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Magnachip Semiconductor Corporation (MX) Q4 2022 Earnings Call Transcript

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Magnachip Semiconductor Corporation (NYSE:MX) Q4 2022 Earnings Conference Call February 16, 2023 5:00 PM ET

Company Participants

Yujia Zhai – The Blueshirt Group

YJ Kim – Chief Executive Officer

Shinyoung Park – Chief Financial Officer

Conference Call Participants

Martin nan – Oppenheimer

Nick Doyle – Needham

Operator

Good time and invited to Magnachip's Fourth Quarter 2022 Earnings Conference Call. At this clip each participants are successful a listen-only mode. After nan speakers' presentation, location will beryllium a question-and-answer session. Instructions will beryllium fixed astatine that time. As a reminder this telephone is being recorded.

I would now for illustration to move nan telephone complete to Yujia Zhai, IR typical for Magnachip. You whitethorn begin.

Yujia Zhai

Good day everyone. Thank you for joining america to talk Magnachip's financial results for nan 4th fourth ended December 31, 2022. The 4th fourth net merchandise that was conscionable issued coming aft nan banal marketplace closed tin beryllium recovered connected nan Company's Investor Relations website. The webcast replay of today’s telephone will beryllium archived connected our website soon afterwards. Joining maine coming are YJ Kim, Magnachip’s Chief Executive Officer; and Shinyoung Park, our Chief Financial Officer. YJ will talk nan Company’s caller operating capacity and business overview, and Shinyoung will reappraisal financial results for nan 4th and supply guidance for nan first 4th of 2023. There will beryllium a Q&A convention pursuing nan prepared remarks.

During nan people of this convention call, we whitethorn make forward-looking statements astir Magnachip’s business outlook and expectations. Our forward-looking statements, and each different statements that are not humanities facts, bespeak our beliefs and predictions arsenic of coming and truthful are taxable to risks and uncertainties arsenic described successful nan Safe Harbor connection recovered successful our SEC filings. During nan telephone we besides will talk non-GAAP financial measures. The non-GAAP measures are not prepared successful accordance pinch mostly accepted accounting principles but are intended to exemplify an replacement measurement of Magnachip’s operating capacity that whitethorn beryllium useful. A reconciliation of nan non-GAAP financial measures to nan astir straight comparable GAAP measures tin beryllium recovered successful our 4th fourth net merchandise available connected our website nether nan Investors Relations conception astatine www.magnachip.com.

I now will move nan telephone complete to YJ Kim. YJ?

YJ Kim

Hello everyone, convey you for joining america coming and invited to Magnachip’s Q4 2022 net call. I will statesman today’s telephone pinch a summary of our Q4 results arsenic good arsenic our capacity for nan afloat twelvemonth 2022. After that, I will supply a elaborate update connected each of our business segments earlier turning nan telephone complete to Shinyoung to spell complete our financials successful much item and supply guidance for Q1 2023. Starting pinch Q4 results. Revenue was $61 million, adjacent nan high-end of our guidance range. Nevertheless, Q4 gross was little by 44.7% year-over-year and 14.3% sequentially. Gross profit separator was 26.4%, wrong our guidance range.

By business line, Display gross was $7.6 cardinal and Power gross was $46.3 million. As we indicated past quarter, these results were chiefly driven by terrible wafer shortages successful our OLED business, which prevented our caller designs astatine our starring Korean sheet customer to deed caller cardinal merchandise motorboat windows successful nan 2nd half of 2022. Our OLED business was besides impacted by anemic user request successful China and globally, which led to an inventory correction by Android smartphone OEMs. In our Power business, nan grounds momentum we group successful nan first half of nan twelvemonth slowed down importantly successful Q4 arsenic macro conditions and user request deteriorated, starring to inventory builds crossed a number of our extremity markets.

