Magnachip Semiconductor Corporation

Thank you for standing by, and welcome to the Q4 2021 Magnet Ship Semiconductor Corporation Earning Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question at that time, please press star then 1 on your touch-tone telephone. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host, Ms. Sue John. Ma'am, you may begin.

Thank you. Hello, everyone. Thank you for joining us to discuss MagnaChip's financial results for the fourth quarter ended December 31st, 2021. The fourth quarter earnings release that was filed today after the stock market closed can be found on the company's investor relations website. A telephone replay of today's call will be available shortly after completion of the call, and the webcast will be archived on our website for one year. Access information is provided in the earnings press release. Joining me today are Y.J. Kim, Magna Chief Executive Officer, and Shin Young Park, our Chief Financial Officer. Y.J. will discuss the company's recent and annual operating performance and business overview, and Shin Young will review financial results for the quarter and the year and provide guidance for the first quarter of 2022. There will be a Q&A session following the prepared remarks. During the course of this conference call, we may make forward-looking statements about Magna Chips business outlook and expectations. Our forward-looking statements and all other statements that are not historical facts reflect our beliefs and predictions as of today, and therefore are subject to risks and uncertainties as described in the Safe Harbor Statement found in our SEC filings. During the call, we also will discuss non-GAAP financial measures. The non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate an alternative measure of MedinaCHIP's operating performance that may be useful. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our fourth quarter earnings release, available on our website under the Investors section at www.magnachip.com. I now will turn the call over to Y.J. Kim. Y.J.?

Hello, everyone. Thank you for joining our call today. For the first quarter... The demand and signals from our customers remain strong across the board. However, severe supply constraints continue to significantly limit our OLD revenue potential, which was partially upset by our stronger power business. We reported $110.3 million in revenue and $0.31 in non-GAAP diluted EPS. Our revenue decreased 13.1% sequentially and 22.8% year-over-year as a result of the supply constraints. The shortage was felt more severely for 28-nanometer 12-inch wafers, where we have been producing most of our new OLED products, winning numerous designs and rapidly expanding market share in the past few years. Case in point, the revenue from 28 nanometer products grew 80% to $174 million in 2021 from $97 million in 2020, representing 90% of the total OLED revenue in 2021 as compared to only 34% in 2020. The successes of our 28-nanometer product line has been and we expect will continue to be one of the critical growth enablers for us. Unfortunately, a severe shortage of 28-nanometer OLED wafers adversely affected our OLED business as a major limiting factor, adding tremendous pressure to an already difficult supply environment. Fortunately, we enhanced our supply chain for an additional 20 nanometer capacity last year, which we expect will start to come online in the later part of this year. Looking at the full year, while our revenue for 2021 declined 6.5% year-over-year due to the wafer supply shortage, partially offset by outstanding growth in our power business, I am pleased that we delivered solid profitability for the full 2021 year. Gross profit margin reached 32.4%, representing an increase of 710 basis points from 2020. Adjusted operating income margin increased to reach 11.8% of total revenue from 8.2% in 2020. Adjusted net income was 10.8% of total revenue versus 5.6% from the year before, and adjusted EBITDA also grew to $70.7 million from $52.9 million in 2020. 2021 has certainly presented its share of unique challenges for us. However, our team steadfastly pressed forward with our plan to achieve not only healthy profitability, but also critical milestones to fuel future growth, upon which I will elaborate shortly. I deeply appreciate every magnet trip team member for their unwavering commitment and dedication. I'm most grateful that we could achieve solid results while protecting and safeguarding our employee health and safety amidst the global COVID-19 pandemic. Now, let's move to a detailed review of our product business, starting with the OLED business. OLED revenue in Q4 was $37.7 million, down 31.8% sequentially. and down 53.1% from our historical record revenue level in Q4 2020. Against CVS supply constraints, we have been protecting our profitability by strategically focusing on high-value, high-margin design activities, including the newly launched flagship smartphone model of a major smartphone OEM. Also, revenue from 5G smartphones and high frame rates rate products continue to represent over 93% of our 2021 OLED revenue. Turning to the full year review, OLED revenue was $192.8 million, down 32.3% year-over-year as we unfortunately had to forego some demand. Our demand was more than 50% higher than what we shipped in 2021. However, I am pleased to report some critical milestones that we achieved. One, we have successfully broadened our customer base to include a top-tier panel maker outside