Photronics Q1 2025 Earnings Call Transcript

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February 26, 2025

Key Takeaways

  • Photronics reported Q1 sales of $212 M and non-GAAP EPS of $0.52, surpassing the high end of guidance and generating strong operating cash flow of $78 M (37% of revenue).
  • IC segment sales fell 2% YoY with mainstream weakness in Asia and Europe at older nodes, and sequential revenue declines across all regions despite growth in U.S. IC and high-end node demand (14–22 nm).
  • The company secured its first orders for Gen 8.6 AMOLED displays, leveraging advanced ICMR technology to address higher-complexity masks at elevated ASPs and win display market share.
  • Q2 revenue is guided to a flat $208 M–$216 M range with non-GAAP EPS of $0.44–$0.50, reflecting ongoing macroeconomic uncertainty and tariff-related risks despite cost controls.
  • Photronics ended Q1 with $642 M cash, plans $200 M CapEx in FY25 for U.S. expansion and capacity upgrades, and maintains only $3 M of debt, bolstering financial flexibility.
AI Generated. May Contain Errors.
Earnings Conference Call
Photronics Q1 2025
00:00 / 00:00

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Operator

Hello, and welcome to Photronics' Fiscal First Quarter twenty twenty five Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised.

Operator

I would now like to turn the conference over to Ted Moreau. You may begin.

Ted Moreau
Ted Moreau
VP - Investor Relations at Photronics

Thank you, operator. Good morning, everyone. Welcome to our review of Photronics' fiscal first quarter twenty twenty five financial results. Joining me this morning are Frank Lee, CEO Eric Rivera, CFO and Chris Progler, CTO. The press release we issued earlier this morning together with the presentation material that accompanies our remarks are available on the Investor Relations section of our webpage.

Ted Moreau
Ted Moreau
VP - Investor Relations at Photronics

Comments made by any participants on today's call may include forward looking statements that include such words as anticipate, believe, estimate, expect, forecast and in our view. These forward looking statements are subject to various risks and uncertainties and other factors that are difficult to predict. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. We are under no duty to update any of the forward looking statements after the date of the presentation to conform these statements to actual results. Photronics has provided additional information in its most recent Form 10 K and other subsequent reports filed with the SEC concerning factors that could cause actual results to differ materially.

Ted Moreau
Ted Moreau
VP - Investor Relations at Photronics

During the course of our discussion, we will refer to certain non GAAP financial measures. These numbers may be useful for analysts, investors and management to evaluate ongoing performance. A reconciliation of these metrics to GAAP financial results is provided in our presentation materials. I will now turn the call over to Frank.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

Thank you, Ted, and good morning, everyone. We achieved first quarter sales of $212,000,000 in line with our expectation and normal seasonal trends. Non GAAP diluted EPS of $0.52 was above the high end of guidance and we once again delivered strong cash flow. Turning to our end markets. IC declined 2% year over year due to mainstream weakness in Asia and Europe, particularly at the older nodes within mainstream.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

For high end IC, we have seen continued evidence of logic photomars no migration to twenty two and twenty eight nanometer in Asia. Within IC, memory photomask demand also shows trends. FPD declined slightly year over year due to industry softness, though we saw brand demand from customers in China. Our industry leading technology in FPD continues to win business. And our strategy to apply ICMR technology to FPD helps us win market share.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

We recognized a milestone during Q1 as we received our first orders for G 8.6 AMOLED displays. G8.6 requires more advanced and complex masks that have higher ASPs. Now, I would like to discuss a few developments impacting the semiconductor industry. First, as the AI landscape evolve, we believe it will be a longer term growth driver for the industry and for autonomous. New AI tools have the potential to offer AI capability at a lower cost.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

These tools reduce the barrier of entry into AI, which drives new applications requiring new devices and designs. Customer IC serving these applications will drive photomask demand, mainly at the more advanced nodes that we service. At more mature nodes, AI drives the need for fast interconnects, including silicon photonics and advanced packaging. Second, the semiconductor industry may potentially incur increased costs from tariffs. For photonics, our strategy to invest in regional capacity close to customer locations should buffer us from this potential cost.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

