAAP diluted EPS between $0.39 and $0.45 per share. I will now turn the call over to the operator for your questions. Certainly. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile our Q&A roster. Our first question will come from the line of Maxwell Michaelis of Lake Street Capital Markets. Your line is open, Maxwell. Hey, guys. Thanks for taking my questions. First one from me. In terms of visibility, when did things really start to get cloudy in the quarter? Just given the guidance for Q2, came in a little bit below that. Really, when did visibility become cloudy in the quarter? Hello, Max. This is Eric. Thanks for the question. It really started becoming cloudy when the conflict with Iran and the U.S. started during the quarter. After that, we started seeing fab utilization was also affecting us. Go ahead. [crosstalk] Max, I'd like to comment more on this. Typically, we have a very strong booking before the Chinese New Year, and after Chinese New Year, there will be a temporary slowdown. This year, the slowdown after Chinese is much longer than we anticipate. Of course, the headwinds as George and Eric report highlight, may be the factors causing this longer slowdown in the tape out after Chinese New Year. We do see the slowdown right after Chinese New Year, which is in the end of February. End of February. Okay. I guess my second question and follow-up to that would be, when you're talking to your customers, have they given you any sort of rough timeline on when they expect to bring in these new designs, or they still have no idea either? Our customers actually are still optimistic about the midterm outlook. In the near term, the visibility remains kind of limited. We see a lot of delay in the tape out in Q2. At the beginning of Q3, we did see some recovery of those delays. A lot of tape outs have happened since the beginning of May. However, going forward, we remain very cautious. At this moment, customers still optimistic about a midterm outlook. Okay. I'll take the rest of my offline. Thank you. Our next question will be coming from the line of Gowshi Sri of Singular Research. Your line is open, Gowshi. Good morning, gentlemen. Can you guys hear me? Yes, we can. Okay. Thank you. I just wanted to get these customers that are deferring designs. Were they already in the pipeline, or is this more about new designs that are starting to slow down? Do those recovery times differ? Yes. Actually, whenever customer make a new design, they tape out the data to the foundry fab. The foundry fab give the order to the mask house they select. This time, the new design slowdown actually happened at the end of the foundry customer, namely the design house. The design house actually has a slower new tape out, new design release. It's not in the pipeline. It's at the very beginning of the new design release. Thank you. Eric, on the margin compression side, are there any specific levers you guys can pull if the demand kind of stays soft for another couple of quarters? Are there any variable cost reductions available, or is it fundamentally a cost business that needs utilization to recover? Yeah, very little levers we can pull. It's really the product mix that will be available that the market gives us is what we'll have. Most of our cost is fixed, or a big portion of it anyway is very fixed. We don't have much leverage to pull there. Got you. On the Allen site, if Allen begins delivering qualifications masks in Q3 as planned, and the demand kind of stays soft till early 2027, does bringing the new Allen capacity online to a weak demand environment add depreciation costs, making margins even more compressed? Is the Allen cost structure kind of light enough at the qualification stage that it doesn't meaningfully impact P&L until commercial production begins? Yeah. The Allen expansion already started. We started qualifications already in Q3. Everything is moving according to our timeline. We expect revenue generation to occur later in the year, and we do not expect that the current economic environment will depress the returns that we're expecting on our Allen expansion in the current year or in the next at the moment. Okay. Gowshi, sorry. I'd like to add some comments to your question. Our Allen expansion is not only capacity expansion. We are upgrading our technology. The qualification basically is for the technology which Allen cannot do at this moment. Once we qualify the customer, I think we will increase our market share in the technology node which Allen cannot produce right now. Another purpose of Allen expansion is we are planning to transfer some lower end of the high end or the mainstream from our Boise site to Allen, so we can spare more capacity in our Boise site to take higher ASP orders. This is a win for Boise site and also a win for the Allen site. Got you. In terms of the memory supply constraints and OEM cost pressure headwinds, I'm curious as to see whether you're seeing this evenly across your geography. For example, are your U.S. customers, Korean customers behaving differently to your Chinese and Taiwan foundry customers in terms of deferring designs, or is the pause kind of fairly based across all regions? Yes. The memory shortage and especially also the price surging, has huge negative impact on the consumer product, especially the low-end consumer product. Those are mainly in Asia. I think this impact happened in Taiwan and also in China. Got you. Thank you for the call. I'll jump back in the queue. Thank you. Our next question will come from the line of Christian Schwab of Craig-Hallum. Your line is open, Christian. Yeah, great. Thanks. I understand the delays that you're seeing at design starts, and thanks for all that clarity. As we increase our capacity capabilities on lower geometry node chips on a kind of a medium-term basis, can you give us idea of either a yearly revenue target or a market share goal? My second question along those lines is, on the advanced node side, is 7 nm or 8 nm is the best that we're going to be able to make, or do we have aspirations to get down below that? Thanks, Christian. This is Eric here. Starting with your last question first, in terms of our aspirations to go 8 nm, 7 nm, we're going to continue going down node. We have to do that because that's our industry. We have to continue investing, and we see a lot of opportunity there. Definitely we plan to go below those ranges. Now, with respect to the revenue that we expect to get out of our Allen facility with our recent investments, I'm not going to get into detail of revenue by site from that perspective, but that should give us an opportunity to expand our market share in the U.S., and we expect the U.S. to be At least in 2027, to be heading us from a revenue expansion perspective, our percentage of increase should be larger in the U.S. than anywhere else. Great. Thanks. We're working with customers to that, and Frank, maybe you'd like to elaborate? Yes, George. Yes. I think our investment, not necessary for the capacity only, because we are seeing a lot of ongoing onshore semiconductor manufacturing in the States. Photronics, we have a very unique, strong position in the country because we have the Boise site where we have the very advanced photomask technology, and also we have the Allen where we can make the mainstream photomask. The capacity expansion and the technology upgrade by our CapEx is to serve our company's goal. We like to be the main photomask supplier in the United States. Great. Thank you for that clarity. No other questions. Thank you. Thank you, Christian. Thank you, Christian. Thank you. I would now like to turn the conference back to Ted for closing remarks. Thank you, Tanya, and thanks everyone for joining us on the call today. We really appreciate your interest in Photronics. Look forward to connecting with everybody throughout the quarter. Have a great day. This concludes today's program. Thank you for participating. You may now disconnect. Thank you.