Looking backmost astatine nan afloat year, full gross was $337.7 cardinal and gross profit separator was 30.0%, down 28.8% and 240 ground points year-over-year, respectively. By business line, our Display business solely contributed to nan important year-over-year diminution arsenic gross was only $71.4 cardinal compared to $205.3 cardinal successful 2021. Our Power business gross successful 2022 was $230.5 million, up 1.2% year-over-year from $227.8 million. It goes without saying that 2022 was a very difficult twelvemonth connected galore fronts, peculiarly for our Display business. However, we stayed focused and executed connected what we could power and achieved cardinal milestones successful 2022 that we judge sets nan instauration for a coagulated betterment successful 2023.

In our Display business, we successfully won a caller Tier 1 sheet customer extracurricular of Korea, which marked nan description of our OLED business into world markets. We are presently moving pinch this customer connected 2 OLED DDIC creation projects and I americium happy to study coming that our first spot was successfully qualified by this customer successful December and we will statesman shipping towards nan extremity of Q1 2023. Further, our 2nd OLED driver IC task pinch this customer successfully taped retired successful November are in-house and we are up of schedule to present nan first sample successful this period and accumulation is expected to statesman successful nan 2nd half of 2023. This 2nd spot offers important capacity and characteristic improvements complete our first spot and replacement products. We are highly excited astir this caller spot and aggregate prospective smartphone makers are already showing liking for their caller smartphones.

We besides strengthened our world proviso concatenation by qualifying 2 further 28 nanometer foundries, 1 of which was successful strategical business pinch our caller OLED customer. In total, we now person 3 28 nanometer 12- inch OLED foundries qualified and we anticipated these foundries to summation our wafer allocation by 2 to 4x complete nan adjacent fewer years compared to our 2022 levels. Going forward, wafer proviso should not beryllium a constraint connected OLED conception revenue. At our starring South Korean sheet customer, successful Q4, we completed qualification of our first OLED spot for an automotive halfway show and we will statesman shipping this quarter. We expect this to beryllium utilized by a starring European luxury car manufacturer.

In addition, we taped retired a caller high-end smartphone driver IC during Q4 and that is expected to statesman accumulation successful nan 2nd half 2023. In our Power Solutions business, 2022 was a grounds twelvemonth and was stronger fundamentally than what our Q4 gross inclination indicates. In 2022, we were awarded a grounds 209 design-in wins crossed our full Power Solutions merchandise portfolio, much than double nan number of designs awarded successful 2021 and 2020. It was besides a grounds twelvemonth for gross from our Premium products, which grew 10% year-over-year and represented a grounds 55.9% of Power Solutions’ revenue, up from 51.5% successful 2021. This spot helped wide Power ASPs complete 2021 and 2020 levels.

Revenue from our Super Junction MOSFETs and IGBT products besides group grounds highs successful 2022. IGBT spot was astir notable, pinch gross increasing 52% year-over-year acknowledgment to highly beardown request from star inverter manufacturers. We expect this area of our business to proceed to stay beardown going forward, acknowledgment to nan transformative cleanable power policies globally to combat ambiance changes. In 2022, we remained focused connected R&D and introduced galore innovative capacity powerfulness products crossed a wide scope of applications from smartphones, automotive, solar, user products and industrial. In Q4, we unveiled our first powerfulness guidance spot optimized for OLED IT applications.

The newly-designed sub-PMIC provides a adaptable voltage power that enables automated civilization refresh rates based connected nan framework rate. This greatly improves powerfulness depletion and enables a soft and comfortable viewing acquisition for games and videos. Further, successful our Power Solution’s Automotive business, successful Q4, we introduced our eighth procreation 150V MXT MOSFET for optimized for Light Electric Vehicles’ centrifugal controllers and artillery guidance systems. This MOSFET improves nan drain to root guidance by complete 28%, improves power dissipation, and tin run successful utmost temperatures betwixt minus 55 Celsius to up to 175 Celsius, making it suitable to beryllium utilized successful a wide scope of xEV applications. Our Automotive business saw important momentum successful 2022 and is exiting nan twelvemonth pinch aggregate design-ins projects for starring Asian automakers and is expect to commencement contributing gross successful 2023.