Therefore, we import very few mass into The United States and don't anticipate meaningful impact on our business from tariffs. Fiscal twenty twenty five started off as expected in Q1 and demonstrate our technology leadership. Industry growth drivers in IC include loan migration, regeneration and custom design expansion, while product development and scale up of display size are key for FPD. Further, our markets are benefiting from AI adoption and regionalization trends, where we leverage our competitive advantages in capability, cost, scale and time to market. By working with our customers, we are carefully expanding capacity and capability in projected growth regions such as The United States to meet demand.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

These investments further strengthened our market leadership position, giving us confidence in our long term outlook. I will now turn the call over to Eric to review our first quarter results and provide second quarter guidance.

Eric Rivera
Eric Rivera
CFO at Photronics

Thank you, Frank. Good morning, everyone. As Frank stated, our first quarter results were in line with expectations with revenue of $212,000,000 Total revenue declined 5% sequentially led by IC, which declined 6% quarter over quarter to $154,000,000 Within IC, mainstream declined 9% reflecting the overall softness of the broader semiconductor industry. We did see pockets of strengths within high end. Sales generated out of our European facilities were weaker than anticipated, and this situation is expected to continue.

Eric Rivera
Eric Rivera
CFO at Photronics

Our IC business out of our facilities in Asia and The U. S. Also declined sequentially due to typical seasonality as expected, though U. S. IC did exhibit strong year over year growth.

Eric Rivera
Eric Rivera
CFO at Photronics

Within IC, we continue to drive towards a greater mix of higher end business with a focus on increasing our blended ASPs. Demonstrating our execution, in fiscal year twenty twenty three, our high end business represented 30% of total IC revenue, increasing to 36% in fiscal year twenty twenty four. For the first quarter of fiscal year twenty twenty five, our high end business increased further to 39%. Within high end, we saw particular strength in Q1 in the 14 nanometer to 22 nanometer geometry ranges. For our leading edge IC mix, we recognized improved demand from memory customers.

Eric Rivera
Eric Rivera
CFO at Photronics

FPD revenue was stable both sequentially and year over year at $58,000,000 We are the market leader in FPD photo masks due to our technological superiority and manufacturing footprint. As a result, despite market headwinds, we have been able to maintain our revenues due to increasing market share. Our operating margin of 25% was at the high end of our guidance range. Gross margins declined slightly to 36% because of lower sales volumes. Continued prudent controls along with lower severance and legal related expenses and lower R and D reduced OpEx by $2,900,000 sequentially.

Eric Rivera
Eric Rivera
CFO at Photronics

Diluted GAAP EPS attributable to Photronics shareholders was $0.68 per share. After removing the impact of FX gains, fully diluted non GAAP EPS attributable to Photronics shareholders was $0.52 per share, which was above the high end of our guidance.

Eric Rivera
Eric Rivera
CFO at Photronics

Our FX gain was an unrealized benefit primarily related to the impact of the strengthened U. S. Dollars on intercompany balances, cash and accounts receivables held by our foreign subsidiaries. During the first quarter, we generated $78,000,000 in operating cash flow, which represented 37% of total revenue. We continue to build on our strong cash balance providing us with continued financial flexibility.

Eric Rivera
Eric Rivera
CFO at Photronics

CapEx was $35,000,000 in the quarter. We remain committed to spending $200,000,000 in CapEx in 2025 on a combination of capacity, capability and end of life tool initiatives. This run rate is higher than typical to accommodate U. S. Expansion initiative that's underway.

Eric Rivera
Eric Rivera
CFO at Photronics

I want to emphasize that our capacity expansion plans are driven by specific customer opportunities and go through a rigorous investment vetting process. These investments will strengthen our ability to support and win the most attractive photo mask opportunities. Total cash at the end of the quarter was $642,000,000 and remain relatively unchanged from the end of fiscal Q4, driven by CapEx, debt repayment, stock repurchases and the effect of foreign currency exchange rate changes on our cash balances. We have a modest $3,000,000 of debt remaining. Before providing guidance, I'll remind you that demand for our products is inherently uneven and difficult to predict with limited visibility and typical backlog of one to three weeks.

