Photronics Inc 17th Annual Midwest IDEAS Conference

Thank you, William. I really appreciate everybody joining us today. I run investor relations at Photronics. I've been with the company for about two years. I do send out a distribution list on anything that we want to communicate to the investment community. If you want to be added to that distribution list, my email address is on every single press release that goes out, so feel free to send me a message. Photronics, we're a company that provides photomasks for the semiconductor industry. And you need a photomask in order to do a chip design. Think of our business as when a company issues a semiconductor chip and comes up with the chip design, and then wants to go through the manufacturing process, you absolutely have to have a set of photomasks in order to accomplish that.

I always want to make sure people understand our business is contingent upon semiconductor design releases, and not necessarily as much about wafer starts or wafer fab equipment. It's really important that we understand that, because that's influenced our business this year, because of the success of the semiconductor industry. Some of these chip design releases have been delayed a little bit, and we can talk about that as we talk about the year, but it's really important to understand as we walk through our business and how you think about the catalysts for our business. As you look at these numbers, these are trailing 12 months, and we reported yesterday, we have an October fiscal year end. These are trailing 12 months as of the earnings call from yesterday morning. And you can see that we generate pretty good cash flow over the years.

We have about 2,000 employees. See in the lower left-hand corner, revenue by geographic mix. This is revenue from geographic origin. We'll talk a little bit about where our facilities are located, but it's very important that our business. We have facilities throughout the world. We have 11 clean room facilities throughout the world. It's very important for us to have facilities close to our customer locations. It's one of the most important things that we have about our business. And you can see, China's a pretty important market, but it's both on the semiconductor and the display side, and we'll talk about that in a little bit as well. Asia represents about 80% of our total revenue, but we are investing to expand our facilities in the United States. We're expanding to expand our facilities in Korea. We'll talk about that. From a technology perspective, we have two categories for both our semiconductor business and our display business.

We have a high-end category for both, and we have a mainstream category for both, and we're trying to capture more and more of that high-end part of the business, and we'll get into that. Again, semiconductors is about three-quarters of the total business, and display is the remaining quarter. So what exactly do we do? Again, we make a photomask. We take a piece of glass, we receive a semiconductor chip design, and with that design, we etch that design into the piece of glass, and that becomes our photomask. Then the photomask, in every semiconductor chip design, there's a number of layers, and every layer requires one piece of glass. So within that one chip design, we create a mask set.

At 90 nanometers, we're probably talking about 25 layers or about 25, give or take, masks per chip design. At 14 nanometers, which is a little bit more advanced, not the most leading-edge designs in the world that you see today out of GPUs from NVIDIA and AMD and whatnot, but at 14 nanometers, we're probably talking about 70 to 80 layers or 70 to 80 photomasks for that chip design. So that's within our set. As you get into more advanced chips, it requires more layers, and therefore more photomasks. So we have a unit volume improvement as you go into higher-end geometries, and then we'll get into the ASP implications in a little bit. That chip design or that set of photomasks, we send those off to wherever the manufacturing location is. Right now, for example, NVIDIA is a fabless semiconductor company.

They don't manufacture any chips in-house, so they are not a customer of ours. We don't even talk to NVIDIA. We talk to companies like UMC, which is a manufacturing company. We talk to GlobalFoundries. We talk to Intel, Taiwan Semiconductor, Samsung, any company with manufacturing locations, Texas Instruments, onsemi, Infineon, those sorts of companies. The photomask is inserted into a lithography tool. The laser shines through the lithography tool, and through the mask, and it projects the image that's been etched into the mask onto the wafer, and that's basically how you get your semiconductor chip design onto the wafer for the very beginning of a semiconductor manufacturing of a chip. Very similar process on display. Again, display was 28% of total revenue. The difference being for a semiconductor, your photomask is about 6 inches by 6 inches.