Korea. Initial revenue is expected to start in the later part of this year. We are well aligned with top-tier panel makers in the world and positioned to benefit from increasing OLED adaption in multiple countries. Two, we enhanced our supply chain for additional 20 nanometer manufacturing capacity, which is expected to come online in the later part of this year. In addition, we are in discussions with our foundry partners regarding a multi-year supply agreement in order to secure long-term capacity. We have also been working on MOUs and supply agreements with key customers, some of which have been already signed. Three, we're expanding into new areas. We have successfully commenced initial mass production of OLED TV DDIC during the fourth quarter, and we continue to expand our large display OLED TV business by addressing next-gen premium TVs with microLED technology. We used to have over 30% market share in TV application with LCD DDIC, with a particular vendor during peak times before we strategically defocused from the business a few years ago. In addition, we are also expanding our OLED DDIC product lineup for automotive display applications. In summary, our OLED business is winning new customers and expanding into new applications. The demand from our customers Current customers is strong. In fact, we are getting numerous RFQs from Korean panel makers, although supply constraints continue to be the gating factor. With additional supply capacity expected beginning in the later part of this year, we are very optimistic about the rejuvenated growth in our oil business in the coming years. Now, let's turn to the power business. Power revenue in Q4 came in at $58.2 million, which was slightly lower than our record revenue in Q3 2021 and a solid quarterly revenue growth of 24.2% year-over-year. The overall demand for our IGBT medium voltage MOSFET and battery-fed products in the industrial and wireless application remains strong, especially our IGBT products for solar inverter demonstrated solid traction in Q4, bolstered by growing interest in alternative energy. For full year 2021, our power business delivered a record high revenue of $227.8 million, an increase of 36.8% year-over-year, driven by solid demand across Most of our product families are coupled with increased internal capacity, resulting from our timely investment in F3. Clearly, we are approaching our target ahead of our plan, and we are working to further improve F3 capacity. Xun Yang will provide more details shortly. One notable highlight for 2021 is the exciting momentum we are seeing in premium power products. Our premium product group grew remarkably in 2021 to $117.1 million from $82.5 million a year ago. Super Junction MOSFET not only maintained its solid position in Korean TV markets, but also expanded into PC power, lighting, and other industrial applications. PowerIC revenue grew over time. 60% year-over-year since the first penetration into solid-state disk-related application in 2020. IGBT revenue grew significantly driven by strong demand for renewable energy. Our go-to-market strategy, efficient R&D, and timely investment in Fab 3 led us to achieve record quarterly revenues three quarters in a row during 2021, and also accelerated development and introduction of new products. In summary, we will continue to execute the growth plan of our power business by strengthening FAT3 productivity and introducing new products with superior performance and improved costs, which we expect will further drive healthy growth for many years. Before I turn the floor over to Xinyang, I will take a few minutes to comment on our capital allocation plan. Given our current business condition, our near-term cash use is focused on three areas. First, we target to maintain $100 million-plus cash on the balance sheet. This is mainly for working capital, but it also reflects our customers' desire to see a solid cash balance. As we have already demonstrated, we are committed to share the return. In December 2021, our board authorized a $75 million stock repurchase program. Three, the remainder of the cash on our balance sheet will be allocated for flexible optionality. At the present time, we believe that supply is the fundamental limiter of our potential growth. Therefore, enhancing our supply chain is currently deemed one of the imminent capital allocation options. Possible options include, but not limited to, securing additional 20 nanometer manufacturing capacity and locking in multi-year long-term supply agreements, which typically requires strong commitments from us and our customers, including prepayments. We are also expanding additional manufacturing capacity at Fab Street, for our power business to address continuously increasing demand. In conclusion, we're expanding our customer base, penetrating new applications. Our ability to supply is anticipated to improve in the later part of this year. While our near-term outlook is still being challenged by persisting supply constraints, we expect OLED revenue to be flat to slightly up in 2022 compared to 2021, with significant growth coming during the later part of the year. As a whole company, we expect modest revenue increase in 2022 driven by the OLED recovery as well as decent growth in our power business. Recent developments and critical milestones we have achieved reinforce our confidence and optimism about our long-term growth. Now, I will turn the call over to Sinyoung and come back for the Q&A session. Sinyoung?