Eric Rivera
Eric Rivera
CFO at Photronics

In addition, ASPs for high end mass sets are high, meaning a relatively low number of high end owners can have a significant impact on our quarterly revenue and earnings. As we have highlighted previously, our business is influenced by IC and display design activity and to a lesser degree by wafer and panel capacity dynamics. With those qualifications, we expect second quarter revenue to be in the range of $2.00 $8,000,000 to $216,000,000 Based on those revenue expectations in our current operating model, we estimate non GAAP earnings per share for the second quarter to be in the range of $0.44 to $0.5 per diluted share. This equates to an operating margin between 2325%. Given current market conditions in our Q2 outlook, we're increasingly cautious about 2025.

Eric Rivera
Eric Rivera
CFO at Photronics

In order to continue to drive cash flow, we will continue to prudently manage costs. I will now turn the call over to the operator for your questions.

Operator

Thank you. Our first question comes from the line of Tom Diffely with D. H. Davidson. Your line is open.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Yes, good morning and thank you for letting me ask a few questions here. Maybe first one for you Frank. The outlook is for basically flat quarter over quarter and typically we see roughly 5% increase in the first or the second fiscal quarter, first quarter of the year. So I'm curious, is it really just the mainstream in China that is the weakness? Is it just your ongoing lack of real visibility and conservatism or what's behind just the flat guidance?

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

Thank you, Tom. Business of the very low end of mainstream, mainly from the six inches and eight inches wave effect has been weak and we see no signs of recovery in the near future. And this happens not only in Asia, but also in Europe particularly. So I think this revenue is relatively small in our overall business, but still has some negative impact our revenue and revenue outlook. So I think at this moment, we are cautious.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

However, long term outlook, we still believe it's a positive, and we will continue to focus and leverage our competitive strength on the high end to improve our branded ASP. So I believe Q2 at this moment, our forecast is flat. But I think the overall economic picture remains kind of uncertain. So I believe by the end of Q2, we may have a much clearer picture of fiscal twenty twenty five.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Okay. That makes sense. If I could just dig in a little deeper on the mainstream business then, obviously over the last few years, the demand levels and the supplydemand equation in mainstream was very beneficial to you. You had nice margin expansion in that space. So just curious, how do you look at the supplydemand equation today in mainstream?

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

And what are you seeing on from a pricing basis? Is the pricing strength gone away? Are you seeing some weakness quarter over quarter? How would you characterize the mainstream business right now?

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

Okay. We keep our pricing firm. We do not lower down our price in the mainstream. However, the overall pie of the mainstream business at this moment seems to be smaller. I believe it's due to the weakness in automotive and maybe industrial applications.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

As I highlight, most eight inches and six inches wafer fab fab utilization are relatively low. So it does have some impact on our low and mainstream business.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Okay. Maybe just one last question on the mainstream. Are you seeing increased competition from local Chinese suppliers for Photomass?

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

Yes. We do see increasing competition. However, our focus in China is on the middle and high end of our in the middle and high side of our high end business, such as 55 nanometer, 40 nanometer, 28 nanometer. So we shift most of our business to these segments such that our branded ASP in China still keep a good and stable high range. So the answer is yes, there are more competition from local Chinese mask makers in the low end of the mainstream, but that is not our focus.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

So we are getting to the more profitable and more high priced segment of the business in China.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Great. I appreciate the extra color there, Frank. Maybe just a quick question for Chris then. Congratulations on the new Gen. Six AMOLED screen.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

What were the challenges to get to that larger screen size or panel size?

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

Yes. Thanks, Tom. Appreciate it. The specs for the AMOLED mass, which prior to this had been all Gen six, Gen 6.5 are the tightest among our FPD products. So we had to scale those specs up to the much larger substrate size, Gen 8.6.

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

So it's kind of spec scaling, uniformity, all the mass parameters had to scale up to those larger substrates, which is quite difficult. The second thing is the integration of the mask onto the blank. We use some advanced, as we mentioned in the comments to the call, some IC like technology in our FPD mask, things that people call phase shift and other things that are common. And IC, we use that in our FPD technology. Scaling that up to Gen 8.6 also was a challenge.

