What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-12-19 compared with 2023-12-26 · 124 added, 95 removed, 118 unchanged (65% of the section changed)

Specific industry and technical terms used in this section are defined in the subsection entitled “Glossary of Terms and Acronyms,” found below the Table of Contents.

Business Overview

Photronics, Inc.

(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 ICs and FPDs and are used as masters to transfer circuit patterns onto semiconductor wafers and FPD substrates during

the fabrication of ICs, a variety of FPDs and, to a lesser extent, other types of electrical and optical components.

(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 ICs and FPDs and are used as masters to transfer circuit patterns onto semiconductor wafers and FPD substrates during the fabrication of ICs, 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), China (2), Korea (1), the United States (3), and Europe (2).

2 unchanged sentences

We make available, free of charge through our

website, our Forms 10-K, Definitive Proxy Statements on Schedule 14A, Forms 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 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.

1 unchanged sentence

other information regarding SEC registrants, including Photronics.

We operate as a single reporting segment as a manufacturer of photomasks, which are high precision quartz or glass plates containing microscopic images of electronic circuits for use in the fabrication of IC’s and

In accordance with ASC 280 – “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources

and assessing performance for the entire Company.

Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide

disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue.

All material operating units qualify for aggregation under “Segment Reporting” due to their similar

customer base and similarities in:

economic characteristics;

nature of products and services;

and procurement, manufacturing and distribution processes.

Since the Company operates in one segment, all financial information required by “Segment

Reporting” can be found in the accompanying consolidated financial statements.

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

The photomasks we manufacture incorporate circuit designs provided to us on a confidential

basis by our customers.

The photomasks we

manufacture incorporate circuit designs provided to us on a confidential basis by our customers.

Photomasks are typically sold in sets comprised of layers, with each layer having a distinct pattern that is etched onto a different photomask.

The resulting series of photomasks is then used to image the circuit patterns

onto each successive layer of a semiconductor wafer or FPD substrate.

The typical manufacturing process for a photomask involves the receipt and conversion of circuit design data to manufacturing pattern data.

A lithography system then exposes the

circuit pattern onto a photomask blank.

resulting series of photomasks is then used to image the circuit patterns onto each successive layer of a semiconductor wafer or FPD substrate.

The typical manufacturing process for a photomask involves the receipt and conversion of circuit

design data to manufacturing pattern data.

A lithography system then exposes the circuit pattern onto a photomask blank.

The exposed areas are developed and etched to imprint the pattern on the photomask.

The photomask is then inspected for defects and conformity to the customer's design data.

After the repair of any defects,

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

The photomask is then inspected for

defects and conformity to the customer's design data.

After the repair of any defects, the photomask is cleaned, any required pellicles (protective translucent membranes) are applied and, after final inspection, the photomask is shipped to the

“High-end” photomasks support 28 nanometer and smaller design nodes for ICs and Generation 10.5+, AMOLED, and LTPS display-based process technologies for FPDs.

1 unchanged sentence

semiconductors and Generation 8 and below (excluding AMOLED and LTPS) process technologies for displays, which we refer to as “mainstream” photomasks, constitute the majority of designs currently being fabricated in volume.

At these geometries and

at various high-end nodes, we can produce full lines of photomasks.

At these geometries

and at various high-end nodes, we can produce full lines of photomasks.

Moreover, there is no significant technology employed by our competitors that is not available to us.

We expect advanced-generation designs to continue to be developed, and we

believe we are well positioned to service an increasing volume of this business as a result of our ongoing investments in manufacturing processes and technology in the regions where our customers are located.

We expect advanced-generation designs to continue to be developed, and

we believe we are well positioned to service an increasing volume of this business as a result of our ongoing investments in manufacturing processes and technology in the regions where our customers are located.

Generally, Photronics and each of its customers engage in a qualification and correlation process before we become an approved supplier.

2 unchanged sentences

Some prices may remain in effect for an extended period of time.

In many instances, we enter into sales arrangements with an understanding that, as long as our performance is competitive, we will receive

a specified percentage of that customer's photomask orders.

In many instances, we enter into sales arrangements with an understanding that, as long as our performance is competitive, we will

receive a specified percentage of that customer’s photomask orders.

