Photronics, Inc. (NASDAQ:PLAB)

Following its acquisition of Korean photomask maker PKL, Photronics (PLAB) has become the largest North American supplier of photomasks, and the third largest worldwide. A manufacturer of photomasks or high-precision photographic quartz plates that contain microscopic images of electronic circuits, the company’s operations are spread all over, with 56% of net sales coming from the Asia-Pacific region.

Though, the photomask industry is bit competitive and includes major firms such as Dai Nippon Printing and Toppan, the company is strategically focusing on flat-panel display (FPD) segment to counter the same. Lately, demand has been strong for masks that are used in (FPD) manufacturing. Photronics holds a 10% share of the $500 million FPD mask industry, which is expected to grow 3 times faster as compared to semiconductor mask market.

Increased demand helped the firm report encouraging results in the recently concluded quarter with sales advancing 3% over the year-ago period to $115.3 million. Going forward, its extended footprint in the world market and huge demand for FPDs endow it with adequate opportunities to nurture. To reduce costs and improve operating efficiency, the firm has shut down its unproductive Austin manufacturing facility recently, which can boost its operating margins in the coming years.

To influence demand, the firm is embarking on a unique plan to form strategic collaborations and develop tools to streamline and lower the costs of chip development for customers, like its MP Mask joint venture with Micron. However the move will help the company in the long run and not before 2008. Incorporating these factors, well supported by high free cash flows, the firm’s outlook looks quite impressive.