Thank you, IJ, and welcome to everyone on the call. Let's start with key financial metrics for the full year 2021 in Q4. Revenue in 2021 was $474.2 million, down 6.5% from 2020. The decrease was primarily due to a decrease in revenue from our OLED DDIC products stemming from a continued severe supply shortage which was offset in part by strong revenue growth from our power business. Display business revenue was $205.3 million, down 31.3% from 2020, whereas power business revenue was up 36.8% from 2020 to $227.8 million. Power business revenue growth was driven by solid demand across most product families, coupled with increased internal capacity, resulting from our timely investment in Web3. Despite the decline in revenue year-over-year, due mainly to the global shortage in manufacturing capacity, gross profit margin in 2021 improved 710 basis points year-over-year to reach 32.4%, which flowed through to non-GAAP metrics of adjusted operating income, adjusted net income, and adjusted EBITDA, all of which improved year-over-year as highlighted by Y.J. earlier. Our non-GAAP diluted earnings per share was $1.09 in 2021, up from 73 cents in 2020. Now turning to Q4 reserves. Total revenue in Q4 was $110.3 million, down 13.1% from Q3, and down 22.8% from Q4 a year ago. Revenue from the standard product business was $99.5 million, down 15.2% from Q3, and down 23.2% from the same quarter a year ago. Both the sequential and year-over-year decrease was driven mainly by a significant decrease in revenue from our OLED products due to the previously mentioned supply shortage. Power revenue in Q4 was $58.2 million, down 1.1 percent sequentially, but up 24.2 percent year-over-year, despite the fact that Q4 usually is a seasonally soft quarter. The significant increase year-over-year was due to strong demand across most product families, as well as from the increased internal capacity at our factory. Gross profit margin in Q4 was 35 percent, down 170 basis points from Q3, but up 810 basis points from Q4 a year ago. The year-over-year increase was attributable to an improved product mix combined with an increase in average selling price under a favorable pricing environment and a higher utilization rate of Web3. In Q3 2021, Gross profit margin was favorably impacted by the shipment of certain products that were manufactured at a lower cost in the previous quarter. The higher gross profit margin combined with the higher revenue resulted in a significant improvement in all profitability metrics in Q3. Now turning to operating expenses. SG&A in Q4 was $13.3 million as compared to $12.6 million in Q3 and $12.6 million in Q4 last year. R&D in Q4 was $20.2 million as compared to $12.3 million in Q3 and $11.6 million in Q4 last year. Stock compensation charges included in operating expenses were $1.6 million in Q4, $1.9 million in Q3, and $1.9 million in Q4 2020. In Q4, our operating income of $63.9 million included net gain of $49.4 million that represented income of $70.2 million from the recognition of a reverse termination fee, net of professional service fees and expenses incurred in connection with a contemplated merger transaction of the company that was terminated in December 2021. Of that $70.2 million, we received $51 million in cash in December 2021, and the remaining $19.2 million is expected to be received by the end of March 2022. This remaining portion was recorded as other receivables on our balance sheet as of December 31, 2021. Adjusted operating income in Q4 was $14.4 million, down from $22.7 million in Q3, down from $15.4 million in Q4 a year ago. Adjusted EBITDA in Q4 was $18.1 million, down from $26.4 million in Q3, and down from $18.6 million in Q4 a year ago. The sequential decline in these non-GAAP metrics was primarily attributable to the higher than usual gross profit in Q3 as explained above. Net income in Q4 was $53.6 million as compared with $10.8 million in Q3 and $66.6 million in Q4 a year ago. The sharp sequential increase in Q4 in 2021 was due primarily to the recognition of income from the $70.2 million reverse termination fee discussed earlier. As a reminder, net income in Q4 2020 was favorably impacted by the recognition of income tax benefits of $47.1 million, primarily from recognizing differences between GAAP and cash tax expense of $43.9 million. Our GAAP diluted earnings per share in Q4 was $1.12 as compared with $0.23 in Q3 and $1.45 in Q4 a year ago. Our non-GAAP diluted earnings per share in Q4 was $0.31, down from $0.42 in Q3, down from $0.40 in Q4 last year. The difference between our GAAP and non-GAAP EPS in Q4 this year was primarily due to the elimination of income from the $70.2 million reverse termination fee and related professional service fees and expenses and income tax effect in connection with these non-GAAP adjustments, relating to the contemplated merger transaction of the company that was terminated in December 2021. There were 47.7 million shares outstanding in Q4, calculated on a diluted weighted average basis. On December 21, 2021, our board authorized the repurchase of up to $75 million of the company's stock And as an immediate step, we entered into a $37.5 million accelerated stock repurchase agreement and received an initial delivery of 994,695 shares under the agreement. Our stock flyback under the accelerated stock repurchase agreement expected to be completed by the end of March 2022. Now moving to the balance sheet. Cash was $279.5 million at the end of Q4. This compares to $276.3 million at the end of Q3 and $279.9 million at the end of 2020. During Q4, we received $51 million out of the $70.2 million reverse termination fee and spent merger-related expenses of about $14 million. We also used $37.5 million of our cash to enter into the accelerated stock repurchase program that I just mentioned. Account receivable net totaled $51 million, a decrease of 3% from Q3. Our day sales outstanding for Q4 was 42 days. Inventories net totaled $39.4 million, an increase of 1.5% from Q3. Our average days in inventory for Q4 was 50 days. CapEx was $18.8 million in Q4. CapEx of $32.2 million in 2021 included approximately $70 million of one-time investments for our factory, which came lower than the previously disclosed CapEx plan as a result of our cost reduction efforts in negotiating better pricing terms. As YJ mentioned earlier, while we are approaching our target capacity of FF3 ahead of our plan, the demand for our power products has been outstripping our internal capacity. In 2022, we'll invest about $8 million for special capex to further improve FF3 capacity within an expected payback period of less than two years. Excluding this special capex, Our normalized capex for 2022 is expected to be at around 4% of total revenue. Now moving to the first quarter guidance. Our near-tomorrow look is still being challenged by persisting supply constraints. While actual results may vary, looking into the next quarter, which typically presents seasonal softness, MAGNACHIP anticipates Q1 2022 to be the bottom and currently expects Revenue to be in the range of $102 million to $108 million, including about $9 million of transitional factory foundry services. Gross profit margin to be in the range of 34.5% to 36.5%. With that, I'll turn the call over to Soyeon. Soyeon? Thank you, YJ. Thank you, Sinyoung.

