Donald Smith
, CIO of
Donald Smith
& Co., added 486,804 shares of Photronics Inc. (
PLAB
) on May 24, 2012 at about $5.69 per share, according to
GuruFocus Real Time Picks
. After the purchase, he owns 10.07 percent of the company's
outstanding shares. Smith is a deep-value, strict bottom-up
manager who invests in out-of-favor companies.
Photronics is one of the world's leading suppliers of reticles
and photomasks, components used in the semiconductor and flat
panel display industries. In the second quarter ended April 29,
2012, it had revenue of $117.5 million, a 5 percent sequential
increase, and a year over year decline from $133.1 million. GAAP
net income for the quarter was $8.8 billion, compared to a loss
of $16.4 billion the previous year, which included a $30 million
debt extinguishment due October 2014. On a non-GAAP basis net
income was $14.8 billion in last year's quarter.
Due to soft demand in previous quarters as a result of overall
industry trends, Photronics' CEO Constantine Macricostas has been
focused on maintaining a lean cost structure. In the fourth
quarter, they began streamlining their operating infrastructure
in Asia by consolidating the manufacture of semiconductor
photomasks in Singapore into other Photronics facilities.
Therefore, customers previously serviced at their facilities in
Singapore will be serviced at other global fabrication
facilities, including Korea and Taiwan. The streamlining reduced
headcount by about 60 and save the company about $3 to $4 million
annually.
Photronics' operating margin increased 270 bps sequentially to
11.3 percent, and declined slightly from $15.8 percent year over
year.
The company ended the quarter with $192 million in cash, down
slightly from $202 million the previous quarter.
According to a vendor trade group SEMI, worldwide semiconductor
photomask sales are expected to increase 7 percent over 2011 to
be worth $3.35 billion in 2012. If that happened, it would be a
record high for the third consecutive year. A move toward
advanced technology and increased manufacturing in the
Asia-Pacific region are driving growth, SEMI said. Taiwan, where
Photronics is relocating some of its customers, became the
largest photomask regional market in 2010 and is expected to
continue to be the largest market in 2012.
Donald Smith
also favors stocks at historical low P/B ratios, a strategy
espoused by Ben Graham. Photronics traded at a P/B of .61 on May
24, which is somewhat low compared to its pre-2008 levels:
PLAB pb Interactive Chart
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