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

So we met those. We've been working on Gen 8.6 scale up by now for almost a year. So we were kind of ready for this and it's really in good coordination with the customer. We had lots of test masks and pilots ahead. So I would not say we're struggling with yield or execution or delivery from here.

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

So as the business grows, we should be able to scale that product line up nicely.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

And how big do you expect that to be inside of your flat panel business over the next few quarters?

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

Yes, I don't think we would prefer not to comment on that. I think just to suffice to say so far it's been more than a single order and it's connected with fab project or projects that are production level. So these aren't we're not just prototype masks or pilot masks. They were masks used for Prudential production of AMOLED for larger format displays, particularly things like laptops. So they are production applications and the fabs they're going into have the possibility to scale to serious panel production for volume products.

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

But beyond that, I think it'd be a little too early to put a scale on it.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Okay. Appreciate it, Chris. And then Eric, looking at the balance sheet, obviously, a really strong cash position. There is going to be $200,000,000 of spending in CapEx this year, but it seems like there's still plenty of cash for a more aggressive buyback. What is your mindset on buybacks versus I know at one point a year or two ago, you guys had talked about potentially keeping a war chest for acquisitions.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

But what is your thought process on the balance sheet right now?

Eric Rivera
Eric Rivera
CFO at Photronics

Thanks, Tom. So with respect to the balance sheet, our capital allocation strategy really hasn't changed, which is the first is like three bullet points. The first one being just normal CapEx and the second and third option are toggles, the second one being M and A activities or if there is lack of them, then we would do share repurchases. So during the quarter, we certainly repurchased some shares. And in terms of what do we see going forward, given the current macro economic conditions and the geopolitical environment, at the moment, we are being a little cautious, but we certainly do have we have the war chest as you described it to be able to act quickly if the right opportunity comes along with respect to an M and A transaction.

Eric Rivera
Eric Rivera
CFO at Photronics

We're not going to just go to do an M and A transaction to use up our cash or to purchase kind of buy revenues, if you will. We will only do that if it's accretive to the company. Likewise, we'll be aggressive with share repurchases if we see that the environment is favorable to do so at the right time. So this is something that we do look at on a consistent basis. The Board and management team, we are aware obviously of the cash balance that we have and we're consistently monitoring and looking for the best way to deploy that.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Great. And what is your current authorization for buybacks?

Eric Rivera
Eric Rivera
CFO at Photronics

We have $100,000,000 of authorization.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Okay, great. And then final question overall go ahead.

Eric Rivera
Eric Rivera
CFO at Photronics

I'm sorry, go ahead.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Well, I was just going to say the final question overall is, it looks like node migration getting more business at the 22, 20 eight nanometer node is going to be a big driver over the next year. I'm just kind of curious where anything you can say about your current capacity there and how much capacity you'll be adding with this $200,000,000 of capital spending this year?

Eric Rivera
Eric Rivera
CFO at Photronics

Yes. So the capital spending that we have this year would be, as I think we mentioned previously, it's normal CapEx that we have plus the increase from the normal to $200,000,000 is essentially for The U. S. So in The U. S, we have due to regionalization, we have some more opportunities for revenue and certainly provide some node migration within the mainstream area in The U.

Eric Rivera
Eric Rivera
CFO at Photronics

S. And likewise, in Asia, we have our part of our normal CapEx. We have we're putting point tools wherever we need to in order to enable us to be able to be more effective and efficient in kicking out more production where we have some bottlenecks. And that certainly is aiding our node migration strategy.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Great. I appreciate the time for all three of you.

Eric Rivera
Eric Rivera
CFO at Photronics

Of course, Tom. Thank you for asking the questions.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

Thank you, Tom.

Operator

Please standby for our next question. Our next question comes from the line of Gaussi with Singular Research.

Gowshi Sriharan
Analyst at Singular Research

Can you guys hear me?

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

Yes, we can.