In summary, while 2022 presented galore challenges, peculiarly during nan second half of nan year, we stay optimistic astir nan future. Our OLED business is poised for betterment successful 2023, pinch nan gross projected to summation importantly successful nan 2nd half arsenic we ramp shipments of our 4 design-in projects pinch our 2 starring sheet making customers. We proceed to expect nan first half of 2023 to beryllium impacted by elevated inventory levels and a very anemic macro environment, but nan reopening of China is simply a very invited improvement and should lead to an betterment successful nan system and user demand, which will thief some our businesses.

For our Power Solutions business, we expect to support nan momentum of creation wins and premium tier merchandise mix. However, it's important to statement that our Power business is not immune to nan broader economical downturn, which impacts consumer-related applications, and we expect nan first half of 2023 to besides beryllium challenging. We judge that this will mostly beryllium owed to macro factors alternatively than thing circumstantial to fundamentals arsenic nan information points, I conscionable highlighted are a testament to nan competitiveness of our powerfulness products. Q1 is besides typically our seasonally slowest 4th pursuing vacation shipments and is impacted by slow activity astir Chinese New Year. Looking forward, arsenic transmission inventories are consumed and nan broader system recovers, we expect to spot a rebound successful Power revenue.

In closing, contempt a very challenging 2022, and an anticipated challenging 2023, our squad remains committed to: One, introducing caller competitory powerfulness products and accelerating next-generation products, particularly successful caller applications specified arsenic automotive; two, continuing our successful income momentum aliases creation wins successful Power to thrust business pinch existent and caller customers, which will amended our Fab 3 utilization arsenic good arsenic margins; three, accelerate next-generation OLED driver IC for our customers domestically and internationally to deed nan measurement accumulation by 2nd half 2023; four, grow our OLED products for world markets to solidify instauration for early maturation successful 2024; five, we person initiated a voluntary resignation program, wherever we expect 4% to 5% of labor whitethorn use for this programme pinch our prime to judge aliases cull nan applicants; and finally, I person voluntarily taken a 10% simplification successful my net for 2023, and remainder of nan elder guidance squad are besides deferring a information of their guidelines net until we execute connected our commitments.

Now I will move nan telephone complete to Shin Young to spell complete Q4 results and springiness our Q1 guidance. Shin Young?

Shinyoung Park

Thank you, YJ, and invited to everyone connected nan call. Let's commencement pinch cardinal financial metrics for Q4.

Total gross successful Q4 was $61 million, down 14.3% sequentially and down 44.7% year-over-year. Revenue from nan Standard Products business was $53.8 million, down 14.2% from Q3 and down 45.9% year-over-year.

As YJ already mentioned, some nan sequential and year-over-year decreases were chiefly attributable to nan proviso constraints for wafers successful our OLED business and slow request for Chinese and Korean top-tier smartphone models arsenic a consequence of nan world downturn successful nan smartphone market.

Revenue from our Power business was $46.3 million, down 18% sequentially and down 20.5% year-over-year. The sequential diminution accelerated from past quarter, driven by deteriorating user request for TV, smartphones, e-bike and computing applications.

Gross profit separator successful Q4 was 26.4%, down from 35% successful Q4 2021, but up from 24.2% successful Q3 2022. The little gross profit separator year-over-year was chiefly owed to unfavorable operation from little Display gross arsenic good arsenic little utilization complaint of our Fab 3. The 220 ground constituent sequential betterment was chiefly owed to nan absence of worldly inventory reserves aliases write-offs during nan quarter.

As a reminder, we recorded a $3.3 cardinal scrap complaint successful Q3 related to request weakness arsenic a consequence of elevated smartphone inventories. Looking forward, we person reduced accumulation astatine our Fab 3 successful consequence to industry-wide slowdown and inventory correction. As a result, our Q1 2023 gross profit separator will beryllium further impacted by little utilization arsenic good arsenic higher manufacturing input costs specified arsenic energy and wages. We expect gross profit separator to retrieve arsenic measurement and utilization improves successful nan 2nd half.

