Magnachip Semiconductor Corporation

Good day, and thank you for standing by. Welcome to the Q1 2022 Magnet Chip Semiconductor Corporations Earnings 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 a question during that session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any assistance during the calls, please press star zero. I would now like to hand the conference over to your speaker today, Ms. Soyoung Jung. Ms. Jung, the floor is yours.

Operator, thank you everyone for joining us to discuss Medina Chip's financial results for the first quarter ended March 31st, 2022. The first quarter earnings release that was filed today after the stock market closed can be found on our investor relations website. A telephone replay of today's call will be available shortly after the 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 operating performance and business overview, and Xinyang will review financial results for the quarter and provide guidance for the second 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 MagnaCHIP's 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 filing. 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 MagnaCHIP's operating performance that may be useful. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures can be found in our first quarter earnings release available on our website under the Investors section at www.magnachip.com. I now will turn the call over to YJ Kim. YJ?

Hello, everyone. Thank you for joining our call today. To begin, I'd like to quickly touch on our Q1 consolidated results and then give an update on some challenges we are seeing in the broader macro environment. After that, I will provide a detailed review of our business segments. In Q1, we reported revenue of $104.1 million in a severely supply-constrained environment. This, along with strong gross profit margin, generated a non-GAAP EPS of $0.28, which was an increase of 27% year-over-year. While it is good to see the healthy bottom line bolstered by improved gross margin, I am still disappointed with these results because it doesn't represent the full potential of this company. As we approach the end of Q1, we are optimistic that we would begin to see incremental improvements in business condition for the rest of the year. However, the ongoing lockdowns in China have added new challenges to an already stressed supply chain to both of our businesses. We want to take a cautious stance for the near term despite recent positive momentum, which I will go over in detail. Moving on to a detailed review of our Q1 results by product segments starting with OLED. Our OLED revenue in Q1 was $26.1 million, down 30.7% sequentially and down 53.1% year-over-year. As expected, Severe shortages in 28-nanometer 12-inch wafer capacity where we produce most of our new OLED products continue to significantly impact our results. However, we remain focused on supporting our existing customers, winning new business, or additional capacity plans to set ourselves up for a strong recovery. First, Our dedicated customer support and engineering teams are working closely with the top-tier panel maker in Korea to initiate and support two OLED drive IC projects, which we expect to kick off this month. Second, as mentioned last quarter, we successfully broadened our customer base to include a top-tier panel maker outside Korea. In Q1, we worked very closely with this customer and successfully taped out the first project in February. This product is expected to greatly contribute to our revenue in the later part of this year. Further, we have engaged in design and discussions for additional new projects with this customer. Our additional 28 nanometer manufacturing capacity remains on track to come online in the later part of this year. While we expect to go through a typical e-learning curve during the initial phase of production ramp, we expect yields to improve over 2023. In addition, we are in active discussions with our foundry partners regarding a multi-year supply agreement to secure long-term capacity and expect to have an update for you in a couple of months. Finally, in terms of our new business areas, we successfully ramped mass production of our new OLED TV drive IC product line during the quarter and saw strong revenue growth for the large display OLED TV market. While still small, we are optimistic about the growth potential for this business. For OLED automotive display applications, we added an additional customer design win during the quarter with a premium European automaker for their center stack display and the initial mass production is scheduled for the first half of 2023 based on our customer's current plan. In summary, our OLED business is winning new customers and expanding into newer applications. With additional supply capacity expected to ramp up in the later part of this year and progress with our LTA supply agreements, we are very optimistic about the growth in our OLED business in the future, particularly when our newly designed products at the leading Korean customer and new major customers outside of Korea are expected to go into full production with our newly added capacity. For Q2, we anticipate our OLED business revenue to be flat to slightly up, primarily as capacity level remains about the same. Now, let's turn to the power business. I'm excited to report that we achieved the highest revenue in company history in a single quarter, primarily driven by strong demand for our premium power products, as well as battery fats products. Our power business revenue in Q1 was $64.8 million, up 11.4% sequentially and 20% year-over-year. These results were driven by very strong demand for our premium products, particularly our Super Junction MOSFET, Power IC, and IGBT product lines. which grew 19.5% sequentially and 25.1% year-over-year to a record high 53.6% revenue mix. In addition, battery fats that support world's leading portable smartphones, earphones, and tablets demonstrated strong growth. We are extremely excited about the continued momentum and growth in our power business in 2020. key end markets like communication, consumer, industrial, and computing, all driven by the trend in electrification of everything. In our Super Junction MOSFET product line, we are seeing robust demand from TV, PC power, and lightning applications due to increasing energy efficiency requirements. In Q1, we had strong traction with new designs and TVs, and LED lighting, as well as share gains in laptops and gaming. For Power IC, we began ramping shipment of our Boost ICs for solid-state disks for servers and data centers. In our IGBT product line, revenue grew about 60% year-over-year, driven by our entry into renewable energy and market, particularly solar inverter applications. Our go-to-market strategy, efficient R&D, and timely investment in FAT3 led to us to achieve record quarterly revenue once again and also accelerated development and introduction of new products. One notable achievement for the quarter was that we successfully expanded the automotive design pipeline with our new high-performance medium-voltage MOSFET product for brushless direct current motor applications. We received a purchase order for our new 40V MV MOSFET from a Tier 1 automotive supplier for major car manufacturers and started mass production in April. We also kicked off more MV products for multiple automotive applications. This is an additional win aside from the original automotive power project that we announced previously. Our original automotive power project is progressing well. The qualification and design activities are moving along with the end customer schedule. We expect the initial mass production to start in the second half of 2023 based on our customer's current plan. During the quarter, we also added another new product, to our power supply family with the announcement of high-performance synchronous boost converter that can be used in a variety of applications for SSDs, OLED panels, and Bluetooth speakers. This boost converter provides strong circuit protection capabilities and allows for smaller PCB board form factors in environmentally friendly packages. In summary, We'll continue to execute the growth plan of power business by strengthening factory productivity and introducing new products with superior performance and improved costs, which we expect will further drive healthy growth for many years. For Q2, we expect our power business revenue to be flat to slightly down as a result of back-end capacity constraints. due to the China lockdown. In conclusion, we are expanding our customer base, penetrating new applications, and remain focused on executing our long-term strategy. Despite macro issues and increased uncertainty, which may limit our near-term opportunity, 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 Xinyang and come back for the Q&A. Xinyang?