Gowshi Sriharan
Analyst at Singular Research

Okay. Thanks Ted for including us. Just on the first question is, how much of The U. S. IC capacity coming online in mid-twenty twenty six is kind of on the long term purchase agreements?

Gowshi Sriharan
Analyst at Singular Research

What was driving that strong demand? Is that strong demand on U. S. Based AI edge chip customers? And maybe you can quantify the percentage of customer commitments that is tied to the Chip Act versus organic demand?

Eric Rivera
Eric Rivera
CFO at Photronics

So I'll take a stab at answering that question. Your question was it very clear for just to be clear, but I think you're asking about what is it that we're seeing in The U. S. That's going to for which we're doing some CapEx. So I'll mention that our customers are certainly in The U.

Eric Rivera
Eric Rivera
CFO at Photronics

S. Have indicated that they would like us to provide service them here in The U. S. Market essentially. And that is what's driving our increased CapEx in The U.

Eric Rivera
Eric Rivera
CFO at Photronics

S. In terms of whether we have some agreements with them that will secure that, I wouldn't say we have like a take or pace because we don't we generally do not have take or pace here in our business at all. But we do have customer commitments and indications of that they would support us in the event that we do this. So that's typically the level of support that we can get from our customers in our industry. And that's what we have. And as such, we feel comfortable investing the amount that we're planning to invest here in The United States.

Eric Rivera
Eric Rivera
CFO at Photronics

Does that address your question? And I apologize because it didn't come through.

Gowshi Sriharan
Analyst at Singular Research

I was kind of looking forward to see if there's any what was that part of that expansion that's kind of tied to the Chip Act versus kind of the organic demand?

Eric Rivera
Eric Rivera
CFO at Photronics

So that would be organic demand for the most part. With respect to the Chip Act, that's this is not necessarily contemplated in this CapEx at this time.

Gowshi Sriharan
Analyst at Singular Research

Okay. Yes.

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

If the question is how much of the capacity we're putting in particular in The U. S. Are linked to customers that are getting funding through the CHIPS Act.

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

It's not a significant bar. Most of the projects we're tracking in The States are projects that we believe would proceed with or without CHIPS funding. So we don't see a lot of, let's say, risk in the ones that we are tracking that are connected to those customers getting chips funding. We also, as we reported, applied for chips funding under the second NOFO, the small supplier NOFO. Our applications are still under consideration.

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

But the current investments we're contemplating and talking about here are being done separate and apart from what we'd invest additionally with the chips opportunity.

Gowshi Sriharan
Analyst at Singular Research

Got you. And in terms of the mode migration to '22, '20 '8, how much of that demand do you think is going to is that how is the 14 millimeters and the EUV compatible mask trending, are you seeing any increased traction or increase from the AI designs of peripheral chips to customers?

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

So we see mostly AI driven business for us. We see mostly adjacent or second order effects from AI. So, and we I would say we see some of that in different regions around the world. These are support chips for the AI ecosystem, designs of new chips for edge devices and things like that, that can take advantage of the AI ecosystem. I think we are definitely seeing some pull from those applications.

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

We not really appropriate to quantify it, but it is a positive trend. On the memory side, we mentioned that memory is relatively small part of our IC business, but it was one of the stronger growing segments. That is connected also to AI demand and cloud demand and that sort of thing. So we're definitely seeing a lift from that application driver and we expect that to continue to grow as we look ahead in future quarters and years.

Gowshi Sriharan
Analyst at Singular Research

So post 2026, as the full capacity of your CapEx comes into line, do you have an idea of what percentage of the high end IC revenue might be tied to supporting that AI infrastructure?

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

Yes, I don't think we would say, what percent of our high end revenue at that time would be AI driven. So it's difficult to say. I mean, I think it will be a significant part, but we probably would not be wise to put a specific percent on it at this point.

Gowshi Sriharan
Analyst at Singular Research

Okay. In terms of auto industry, auto and industrial softness, it's kind of restocking on new design wins in these sectors for your mainstream?

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

I mean, I can make another comment on that, maybe Frank or Eric can follow-up. But I would say it still looks fairly weak in that market, the automotive market. Units are down and there is some ASP pressures because the end users are struggling, so that always drives some ASP pressures. And I would say at the moment, we don't see significant uptick. Maybe we'd say some stabilization is not dropping significantly from where it is.

