What changed in this filing

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Item 1. Business

2021-01-15 compared with 2019-12-23 · 53 added, 37 removed, 78 unchanged (54% of the section changed)

Photronics, Inc.

(and its subsidiaries, collectively referred to herein as "Photronics", the "Company", “we”, “our”, or “us”) is one of the world's leading manufacturers of photomasks, which are high precision photographic quartz or glass plates containing microscopic images of electronic circuits.

Photomasks are a key element in the manufacture of semiconductors and flat-panel displays ("FPDs"), and are used as masters to transfer circuit patterns onto semiconductor wafers and FPD substrates during the fabrication of integrated circuits ("ICs" or “semiconductors”), and a variety of FPDs and, to a lesser extent, other types of electrical and optical components.

We currently have eleven manufacturing facilities, which are located in Taiwan (3), Korea, the United States (3), Europe (2), and two recently constructed facilities in China.

(and its subsidiaries, collectively referred to herein as “Photronics”, the “Company”, “we”, “our”, or “us”) is the world's leading manufacturer of photomasks, which are high precision photographic quartz or glass plates containing microscopic images of electronic circuits.

Photomasks are a key element in the manufacture of semiconductors and flat-panel displays (“FPDs”), and are used as masters to transfer circuit patterns onto semiconductor wafers and FPD substrates during the fabrication of integrated circuits (“ICs” or “semiconductors”), a variety of FPDs and, to a lesser extent, other types of electrical and optical components.

We have eleven manufacturing facilities, which are located in Taiwan (3), Korea, the United States (3), Europe (2), and two recently constructed facilities in China.

Our FPD Facility in Hefei, China, and our IC facility in Xiamen, China, commenced production in the second and third quarters of our fiscal 2019, respectively.

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Our website address is http://www.photronics.com.

We make available, free of charge through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to these reports as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

We make available, free of charge through our website, our Annual Reports on Form 10-K, Definitive Proxy Statements on Schedule 14A, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to these reports as soon as reasonably practicable after such materials are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).

The information found on, or incorporated into, our website is not part of this or any other report we file with or furnish to the SEC.

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We manufacture photomasks, which are used as masters to transfer circuit patterns onto semiconductor wafers and FPD substrates.

Photomasks are manufactured in accordance with circuit designs provided to us on a confidential basis by our customers.

Photomasks are manufactured incorporating circuit designs provided to us on a confidential basis by our customers.

IC and FPD photomask sets are manufactured in layers, each having a distinct pattern which is etched onto a different photomask.

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After any defects are repaired, the photomask is cleaned, any required pellicles (protective translucent cellulose membranes) are applied and, after final inspection, the photomask is shipped to the customer.

We currently support customers across the full spectrum of IC production and FPD technologies by manufacturing photomasks using electron beam or optical (laser-based) systems, which are the predominant technologies used for photomask manufacturing, and are capable of producing the finer line resolution, tighter overlay, and larger IC chip size for the more complex circuits currently being designed.

We support customers across the full spectrum of IC production and FPD technologies by manufacturing photomasks using electron beam or optical (laser-based) systems, the predominant technologies used for photomask manufacturing capable of producing the finer line resolution, tighter overlay, and the more complex circuits currently being designed.

Electron beam and laser-generated photomasks can be used to produce the most advanced semiconductors and FPD photomasks for use in an array of products.

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End markets served with IC photomasks include devices used for microprocessors, memory, telecommunications, and related applications.

We currently own a number of both high-end and mature electron beam and laser-based systems.

The first several layers of photomasks are sometimes required to be delivered by us within 24 hours from the time we receive the customers' design data.

We own a number of both high-end and mature electron beam and laser-based production systems.

The first several layers of photomasks are sometimes required to be delivered to customers within 24 hours from the time we receive customer design data.

The ability to manufacture high-quality photomasks within short time periods is dependent upon robust processes, efficient manufacturing methods, high production yield, available manufacturing capacity, and high equipment reliability.