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

1 unchanged sentence

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

However, the demand for some IC photomasks can

extend over the traditional time period;

However, the demand for some IC photomasks

can extend over the traditional time period;

thus, for some products, our backlog can expand to as long as two to three months.

1 unchanged sentence

equipment reliability.

We work to meet these requirements by making significant investments in research and development, manufacturing capacity, preventive and on-going equipment maintenance programs, manufacturing and data processing systems, and

by utilizing statistical process control methods to optimize our manufacturing processes and reduce cycle times.

and by utilizing statistical process control methods to optimize our manufacturing processes and reduce cycle times.

Quality control is an integral part of the photomask manufacturing process.

2 unchanged sentences

Each photomask is inspected several times during the manufacturing process to ensure compliance with customer specifications.

We continue to make substantial investments in equipment to produce, inspect and repair

photomasks to ensure that customer specifications are met.

We continue to make substantial investments in equipment to produce, inspect and

repair photomasks to ensure that customer specifications are met.

Sales and Marketing

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.

3 unchanged sentences

time, and allows us to serve customers that utilize manufacturing foundries outside of the United States, principally in Asia.

See Notes 9 and 17 to our consolidated financial statements in Part II, Item 8 of this report for the amount of revenue

and long-lived assets attributable to each of our geographic areas of operations.

See Note 10 and Note 18 to our consolidated financial statements in Part II, Item 8 of this report for the amount of

revenue and long-lived assets attributable to each of our geographic areas of operations.

Research and Development

We primarily conduct research and development activities for IC photomasks at our Boise, Idaho, facility and, to a lesser degree, Photronics DNP Mask Corporation (“PDMC”), our joint-venture subsidiary in Taiwan.

We primarily conduct research and development activities for IC photomasks at our Boise, Idaho, facility and, to a

lesser degree, Photronics DNP Mask Corporation (“PDMC”), our joint-venture subsidiary in Taiwan.

Research and development for FPD photomasks is primarily conducted at Photronics Korea, Ltd., our subsidiary in South Korea.

Additionally, we conduct site-specific research and development programs to support local, strategic customer roadmaps.

of 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, including data and service technology

to support the integration of photomasks into customer processes.

Currently, research and development for IC photomasks are primarily focused on photomasks enabling wafer geometries of 14 nanometer node and smaller, including EUV and, for FPDs, on

Generations 8 and 10 substrate size photomasks for new TV technologies, emerging opportunities for micro- and mini-LED displays, and photomask technology for the complex FPD photomasks required in the manufacture of advanced mobile displays, such

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

We incurred research and

development expenses of $13.7 million, $18.3 million, and $18.5 million in 2023, 2022 and 2021, respectively.

It is our belief that we own, control, or license the proprietary information (including trade secrets and patents) that we need to

continue to meet our customers’ requirements.

We also believe that our intellectual property and trade secret know-how will continue to be important to maintaining technical leadership in the field of photomasks.

Additionally, we

conduct site-specific research and development programs to support local, strategic customer roadmaps.

All of these research and development programs and activities are undertaken to advance our competitiveness in technology and manufacturing

We also conduct application-oriented research and development, including data and service technology to support the integration of photomasks into customer processes.

Currently, research and development for IC photomasks are

primarily focused on photomasks enabling wafer geometries of 14 nanometer node and smaller, including EUV and, for FPDs, on Generations 8 and 10 substrate size photomasks for new TV technologies, emerging opportunities for micro- and mini-LED

displays, and photomask technology needed for the 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 FPD substrate optical lithography continues to enable new high-end ICs and displays.

We incurred research and development expenses of $16.6

million, $13.7 million, and $18.3 million in 2024, 2023 and 2022, respectively.

It is our belief that we own, control, or license the proprietary information (including trade secrets and patents) that we need to continue to meet our customers’

requirements.

Accordingly, we devote a significant portion of our human and financial resources to R&D programs and seek to maintain close relationships with customers to remain responsive to their needs.

We also believe that our

intellectual property and trade secret know-how will continue to be important to maintaining our technical leadership and competitive position in the field of photomasks.