Turning now to operating expenses, Q4 SG&A was $12.6 cardinal arsenic compared to $11.4 cardinal successful Q3 2022 and $13.3 cardinal successful Q4 past year. Q4 R&D was $13.7 cardinal arsenic compared to $13.3 cardinal successful Q3 2022 and $12.2 cardinal successful Q4 past year. Stock compensation charges, including operating expenses, were $1.5 cardinal successful Q4 compared to $0.8 cardinal successful Q3 and $1.6 cardinal successful Q4 2021. Note that our Q3 SG&A was little owed to adjustments successful Q3 to trim past year-to-date accruals related to performance-based banal compensation.

Q4 operating nonaccomplishment was $10.1 million. This compares to an operating nonaccomplishment of $10 cardinal successful Q3 and an operating income of $63.9 cardinal successful Q4 2021. As a reminder, our Q4 2021 operating income benefited from $49.4 cardinal of nett termination fees related to our merger woody pinch Wise Road that was terminated successful December 2021.

On a non-GAAP basis, Q4 adjusted operating nonaccomplishment was $8.6 cardinal compared to adjusted operating nonaccomplishment of $6.6 cardinal successful Q3 and adjusted operating income of $14.4 cardinal successful Q4 past year.

Q4 adjusted EBITDA was antagonistic $4.8 million. This compares to antagonistic $3 cardinal successful Q3 and a affirmative $18.1 cardinal successful Q4 a twelvemonth ago.

For nan afloat twelvemonth 2022, we recognized a taxation disbursal of $5.2 million, owed chiefly to realized overseas rate gains recognized astatine our operating entity successful Korea arsenic a consequence of FX volatility during nan twelvemonth and a alteration successful nan Korean subsidiary's deferred taxation assets arsenic a consequence of a alteration successful firm income taxation rates, which was announced successful December 2022.

Net income successful Q4 was $3 cardinal arsenic compared pinch a nett nonaccomplishment of $17.2 cardinal successful Q3 and a nett income of $53.6 cardinal successful Q4 a twelvemonth ago.

Our GAAP diluted net per stock successful Q4 was $0.07 arsenic compared pinch a nonaccomplishment per stock of $0.38 successful Q3 and net per stock of $1.12 successful Q4 past year.

Our non-GAAP diluted nonaccomplishment per stock successful Q4 was $0.36. This compares pinch non-GAAP diluted net per stock of $0.02 successful Q3 and $0.29 successful Q4 past year.

Our diluted shares outstanding for nan 4th were astir 44.1 cardinal shares, which reflects shares repurchased arsenic portion of our expanded stock repurchase programme that we announced successful mid-September. We proceed to workout nan buyback that was authorized by nan Board.

Moving to nan equilibrium sheet, our rate equilibrium astatine nan extremity of Q4 was $225.5 million, down from $250.8 cardinal astatine nan extremity of Q3. The superior rate outflows successful Q4 was planned CapEx of $11.6 million, $8.9 cardinal spent connected banal buybacks and $7.9 cardinal of yearly publication of statutory severance to definite outer deposit accounts to comply pinch nan section labour rules.

We expect to proceed to tie down connected our cash, driven chiefly by continuation of our buyback programme and an LTA prepayment to unafraid wafers astatine our starring foundry partner and normal CapEx. Based connected our forecast, we expect our rate whitethorn scope arsenic debased arsenic $160 cardinal during 2023 if we execute nan LTA.

Net accounts receivable astatine nan extremity of nan 4th totaled $35.4 million, a alteration of 3.8% from Q3. Our days income outstanding for Q4 was 53 days, and 47 days successful Q3.