Speaker 7: Thank you for standing by. Welcome to the Photronics Q2 Fiscal Year 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. Thank you for standing by. thank you for standing by Welcome to the Photronics Q2 Fiscal Year 2026 Earnings Conference Call. welcome to the photronics q2 fiscal year 2026 earnings conference call At this time, all participants are in a listen-only mode. at this time all participants are in a listen-only mode After the speakers' presentation, there will be a question and answer session. after the speakers' presentation there will be a question and answer session To ask a question during the session, you will need to press star one one on your telephone. to ask a question during the session you will need to press star one one on your telephone You will hear an automated message advising that your hand is raised. you will hear an automated message advising that your hand is raised To withdraw your question, please press star one one again. to withdraw your question please press star one one again Please be advised that today's conference is being recorded. please be advised that today's conference is being recorded I would now like to hand the conference over to your speaker today, Ted Moreau, Vice President of Investor Relations. Please go ahead. I would now like to hand the conference over to your speaker today, Ted Moreau, Vice President of Investor Relations. i would now like to hand the conference over to your speaker today ted moreau vice president of investor relations Please go ahead. please go ahead

Speaker 8: Thank you, operator. Good morning, everyone. Welcome to our review of Photronics' fiscal second quarter 2026 financial results. Joining me this morning are George Macricostas, Chairman and Chief Executive Officer, Eric Rivera, President and Chief Financial Officer, and Frank Lee, Senior Executive for Asia. The press release issued earlier this morning, along with the presentation materials accompanying our remarks, is available on the investor relations section of our website and on the Form 8-K filed with the SEC. This call includes forward-looking statements that involve risks and uncertainties, which could cause Photronics results to differ materially from management's current expectations. Thank you, operator. thank you operator Good morning, everyone. good morning everyone Welcome to our review of Photronics' fiscal second quarter 2026 financial results. welcome to our review of photronics' fiscal second quarter 2026 financial results Joining me this morning are George Macricostas, Chairman and Chief Executive Officer, Eric Rivera, President and Chief Financial Officer, and Frank Lee, Senior Executive for Asia. joining me this morning are george macricostas chairman and chief executive officer eric rivera president and chief financial officer and frank lee senior executive for asia The press release issued earlier this morning, along with the presentation materials accompanying our remarks, is available on the investor relations section of our website and on the Form 8-K filed with the SEC. the press release issued earlier this morning along with the presentation materials accompanying our remarks is available on the investor relations section of our website and on the form 8-k filed with the sec This call includes forward-looking statements that involve risks and uncertainties, which could cause Photronics results to differ materially from management's current expectations. this call includes forward-looking statements that involve risks and uncertainties which could cause photronics results to differ materially from management's current expectations We encourage you to review the forward-looking statements disclosure included in our earnings release and in our most recent SEC filings. In the coming weeks, we will be participating in investor conferences hosted by Bank of America in San Francisco, Three Part Advisors in New York, D.A. Davidson in Nashville, and Singular Research in Las Vegas. We encourage you to review the forward-looking statements disclosure included in our earnings release and in our most recent SEC filings. we encourage you to review the forward-looking statements disclosure included in our earnings release and in our most recent sec filings In the coming weeks, we will be participating in investor conferences hosted by Bank of America in San Francisco, Three Part Advisors in New York, D.A. in the coming weeks we will be participating in investor conferences hosted by bank of america in san francisco three part advisors in new york d.a Davidson in Nashville, and Singular Research in Las Vegas. davidson in nashville and singular research in las vegas With that, I will now turn the call over to George. With that, I will now turn the call over to George. with that i will now turn the call over to george