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We continue to make substantial investments in equipment to produce, inspect and repair photomasks to ensure that customer specifications are met.

The majority of IC photomasks produced for the semiconductor industry employ geometries larger than 28 nanometers.

At these geometries, we can produce full lines of photomasks, and there is no significant technology employed by our commercial competitors that is not also available to us.

We are also capable of producing full lines of photomasks for high-end IC and FPD applications.

In the case of ICs, this includes photomasks at and below the 28 nanometer technology node and, for FPDs, at and above the Generation 8 technology node and active-matrix organic light-emitting diode (AMOLED) display screens.

We hold customer-qualified manufacturing capability and own, or have access to, technology that enables us to compete in the high-end markets that serve IC and FPD applications.

State-of-the-art production for semiconductor masks is considered to be 28 nanometer and smaller for ICs and Generation 10.5+, active-matrix organic light-emitting diode (“AMOLED”) and low-temperature polysilicon (“LTPS”) display-based process technologies for FPDs.

However, 32 nanometer and above geometries for semiconductors and Generation 8 and below (excluding AMOLED and LTPS) process technologies for displays constitute the majority of designs currently being fabricated in volume.

At these geometries, we can produce full lines of photomasks, and there is no significant technology employed by our competitors that is not available to us.

We expect advanced-generation designs to continue to move to wafer fabrication throughout fiscal 2021, and we believe we are well positioned to service an increasing volume of this business as a result of our investments in manufacturing processes and technology in the regions where our customers are located.

Sales and Marketing

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Photomasks are manufactured by independent merchant manufacturers like Photronics, and by semiconductor and FPD manufacturers that produce photomasks for their own use (captive manufacturers).

In some instances, captive manufacturers also sell to other semiconductor or FPD manufacturers.

In rare instances, captive manufacturers also sell to other semiconductor or FPD manufacturers.

Previously, there was a trend towards the divesture or closing of captive photomask operations by semiconductor manufacturers, and an increase in the share of the market served by independent manufacturers.

This trend was driven by the increased complexity and cost of capital equipment used in manufacturing photomasks and the lack of economy of scale for many semiconductor and FPD manufacturers to effectively utilize the equipment.

However, more recently, some captive mask facilities have been investing at faster rates than independent manufacturers to reach certain roadmap milestones, particularly in the foundry logic and memory spaces.

However, more recently, to reach certain roadmap milestones, some captive mask facilities have been investing at faster rates than independent manufacturers, particularly in the foundry logic and memory spaces.

Nevertheless, most captive manufacturers maintain business and technology relationships with independent photomask manufacturers for ongoing support.

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We conduct our sales and marketing activities primarily through a staff of full-time sales personnel and customer service representatives who work closely with the Company's management and technical personnel.

We support non-US customers through both our domestic and foreign facilities and consider our presence in non-US markets to be an important factor in attracting new customers, as it provides global solutions to our customers, minimizes delivery time, and allows us to serve customers that utilize manufacturing foundries outside of the United States, principally in Asia.

We support non-U.S.

customers through both our domestic and foreign facilities and consider our presence in non-U.S.

markets to be an important factor in attracting new customers, as it provides global solutions to our customers, minimizes delivery time, and allows us to serve customers that utilize manufacturing foundries outside of the United States, principally in Asia.

See Notes 8 and 15 to our consolidated financial statements for the amount of revenue and long-lived assets attributable to each of our geographic areas of operations.

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During fiscal year 2020, we sold our products to approximately 530 customers.

Revenue from Samsung Electronics Co.

accounted for approximately 16% of our total revenues in fiscal years 2019, 2018 and 2017, and revenue from United Microelectronics Corp.

Revenue from United Microelectronics Corp.

accounted for approximately 16%, 15% and 15% of our total revenues in fiscal years 2020, 2019 and 2018, and revenue from Samsung Electronics Co., Ltd.

accounted for approximately 14%, 16% and 16% of our total revenues in fiscal years 2020, 2019 and 2018, respectively.

