Magnachip Semiconductor Corporation

Good day and welcome to Magnet Chip's first quarter 2022 earnings conference call. At this time, all participants are in only mode. After the speaker's presentation, there will be a question and answer session. As a reminder, this call is being recorded. I would like to turn the call over to Yuji Zai, IR representative for Magnet Chip. You may begin.

Good afternoon, everyone. Thank you for joining us to discuss MagnetShip's financial results for the fourth quarter ended December 31st, 2022. The fourth 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, MagnetShip's 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 Shin Young will review financial results for the quarter and provide guidance in the first quarter of 2023. 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 Magnetship'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 filings. During the call, We will also 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 Magnetship's operating 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 fourth quarter earnings release available on our website under the investor relations section at www.magnetship.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 Q4 2022 earnings call. I will begin today's call with a summary of our Q4 results, as well as our performance for the full year 2022. After that, I will provide a detailed update on each of our business segments before turning the call over to Shin Young to go over our financials in more detail and provide guidance for Q1 2023. Starting with Q4 results, revenue was $61 million, near the high end of our guidance range. Nevertheless, Q4 revenue was low by 44.7% year-over-year and 14.3% sequentially. Gross profit margin was 26.4%, within our guidance range. By business line, display revenue was $7.6 million and power revenue was $46.3 million. As we indicated last quarter, these results were primarily driven by severe wafer shortages in our OLED business, which prevented our new designs at our leading Korean panel customer to hit new key product launch window in the second half of 2022. Our OLED business was also impacted by weak consumer demand in China and globally, which led to an inventory correction by Android smartphone OEMs. In our power business, the record momentum we set in the first half of the year slowed down significantly in Q4 as macro conditions and consumer demand deteriorated, leading to inventory builds across a number of our end markets. Looking back at the full year, total revenue was $337.7 million, and gross profit margin was 30.0%, down 28.8%, and 240 basis points year over year, respectively. By business line, our display business solely contributed to the significant year-over-year decline as revenue was only 71.4 million compared to 205.3 million in 2021. Our power business revenue in 2022 was 230.5 million, up 1.2% year-over-year from 227.8 million. It goes without saying that 2020 too was a very difficult year on many fronts, particularly for our display business. However, we stayed focused and executed on what we could control and achieved key milestones in 2022 that we believe sets the foundation for solid recovery in 2023. In our display business, We successfully won a Tier 1 panel customer outside of Korea, which marked the expansion of our OLED business into international markets. We are currently working with this customer on two OLED DDIC design projects, and I'm happy to report today that our first ship was successfully qualified by this customer in December, and we will begin shipping towards the end of Q1 2023. Furthermore, our second OLED drive IC project with this customer successfully taped out in November are in-house, and we are ahead of schedule to deliver the first sample in this month. and production is expected to begin in the second half of 2023. This second chip offers significant performance and feature improvements over our first chip and alternative products. We are extremely excited about this new chip and multiple prospective smartphone makers are already showing interest for their new smartphones. We also strengthen our global supply chain by qualifying two additional 28-nanometer foundries, one of which was in strategic partnership with our new OLED customer. In total, we now have three 28-nanometer 12-inch OLED foundries qualified, and we anticipate these foundries to increase our wafer allocation by 2 to 4x over the next few years compared to our 2022 levels. Going forward, way for supply should not be a constraint on OLED segment revenue. At our leading South Korean panel customer in Q4, we completed qualification of our first OLED chip for an automotive center display and we will begin shipping this quarter. We expect to be used by a leading European luxury automaker. In addition, we taped out a new high-end smartphone drive IC during Q4 and that is expected to begin production in the second half 2023. In our power solutions business, 2020 was a record year and was stronger fundamentally than what our Q4 revenue trend indicates. In 2022, we were awarded a record 209 design-in wins across our entire Power Solutions product portfolio, more than double the number of designs awarded in 2021 and 2020. It was also record year for revenue from our premium products, which grew 10% year-over-year and represented a record 55.9% of Power Solutions revenue up from 51.5% in 2021. This strength helped overall power SPs over 2021 and 2020 levels. Revenue from our super junction MOSFETs and IGBT products also set record highs in 2020 too. IGBT strengths was most notable with revenue growing 52% year-over-year thanks to extremely strong demand from solar inverter manufacturers. We expect this area of our business to continue to remain strong going forward thanks to the transformative clean energy policies globally to combat climate changes. In 2022, we remain focused on R&D and introduced many innovative performance power products across a wide range of applications from smartphones, automotive, solar, consumer products, and industrial. In Q4, we unveiled our first power management chip optimized for OLED IT applications. The newly designed sub PIMIC provides a variable voltage control that enables automated custom refresh rates based on the frame rate. This greatly improves power consumption and enables a smooth and comfortable viewing experience for games and videos. Further, in our power solutions automotive business in Q4, we introduced our eighth generation 150-volt MXT MOSFET for optimized for light electric vehicles, motor controllers, and battery management systems. This MOSFET improves the drain-to-source resistance by over 28%, improves heat dissipation, and can operate in extreme temperature between minus 55 C to up to 175 Celsius. making it suitable to be used in a wide range of XEV applications. Our automotive business saw significant momentum in 2022 and is exiting the year with multiple design projects for leading Asian automakers and is expected to start contributing revenue in 2023. In summary, while 2022 presented many challenges, particularly during the later half of the year, we remain optimistic about the future. Our OLED business is poised for recovery in 2023, with the revenue projected to increase significantly in the second half as we ramp shipments of our four design-in projects with our two leading panel customers. We continue to expect the first half of 2023 to be impacted by elevated inventory levels and a very weak macroeconomic environment, but the reopening of China is a very welcome development and should lead to an improvement in the economy and consumer demand, which will help both our businesses. For our power solutions business, we expect to maintain the momentum of design wins and premium-tier product mix. However, it's important to note that our power business is not immune to the broader economic downturn, which impacts consumer-related applications, and we expect the first half of 2023 to also be challenging. We believe that this will largely be due to macro factors rather than anything specific to fundamentals as the data points I just highlighted that I testament to the competitiveness of our power products. Q1 is also typically our seasonally slowest quarter following holiday shipments and is impacted by slow activity around Chinese New Year's. Looking forward, as channel inventories are consumed and the broader economy recovers, we expect to see a rebound in power revenue. In closing, despite a very challenging 2022, and on anticipated challenging 2023, our team remains committed to, one, introducing new competitive power products and accelerating next-generation products, especially new applications such as automotive. Two, continuing our successful sales momentum or design wins in power to drive business with current and new customers, which will improve our FAP3 utilization as well as margins. Three, accelerate next-generation OLED drive IC for our customers domestically and internationally to hit the volume production by second half 2023. Four, expand our OLED products for international markets to solidify foundation for future growth in 2024. Five, we have initiated a voluntary resignation program where we expect 4-5% of employees may apply for this program without choice to accept or reject the applicants. And finally, I have voluntarily taken a 10% reduction in my salary for 2023 and the rest of the senior management team are also deferring a portion of their base salary until we execute on our commitments. I will turn the call over to Xinyang to go over Q4 results and give our Q1 guidance. Xinyang?