Speaker 4: Thank you, Ted. Good morning, everyone. In Q2, global photomask dynamics reflected a mix of supportive long-term drivers alongside temporary headwinds. Industry demand for leading-edge memory and logic chips for AI applications remains exceptionally strong. Manufacturing these chips requires a significant number of high-end photomasks, which creates a compelling multi-year growth opportunity for Photronics. We are taking several strategic actions to strengthen our position in this growing market, which I will discuss later in more detail. Importantly, as a reminder, photomask demand is more closely aligned with semiconductor design releases than to wafer starts. In the near term, several factors have delayed design releases, including elevated fab utilization rates, memory supply constraints, and geopolitical uncertainty. Eric will further elaborate on these factors. Thank you, Ted. thank you ted Good morning, everyone. good morning everyone In Q2, global photomask dynamics reflected a mix of supportive long-term drivers alongside temporary headwinds. in q2 global photomask dynamics reflected a mix of supportive long-term drivers alongside temporary headwinds Industry demand for leading-edge memory and logic chips for AI applications remains exceptionally strong. industry demand for leading-edge memory and logic chips for ai applications remains exceptionally strong Manufacturing these chips requires a significant number of high-end photomasks, which creates a compelling multi-year growth opportunity for Photronics. manufacturing these chips requires a significant number of high-end photomasks which creates a compelling multi-year growth opportunity for photronics We are taking several strategic actions to strengthen our position in this growing market, which I will discuss later in more detail. we are taking several strategic actions to strengthen our position in this growing market which i will discuss later in more detail Importantly, as a reminder, photomask demand is more closely aligned with semiconductor design releases than to wafer starts. importantly as a reminder photomask demand is more closely aligned with semiconductor design releases than to wafer starts In the near term, several factors have delayed design releases, including elevated fab utilization rates, memory supply constraints, and geopolitical uncertainty. in the near term several factors have delayed design releases including elevated fab utilization rates memory supply constraints and geopolitical uncertainty Eric will further elaborate on these factors. eric will further elaborate on these factors 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. As a result, our IC business decreased 5% year-over-year to $148 million, resulting in total fiscal Q2 revenue of $210 million, which was essentially flat year-over-year. Despite the near-term industry headwinds, we continue to execute against our investment priorities and strengthen our position in the robust high-end market segment. Our ongoing investments in our U.S. and Korea operations are designed to strengthen Photronics' long-term competitive position as we expand site capabilities into more advanced technology nodes. Both expansion projects remain on track, and over the next several years, we expect these investments to help us capture photomask demand and support a more geographically diverse revenue base. 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. 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 As a result, our IC business decreased 5% year-over-year to $148 million, resulting in total fiscal Q2 revenue of $210 million, which was essentially flat year-over-year. as a result our ic business decreased 5% year-over-year to $148 million resulting in total fiscal q2 revenue of $210 million which was essentially flat year-over-year Despite the near-term industry headwinds, we continue to execute against our investment priorities and strengthen our position in the robust high-end market segment. despite the near-term industry headwinds we continue to execute against our investment priorities and strengthen our position in the robust high-end market segment Our ongoing investments in our U.S. and Korea operations are designed to strengthen Photronics' long-term competitive position as we expand site capabilities into more advanced technology nodes. our ongoing investments in our u.s and korea operations are designed to strengthen photronics' long-term competitive position as we expand site capabilities into more advanced technology nodes Both expansion projects remain on track, and over the next several years, we expect these investments to help us capture photomask demand and support a more geographically diverse revenue base. both expansion projects remain on track and over the next several years we expect these investments to help us capture photomask demand and support a more geographically diverse revenue base Strategically, these investments align us with the industry's ongoing manufacturing regionalization trends. They also position us to benefit from increased outsourcing opportunities from captive photomask producers, which will further shift our product mix towards more advanced geometries that carry higher ASPs. At our Korea facility, we are preparing our clean room for the arrival of key equipment to extend our capabilities down to 8 nm and below, and we expect installations to begin later in the fiscal year. At our Allen facility, we are beginning production of qualification masks and continue to target initial revenue late in the fiscal year with a more meaningful contribution to revenue growth in 2027 and beyond. Over time, we expect the site will become an important mask supplier for U.S. onshore mainstream semiconductor manufacturing. Strategically, these investments align us with the industry's ongoing manufacturing regionalization trends. strategically these investments align us with the industry's ongoing manufacturing regionalization trends They also position us to benefit from increased outsourcing opportunities from captive photomask producers, which will further shift our product mix towards more advanced geometries that carry higher ASPs. they also position us to benefit from increased outsourcing opportunities from captive photomask producers which will further shift our product mix towards more advanced geometries that carry higher asps At our Korea facility, we are preparing our clean room for the arrival of key equipment to extend our capabilities down to 8 nm and below, and we expect installations to begin later in the fiscal year. at our korea facility we are preparing our clean room for the arrival of key equipment to extend our capabilities down to 8 nm and below and we expect installations to begin later in the fiscal year At our Allen facility, we are beginning production of qualification masks and continue to target initial revenue late in the fiscal year with a more meaningful contribution to revenue growth in 2027 and beyond. at our allen facility we are beginning production of qualification masks and continue to target initial revenue late in the fiscal year with a more meaningful contribution to revenue growth in 2027 and beyond Over time, we expect the site will become an important mask supplier for U.S. onshore mainstream semiconductor manufacturing. over time we expect the site will become an important mask supplier for u.s onshore mainstream semiconductor manufacturing For leading-edge AI chips, our high-end U.S. facility in Boise is qualified to produce masks at the 7 nm node, and our teams are working closely with customers on even more advanced nodes. Photronics facility in Taiwan and the U.S. are also well-positioned to capture the increasing opportunities in advanced chip packaging applications. Turning to FPD, revenue of $62 million increased 13% year-over-year, reflecting our capability to produce more complex, larger mask sizes and our strong differentiation in AMOLED. Our market-leading high-end capabilities in the dynamic China market remain strong and should support display revenue growth in the coming years. In Korea, where we maintain strong market share, positive seasonality returned during fiscal Q2 after a slower start to the calendar year. For leading-edge AI chips, our high-end U.S. facility in Boise is qualified to produce masks at the 7 nm node, and our teams are working closely with customers on even more advanced nodes. for leading-edge ai chips our high-end u.s facility in boise is qualified to produce masks at the 7 nm node and our teams are working closely with customers on even more advanced nodes Photronics facility in Taiwan and the U.S. are also well-positioned to capture the increasing opportunities in advanced chip packaging applications. photronics facility in taiwan and the u.s are also well-positioned to capture the increasing opportunities in advanced chip packaging applications Turning to FPD, revenue of $62 million increased 13% year-over-year, reflecting our capability to produce more complex, larger mask sizes and our strong differentiation in AMOLED. turning to fpd revenue of $62 million increased 13% year-over-year reflecting our capability to produce more complex larger mask sizes and our strong differentiation in amoled Our market-leading high-end capabilities in the dynamic China market remain strong and should support display revenue growth in the coming years. our market-leading high-end capabilities in the dynamic china market remain strong and should support display revenue growth in the coming years In Korea, where we maintain strong market share, positive seasonality returned during fiscal Q2 after a slower start to the calendar year. in korea where we maintain strong market share positive seasonality returned during fiscal q2 after a slower start to the calendar year The launch schedules of high-end consumer electronics, particularly in smartphones and smartwatches for Western markets, remain on track. Encouragingly, these high-end consumer electronics have not been impacted by tight memory conditions. Our recently installed FPD mask writer is entering production. This tool is expected to maximize our opportunity in G8.6 AMOLED, which carries higher ASP mask layers and is anticipated to be more widely adopted later in the calendar year. We expect continued strength in the Korea FPD market ahead of this higher resolution upgrade cycle. The launch schedules of high-end consumer electronics, particularly in smartphones and smartwatches for Western markets, remain on track. the launch schedules of high-end consumer electronics particularly in smartphones and smartwatches for western markets remain on track Encouragingly, these high-end consumer electronics have not been impacted by tight memory conditions. encouragingly these high-end consumer electronics have not been impacted by tight memory conditions Our recently installed FPD mask writer is entering production. our recently installed fpd mask writer is entering production This tool is expected to maximize our opportunity in G8.6 AMOLED, which carries higher ASP mask layers and is anticipated to be more widely adopted later in the calendar year. this tool is expected to maximize our opportunity in g8.6 amoled which carries higher asp mask layers and is anticipated to be more widely adopted later in the calendar year We expect continued strength in the Korea FPD market ahead of this higher resolution upgrade cycle. we expect continued strength in the korea fpd market ahead of this higher resolution upgrade cycle Returning to IC, while we are observing some signs of order recovery, near-term visibility regarding the timing of certain design releases remains limited. For the medium and long term, secular demand trends remain positive, as highlighted at the beginning of my prepared remarks. We are excited about the benefits our expansion projects are expected to provide, with initial U.S. revenue anticipated late in fiscal 2026, and initial revenue from our Korea expansion by the end of fiscal 2027. Both expansion projects are expected to open additional leading-edge opportunities. Returning to IC, while we are observing some signs of order recovery, near-term visibility regarding the timing of certain design releases remains limited. returning to ic while we are observing some signs of order recovery near-term visibility regarding the timing of certain design releases remains limited For the medium and long term, secular demand trends remain positive, as highlighted at the beginning of my prepared remarks. for the medium and long term secular demand trends remain positive as highlighted at the beginning of my prepared remarks We are excited about the benefits our expansion projects are expected to provide, with initial U.S. revenue anticipated late in fiscal 2026, and initial revenue from our Korea expansion by the end of fiscal 2027. we are excited about the benefits our expansion projects are expected to provide with initial u.s revenue anticipated late in fiscal 2026 and initial revenue from our korea expansion by the end of fiscal 2027 Both expansion projects are expected to open additional leading-edge opportunities. both expansion projects are expected to open additional leading-edge opportunities I will now turn the call over to Eric to review our second quarter results and provide third quarter guidance. I will now turn the call over to Eric to review our second quarter results and provide third quarter guidance. i will now turn the call over to eric to review our second quarter results and provide third quarter guidance