So, operator, this concludes our prepared remarks, and we'll now open the call for questions.

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then 1 on your touchtone telephone. Again, to ask a question, please press star then 1. One moment for our first question. Our first question comes from Raji Gill of Needham & Company. Your line is open.

Yes, thank you, and thanks for all the insight on the quarter and what you kind of expect throughout the year. Y.J., on the supply constraint issue affecting your OLED revenue, you mentioned, and you and Xinyang mentioned, that Q1 will be the bottom in terms of your overall revenue and OLED revenue specifically. I'm wondering how the capacity that's coming online from this new partnership, how that will flow throughout the year. Are we expecting more supply coming online in the third and fourth quarter to match the revenue ramp? Are you confident that you're going to match the timing between the new supply coming online and you ramp it with OLED with the new non-Korean panel maker. It's really more about the cadence and timing of the demand and supply.

Yes, Raj, thanks for the question. I think we gave kind of a framework. As you know, we only comment one quarter at a time, but we wanted to give some framework to all so that you have a kind of understanding and So, yes, we are bringing a new 20-nanometer foundry, and usually when you bring a new 20-nanometer foundry, you will go through typical e-learning curves. So we are currently being cautious, so that's why we're saying that we expect the revenue to start towards the later part of the year, and I think we'll give you more clarity in the future second quarter, but we are associating the typical e-learning curve bring a new foundry and the process, but we are very excited about this additional foundry partnership as well as the new customer that's very world class and that's outside Korea. So we expect, based on supply constraints, we frame that the OLED revenue be flat to up and the, I think, power to grow more than the market. And so that's what we see.

Okay. So that implies a pretty big ramp in OLED in the second half. So I would assume by that time, third or fourth quarter, you would have been, you know, overcome some of the learning curves in terms of bringing the capacity. How do we think about the gross margins? Because the gross margins have really been really good the last few quarters, and you're guiding it to 35.5% at the midpoint. When more supply comes online from this new foundry, how would that affect your margins, if at all? Maybe talk quickly about the pricing environment. Is that affecting your margins positively? What about the mix shift within power to premium power? Because the margins have been moving up despite some of the revenue declines in OLED.

Yeah, so we are continuing to work on the high-value, high-margin products. So that's how we've done it. in lieu of the shortages. Also, when you bring the new process, again, we'll go through yield learning curve. So initially, we've been cautious. We think that will have, you know, impact on the margin. So that's already baked into our forecast. So, again, we will let you know how it progresses. But right now, I think it's best to put some conservative cautious, because when you bring a new foundry, a new process, there's an yield learning curve. Okay. Thank you.

Thank you. Our next question comes from Suzy DeSilva of Roth Capital. Your line is open.

Hi, YJ. Hi, Shin Young. So maybe perhaps a quick follow-up on Roger's question on gross margin. What was the impact on the sale of written-off product in this quarter?

It was just regular. There's not really the particular, the special kind of write-off that we took. I see. In QR. So it's just a regular quarter in the normal. Okay.

It happens periodically. Okay. And then... YJ or Sinyoung, the comment about 1Q22 being the bottom, can you just talk about the two or three key elements that give you the confidence to say that going forward at this point? Because it sounds like the foundry capacity, the new foundry won't be coming on until the end of the year, so I'm just curious on the comments behind that.

Yes, so there are a couple of points. On the power side, as Sinyoung mentioned, we are putting special 8-million-dollar CapEx, so The goal is to bring that additional capacity within six months. And we will work on the productivity in the second quarter so forth to get more productivity. On the OLED side, as you said, we said we're expecting more new products. foundry coming online in the later part of this year. So right now, the projection is based on supply constraints, and the demand is still higher than what we can supply.

Okay, fantastic. And then the new non-Korean OLED customer, can you talk about what the timeframe for that turning into material revenue is just to understand how far off? that would be as an incremental element to your revenue?

So, again, so we are, you know, I think we said that the OLED revenue will be flat to up than last year. So that kind of gives you what may happen in the second part of the year, and that will coincide with our new foundry as well as new customer coming online.

Okay. Thanks for that call, Y.J. Thanks, Y.J. Thanks for now.

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then 1 on your touchtone telephone. Again, to ask a question, please press star then 1.

One moment, please.

Our next question comes from Andrew Northcutt of Oppenheimer & Co. Your line is open. Andrew Northcutt All right.

Thanks for taking the question. This is Andrew Northcutt still again for Martin Yang. Just one question for you. You know, when you're thinking about the quarterly revenue, how are you thinking about the seasonality for 2022, and how does that tie compared to 2021?

Martin Yang Well, I think we are just saying that the seasonality is there. Typically, but right now our revenue is actually limited by the supply constraints. So the curve is actually limited by the supply constraint rather than the seasonality. But normally our pattern has been Q3 in the peak, Q4 down, and Q1 down, and go up in Q2, Q3s. But that's not normal seasonality. But right now, our revenue has been kept by the supply constraints on both OLED and power side.

Got it. Thank you so much.

Thank you. This does conclude our call today. I'd like to turn the call back over to management for any closing remarks.