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Research and Development

We primarily conduct research and development activities for IC photomasks at our U.S.

nanoFab, which is located in Boise, Idaho, as well as at PK, Ltd.

(“PKL”), our subsidiary in Korea and Photronics DNP Mask Corporation (“PDMC”), one of our joint venture subsidiaries in Taiwan.

Research and development for FPD photomasks is primarily conducted at PKL.

We primarily conduct research and development activities for IC photomasks at our Boise, Idaho, facility, as well as at Photronics, Cheonan, Ltd.

(formerly PK, Ltd.), our subsidiary in Korea and Photronics DNP Mask Corporation (“PDMC”), one of our joint venture subsidiaries in Taiwan.

Research and development for FPD photomasks is primarily conducted at Photronics Cheonan, Ltd.

Additionally, we conduct site-specific research and development programs to support strategic customers.

These research and development programs and activities are undertaken to advance our competitiveness in technology and manufacturing efficiency.

We also conduct application-oriented research and development activities to support the early adoption of new photomask or supporting data and services technology into our customers' applications.

Currently, research and development photomask activities for ICs are primarily focused on photomasks with wafer geometrics of 20 nanometer node and smaller and, for FPDs, on Generations 8 and 10.5+ substrate-size photomask process enhancements and photomask technology for complex FPD photomasks used in the manufacture of advanced mobile displays, such as AMOLED.

We believe these core competencies will continue to be a critical part of semiconductor and FPD manufacturing, as optical lithography continues to scale capabilities on high-end devices.

We also conduct application-oriented research and development including data and services technology activities to support the early adoption of new photomasks or supporting data and services technology into our customers' applications.

Currently, research and development photomask activities for IC photomasks are primarily focused on photomasks with enabling wafer geometrics of 14 nanometer node and smaller and, for FPDs, on Generations 8 and 10.5+ substrate size photomasks process enhancements for new TV technologies, emerging opportunities for micro- and mini-LED, together with photomask technology for complex FPD photomasks required in the manufacture of advanced mobile displays, such as AMOLED.

We believe these core competencies will continue to be a critical part of semiconductor and FPD manufacturing, as wafer and substrate optical lithography scaling continues to enable capabilities of high-end devices and displays.

We incurred research and development expenses of $17.1 million, $16.4 million, and $14.5 million in fiscal years 2020, 2019 and 2018, respectively.

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While we believe that our IP rights are, and will continue to be, important to our technical leadership in the field of photomasks, our operations are not dependent on any one individual IP right.

In addition to patenting, when practicable, our IP rights, we further protect them, and our other proprietary processes, by utilizing non-disclosure agreements with employees, customers, and vendors.

In addition to patenting, when practicable, we further protect our IP rights, and our other proprietary processes, by utilizing non-disclosure agreements with employees, customers, and vendors.

Materials, Supplies and Equipment

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On an ongoing basis, we continue to consider additional supply sources.

We typically enter into annual pricing agreements with our suppliers, some of which include volume-based incentives that have resulted in substantial cost savings;

these agreements do not require us to purchase minimum dollar amounts or quantities of their subject materials.

We rely on a limited number of equipment suppliers to develop and supply the equipment used in the photomask manufacturing process.

Although, historically, we have been able to obtain equipment on a timely basis, an inability to obtain equipment when required could adversely affect our business and results of operations.

The first several layers of a set of photomasks for a circuit pattern are often required to be shipped within 24 hours of receiving a customer's designs.

Because of the short period between order and shipment dates (typically from 1 day to 2 weeks) for a significant amount of our revenue, the dollar amount of our current backlog is not a reliable indicator of future revenue.

The first several layers of a set of photomasks for a circuit pattern are often required to be shipped within twenty-four hours of receiving a customer's designs.

Because of the short period between order and shipment dates (typically from one day to two weeks) for a significant amount of our revenue, the dollar amount of our current backlog is not a reliable indicator of future revenue.

International Operations

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operations were approximately 83%, 81% and 79% of our total revenues in fiscal 2020, 2019 and 2018, respectively.