Speaker 2: Thank you, George. Good morning, everyone. Second quarter revenue came in at $210 million, roughly flat year-over-year and down sequentially following the strong performance in fiscal Q1 leading up to the Chinese New Year holiday. IC revenue of $148 million represented 70% of total revenue. High-end represented 38% of IC, while mainstream IC revenue was $91 million. Design releases and associated revenue, particularly from our foundry customers, were shaped by several factors during the period. First, the semiconductor industry is currently experiencing higher than normal fab utilization rates. As a result, fabs have been unable to accommodate additional design releases from some of their customers because of this limited capacity. Additionally, many chip OEMs have prioritized revenue and profitability from existing products, which has led them to continue wafer production on current designs while delaying new releases. Thank you, George. thank you george Good morning, everyone. good morning everyone Second quarter revenue came in at $210 million, roughly flat year-over-year and down sequentially following the strong performance in fiscal Q1 leading up to the Chinese New Year holiday. second quarter revenue came in at $210 million roughly flat year-over-year and down sequentially following the strong performance in fiscal q1 leading up to the chinese new year holiday IC revenue of $148 million represented 70% of total revenue. ic revenue of $148 million represented 70% of total revenue High-end represented 38% of IC, while mainstream IC revenue was $91 million. high-end represented 38% of ic while mainstream ic revenue was $91 million Design releases and associated revenue, particularly from our foundry customers, were shaped by several factors during the period. design releases and associated revenue particularly from our foundry customers were shaped by several factors during the period First, the semiconductor industry is currently experiencing higher than normal fab utilization rates. first the semiconductor industry is currently experiencing higher than normal fab utilization rates As a result, fabs have been unable to accommodate additional design releases from some of their customers because of this limited capacity. as a result fabs have been unable to accommodate additional design releases from some of their customers because of this limited capacity Additionally, many chip OEMs have prioritized revenue and profitability from existing products, which has led them to continue wafer production on current designs while delaying new releases. additionally many chip oems have prioritized revenue and profitability from existing products which has led them to continue wafer production on current designs while delaying new releases The recent surge in memory prices and related supply constraints have contributed to delays in the launch of several new consumer electronic products as OEMs have worked to secure memory supply and manage rising product costs. The final factor contributing to delays for design releases is geopolitical developments, including the U.S.-Iran conflict, which has increased macroeconomic uncertainty. Looking ahead, we expect our capital investments in the U.S. and Korea to begin generating revenue at the end of 2026 and 2027, respectively. As the new capacity goes into full production, we expect our revenue mix in fiscals 2027 and 2028 to shift in two ways: by node towards high-end IC, and geographically towards the U.S. and Korea. These investments are consistent with our long-term strategy to further diversify our revenue mix by geography and technology node. The recent surge in memory prices and related supply constraints have contributed to delays in the launch of several new consumer electronic products as OEMs have worked to secure memory supply and manage rising product costs. the recent surge in memory prices and related supply constraints have contributed to delays in the launch of several new consumer electronic products as oems have worked to secure memory supply and manage rising product costs The final factor contributing to delays for design releases is geopolitical developments, including the U.S.-Iran conflict, which has increased macroeconomic uncertainty. the final factor contributing to delays for design releases is geopolitical developments including the u.s.-iran conflict which has increased macroeconomic uncertainty Looking ahead, we expect our capital investments in the U.S. and Korea to begin generating revenue at the end of 2026 and 2027, respectively. looking ahead we expect our capital investments in the u.s and korea to begin generating revenue at the end of 2026 and 2027 respectively As the new capacity goes into full production, we expect our revenue mix in fiscals 2027 and 2028 to shift in two ways: by node towards high-end IC, and geographically towards the U.S. and Korea. as the new capacity goes into full production we expect our revenue mix in fiscals 2027 and 2028 to shift in two ways by node towards high-end ic and geographically towards the u.s and korea These investments are consistent with our long-term strategy to further diversify our revenue mix by geography and technology node. these investments are consistent with our long-term strategy to further diversify our revenue mix by geography and technology node Turning to FPD. Fiscal Q2 revenue of $62 million increased 13% year-over-year and represented one of the strongest quarters in the history of our display business. Demand remained strong in the China market as activity shifted towards the high-end category. In Korea, we saw a re-acceleration of business activity as customers prepare for regularly scheduled consumer electronic launches this fall. We foresee accelerated display market growth over the next several years following the increasing trend of G8.6 AMOLED applications. Display market growth is concentrated in China and Korea, which are competitive strongholds for Photronics. Gross margin of 31% reflects the combination of operational leverage inherent in our financial model, driven by our significant fixed cost infrastructure as well as product mix. Turning to FPD. turning to fpd Fiscal Q2 revenue of $62 million increased 13% year-over-year and represented one of the strongest quarters in the history of our display business. fiscal q2 revenue of $62 million increased 13% year-over-year and represented one of the strongest quarters in the history of our display business Demand remained strong in the China market as activity shifted towards the high-end category. demand remained strong in the china market as activity shifted towards the high-end category In Korea, we saw a re-acceleration of business activity as customers prepare for regularly scheduled consumer electronic launches this fall. in korea we saw a re-acceleration of business activity as customers prepare for regularly scheduled consumer electronic launches this fall We foresee accelerated display market growth over the next several years following the increasing trend of G8.6 AMOLED applications. we foresee accelerated display market growth over the next several years following the increasing trend of g8.6 amoled applications Display market growth is concentrated in China and Korea, which are competitive strongholds for Photronics. display market growth is concentrated in china and korea which are competitive strongholds for photronics Gross margin of 31% reflects the combination of operational leverage inherent in our financial model, driven by our significant fixed cost infrastructure as well as product mix. gross margin of 31% reflects the combination of operational leverage inherent in our financial model driven by our significant fixed cost infrastructure as well as product mix Operating margin was 20%. Diluted GAAP EPS attributable to Photronics shareholders was $0.54 per share. Excluding foreign exchange impacts, non-GAAP diluted EPS was $0.42 per share. The strong performance of our display operations contributed to our earnings during the quarter. Operating cash flow of $47 million equates to a healthy 22% of revenue. CapEx was $46 million, reflecting investments in Korean expansions to support 8 nm production, the installation of new equipment in Allen, Texas, end-of-life tool upgrades, and facility optimization initiatives. As we have previously discussed, we have entered a period of elevated capital investments to drive future organic growth. Our initiatives in the U.S. and