Thank you, Operator. This concludes our fourth quarter 2021 earnings conference call. Please look for details of our future events on MagnetChip's investor relations website. Thank you for joining us today. Goodbye.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day. THE END

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Thank you for standing by and welcome to the Q4 2021 Magnet Chip Semiconductor Corporation Earning Conference Call. At this time, all participants are on listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question at that time, please press star then one on your touchtone telephone. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host, Ms. Sue Johns. Ma'am, you may begin.

Thank you. Hello, everyone. Thank you for joining us to discuss MagnaChip's financial results for the fourth quarter ended December 31st, 2021. The fourth quarter earnings release that was filed today after the stock market closed can be found on the company's investor relations website. A telephone replay of today's call will be available shortly after completion of the call, and the webcast will be archived on our website for one year. Access information is provided in the earnings press release. Joining me today are Y.J. Kim, Magna Chief Executive Officer, and Shin Young Park, our Chief Financial Officer. Y.J. will discuss the company's recent and annual operating performance and business overview, and Shin Young will review financial results for the quarter and the year and provide guidance for the first quarter of 2022. There will be a Q&A session following the prepared remarks. During the course of this conference call, we may make forward-looking statements about Magna Chips business outlook and expectations. Our forward-looking statements and all other statements that are not historical facts reflect our beliefs and predictions as of today, and therefore are subject to risks and uncertainties as described in the Safe Harbor Statement found in our SEC filings. During the call, we also will discuss non-GAAP financial measures. The non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate an alternative measure of MedinaCHIP's operating performance that may be useful. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our fourth quarter earnings release, available on our website under the Investors section at www.magnachip.com. I now will turn the call over to Y.J. Kim. Y.J.?

Hello, everyone. Thank you for joining our call today. For the first quarter earnings, The demand and signals from our customers remain strong across the board. However, severe supply constraints continue to significantly limit our OLD revenue potential, which was partially upset by our stronger power business. We reported $110.3 million in revenue and $0.31 in non-GAAP diluted EPS. Our revenue decreased 13.1% sequentially and 22.8% year-over-year as a result of the supply constraints. The shortage was felt more severely for 28-nanometer 12-inch wafers, where we have been producing most of our new OLED products, winning numerous designs and rapidly expanding market share in the past few years. Case in point, the revenue from 28 nanometer products grew 80% to $174 million in 2021 from $97 million in 2020, representing 90% of the total OLED revenue in 2021 as compared to only 34% in 2020. The successes of our 28-nanometer product line has been and we expect will continue to be one of the critical growth enablers for us. Unfortunately, a severe shortage of 28-nanometer OLED wafers adversely affected our OLED business as a major limiting factor, adding tremendous pressure to an already difficult supply environment. Fortunately, we enhanced our supply chain for an additional 20 nanometer capacity last year, which we expect will start to come online in the later part of this year. Looking at the full year, while our revenue for 2021 declined 6.5% year-over-year due to the wafer supply shortage, partially offset by outstanding growth in our power business, I am pleased that we delivered solid profitability for the full 2021 year. Gross profit margin reached 32.4%, representing an increase of 710 basis points from 2020. Adjusted operating income margin increased to reach 11.8% of total revenue from 8.2% in 2020. Adjusted net income was 10.8% of total revenue versus 5.6% from the year before, and adjusted EBITDA also grew to $70.7 million from $52.9 million in 2020. 2021 has certainly presented its share of unique challenges for us. However, our team steadfastly pressed forward with our plan to achieve not only healthy profitability, but also critical milestones to fuel future growth, upon which I will elaborate shortly. I deeply appreciate every magnitude team member for their unwavering commitment and dedication. I'm most grateful that we could achieve solid results while protecting and safeguarding our employee health and safety amidst the global COVID-19 pandemic. Now, let's move to a detailed review of our product business, starting with the OLED business. OLED revenue in Q4 was $37.7 million, down 31.8% sequentially. and down 53.1% from our historical record revenue level in Q4 2020. Against severe supply constraints, we have been protecting our profitability by strategically focusing on high-value, high-margin design activities, including the newly launched flagship smartphone model of a major smartphone OEM. Also, revenue from 5G smartphones and high frame rate products continue to represent over 93% of our 2021 OLED revenue. Turning to the full year review, OLED revenue was $192.8 million, down 32.3% year-over-year, as we unfortunately had to forego some demand. our demand was more than 50% higher than what we shipped