Inventories nett totaled $39.9 cardinal compared to $37.3 cardinal successful Q3. Our mean days inventory for Q4 was 82 days and 64 days for Q3. Higher mean days successful inventory for Q4 compared to Q3 was owed chiefly to a little costs of sales, which decreased astir 17% quarter-over-quarter.

Regarding our CapEx plan, arsenic I mentioned earlier, Q4 CapEx was $11.6 million. And for nan afloat twelvemonth 2022, we spent $23.4 million, successful statement pinch our erstwhile estimate of $23.5 cardinal that we provided past quarter. For 2023, we now expect CapEx to beryllium astir $10 million, which is astir 60% little from nan 2022 level.

In respect to our superior structure, successful Q4 we repurchased astir $9 cardinal worthy of banal aliases astir 900,000 shares and proceed to beryllium progressive successful nan marketplace pinch astir $37 cardinal remaining successful our buyback programme astatine nan extremity of Q4. We ended nan twelvemonth pinch $225.5 cardinal rate and zero debt. This coagulated equilibrium expanse allows america to confidently navigate immoderate further economical downturns that whitethorn originate during this play of uncertainty.

Before moving to nan first 4th guidance, I would for illustration to statement that we conscionable commenced a voluntary resignation programme and expect to complete it by nan extremity of nan first quarter. Due to nan voluntary quality of this program, we are incapable to supply an nonstop magnitude of nan related financial effect astatine this time. However, nether nan presumption that astir 4-5% of our labor use for this program, we expect to person yearly costs savings up to $3 cardinal pinch nan full rate costs of astir $8.5 cardinal to $12 million, astir 35% to 40% of which relates to statutory severance.

Now moving to our first 4th guidance, while existent results whitethorn vary, for Q1, Magnachip presently expects: gross to beryllium successful nan scope of $55 cardinal to $59 million, including astir $5 cardinal of Transitional Fab 3 Foundry Services. Gross profit separator to beryllium successful nan scope of 21% to 23%.

Thank you and now I will move nan telephone backmost complete to YJ for closing remarks.

YJ Kim

Thank you, Shinyoung. Before we statesman Q&A, I'd for illustration adjacent coming by thanking each of our shareholders for their continued support during these challenging times. I’d besides for illustration to reiterate my earlier comments astir our betterment scheme for 2023 and beyond.

We stay firmly committed to mounting nan business backmost connected a coagulated instauration of maturation this twelvemonth and will execute it by: one, introducing caller competitory powerfulness products and accelerating adjacent procreation products, particularly successful caller applications specified arsenic automotive. Two, continuing our successful income momentum of creation wins successful powerfulness to thrust business pinch existent and caller customers, which will amended our Fab 3 utilization arsenic good arsenic margins. Three, accelerate adjacent procreation OLED, DDICs for our customers domestically and internationally to deed nan measurement accumulation by 2nd half 2023. And finally, we will further grow caller OLED products for world markets to solidify instauration for early maturation successful 2024.

With that I'll move nan telephone backmost to complete to Yujia.

Yujia Zhai

Thanks YJ. So that concludes nan prepared remarks conception of this net call.

Operator, please statesman nan Q&A session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] I'm not showing immoderate questions astatine this time. I'd for illustration to move nan telephone backmost complete to Yujia Zhai for closing remarks.

Yujia Zhai

Operator, tin you conscionable surface again for questions? I did spot immoderate of our covering analysts connected nan line.

Operator

[Operator Instructions] Thank you. And our first mobility comes from Martin nan pinch Oppenheimer. Your statement is open.

Martin Yang

Hi. Thanks for taking my mobility and bully morning. I would for illustration to possibly inquire your expectations for cardinal customer ramp successful 2023. Has nan existent challenges successful nan near-term impact your outlook for nan cardinal customer ramp? And – yes, that's my first question.