Korea, as endorsed by our customers, will further strengthen our ability to capitalize on growth trends, including surging AI applications, increased captive outsourcing, high-end node migrations, geographic diversification, and regionalizations. Operating margin was 20%. operating margin was 20% Diluted GAAP EPS attributable to Photronics shareholders was $0.54 per share. diluted gaap eps attributable to photronics shareholders was $0.54 per share Excluding foreign exchange impacts, non-GAAP diluted EPS was $0.42 per share. excluding foreign exchange impacts non-gaap diluted eps was $0.42 per share The strong performance of our display operations contributed to our earnings during the quarter. the strong performance of our display operations contributed to our earnings during the quarter Operating cash flow of $47 million equates to a healthy 22% of revenue. operating cash flow of $47 million equates to a healthy 22% of revenue CapEx was $46 million, reflecting investments in Korean expansions to support 8 nm production, the installation of new equipment in Allen, Texas, end-of-life tool upgrades, and facility optimization initiatives. capex was $46 million reflecting investments in korean expansions to support 8 nm production the installation of new equipment in allen texas end-of-life tool upgrades and facility optimization initiatives As we have previously discussed, we have entered a period of elevated capital investments to drive future organic growth. as we have previously discussed we have entered a period of elevated capital investments to drive future organic growth Our initiatives in the U.S. and Korea, as endorsed by our customers, will further strengthen our ability to capitalize on growth trends, including surging AI applications, increased captive outsourcing, high-end node migrations, geographic diversification, and regionalizations. our initiatives in the u.s and korea as endorsed by our customers will further strengthen our ability to capitalize on growth trends including surging ai applications increased captive outsourcing high-end node migrations geographic diversification and regionalizations We maintain our fiscal 2026 CapEx guidance of $330 million, with elevated CapEx focused on strategic investments in the U.S. and Korea, along with peak end-of-life tool upgrades. Given the favorable long-term secular growth outlook of the photomask market, we continue to evaluate additional investment opportunities to further support our strategic priorities and long-term growth objectives. We will provide additional details as appropriate if and when we decide to move forward with these potential projects. We maintain our fiscal 2026 CapEx guidance of $330 million, with elevated CapEx focused on strategic investments in the U.S. and Korea, along with peak end-of-life tool upgrades. we maintain our fiscal 2026 capex guidance of $330 million with elevated capex focused on strategic investments in the u.s and korea along with peak end-of-life tool upgrades Given the favorable long-term secular growth outlook of the photomask market, we continue to evaluate additional investment opportunities to further support our strategic priorities and long-term growth objectives. given the favorable long-term secular growth outlook of the photomask market we continue to evaluate additional investment opportunities to further support our strategic priorities and long-term growth objectives We will provide additional details as appropriate if and when we decide to move forward with these potential projects. we will provide additional details as appropriate if and when we decide to move forward with these potential projects Total cash and short-term investments remained flat at $638 million, including $477 million held within our joint ventures, in which we hold a 50.1% ownership interest. Our capital allocation strategy remains focused on three priorities: reinvestment in the business to support organic growth, pursuing strategic opportunities, and returning capital to shareholders. We will continue to evaluate the most effective use of our cash and remain disciplined and opportunistic in our capital allocation decisions, prioritizing investments that offer the highest expected returns. With respect to internal reinvestment, we will continue to emphasize projects that support future revenue growth and enhance long-term shareholder value. Total cash and short-term investments remained flat at $638 million, including $477 million held within our joint ventures, in which we hold a 50.1% ownership interest. total cash and short-term investments remained flat at $638 million including $477 million held within our joint ventures in which we hold a 50.1% ownership interest Our capital allocation strategy remains focused on three priorities: reinvestment in the business to support organic growth, pursuing strategic opportunities, and returning capital to shareholders. We will continue to evaluate the most effective use of our cash and remain disciplined and opportunistic in our capital allocation decisions, prioritizing investments that offer the highest expected returns. our capital allocation strategy remains focused on three priorities reinvestment in the business to support organic growth pursuing strategic opportunities and returning capital to shareholders. we will continue to evaluate the most effective use of our cash and remain disciplined and opportunistic in our capital allocation decisions prioritizing investments that offer the highest expected returns With respect to internal reinvestment, we will continue to emphasize projects that support future revenue growth and enhance long-term shareholder value. with respect to internal reinvestment we will continue to emphasize projects that support future revenue growth and enhance long-term shareholder value Before providing guidance, I'd like to remind you that demand for our products is inherently variable. Visibility remains limited with a typical backlog of only one to three weeks. Additionally, high-end mask sets carry significantly higher ASPs, meaning even a small number of orders can materially impact revenue and earnings. Demand is also influenced by IC and display design activity, and to a lesser extent, by wafer and panel capacity dynamics. Given current market conditions and the influence of elevated AI demand on fab utilization, and therefore design starts, we expect fiscal Q3 revenue to be in the range of $207 million-$215 million. Based on those revenue expectations and our operating model, we estimate fiscal Q3 operating margin between 18% and 20%, and non-GAAP diluted EPS between $0.39 and $0.45 per share. Before providing guidance, I'd like to remind you that demand for our products is inherently variable. before providing guidance i'd like to remind you that demand for our products is inherently variable Visibility remains limited with a typical backlog of only one to three weeks. visibility remains limited with a typical backlog of only one to three weeks Additionally, high-end mask sets carry significantly higher ASPs, meaning even a small number of orders can materially impact revenue and earnings. additionally high-end mask sets carry significantly higher asps meaning even a small number of orders can materially impact revenue and earnings Demand is also influenced by IC and display design activity, and to a lesser extent, by wafer and panel capacity dynamics. demand is also influenced by ic and display design activity and to a lesser extent by wafer and panel capacity dynamics Given current market conditions and the influence of elevated AI demand on fab utilization, and therefore design starts, we expect fiscal Q3 revenue to be in the range of $207 million-$215 million. given current market conditions and the influence of elevated ai demand on fab utilization and therefore design starts we expect fiscal q3 revenue to be in the range of $207 million-$215 million Based on those revenue expectations and our operating model, we estimate fiscal Q3 operating margin between 18% and 20%, and non-GAAP diluted EPS between $0.39 and $0.45 per share. based on those revenue expectations and our operating model we estimate fiscal q3 operating margin between 18% and 20% and non-gaap diluted eps between $0.39 and $0.45 per share I will now turn the call over to the operator for your questions. I will now turn the call over to the operator for your questions. i will now turn the call over to the operator for your questions