The customers for photomasks are primarily semiconductor and FPD manufacturers and to a lesser degree fabless design and equipment companies serving those industries.

The size of the photomask market is driven by the

number of designs released to support IC and FPD product introductions and manufacturing expansions.

The photomasks required for those designs are manufactured by independent merchant manufacturers like Photronics and by semiconductor and FPD

manufacturers that produce photomasks for their own use (captive manufacturers).

The size of the photomask market is driven by

the number of designs released to support IC and FPD product introductions and manufacturing expansions.

The photomasks required for those designs are manufactured by independent merchant manufacturers like Photronics and by semiconductor and

FPD manufacturers that produce photomasks for their own use (captive manufacturers).

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

The value of masks produced by merchant suppliers has transitioned from a period when there was a trend toward the divesture or closing of captive photomask operations by semiconductor manufacturers, and an increase in

the share of the market served by independent merchant 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

The production value of photomasks produced by merchant suppliers has transitioned from a period when there was a trend toward the divesture or closing of captive photomask operations by semiconductor manufacturers, and to an increase in the share of the market served by independent merchant manufacturers , like Photronics .

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.

That period was followed by a period during which, in order to reach certain roadmap milestones, some captive mask facilities invested at faster rates than independent manufacturers, and the revenue share of market

transitioned to masks being majority captive-supplied.

More recently, there has been a tendency of more production being directed to the independent merchant manufacturers, and market share has begun moving toward the independents.

Nevertheless,

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

We support customers across the full spectrum of IC production and FPD technologies by manufacturing photomasks using electron beam or optical (laser-based) lithography systems.

For IC photomasks, the predominant

writing technology used for advanced photomasks with fine-scale resolution requirements is electron beam writing systems, while FPD mask fabrication utilizes optical writing systems.

These systems are capable of producing the most advanced

semiconductor and display photomasks for use in an array of products.

End markets served with IC photomasks include devices used for microprocessors, memory, telecommunications, the Internet of Things, crypto mining, and other applications.

a number of both high-end and mature electron beam and laser-based lithography systems.

That period was followed by a period during which, in order to reach certain roadmap milestones, some captive mask facilities invested at faster

rates than independent manufacturers, and the revenue share of market transitioned back to photomasks being majority captive-supplied.

More recently, there has been a tendency of more production being directed to the independent merchant

manufacturers, with market share moving toward the independents.

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

We support customers across the full spectrum of IC and FPD production by

manufacturing photomasks using electron beam or optical (laser-based) lithography systems.

For IC photomasks, the predominant writing technology used for advanced photomasks with fine-scale resolution requirements is electron beam writing

systems, while FPD mask fabrication utilizes optical writing systems.

These systems are capable of producing the most advanced semiconductor and display photomasks for use in an array of products.

End markets served with IC photomasks include

devices used for artificial intelligence, cloud computing, microprocessors, memory, telecommunications, internet

connected devices, automotive, industrial and other applications.

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

We sell our products primarily to leading semiconductor and FPD designers and manufacturers.

5 unchanged sentences

accounted for approximately 12%, 10% and 11% of our total revenues in those respective years.

In addition, revenue from Semiconductor Manufacturing International Corporation accounted for approximately 13%, 5% and 3% of our total revenues

in 2023, 2022 and 2021, respectively.

In addition, revenue from Semiconductor Manufacturing International Corporation accounted for approximately 9%, 13% and 5% of our total

revenues in 2024, 2023 and 2022, respectively.

Our five largest customers, in the aggregate, accounted for approximately 50%, 51% and 45% of our revenue in 2024, 2023 and 2022, respectively.

A significant decrease in the amount of revenue from any of these

customers could have a material adverse effect on our financial performance and business prospects.

A significant decrease in the amount of revenue from

any of these customers could have a material adverse effect on our financial performance and business prospects.

The photomask industry is highly competitive, and most of our customers utilize multiple photomask suppliers.

4 unchanged sentences

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, sales, marketing, or other resources than Photronics, we believe that we are able to compete effectively because of our dedication to customer service, ongoing 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 $7.5 billion.

