Magnachip Semiconductor Corporation

Good day and thank you for standing by. Welcome to the first quarter 2023 Magnet Chip Semiconductor Corporation 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 the session, you'll need to press star 1 1 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, Udi Ajay, Investor Relations Representative for MagnetShip. Please go ahead.

Hello, everyone. Thank you for joining us to discuss MagnetShip's financial results for the first quarter ended March 31, 2023. The first quarter earnings release that was issued today after the 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 after. Joining me today is Y.J. Kim, MagnetShip's Chief Executive Officer. Shin-Yeon Park, MagnetShip's Chief Financial Officer, is our Maternity Lead. During Shin-Yeon's absence, Y.J. is the Principal Financial Officer of the company. Y.J. will discuss the company's recent operating performance and business overview, and I will provide the financial results for the quarter, and Y.J. will provide guidance for the second quarter of 2023. There will be a Q&A session following the prepared remarks. During the course of this conference call, you may make forward-looking statements about magnitude of the 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 financial measures are not prepared in accordance with generally accepted accounting principles who 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 first quarter earnings release in the investment relations section of our website. With that, I will now send the call over to YJ Kim. YJ?

Hello, everyone. Thank you for joining us today. and welcome to MagnetChip's Q1 2023 earnings call. Before we proceed, I want to welcome Gilbert Nathan as an observer of the company's board of directors and ad hoc strategic review committee of the board. Mr. Nathan is currently the managing member of Jackson Square Advisors, as well as the CEO of Keycon Power Holdings. With his extensive experience serving on the boards of multiple publicly listed companies, We are very pleased to have him join us. Following our annual shareholders meeting in May, Mr. Nathan will promptly be appointed director on our board and serve as a member on MagnetShip's strategic review committee. We are pleased to benefit from Mr. Nathan's deep knowledge and expertise in finance and capital markets as we strive to enhance value for our shareholders. Moving on to our results, our Q1 financial performance was within the range of the guidance we provided on our Q4 earnings call. Revenue was $57 million and gross profit margin was 21.2%. As we indicated last quarter, our results are 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, Q1 revenue was $10.8 million, down 62.9% year-over-year, but up 43.5% sequentially. These results reflect the continued effects of last year's supply shortages of 28-nanometer 12-inch OED wafers that impacted the second half 2022 design wins, and the ongoing smartphone inventory correction. And consumer demand overall continued to be weak, but we have begun to see some market recovery in the premium tier where display products play. During the first quarter, we saw increased demand from our large Korean panel customer for leading Korean smartphone model. We also commenced shipments of our OLED products to this customer for two new premium-tier smartphone designs expected to be launched in Q2 by a leading Asian smartphone OEM and a global smartphone OEM. Further, we remain steadfast in our mission to turn around our display business and continue to execute our recovery plan during the quarter. I will summarize some of the key display business recovery initiatives for you. At our non-Korean Tier 1 panel customer last quarter, we completed qualification for the first OLED DDIC project. This quarter, we began shipping initial volume and expect to accelerate shipments in the coming quarters. In Q1, We also successfully delivered our second OLED DDIC project sample ahead of the schedule, and mass production is expected in the second half of the year. Our second OLED DDIC offers significant performance and feature upgrades from our first DDIC for this customer, and we continue to have prospects with many of the leading smartphone OEMs. I also recently visited our new panel customer in their multiple sites, as well as our new foundry partner. Our strategic partnerships are stronger than ever. We are in active discussions with them regarding other projects that could tape out later this year and contribute to revenue growth in 2024. At our large panel customer in Korea, we successfully completed the tape out of a high-end smartphone DVSE project and are now in the targeting to release sample to our Korean customer in Q2, with mass production expected to begin near the end of the year. For our automotive oil ED project at this customer, the mass production treatment timing we announced last quarter is now expected in mid-May. We are optimistic about securing additional design rents in the upcoming quarters based on our automotive OLED DDIC. Moving on to our power business, Q1 revenue was $40.7 million, down 37.3% year-over-year and down 12.1% sequentially. Similar to last quarter, our power business continued to be impacted by a weak demand across our end markets, particularly in computing and consumer. As a result, We significantly reduced production during the quarter at our internal FAB to normalize inventories, which negatively impacted FAB utilization, which was a primary driver of our lower gross margin during the quarter. Despite the challenging environment, the core fundamentals of our business remain unchanged. Despite the market slowdown, the blended power speed for product increased 3.4% quarter-to-quarter and 26.3% year-over-year in Q1 2023 by improving the product portfolio and focusing on premium markets. Our premium products continue to maintain its strong product mix and ASPs. In Q1, premium products represented 64.4% of total power revenue compared to 53.6% a year ago, and premium ASPs increased 6.4% year-over-year. In addition, we continued our record pace of design activities. In Q1 2023, we were awarded over 100 design wins driven by our strong product portfolio across automotive, industrial, and computing applications. While total volumes remain weak during this industry-wide inventory correction, we remain confident that we will see a quick recovery on the other side of this cycle due to these strong fundamentals. We also continue to innovate. This week, we announced nine new 600-volt super junction MOSFETs products featuring a proprietary design technology that improves on resistance and overall system efficiency. In the second half of this year, we will be introducing a full set of next-generation products that will have better performance or cost by at least double-digit percentages. Further, our power segment automotive business continues to make solid progress in various application within the XEV automotive market. For example, we were awarded multiple design wins with our innovative power products for applications such as electric water pumps, positive temperature heaters, regenerative braking systems, idle stop and go systems, and electric vehicle charging stations with large EV automakers across Korea, Japan, China, and Taiwan. Now turning back to our OLED business summary, we continue to focus on executing on the near-term goals that we have set forth with our two major panel customers. We believe our OLED business is bumping along the bottom and is poised to ramp in the second half and expect to deliver revenue growth in 2023. With our cutting-edge OLED products, We are well-positioned to make significant strides in the industry once the current environment improves. Looking forward ahead, we are highly optimistic about our OLED opportunities, particularly as we make headway internationally into the next major market beyond Korea, where our available foundry capacity is expected to increase a few folds over the next few years. In our power business, our product design win rate is stronger than ever. We are rolling out next-generation power products throughout this year. Looking ahead, the macro environment remains uncertain. However, we believe we hit the bottom in 2021, and we expect gradual improvement going forward as channel inventories are consumed. We expect sequential growth, especially in industrial, automotive, and computing segments. Finally, we recognize our recent market performance and results have been disappointing. However, we want to assure our investors that we remain unwavering in our commitment to drive growth and maximize shareholder value as demonstrated by our decision to bring in fresh perspectives with the addition of Mr. Nathan's to our board. Further, we continue to execute our stock buyback program daily, and I am confident that the net purchases across the challenging market will provide accretive returns to our shareholders on the other side of this downturn. Thank you to our shareholders for all of your patience, and we appreciate your support as we work towards our goals. I will now turn the call over to Uzziah to go over the financials in detail.