in 2021. However, I am pleased to report some critical milestones that we achieved. One, we have successfully broadened our customer base to include a top-tier panel maker outside Korea. Initial revenue is expected to start in the later part of this year. We are well aligned with top tier panel makers in the world and positioned to benefit from increasing OLED adaption in multiple countries. Two, we enhanced our supply chain for additional 20 nanometer manufacturing capacity, which is expected to come online in the later part of this year. In addition, we are in discussions with our foundry partners regarding a multi-year supply agreement in order to secure long-term capacity. We have also been working on MOUs and supply agreements with key customers, some of which have been already signed. Three, we are expanding into new areas. We have successfully commenced initial mass production of OLED TV DDIC during the fourth quarter, and we continue to expand our large distribution display OLED TV business by addressing next-gen premium TVs with micro-LED technology. We used to have over 30% market share in TV application with LCD DDIC with a particular vendor during peak times before we strategically defocused from the business a few years ago. In addition, we are also expanding our OLED DDIC product lineup for automotive display applications. In summary, our OLED business is winning new customers and expanding into new applications. The demand from our current customers is strong. In fact, we are getting numerous RFQs from Korean panel makers, although supply constraints continue to be the gating factor. With additional supply capacity expected beginning in the later part of this year, We are very optimistic about the rejuvenated growth in our oil business in the coming years. Now, let's turn to the power business. Power revenue in Q4 came in at $58.2 million, which was slightly lower than our record revenue in Q3 2021, and a solid quarterly revenue growth of 24.2% year-over-year. The overall demand for our IGBT, medium-voltage MOSFET, and battery-fed products in the industrial and wireless application remain strong. Especially our IGBT products for solar inverter demonstrated solid traction in Q4, bolstered by growing interest in alternative energy. For full year 2021, our power business delivered a record high revenue of $227.8 million. an increase of 36.8% year-over-year. Driven by solid demand across, most of our product families are coupled with increased internal capacity, resulting from our timely investment in FAT3. Clearly, we are approaching our target ahead of our plan, and we are working to further improve FAT3 capacity. Shin Young will provide more details shortly. One notable highlight of for 2021 is the exciting momentum we are seeing in premium power products. Our premium product group grew remarkably in 2021 to $117.1 million from $82.5 million a year ago. Super Junction MOSFET not only maintained its solid position in Korean TV markets, but also expanded into PC power, lighting, and other industrial applications. PowerIC revenue grew over 60% year-over-year since the first penetration into solid-state disk-related application in 2020. IGBT revenue grew significantly driven by strong demand for renewable energy. Our go-to-market strategy, efficient R&D, and timely investment in Fab 3 led us to achieve record quarterly revenues three quarters in a row during 2021. and also accelerated development and introduction of new products. In summary, we will continue to execute the growth plan of our power business by strengthening FAT3 productivity and introducing new products with superior performance and improved costs, which we expect will further drive healthy growth for many years. Before I turn the floor over to Xinyang, I will take a few minutes to comment on our capital allocation plan. Given our current business condition, our near-term cash use is focused on three areas. First, we target to maintain $100 million-plus cash on the balance sheet. This is mainly for working capital, but it also reflects our customers' desire to see a solid cash balance. As we have already demonstrated, we are committed to share the return. In December 2021, our board authorized a $75 million stock repurchase program. Three, the remainder of the cash on our balance sheet will be allocated for flexible optionality. At the present time, we believe that supply is the fundamental limiter of our potential growth. Therefore, enhancing our supply chain is currently deemed one of the imminent capital allocation options. Possible options include, but not limited to, securing additional 20 nanometer manufacturing capacity and locking in multi-year long-term supply agreements, which typically requires strong commitments from us and our customers, including prepayments. We are also expanding additional manufacturing capacity at FAP3, for our power business to address continuously increasing demand. In conclusion, we're expanding our customer base, penetrating new applications. Our ability to supply is anticipate to improve in the later part of this year. While our near-term outlook is still being challenged by persisting supply constraints, we expect OLED revenue to be flat to slightly up in 2022 compared to 2021, with significant growth coming during the later part of the year. As a whole company, we expect modest revenue increase in 2022 driven by the OLED recovery as well as decent growth. in our power business. Recent developments and critical milestones we have achieved reinforce our confidence and optimism about our long-term growth. Now, I will turn the call over to Sinyoung and come back for the Q&A session. Sinyoung?