Our competitors include Compugraphics International, Ltd.,

Dai Nippon Printing Co., Ltd (outside of Taiwan and China), Hoya Corporation, LG Innotek Co., Ltd., Shenzhen Newway Photomask Making Co., Ltd., Shenzhen Qingyi Photomask, Ltd., SK-Electronics Co., Ltd., Taiwan Mask Corporation, and Toppan

Electronics Products Co., Ltd.

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, ongoing investments in state-of-the-art photomask equipment and

facilities, and experienced technical employees.

Using market data from research firm Tech Insights, the total market for IC photomasks is approximately 7.8B USD (2023) and, based on internal

estimates, the total market for FPD masks is approximately 930M USD (2023).

Our competitors include Compugraphics International, Ltd., Dai Nippon Printing Co., Ltd

(outside of Taiwan and China), Hoya Corporation, LG Innotek Co., Ltd., Shenzhen Newway Photomask Making Co., Ltd., Shenzhen Qingyi Photomask, Ltd., SK-Electronics Co., Ltd., Taiwan Mask Corporation, and Toppan Electronics Products 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.

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 will

continue in the future.

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 will continue in the

International Operations

4 unchanged sentences

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

Operations outside of the United States are subject to inherent risks, including fluctuations in currency exchange rates, political and economic conditions in various countries, legal compliance and regulatory

requirements, tariffs and other trade barriers, difficulties in staffing and managing international operations, longer accounts receivable collection cycles, potential restrictions on transfers of funds, and potentially adverse tax consequences.

These factors may have a material adverse effect on our ability to generate revenue outside of the United States and may require us to deploy resources where they could otherwise be used to their greatest advantage and, consequently, may adversely

affect our financial condition and results of operations.

Notes 9 and 17 of our consolidated financial statements, in Part II, Item 8 of this report, respectively, present our revenue and long-lived assets by geographic area.

Sales and operations outside of the United States are subject to inherent risks, and may be adversely affected by fluctuations in currency exchange rates, the imposition of government controls, political and economic

conditions in various countries, legal compliance and regulatory requirements, tariffs and other trade barriers, difficulties with staffing and managing international operations, longer accounts receivable collection cycles, potential

restrictions on transfers of funds, and potentially adverse tax consequences.

These factors may have a material adverse effect on our ability to generate revenue outside of the United States and may require us to deploy resources where they could

otherwise be used to their greatest advantage.

Notes 10 – Revenue and Note 18 – Risks and Concentrations of our consolidated financial statements, in Part II,

Item 8 of this report, respectively, present our revenue and long-lived assets by geographic area.

These factors, as well as any of the other risk factors related to our international business and operations that are described in Item 1A “Risk

Factors,” could have a material adverse effect on our future business and financial results.

Raw materials used by Photronics generally include:

high precision quartz plates (including large area plates), which are used as photomask blanks and are primarily obtained from Japanese and Korean suppliers;

high precision quartz substrates

(including large area substrates for FPD ), which are used as photomask starting blanks and are

primarily obtained from Japanese and Korean suppliers;

pellicles and electronic grade chemicals, which are used in the manufacturing process;

and compacts, which are durable plastic containers in which photomasks are shipped.

These materials are generally sourced from several suppliers.

We believe that

our utilization of a select group of strategic suppliers enables us to access the most technologically advanced materials available.

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

These materials

are generally sourced from several suppliers.

We believe that our utilization of a select group of strategic suppliers enables us to access the most technologically advanced materials available.

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.

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 provide the equipment used in the photomask manufacturing process.

16 unchanged sentences

and in other countries in which we produce or market our products.

The effects of compliance with these regulations are currently not material to our results of

operations, capital expenditures, or competitive position.

The effects of compliance with these regulations are currently not material to our results

of operations, capital expenditures, or competitive position.

However, compliance with changes to existing or new regulations may have a material adverse effect on our future results of operations, capital expenditures, or competitive position.

discuss the potential impact of our not adhering to a number of these regulations in Item 1A.

We discuss the potential impact of our not adhering to a number of these regulations in Item 1A.

“Risk Factors”, of this Form 10-K.

29 unchanged sentences

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 minimize risks.

complete safety management courses as well.

Supervisors complete safety management courses as well.

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.

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,

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