For the display, it could be several meters wide, a couple meters tall, very heavy pieces of glass, so it's a much more automated process. Our display business is pretty much in Korea, China, and a little bit in Taiwan. But again, it's a very similar process. As we think about the semiconductor business, there is a very significant, almost parabolic move that's occurring on the ASPs as you get into the most advanced semiconductor chip designs. a lot of our business historically has been in the 130 nanometers and even older. We break down our semiconductor business, what we call high-end and mainstream. Our high-end category being 28 nanometers, 22 nanometers, 14, and down to 7 nanometers, in that range. The most recent quarter of our semiconductor business, high-end represented 44% of total.

What we were trying to do, and what the industry always does, is transition to more advanced geometries, right? Our mainstream business historically has been in the 90 nanometers, 130, and older. As we expanded into China, we began focusing more on 40 nanometers, 65 nanometers, and we've seen an ASP bump there. As we've continued to advance as a company, we've advanced into more high-end, where the ASPs are significantly better, right? I'm going to quote an initiation report on one of our competitors that this Morgan Stanley team from Japan did in the November timeframe. They said at 90 nanometers, that mask set, the ASPs for that would be about $50,000 of revenue for that one chip design, right? At 14 nanometers, now you're going from about 25 masks for the set to close to 80 masks for the set.

For the entire set, we're talking about $1 million in revenue contribution. As you actually get into five nanometers, and we'll talk about that in a little bit as well, as you get to five nanometers, you're talking about $10 million to $20 million for that one semiconductor chip design, for the photomask set. So a very parabolic move. What we are doing, we're investing in our business in order to expand more at the, I'll say, the more parabolic move of the photomask industry in order to capture more and more of that business. Some of that comes through outsourcing of some of our customers. Samsung is a 10% customer of ours today, and we supply masks to them on both the semiconductor side and the display side. But on the semiconductor side, they have a captive operation.

They design a lot of the photomasks in-house for their operations and for their needs, but they do outsource some. We're working with them and some of the other captives like TSMC and Intel and a company called SMIC, which is Semiconductor Manufacturing International, that's based in China. We're working with these guys that do captive operations, but they're looking to outsource more. As they focus on five nanometer and four nanometer and three nanometer, two nanometer, and then the next generation of semiconductor technology, which gets into Angstrom, which we don't need to talk about, as they continue to shift, they start to open up opportunities to companies such as Photronics, at what we call the more trailing edge. It's the near leading edge. That should help us down the road capture more of these higher ASPs.

This is a little bit about the market. You see in the lower left-hand corner, this is the worldwide kind of a demonstration of the growth of photomask demand over the next, say, four years. Even on the lower right-hand side, you see kind of our market share. The very top is our portion, and we're at 10% of the total photomask market, and this includes the merchant side and the captives. The captives are about two-thirds of the total market. In 2025, they actually increased their market share. That's not to say that they're actually doing more in-house from a unit perspective. It's just those ASPs are going through the roof, right? If you looked at Taiwan Semiconductor, which is a customer of ours, they're actually a top 20 customer of ours.

We estimate that we manufacture on a unit volume basis about as much as TSMC does in-house. We also estimate, because of those differences of ASPs, if you were to place a revenue dollar value on TSMC's business, which is all 100% of their photomask needs, is captured in-house. They do not sell externally. We estimate that if you were to put a revenue dollar value on their business, it would be at least five or six times greater than what we did last year, and last year, we did about $620 million of revenue on our semiconductor photomask business. We do believe that the market share growth that they are seeing from a revenue perspective is because of the differences in ASPs. Conceivably in the coming years, the captives go to 70%.

We are holding our own, and doing pretty well, and this is only on the semiconductor side. On the display side, our market share is about 28%, give or take. That has held very steady over the last, say, five years, even as some of the Chinese competitors have grown their business and expanded in display. Again, 11 clean room facilities throughout the world. We have three here in the U.S. Our headquarters are in Connecticut. Our high-end facility in the U.S. is capable of handling production down to 7 nanometers. We are doing some things to free up capacity there. We are actually producing some masks at 65 nanometers today, but that is not very productive. What we are doing is we are expanding our Texas facility to more advanced masks.