Financing Acquisitions at Photronics
by Professor Ian H. Giddy
New York University
Photronics is the world's leading and fastest growing
photomasks. Photomasks are high precision quartz plates that contain
images of electronic circuits. A key element and enabling technology in
the manufacture of semiconductors, photomasks are used to transfer
patterns onto semiconductor wafers during the fabrication of integrated
circuits. They are produced in accordance with circuit designs provided
by customers at strategically located manufacturing facilities in North
America, Europe and Asia.
In early 2000, Photronics was engaged in an ambitious
expansion program, for which the firm would need additional funding.
of the semiconductor industry has created significant growth
opportunities beyond Photronics' core market in North America.
Customers operating manufacturing facilities in Asia and Europe, as
well as North America, are streamlining their equipment and materials
procurement processes, relying on fewer and more capable suppliers.
“Photronics has made excellent progress in expanding its presence
around the world both by acquisitions and by the construction of new
facilities. During the year, new facilities were quickly brought to
full production in Manchester, England, and Austin, Texas, while
additional technological capability was installed in Singapore. These
advanced capabilities have elevated our strategic supplier status with
many significant customers who are now benefiting from our balanced
approach to international expansion and technology investments.
“In Asia, our Singapore facility is benefiting from our customers'
utilization of wafer foundries, reflecting the increasing trend of
semiconductor manufacturers moving toward a fabless business model. We
believe that the number of companies utilizing foundries will increase
as they focus on their core strengths—designing semiconductors and
product marketing. Such a business model transfers the risk associated
with investing capital in production assets, giving the now "fabless"
semiconductor company additional flexibility during down cycles, like
the one affecting the semiconductor industry today.”
Please examine the company's financial statements,
to its business and financial risks and its stage in the corporate life
cycle. One recommendation is that the funding be obtained through a
issue. Does this make sense, given the company's stage in its corporate
life cycle and its capacity for further leverage?