Thank you, IJ, and welcome to everyone on the call. Let's start with key financial metrics for the full year 2021 in Q4. Revenue in 2021 was $474.2 million, down 6.5% from 2020. The decrease was primarily due to a decrease in revenue from our OLED DDIC products, stemming from a continued severe supply shortage, which was offset in part by strong revenue growth from our power business. Display business revenue was $205.3 million, down 31.3 percent from 2020, whereas power business revenue was up 36.8 percent from 2020 to $227.8 million. Power business revenue growth was driven by solid demand across most product families, coupled with increased internal capacity, resulting from our timely investment in Web3. Despite the decline in revenue year-over-year due mainly to the global shortage in manufacturing capacity, gross profit margin in 2021 improved 710 basis points year-over-year to reach 32.4%, which flowed through to non-GAAP metrics of adjusted operating income, adjusted net income, and adjusted EBITDA, all of which improved year-over-year as highlighted by YJ earlier. Our non-GAAP diluted earnings per share was $1.09 in 2021, up from $0.73 in 2020. Now turning to Q4 reserves. Total revenue in Q4 was $110.3 million, down 13.1 percent from Q3, and down 22.8 percent from Q4 a year ago. Revenue from the Standard Proc business was $99.5 million, down 15.2% from Q3, and down 23.2% from the same quarter a year ago. Both the sequential and year-over-year decrease was driven mainly by a significant decrease in revenue from our OLED products due to the previously mentioned supply shortage. Power revenue in Q4 was $58.2 million, down 1.1% sequentially, but up 24.2% year-over-year despite the fact that Q4 usually is a seasonally soft quarter. The significant increase year-over-year was due to strong demand across most product families, as well as from the increased internal capacity at our factory. Gross profit margin in Q4 was 35%, down 170 basis points from Q3, but up 810 basis points from Q4 a year ago. The year-over-year increase was attributable to an improved product mix combined with an increase in average selling price under a favorable pricing environment and a higher utilization rate of Web3. In Q3 2021, gross profit margin was favorably impacted by the shipment of certain products that were manufactured at a lower cost in the previous quarter. The higher gross profit margin combined with the higher revenue resulted in a significant improvement in all profitability metrics in Q3. Now turning to operating expenses. SG&A in Q4 was $13.3 million as compared to $12.6 million in Q3 and $12.6 million in Q4 last year. R&D in Q4 was $20.2 million as compared to $12.3 million in Q3 and $11.6 million in Q4 last year. Stock compensation charges included in operating expenses were $1.6 million in Q4, $1.9 million in Q3, and $1.9 million in Q4 2020. In Q4, Our operating income of $63.9 million included net gain of $49.4 million that represented income of $70.2 million from the recognition of a reverse termination fee, net of professional service fees and expenses incurred in connection with a contemplated merger transaction of the company that was terminated in December 2021. Of that $70.2 million, we received $51 million in cash in December 2021, and the remaining $19.2 million is expected to be received by the end of March 2022. This remaining portion was recorded as other receivables on our balance sheet as of December 31, 2021. Adjusted operating income in Q4 was $14.4 million, down from $22.7 million in Q3, down from $15.4 million in Q4 a year ago. Adjusted EBITDA in Q4 was $18.1 million, down from $26.4 million in Q3, and down from $18.6 million in Q4 a year ago. The sequential decline in these non-GAAP metrics was primarily attributable to the higher than usual gross profit in Q3 as explained above. Net income in Q4 was $53.6 million as compared with $10.8 million in Q3 and $66.6 million in Q4 a year ago. The sharp sequential increase in Q4 in 2021 was due primarily to the recognition of income from the $70.2 million reverse termination fee discussed earlier. As a reminder, net income in Q4 2020 was favorably impacted by the recognition of income tax benefits of $47.1 million, primarily from recognizing differences between GAAP and cash tax expense of $43.9 million. Our GAAP diluted earnings per share in Q4 was $1.12 as compared with $0.23 in Q3 and $1.45 in Q4 a year ago. Our non-GAAP diluted earnings per share in Q4 was $0.31, down from $0.42 in Q3, down from $0.40 in Q4 last year. The difference between our GAAP and non-GAAP EPS in Q4 this year was primarily due to the elimination of income from the $70.2 million reverse termination fee and related professional service fees and expenses and income tax effect in connection with these non-GAAP adjustments, relating to the contemplated merger transaction of the company that was terminated in December 2021. There were 47.7 million shares outstanding in Q4, calculated on a diluted weighted average basis. On December 21, 2021, our board authorized the repurchase of up to $75 million of the company's stock And as an immediate step, we entered into a $37.5 million accelerated stock repurchase agreement and received an initial delivery of 994,695 shares under the agreement. Our stock flyback under the accelerated stock repurchase agreement expected to be completed by the end of March 2022. Now moving to the balance sheet. Cash was $279.5 million at the end of Q4. This compares to $276.3 million at the end of Q3 and $279.9 million at the end of 2020. During Q4, we received $51 million out of the $70.2 million reverse termination fee and spent merger-related expenses of about $14 million. We also used $37.5 million of our cash to enter into the accelerated stock repurchase program that I just mentioned. Account receivable net totaled $51 million, a decrease of 3% from Q3. Our day sales outstanding for Q4 was 42 days. Inventories net totaled $39.4 million, an increase of 1.5% from Q3. Our average days in inventory for Q4 was 50 days. CapEx was $18.8 million in Q4. CapEx of $32.2 million in 2021 included approximately $70 million of one-time investments with our factory, which came in lower than the previously disclosed CapEx plan as a result of our cost reduction efforts in negotiating better pricing terms. As Y.J. mentioned earlier, while we are approaching our target capacity of F3 ahead of our plan, the demand for our power products has been outstripping our internal capacity. In 2022, we'll invest about $8 million for special capex to further improve F3 capacity with an expected payback period of less than two years. Excluding this special capex, our normalized capex for 2022 is expected to be at around 4% of total revenue. Now moving to the first quarter guidance, our near-term outlook is still being challenged by persisting supply constraints. While actual results may vary, looking into the next quarter, which typically presents seasonal softness, magnitude anticipates Q1 2022 to be the bottom and currently expects Revenue to be in the range of $102 million to $108 million, including about $9 million of transitional factory foundry services. Gross profit margin to be in the range of 34.5% to 36.5%. With that, I'll turn the call over to Soyeon. Soyeon? Thank you, YJ. Thank you, Sinyoung.