We believe that our ability to serve non-US markets is enhanced by our having, among other things, a local presence in the markets that we serve.

We believe that our ability to serve non-U.S.

markets is enhanced by our having, among other things, a local presence in the markets we serve.

This requires significant investments in financial, managerial, operational, and other resources.

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We also believe that geographic proximity to customers is an important factor in certain markets where cycle time from order to delivery is critical.

While some of our competitors may have greater financial, technical, sales, marketing, or other resources than Photronics, we believe that we are able to compete effectively because of our dedication to customer service, investments in state-of-the-art photomask equipment and facilities, and experienced technical employees.

While some of our competitors may have greater financial, sales, marketing, or other resources than Photronics, we believe that we are able to compete effectively because of our dedication to customer service, investments in state-of-the-art photomask equipment and facilities, and experienced technical employees.

We estimate that, for the types of photomasks we manufacture (IC and FPD), the size of the total market (captive and merchant) is approximately $5.1 billion.

Ltd., Supermask Co.

Ltd., Taiwan Mask Corporation, and Toppan Printing Co., Ltd.

Our competitors include Compugraphics International, Ltd., Dai Nippon Printing Co., Ltd (outside of Taiwan and China), Hoya Corporation, LG Innotek Co., Ltd., Shenzhen New Way Photomask Making Co., Ltd., Shenzhen Quingyi Photomask, Ltd., SK-Electronics Co., Ltd., Taiwan Mask Corporation, and Toppan Printing Co., Ltd.

We also compete with semiconductor and FPD manufacturers' captive photomask manufacturing operations that supply photomasks for internal use and, in some instances, also for external customers and foundries.

We expect to face continued competition which, in the past, has led to pressure to reduce prices.

We believe the pressure to reduce prices, together with the significant investment required in capital equipment to manufacture high-end photomasks, has contributed to the decrease in the number of independent manufacturers;

we expect such pressure to continue in the future.

As of October 31, 2019, we had approximately 1,775 employees.

We believe we offer competitive compensation and other benefits, and that our employee relations are good.

As of October 31, 2020 we had approximately 1,728 full-time and part-time employees worldwide.

Our business results depend in part on our ability to successfully manage our human capital resources, including attracting, identifying, and retaining key talent.

Factors that may affect our ability to attract and retain qualified employees include employee morale, our reputation, competition from other employers, and availability of qualified individuals As of October 31, 2020, none of our employees at any of our worldwide facilities was represented by a union.

We consider our employee relations to be good.

We believe our commitment to our human capital resources is an important component of our mission to deliver superior photomasks and customer care.

We provide all employees with the opportunity to share their opinions in open dialogues with our human resources department and senior management.

We provide all employees a wide range of professional development experiences, both formal and informal.

Our formal offerings include tuition reimbursement, leadership development experiences and vocational training.

The safety of our employees is a paramount value for us.

We provide mandatory safety trainings in our production facilities, which are designed to focus on empowering our employees with the knowledge and tools they need to make safe choices and to mitigate risks.

Supervisors complete safety management courses as well.

In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees and which comply with government orders in all the states and countries where we operate.

In an effort to keep our employees safe and to maintain operations during the COVID-19 pandemic, we have implemented a number of new health-related measures including, the requirement to wear company provided face-masks at all times while on company property, implemented temperature taking protocols, increased hygiene, cleaning and sanitizing procedures at all locations, implemented social-distancing, implemented restrictions on visitors to our facilities, limiting in-person meetings and other gatherings.

Further, the health and wellness of our employees are critical to our success.

We provide our employees with access to a variety of innovative, flexible and convenient health and wellness programs.

Such programs are designed to support employees' physical and mental health by providing tools and resources to help them improve or maintain their health status and encourage engagement in healthy behaviors.

Additionally, we provide robust compensation and benefits.

In addition to salaries, these programs, which vary by country/region, can include annual bonuses, stock-based compensation awards, a 401(k) plan with employee matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, employee assistance programs, and tuition assistance.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business