Magnachip Semiconductor Corporation

Good day and thank you for standing by. Welcome to the first quarter 2024 Magnet Ship Semiconductor Corporation earnings conference call. At this time, all participants are on 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 need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today, Stephen Palayo. Please go ahead.

Thank you. Hello, everyone. Thank you for joining us to discuss MagnaChip's financial results for the first quarter ended March 31, 2024. 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 afterwards. Joining me today are Y.J. Kim, MagnaChip'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 Chin Young will review financial results for the quarter and provide guidance for the second quarter. 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 State Harbor Statement found in our SEC filing. Such statements are based upon information available to the company as of the date hereof and are subject to change for future development. Except as required by law, the company does not undertake any obligation to update these statements. During the call, we also will discuss non-GAAP financial measures. The non-GAAP measures are not prepared in accordance with a generally accepted accounting principles, but are intended as supplemental measures of magnet chips operating performance that may be useful to investors. 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 investor relations section of our website. With that, I'll now turn the call over to Y.J. Kim. Y.J.?

Hello, everyone, and thank you for joining us today, and welcome to MagnetChip's Q1 earnings call. Our overall Q1 results were in line with our guidance. Q1 revenue was $49.1 million. down 13.9% year over year, and down 3.5% sequentially. Consolidated gross profit margin was 18.3%, down 2.9 percentage points year over year, and 4.4 percentage points sequentially, mostly due to the wind down of the transitional foundry services. Excluding transitional foundry services, revenue in our standard product business which is comprised of MSS and PAS businesses, was up 10.6% sequentially, while gross margin was 21.2%, down 1.7 percentage points sequentially. The decline in gross margin was mostly due to lower GumiFab utilization driven by the wind down of the transitional foundry services. which also impacts PAS margins because they share the fab. Despite typical Chinese New Year seasonality, the solid sequential revenue growth of our standard product business in Q1 suggests overall market conditions are improving with the inventory correction possibly nearing an end for some verticals. In particular, we saw improvement in the inventory channel for our PAS business. We also saw better than expected demand from our design for the after-service OLED display market, and we benefited from increased demand in our automotive display business. The PAS business strength was primarily from smartphones, e-motors, consumer appliances, and server power applications. Now, let me provide more detailed comments for each of our standard product business lines. Beginning with MSS, Q1 revenue was in line with our guidance at $9.0 million, down 29.7% year-over-year, and up 5.2% sequentially. As we mentioned before, the quarter-over-quarter revenue growth was due to increased demand from automotive LCD and OLED products. Overall, we continue to collaborate with several OLED panel makers and smartphone OEMs targeting the China market. While third-party market researcher Omnia predicts only slight growth in the global smartphone market in 2024, the top five China brands are forecast to enjoy more than 18% growth in OLED smartphone treatments. As a reminder, we have DDIC designs and customer engagements underway that span the entire smartphone market spectrum, from the mass market tier to the premium tier segments, as well as other display markets, such as automotive. We had an additional two new OLED designs this quarter that we'll discuss more in detail later. more specifically during the quarter our display ic business had a new design in of a high-end oled smartphone for top tier chinese smartphone vendor this design in is based on our 2hd plus oily ddic that we sampled into 1 to 1024. this chip provides the latest a transistor LTPO panel feature support and is produced in 28 nanometer. We expect this design to go into production by the end of the year. We also started the initial ramp into one for our first generation OLED DDIC chip for China that we taped out in 2022 for the after service market. We are now working to expand this segment with other China panel makers. As mentioned previously, we received a pilot production PO as a second source supplier from a leading Chinese smartphone OEM. We expect revenue to begin in the second half of the year. Moreover, we also have been chosen to work with them on their fall 2024 model with our next generation chip that we taped out and expect to sample in Q2 this quarter. Finally, we taped out in Q1 and expect sample in Q2, our first smartwatch OLED DDIC. We're excited about this partnership with a smartwatch solution provider in China, as it showcases our strategies to expand into new high-growth adjacent markets. With regard to our automotive DDIC business, we saw strength in the first quarter that we're likely to continue in Q2. Notably, we had a new OLED design win in EV that has come as production in Q2 targeted for a leading European automaker. Our PowerC business is now including MSS. We saw sequential strengths from LED TVs during Q1 and expect business to broaden to include multiple notebooks and tablet models in Q2. We continue to secure new design wins with a major Korean customer. Moving on to PAS. Q1 revenue was $36.5 million, down 5.6% year-over-year, and up 12% quarter-to-quarter. The sequential increase was due primarily to increased demand for medium voltage MOSFETs for industrial e-motor markets in China, consumer appliances, and server power. The results are in line with our earlier expectation for gradual recovery in our part business during the first half of 2024 and are further supported by initial signs of inventory reduction in the distribution channel for our PAS products. More specifically, We saw strength in the high-speed e-motor market for scooters and motorcycles where we benefit from the approximate doubling of the bill of materials compared to a traditional e-bike. We believe our power solution for e-motors are now outperforming our competition. We are seeing steady demand in low-voltage MOSFETs due to contribution from new high-end smartphone models as well as increased demand in mid-range smartphones. Further, the PAS design pipeline looks solid for the next generation of smartphones coming in late 2024 and into 2025. We saw a sequential uptick in demand for our Super Junction MOSFETs and obtained a 600V design win in the PC power and power supply markets. We also had an IGBT design win at 650 volts from a major Korean appliance company. Lastly, with an automotive power, we had our first medium voltage MOSFET design win for an electric cooling fan with a China-based SUV supplier, as well as additional power steering related win in Korea. We have a strong product pipeline for power in 2024, and they are on track. These products expect to contribute revenue by end of the year. The new 650 volt IGBT finished the qualification and expect to begin commercial samples this month. Sixth generation IGBT and super junction samples will begin this quarter Q2 and eighth generation LV MOSFET samples is ready and 8th generation MB MOSFET samples are ready in this second quarter 24. In summary, PAS shows strong sequential growth in Q1. With the addition of new products and streamlined channel inventory, we are optimistic for the growth trajectory in 2024. In MSS, we're executing our China-focused strategy and making steady inroads with the top-tier panel makers and major smartphone OEMs. I will come back to wrap up the call after Xinyang gives you more details about financial performance in the first quarter and provide Q2 guidance. Xinyang?