Magnachip Semiconductor Corporation

And thank you for standing by. Welcome to the Q3 2022 Magnet Chip Semiconductor Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. It is now my pleasure to introduce Investor Relations Representative Hi, everyone.

Thank you for joining us to discuss Magnet Chip's financial results for the third quarter ended September 30, 2022. The third quarter earnings release that was issued today after the stock market closed can be found on the company's investor relations website. The webcast replay of today's call will be archived on our website shortly afterwards. Joining me today are Y.J. Kim, Magnet Chip's Chief Executive Officer, and Shin-Yong Park, our key financial officer. YJ will discuss the company's recent operating performance and business overview. Shenyang will review financial results per quarter and provide guidance for the fourth 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 Magnet Chip'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 violence during the call we will also discuss non-gap financial measures the non-gap measures are not prepared in accordance with generally accepted accounting principles but are intended to illustrate an alternative measure of magnet chips offering performance that may be useful the reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our third quarter earnings release available on our website under the investor relations section at www.magnichip.com. I will now turn the call over to Y.J. Kim. Y.J.?

Hello, everyone. Thank you for joining us today, and welcome to MagnetChip's Q3 earnings call. First, Let me say that our hearts and prayers are with the families affected by the Halloween incident over the weekend in Seoul, and we wish you a quick recovery for all those who are injured. Moving on to our results, we closed Q3 revenue at $71.2 million. which was within the guidance range that we provided but represented a disappointing 43.9% decrease year-over-year and 29.8% decrease sequentially. This result is obviously not satisfactory. As we indicated last quarter, our second half is being severely impacted by several macro challenges that I will detail as I discuss each of our two main businesses. Beginning with our display business, Q3 revenue was $6.4 million, down 89.1% year-over-year and 77.6% sequentially. These results were primarily due to the supply shortages of 28-nanometer 12-inch OLED wafers in the second half of this year that impacted designing projects from our large panel customer in Korea, which are typically awarded in advance based on future wafer supply allocation. In addition, china covered lockdowns and the dramatic slowdown in consumer spending as a result of global inflationary pressures reduced demand for smartphones particularly in china and resulted in an oversupply of channel inventories this caused our large customer in korea to significantly reduce orders to normalize inventory levels unfortunately We believe these poor dynamics will continue in the near future, but we expect inventory levels will normalize by the middle of next year. But the global geopolitical situation and economy remains uncertain. We are focusing on executing the initiatives that are in our control and delivering a strong recovery of our display business in 2023. During Q3, we made follow-up in the following areas. First, regarding our new top-tier panel customer, last quarter we disclosed that the timing of our mass production ramp was delayed due to the customer requesting a feature change, so we had to make modifications to our product. In the beginning of October, we successfully released the new modified OLED DDIC to this customer and is now undergoing customer qualification. We anticipate this customer to complete qualification by the end of this year. However, due to the continued weak consumer service, demand and channel inventory oversupply in China, we expect the production to commence towards end of Q1 2023. While this is unfortunate, the good news is that we received a second design-in project with this large customer. We are extremely excited about this new award as it presents greater volume potential than the first project and also demonstrates our committed partnership. We expect to begin taping out this new part in November this year and begin mass production in late 2023. Over the next few years, OLED production in this region of the world is expected to more than double, so we are obviously excited about our growing relationship with this customer. Second, in September, we met several leading OLED manufacturers in this region and their interest our products are very high due to our product competitiveness and differentiated capabilities we are continuously discussing with them for our future product business opportunities third regarding our large panel customer in Korea last quarter we announced we kicked off the development of two new OLED drive IC projects with them We expect to take out one of the new projects this month and anticipate mass production by second half of next year. Finally, regarding OLD wafer capacity, with the global economic slowdown, we are seeing more wafer availability at most foundries. As a result, we are now in discussions with multiple foundries for 2023 wafer capacity, as well as locking in agreements for longer-term supply. We believe our 2023 wafer supply will be more than two times higher than 2022. In summary, our near-term OLED results are very disappointing. and we expect demand weakness to continue in the near future. However, looking forward to 2023, we remain focused on executing towards a strong recovery of our OLED business driven by a significant improvement in both wafer supply and organic demand from our top tier customers and new design wins. Now, let's turn to the power solutions business. Q3 revenue was 56.4 million, down 4.2% year-over-year and 10.4% sequentially. In line with the broader slowdown we are seeing in a global economy, particularly in consumer and markets. For example, our third quarter of revenue was affected by lower demand for TVs, e-bikes, smartphones and computing applications. Similar to our display business, we expect this self-demand environment to continue in the near term as the economy further slows due, inflationary pressures, and consumers work through the excess inventories that have built up in the channel. On a positive note, our higher margin premium tier products, remained resilient in Q3 and grew 5.8% year-over-year and 2.3% sequentially, driven by record demand for our IGBT product for industrial solar applications, which was up 80.4% year-over-year and 24.3% sequentially. We are extremely excited about this trend as the solar industry is benefiting from strong tailwinds such as rising energy prices and favorable regulatory conditions globally as the world accelerates its clean energy initiatives. In our superjunction market pipeline, we continue to see resilient demand as revenue only decreased 0.7% sequentially despite slowdown from TVs that was mostly offset from strengths in industrial applications like LED lighting due to higher energy efficiency requirements. During the quarter, we were also awarded several new design wins with our 600 and 650V super junction MOSFETs with a leading TV manufacturer and an adapter OEM. In Q3, we continued to develop new power products. In September, we introduced a new 200-volt medium voltage MOSFET that incorporates a third-generation trench technology that reduces capacitance by 50%. versus the prior generation and significantly improves energy efficiency as a result of faster switching and a higher power density. This product is able to operate in temperature between negative 55 C and 175 Celsius and is perfect for light ED motor controllers and industrial power supplies requiring high efficiency and stable power supply in various rugged conditions. To summarize, our power solution business is not immune to slowdowns in the broader economy, but we are confident our technology, diversified product portfolio, and product roadmap will help us remain resilient and recover with the market. With that said, we are cautious of the semi-cycle we are entering and are planning to reduce our 2023 capex spending by nearly 60% from 2020 levels. Shin Young will provide more details in her section. In closing, unfortunately, everyone is already too familiar with the inflationary environment that's pressuring consumer spending, not to mention the other challenges like Ukraine, trade tensions between U.S. and China, and the energy crisis in Europe. However, we have a strong balance sheet to weather this down cycle, and we continue to remain focused on executing our 2023 recovery plan. We are making progress by winning new designs with our panel customers and expanding customers, as well as revitalizing new products in both of our businesses. In addition, our OLD Wait for Capacity challenges will be resolved next year, and we are looking forward to a return to growth. Before I turn the call over to Shinya, I do want to address the U.S. Chips Act that was enacted in October. At this moment, We do not expect any direct impact on our business in connection with its policies as our product utilizes legacy technologies. Now, I'll turn the call over to Xunyong to go over Q3 results and give our Q4 guidance. Xunyong?