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

But as far as a big turnaround in the automotive sector, I don't believe we're really seeing it at this point. In China, and Frank could probably comment further, there is more activity going on in automotive design. Some portion of that is government backed and government funded, but still the supply demand situation is not really healthy also in China on the automotive side.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

Yes, correct.

Frank Lee
Frank Lee
Chief Executive Officer at Photronics

We see the design activity seems to decrease in these two segments at this moment. So I believe the end product business softness impact the new chip design.

Gowshi Sriharan
Analyst at Singular Research

Okay.

Gowshi Sriharan
Analyst at Singular Research

In terms of geographic mix for driving H2, how are you guys thinking about the tariffs, the subsidies impacting regional pricing?

Eric Rivera
Eric Rivera
CFO at Photronics

I'm sorry, if you don't mind repeating the question, I'm not sure it came through.

Gowshi Sriharan
Analyst at Singular Research

In terms of how as we think about H2 of twenty twenty five and the geographic mix, how do you look at the geopolitical landscape and how does that impact the regional price use?

Eric Rivera
Eric Rivera
CFO at Photronics

I see. So thanks again for the question for repeating the question actually. So given the current macro and geopolitical conditions, actually we're increasingly cautious. So we don't have a great visibility at the moment of how the second half is going to be. We expect to have a better picture in Q2, but the question is a great one. It's just that the current environment doesn't allow us to see what that is at the moment.

Gowshi Sriharan
Analyst at Singular Research

Okay. And will as we model for fiscal twenty twenty five, are we looking at R and D costs declining as the project qualifications kind of taper off?

Eric Rivera
Eric Rivera
CFO at Photronics

I think I would best describe it as probably I mean, that's we don't have a great picture, as I mentioned right now, as how the second half is going to be. But at the moment, if I just were to comment what we see in the moment, we definitely don't see it increasing. So I think if you take that position of at least stable, that would be the best thing I can give you a comment on. And in the past, our with respect to OpEx, we do expect OpEx to be about 10% of of revenue going forward. That's our target. Right.

Gowshi Sriharan
Analyst at Singular Research

And just to add that to that,

Christopher Progler
Christopher Progler
Executive Vice President, Chief Technology Officer, Strategic Planning at Photronics

I think Just generally on the qualification side, just to make a comment, the goal of course is as we complete one set of qualifications, start new ones after those. So I agree just supporting and seconding Eric's comment. I think steady state sort of picture is probably pretty good way to look at the R and D.

Gowshi Sriharan
Analyst at Singular Research

Okay.

Gowshi Sriharan
Analyst at Singular Research

And in terms of outlook, what would you say were your top two risks for 2025? Is it the macro demand, the geopolitical tensions or customer delays? Do you want to quantify it?

Eric Rivera
Eric Rivera
CFO at Photronics

Yes, I would say I think you hit them all. But to answer your question, the top two, I would say the macroeconomic and the geopolitical.

Gowshi Sriharan
Analyst at Singular Research

Okay.

Gowshi Sriharan
Analyst at Singular Research

That's all I had. Thank you guys for taking my questions and good luck.

Eric Rivera
Eric Rivera
CFO at Photronics

Of course. Thank you.

Operator

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Tay for closing remarks.

Ted Moreau
Ted Moreau
VP - Investor Relations at Photronics

Thank you, Jawanda, and thank you everyone for joining us today. We appreciate your interest in Portronics. We look forward to catching up with everyone over the coming days and weeks. Have a great day.

Operator

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Executives
    • Ted Moreau
      Ted Moreau
      VP - Investor Relations
    • Frank Lee
      Frank Lee
      Chief Executive Officer
    • Eric Rivera
      Eric Rivera
      CFO
    • Christopher Progler
      Christopher Progler
      Executive Vice President, Chief Technology Officer, Strategic Planning
Analysts
    • Tom Diffely
      Director Of Institutional Research at D.A. Davidson Companies
    • Gowshi Sriharan
      Analyst at Singular Research
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