Speaker 7: Certainly. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile our Q&A roster. Our first question will come from the line of Maxwell Michaelis of Lake Street Capital Markets. Your line is open, Maxwell. Certainly. certainly As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. as a reminder to ask a question please press star one one on your telephone and wait for your name to be announced To withdraw your question, please press star one one again. to withdraw your question please press star one one again Please stand by while we compile our Q&A roster. please stand by while we compile our q&a roster Our first question will come from the line of Maxwell Michaelis of Lake Street Capital Markets. our first question will come from the line of maxwell michaelis of lake street capital markets Your line is open, Maxwell. your line is open maxwell

Speaker 6: Hey, guys. Thanks for taking my questions. First one from me. In terms of visibility, when did things really start to get cloudy in the quarter? Just given the guidance for Q2, came in a little bit below that. Really, when did visibility become cloudy in the quarter? Hey, guys. hey guys Thanks for taking my questions. thanks for taking my questions First one from me. first one from me In terms of visibility, when did things really start to get cloudy in the quarter? in terms of visibility when did things really start to get cloudy in the quarter Just given the guidance for Q2, came in a little bit below that. just given the guidance for q2 came in a little bit below that Really, when did visibility become cloudy in the quarter? really when did visibility become cloudy in the quarter

Speaker 2: Hello, Max. This is Eric. Thanks for the question. It really started becoming cloudy when the conflict with Iran and the U.S. started during the quarter. After that, we started seeing fab utilization was also affecting us. Go ahead. [crosstalk] Hello, Max. hello max This is Eric. this is eric Thanks for the question. thanks for the question It really started becoming cloudy when the conflict with Iran and the U.S. started during the quarter. it really started becoming cloudy when the conflict with iran and the u.s started during the quarter After that, we started seeing fab utilization was also affecting us. after that we started seeing fab utilization was also affecting us Go ahead. [crosstalk] go ahead. [crosstalk]

Speaker 3: Max, I'd like to comment more on this. Typically, we have a very strong booking before the Chinese New Year, and after Chinese New Year, there will be a temporary slowdown. This year, the slowdown after Chinese is much longer than we anticipate. Of course, the headwinds as George and Eric report highlight, may be the factors causing this longer slowdown in the tape out after Chinese New Year. We do see the slowdown right after Chinese New Year, which is in the end of February. Max, I'd like to comment more on this. max i'd like to comment more on this Typically, we have a very strong booking before the Chinese New Year, and after Chinese New Year, there will be a temporary slowdown. typically we have a very strong booking before the chinese new year and after chinese new year there will be a temporary slowdown This year, the slowdown after Chinese is much longer than we anticipate. this year the slowdown after chinese is much longer than we anticipate Of course, the headwinds as George and Eric report highlight, may be the factors causing this longer slowdown in the tape out after Chinese New Year. of course the headwinds as george and eric report highlight may be the factors causing this longer slowdown in the tape out after chinese new year We do see the slowdown right after Chinese New Year, which is in the end of February. we do see the slowdown right after chinese new year which is in the end of february

Speaker 6: End of February. Okay. I guess my second question and follow-up to that would be, when you're talking to your customers, have they given you any sort of rough timeline on when they expect to bring in these new designs, or they still have no idea either? End of February. end of february Okay. okay I guess my second question and follow-up to that would be, when you're talking to your customers, have they given you any sort of rough timeline on when they expect to bring in these new designs, or they still have no idea either? i guess my second question and follow-up to that would be when you're talking to your customers have they given you any sort of rough timeline on when they expect to bring in these new designs or they still have no idea either

Speaker 3: Our customers actually are still optimistic about the midterm outlook. In the near term, the visibility remains kind of limited. We see a lot of delay in the tape out in Q2. At the beginning of Q3, we did see some recovery of those delays. A lot of tape outs have happened since the beginning of May. However, going forward, we remain very cautious. At this moment, customers still optimistic about a midterm outlook. Our customers actually are still optimistic about the midterm outlook. our customers actually are still optimistic about the midterm outlook In the near term, the visibility remains kind of limited. in the near term the visibility remains kind of limited We see a lot of delay in the tape out in Q2. we see a lot of delay in the tape out in q2 At the beginning of Q3, we did see some recovery of those delays. at the beginning of q3 we did see some recovery of those delays A lot of tape outs have happened since the beginning of May. a lot of tape outs have happened since the beginning of may However, going forward, we remain very cautious. however, going forward we remain very cautious At this moment, customers still optimistic about a midterm outlook. at this moment customers still optimistic about a midterm outlook

Speaker 6: Okay. I'll take the rest of my offline. Thank you. Okay. okay I'll take the rest of my offline. i'll take the rest of my offline Thank you. thank you

Speaker 7: Our next question will be coming from the line of Gowshi Sri of Singular Research. Your line is open, Gowshi. Our next question will be coming from the line of Gowshi Sri of Singular Research. our next question will be coming from the line of gowshi sri of singular research Your line is open, Gowshi. your line is open gowshi

Speaker 5: Good morning, gentlemen. Can you guys hear me? Good morning, gentlemen. good morning gentlemen Can you guys hear me? can you guys hear me

Speaker 2: Yes, we can. Yes, we can. yes we can

Speaker 5: Okay. Thank you. I just wanted to get these customers that are deferring designs. Were they already in the pipeline, or is this more about new designs that are starting to slow down? Do those recovery times differ? Okay. okay Thank you. thank you I just wanted to get these customers that are deferring designs. i just wanted to get these customers that are deferring designs Were they already in the pipeline, or is this more about new designs that are starting to slow down? were they already in the pipeline or is this more about new designs that are starting to slow down Do those recovery times differ? do those recovery times differ

