Case study

 Financing Acquisitions at Photronics

by Professor Ian H. Giddy
New York University

Photronics is the world's leading and fastest growing manufacturer of photomasks. Photomasks are high precision quartz plates that contain microscopic images of electronic circuits. A key element and enabling technology in the manufacture of semiconductors, photomasks are used to transfer circuit 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 international expansion program, for which the firm would need additional funding.

"The globalization 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, paying close attention to its business and financial risks and its stage in the corporate life cycle. One recommendation is that the funding be obtained through a debt issue. Does this make sense, given the company's stage in its corporate life cycle and its capacity for further leverage?

Photronics Summary Financials
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