YJ Kim

Hey Martin, convey you. So I'm assuming that you're asking for our caller world customer and nan ramp for nan OLED. So yes, truthful we said that nan first spot has been qualified past December, and we expect nan first accumulation to statesman towards nan extremity of this quarter. We conscionable sewage our 2nd spot for this customer in-house, and we expect to vessel wrong this month. And truthful that's up of schedule, and we expect that to spell to accumulation towards 2nd half. So nan first spot is targeted for nan afloat HD+. Second spot is afloat HD+ and beyond. But 2nd spot has overmuch robust capabilities, which we'll talk astir erstwhile nan spot commencement shipping. So pinch those, we expect nan mostly of nan shipments, and nan large curve to travel connected 2nd half of this year.

Martin Yang

Got it. And is location immoderate measurement for you to quantify nan number of designs aliases conscionable wide missed opportunities for OLED. Do you spot capacity constraints? So erstwhile I opportunity missed opportunities aliases missed designs, these are things you would person realized successful almanac 2023?

YJ Kim

Well, truthful we don't study nan smartphone vendor creation wins, but nan – we expect to disclose much of that erstwhile nan smartphones commencement to present their caller merchandise lines. And truthful I deliberation it's much towards nan 2nd half heavily, we are shipping immoderate volumes based connected nan existent creation wins and existent products. And truthful that's nan curve you should look at.

Martin Yang

Got it. Last mobility from maine is do you expect to spot immoderate lingering effect connected your 2024, meaning immoderate creation activities that will consequence successful 2024 shipments are being disrupted?

YJ Kim

We are shipping caller products arsenic we speak. So we judge that gross will deed successful 2nd half arsenic good arsenic early 2024, and we will beryllium moving connected caller products to deed nan samples successful 2nd half this twelvemonth that should spell into 2024 successful summation to immoderate of nan products that we'll beryllium shipping successful 2nd half this year.

Martin Yang

Got it. I've nary much questions. Thank you, YJ.

YJ Kim

Thank you.

Operator

Thank you. Our adjacent mobility comes from Raji Gill pinch Needham. Your statement is open.

Nick Doyle

Hi, Nick Doyle connected for Raji Gill. I conscionable had a mobility astir auto. How do we deliberation astir nan car opportunity successful almanac 2023 and past hopefully 2024? Could you beryllium a small much circumstantial connected nan opportunities pinch nan creation wins that you talked astir connected nan telephone earlier? Thanks.

YJ Kim

Sure. Thank you. So successful nan automotive, this twelvemonth is, I would opportunity is an embryonic shape twelvemonth for america successful some OLED and Power. We commencement shipping nan first OLED automotive parts this quarter. And we besides expect to vessel Power this 4th arsenic well. And we had respective design-ins going successful to past year-end, and we expect astir 4 to 5 automotive powerfulness to vessel this year. The gross is not huge. But what's bully astir automotive is it's a agelong creation cycle, moreover successful OLED, possibly 5 years, and nan ASP and separator typically overmuch amended than nan regular smartphone usage. So we are going to activity connected incrementally adding these automotive opportunities, and I deliberation that's going to beryllium gradual complete nan adjacent fewer years.

Nick Doyle

Thank you. And past are you really focusing conscionable connected nan Asian marketplace here? Or are you besides trying to grow internationally successful car arsenic well?

YJ Kim

Obviously, Asia is adjacent to our location coverage. So – but for illustration OLED, nan awesome automakers are of people Europe and Asia for our market. On nan Power side, it's much successful Asian automakers. So that's really we're going to commencement out, and we'll effort to screen globally pinch nan occurrence of our creation wins.

Nick Doyle

Thank you.

Operator

Thank you. There are nary further questions astatine this time. I'd for illustration to move nan telephone backmost complete to Yujia for closing remarks.

Yujia Zhai

Thanks operator. This concludes our Q4 net convention call. Please look for specifications for our early events connected Magnachip's Investor Relations website. Thank you, and return care, everyone.

Operator

This concludes nan program. You whitethorn now disconnect. Everyone, person a awesome day.

Editor: Naga



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