Speaker 3: Yes. Actually, whenever customer make a new design, they tape out the data to the foundry fab. The foundry fab give the order to the mask house they select. This time, the new design slowdown actually happened at the end of the foundry customer, namely the design house. The design house actually has a slower new tape out, new design release. It's not in the pipeline. It's at the very beginning of the new design release. Yes. yes Actually, whenever customer make a new design, they tape out the data to the foundry fab. actually whenever customer make a new design they tape out the data to the foundry fab The foundry fab give the order to the mask house they select. the foundry fab give the order to the mask house they select This time, the new design slowdown actually happened at the end of the foundry customer, namely the design house. this time the new design slowdown actually happened at the end of the foundry customer namely the design house The design house actually has a slower new tape out, new design release. the design house actually has a slower new tape out new design release It's not in the pipeline. it's not in the pipeline It's at the very beginning of the new design release. it's at the very beginning of the new design release

Speaker 5: Thank you. Eric, on the margin compression side, are there any specific levers you guys can pull if the demand kind of stays soft for another couple of quarters? Are there any variable cost reductions available, or is it fundamentally a cost business that needs utilization to recover? Thank you. Eric, on the margin compression side, are there any specific levers you guys can pull if the demand kind of stays soft for another couple of quarters? thank you. eric on the margin compression side are there any specific levers you guys can pull if the demand kind of stays soft for another couple of quarters Are there any variable cost reductions available, or is it fundamentally a cost business that needs utilization to recover? are there any variable cost reductions available or is it fundamentally a cost business that needs utilization to recover

Speaker 2: Yeah, very little levers we can pull. It's really the product mix that will be available that the market gives us is what we'll have. Most of our cost is fixed, or a big portion of it anyway is very fixed. We don't have much leverage to pull there. Yeah, very little levers we can pull. yeah very little levers we can pull It's really the product mix that will be available that the market gives us is what we'll have. it's really the product mix that will be available that the market gives us is what we'll have Most of our cost is fixed, or a big portion of it anyway is very fixed. most of our cost is fixed or a big portion of it anyway is very fixed We don't have much leverage to pull there. we don't have much leverage to pull there

Speaker 5: Got you. On the Allen site, if Allen begins delivering qualifications masks in Q3 as planned, and the demand kind of stays soft till early 2027, does bringing the new Allen capacity online to a weak demand environment add depreciation costs, making margins even more compressed? Is the Allen cost structure kind of light enough at the qualification stage that it doesn't meaningfully impact P&L until commercial production begins? Got you. got you On the Allen site, if Allen begins delivering qualifications masks in Q3 as planned, and the demand kind of stays soft till early 2027, does bringing the new Allen capacity online to a weak demand environment add depreciation costs, making margins even more compressed? on the allen site if allen begins delivering qualifications masks in q3 as planned and the demand kind of stays soft till early 2027 does bringing the new allen capacity online to a weak demand environment add depreciation costs making margins even more compressed Is the Allen cost structure kind of light enough at the qualification stage that it doesn't meaningfully impact P&L until commercial production begins? is the allen cost structure kind of light enough at the qualification stage that it doesn't meaningfully impact p&l until commercial production begins

Speaker 2: Yeah. The Allen expansion already started. We started qualifications already in Q3. Everything is moving according to our timeline. We expect revenue generation to occur later in the year, and we do not expect that the current economic environment will depress the returns that we're expecting on our Allen expansion in the current year or in the next at the moment. Yeah. yeah The Allen expansion already started. the allen expansion already started We started qualifications already in Q3. we started qualifications already in q3 Everything is moving according to our timeline. everything is moving according to our timeline We expect revenue generation to occur later in the year, and we do not expect that the current economic environment will depress the returns that we're expecting on our Allen expansion in the current year or in the next at the moment. we expect revenue generation to occur later in the year and we do not expect that the current economic environment will depress the returns that we're expecting on our allen expansion in the current year or in the next at the moment

Speaker 5: Okay. Okay. okay

Speaker 3: Gowshi, sorry. I'd like to add some comments to your question. Our Allen expansion is not only capacity expansion. We are upgrading our technology. The qualification basically is for the technology which Allen cannot do at this moment. Once we qualify the customer, I think we will increase our market share in the technology node which Allen cannot produce right now. Another purpose of Allen expansion is we are planning to transfer some lower end of the high end or the mainstream from our Boise site to Allen, so we can spare more capacity in our Boise site to take higher ASP orders. This is a win for Boise site and also a win for the Allen site. Gowshi, sorry. gowshi sorry I'd like to add some comments to your question. i'd like to add some comments to your question Our Allen expansion is not only capacity expansion. our allen expansion is not only capacity expansion We are upgrading our technology. we are upgrading our technology The qualification basically is for the technology which Allen cannot do at this moment. the qualification basically is for the technology which allen cannot do at this moment Once we qualify the customer, I think we will increase our market share in the technology node which Allen cannot produce right now. once we qualify the customer i think we will increase our market share in the technology node which allen cannot produce right now Another purpose of Allen expansion is we are planning to transfer some lower end of the high end or the mainstream from our Boise site to Allen, so we can spare more capacity in our Boise site to take higher ASP orders. another purpose of allen expansion is we are planning to transfer some lower end of the high end or the mainstream from our boise site to allen so we can spare more capacity in our boise site to take higher asp orders This is a win for Boise site and also a win for the Allen site. this is a win for boise site and also a win for the allen site

Speaker 5: Got you. In terms of the memory supply constraints and OEM cost pressure headwinds, I'm curious as to see whether you're seeing this evenly across your geography. For example, are your U.S. customers, Korean customers behaving differently to your Chinese and Taiwan foundry customers in terms of deferring designs, or is the pause kind of fairly based across all regions? Got you. got you In terms of the memory supply constraints and OEM cost pressure headwinds, I'm curious as to see whether you're seeing this evenly across your geography. in terms of the memory supply constraints and oem cost pressure headwinds i'm curious as to see whether you're seeing this evenly across your geography For example, are your U.S. customers, Korean customers behaving differently to your Chinese and Taiwan foundry customers in terms of deferring designs, or is the pause kind of fairly based across all regions? for example are your u.s customers korean customers behaving differently to your chinese and taiwan foundry customers in terms of deferring designs or is the pause kind of fairly based across all regions