So operator, this concludes our prepared remarks, and we'll now open the call for questions.

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then 1 on your touchtone telephone. Again, to ask a question, please press star then 1. One moment for our first question. Our first question comes from Raji Gill of Needham & Company. Your line is open.

Thank you, and thanks for all the insight on the quarter and what you kind of expect throughout the year. YJ, on the supply constraint issue affecting your OLED revenue, you mentioned, and you and Shiyoung mentioned, that Q1 will be the bottom in terms of your overall revenue and OLED revenue specifically. I'm wondering how the capacity that's coming online, you know, from this new partnership, how that will kind of flow throughout the year. Are we expecting, you know, more supply coming online in the third and fourth quarter? And then, you know, to match the revenue ramp? And are you kind of confident that you're going to match the timing between the new supply coming online and and you ramp it with OLED with the new non-Korean panel maker. It's really more about the cadence and timing of the demand and supply.

Yes, Raj, thanks for the question. I think we gave kind of a framework. As you know, we only comment one quarter at a time, but we wanted to give some framework to all so that you have a kind of understanding and So, yes, we are bringing a new 20 nanometer foundry. And usually when you bring a new 20 nanofoundry, you will go through typical e-learning curves. So we are currently being cautious. So that's why we're saying that we expect the revenue to start towards the later part of the year. And I think we'll give you more clarity in the future second quarter, but we are associating the typical e-learning curve bring a new foundry and the process, but we are very excited about this additional foundry partnership as well as the new customer that's very world class and that's outside Korea. So we expect, based on supply constraints, we frame that the OLED revenue be flat to up and the, I think, power to grow more than the market. And so that's what we see.

Okay. So that implies a pretty big ramp in OLED in the second half. So I would assume by that time, third or fourth quarter, you would have been, you know, overcome some of the learning curves in terms of bringing the capacity. How do we think about the gross margins? Because the gross margins have really been really good the last few quarters, and you're guiding it to 35.5 percent at the midpoint. When more supply comes online from this new foundry, how would that affect your margins, if at all? Maybe talk quickly about the pricing environment. Is that affecting your margins positively? What about the mix shift within power to premium power? Because the margins have been moving up despite some of the revenue declines in OLED.

Yeah, so we are continuing to work on the high-value, high-margin products. So that's how we've done it. in lieu of the shortages. Also, when you bring the new process, again, we'll go through a yield learning curve. So initially, we've been cautious. We think that will have, you know, impact on the margin. So that's already baked into our forecast. So, again, we will let you know how it progresses. But right now, I think it's best to put some conservative cautious, because when you bring a new foundry, a new process, there's a yield learning curve. Okay, thank you.

Thank you. Our next question comes from Suzy DeSilva of Roth Capital. Your line is open.

Hi, YJ. Hi, Shin Young. So maybe perhaps a quick follow-up on Raji's question on gross margin. What was the impact on the sale of written-off product in this quarter?

It was just regular. There's not really the particular, the special kind of write-off that we took. I see. In QR. So it's just a regular quarter in the normal circumstances.

Okay. It happens periodically. Okay. And then... YJ or Xinyoung, the comment about 1Q22 being the bottom, can you just talk about the two or three key elements that give you the confidence to say that going forward at this point? Because it sounds like the foundry capacity, the new foundry won't be coming on until the end of the year, so I'm just curious on the comments behind that.

Yes, so there are a couple of points. On the power side, as Xinyoung mentioned, we are putting special 8 million of CapEx, so The goal is to bring that additional capacity within six months. And we will work on the productivity in the second quarter so forth to get more productivity. On the OLED side, as you said, we said we're expecting more new products. foundry coming online in the later part of this year. So right now, the projection is based on supply constraints, and the demand is still higher than what we can supply. Okay, fantastic.

And then the new non-Korean OLED customer, can you talk about what the timeframe for that turning into material revenue is to understand how far off? that would be as an incremental element to your revenue?

So, again, so we are, you know, I think we said that the OLED revenue will be flat to up than last year. So that kind of gives you what may happen in the second part of the year, and that will coincide with our new foundry as well as new customer coming online.

Okay. Thanks for that call, Y.J. Thanks, Y.J. Thanks for now.

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then 1 on your touchtone telephone. Again, to ask a question, please press star then 1.

One moment, please.

Our next question comes from Andrew Northcutt of Oppenheimer & Co. Your line is open.

Andrew Northcutt All right, thanks for the question. This is Andrew Northcutt still again for Martin Yang. Just one question for you. You know, when you're thinking about the quarterly revenue, how are you thinking about the seasonality for 2022 and how does that tie compared to 2021?

Martin Yang Well, I think we are just saying that the seasonality is there. Typically, but right now our revenue is actually limited by the supply constraints. So the curve is actually limited by the supply constraint rather than the seasonality. But normally our pattern has been Q3 in the peak, Q4 down, and Q1 down, and go up in Q2, Q3s. But that's not normal seasonality. But right now, our revenue has been kept by the supply constraints on both OLED and power side.

Got it. Thank you so much.

Thank you. This does conclude our call today. I'd like to turn the call back over to management for any closing remarks.

Thank you, operator. This concludes our fourth quarter 2021 earnings conference call. Please look for details of our future events on MagnetChip's investor relations website. Thank you for joining us today. Goodbye.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.