Speaker 3: Yes. The memory shortage and especially also the price surging, has huge negative impact on the consumer product, especially the low-end consumer product. Those are mainly in Asia. I think this impact happened in Taiwan and also in China. Yes. yes The memory shortage and especially also the price surging, has huge negative impact on the consumer product, especially the low-end consumer product. the memory shortage and especially also the price surging has huge negative impact on the consumer product especially the low-end consumer product Those are mainly in Asia. those are mainly in asia I think this impact happened in Taiwan and also in China. i think this impact happened in taiwan and also in china

Speaker 5: Got you. Thank you for the call. I'll jump back in the queue. Thank you. Got you. got you Thank you for the call. thank you for the call I'll jump back in the queue. i'll jump back in the queue Thank you. thank you

Speaker 7: Our next question will come from the line of Christian Schwab of Craig-Hallum. Your line is open, Christian. Our next question will come from the line of Christian Schwab of Craig-Hallum. our next question will come from the line of christian schwab of craig-hallum Your line is open, Christian. your line is open christian

Speaker 1: Yeah, great. Thanks. I understand the delays that you're seeing at design starts, and thanks for all that clarity. As we increase our capacity capabilities on lower geometry node chips on a kind of a medium-term basis, can you give us idea of either a yearly revenue target or a market share goal? My second question along those lines is, on the advanced node side, is 7 nm or 8 nm is the best that we're going to be able to make, or do we have aspirations to get down below that? Yeah, great. yeah great Thanks. thanks I understand the delays that you're seeing at design starts, and thanks for all that clarity. i understand the delays that you're seeing at design starts and thanks for all that clarity As we increase our capacity capabilities on lower geometry node chips on a kind of a medium-term basis, can you give us idea of either a yearly revenue target or a market share goal? as we increase our capacity capabilities on lower geometry node chips on a kind of a medium-term basis can you give us idea of either a yearly revenue target or a market share goal My second question along those lines is, on the advanced node side, is 7 nm or 8 nm is the best that we're going to be able to make, or do we have aspirations to get down below that? my second question along those lines is on the advanced node side is 7 nm or 8 nm is the best that we're going to be able to make or do we have aspirations to get down below that

Speaker 2: Thanks, Christian. This is Eric here. Starting with your last question first, in terms of our aspirations to go 8 nm, 7 nm, we're going to continue going down node. We have to do that because that's our industry. We have to continue investing, and we see a lot of opportunity there. Definitely we plan to go below those ranges. Now, with respect to the revenue that we expect to get out of our Allen facility with our recent investments, I'm not going to get into detail of revenue by site from that perspective, but that should give us an opportunity to expand our market share in the U.S., and we expect the U.S. to be At least in 2027, to be heading us from a revenue expansion perspective, our percentage of increase should be larger in the U.S. than anywhere else. Thanks, Christian. thanks christian This is Eric here. this is eric here Starting with your last question first, in terms of our aspirations to go 8 nm, 7 nm, we're going to continue going down node. starting with your last question first in terms of our aspirations to go 8 nm 7 nm we're going to continue going down node We have to do that because that's our industry. we have to do that because that's our industry We have to continue investing, and we see a lot of opportunity there. we have to continue investing and we see a lot of opportunity there Definitely we plan to go below those ranges. definitely we plan to go below those ranges Now, with respect to the revenue that we expect to get out of our Allen facility with our recent investments, I'm not going to get into detail of revenue by site from that perspective, but that should give us an opportunity to expand our market share in the U.S., and we expect the U.S. to be At least in 2027, to be heading us from a revenue expansion perspective, our percentage of increase should be larger in the U.S. than anywhere else. now with respect to the revenue that we expect to get out of our allen facility with our recent investments i'm not going to get into detail of revenue by site from that perspective but that should give us an opportunity to expand our market share in the u.s and we expect the u.s to be at least in 2027 to be heading us from a revenue expansion perspective our percentage of increase should be larger in the u.s than anywhere else

Speaker 1: Great. Thanks. Great. great Thanks. thanks

Speaker 4: We're working with customers to that, and Frank, maybe you'd like to elaborate? We're working with customers to that, and Frank, maybe you'd like to elaborate? we're working with customers to that and frank maybe you'd like to elaborate

Speaker 3: Yes, George. Yes. I think our investment, not necessary for the capacity only, because we are seeing a lot of ongoing onshore semiconductor manufacturing in the States. Photronics, we have a very unique, strong position in the country because we have the Boise site where we have the very advanced photomask technology, and also we have the Allen where we can make the mainstream photomask. The capacity expansion and the technology upgrade by our CapEx is to serve our company's goal. We like to be the main photomask supplier in the United States. Yes, George. yes george Yes. yes I think our investment, not necessary for the capacity only, because we are seeing a lot of ongoing onshore semiconductor manufacturing in the States. i think our investment not necessary for the capacity only because we are seeing a lot of ongoing onshore semiconductor manufacturing in the states Photronics, we have a very unique, strong position in the country because we have the Boise site where we have the very advanced photomask technology, and also we have the Allen where we can make the mainstream photomask. photronics we have a very unique strong position in the country because we have the boise site where we have the very advanced photomask technology and also we have the allen where we can make the mainstream photomask The capacity expansion and the technology upgrade by our CapEx is to serve our company's goal. the capacity expansion and the technology upgrade by our capex is to serve our company's goal We like to be the main photomask supplier in the United States. we like to be the main photomask supplier in the united states

Speaker 1: Great. Thank you for that clarity. No other questions. Thank you. Great. great Thank you for that clarity. thank you for that clarity No other questions. no other questions Thank you. thank you

Speaker 4: Thank you, Christian. Thank you, Christian. thank you christian

Speaker 2: Thank you, Christian. Thank you, Christian. thank you christian

Speaker 7: Thank you. I would now like to turn the conference back to Ted for closing remarks. Thank you. I would now like to turn the conference back to Ted for closing remarks. thank you. i would now like to turn the conference back to ted for closing remarks

Speaker 8: Thank you, Tanya, and thanks everyone for joining us on the call today. We really appreciate your interest in Photronics. Look forward to connecting with everybody throughout the quarter. Have a great day. Thank you, Tanya, and thanks everyone for joining us on the call today. thank you tanya and thanks everyone for joining us on the call today We really appreciate your interest in Photronics. we really appreciate your interest in photronics Look forward to connecting with everybody throughout the quarter. look forward to connecting with everybody throughout the quarter Have a great day. have a great day

Speaker 7: This concludes today's program. Thank you for participating. You may now disconnect. This concludes today's program. this concludes today's program Thank you for participating. thank you for participating You may now disconnect. you may now disconnect

Speaker 2: Thank you. Thank you. thank you