Magnachip Semiconductor Corporation

Hello, everyone, and thank you for standing by. Welcome to the third quarter 2024 MagnaShip 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 participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 1-1 again. Please be advised that today's conference is being recorded. Now it's my pleasure to turn the call to Stephen Paleo, Head of Investor Relations.

Great. Thank you, Carmen. Hello, everyone. Thank you for joining us to discuss Magnet Ship's financial results for the third quarter ended September 30th, 2024. The third 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, Magnet Ship's Chief Executive Officer, and Chin 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 fourth quarter. There will be a Q&A session following the prepared remarks. During the course of this conference call, we may make forward-looking comments. Statements about MagnetChip'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. 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 generally accepted accounting principles, but are intended as a supplemental measures of MagnetShip's operating performance that may be useful to investors. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our third 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 Magnet Chips Q3 earnings call. Q3 revenue was 66.5 million, up 8.5% year-over-year and up 25% sequentially. Revenue was at the high end of our guidance range of 61.5 to 66.5 million. Consolidated Q3 growth profit margin of 23.3% was down 0.3 percentage points year-over-year, but up 1.5 percentage points sequentially. The overall gross margin results was in line with the midpoint of our guidance range of 22.5% to 24.5%. Shin-young will provide more details in our section. As we wind down and exit the transitional foundry service business, MagnetShip will be a pure-play standard products company based on industry-leading mixed-signal expertise. Our standard products are comprised of offerings in the MSS and PAS businesses, which include power ICs, advanced OLED DICs, and discrete power products for industrial automotive consumer communications and computing applications. Revenue in Q3 for our standard product business was $64.0 million, up 24.0% year-over-year, and up 25.9% sequentially. Standard product business gross margin was 24.4%, up 1.3 percentage points sequentially. We are on track with our guidance given at the beginning of the year for double-digit growth in MSS and PAS for 2024. We will provide 2025 guidance on our Q4 and ERN calls as we've done in the past. Now, let me provide more detailed comments for each of our standard product business lines. In terms of revenue contribution, PAS represented 74.3% of standard product revenue in Q3. Reported PES revenue was $47.6 million, up 16.1% year-over-year and 21.2% quarter-over-quarter. The sequential increase was broad-based, so I'll share some details about application. The industrial segment continued to see a strong rebound in SOLA. The issues of accessing distributor and customer inventory in China now is behind us in this business segment. In addition to solar inverters, demand for solar pumps are expanding the range of applications we address. The industrial segment also saw growth from additional design in the China lighting market with our sixth generation super junction devices. Finally, the shift to high-speed e-motors for scooters and motorcycles is leading to an increase in bill of material content and carries the potential for stronger growth. While a relatively smaller contributor to PAS, the automotive segment continues to show strength. We are building upon our past success in Korea with additional design wins and production ramps for automotive customers in Japan and China. The N applications continue to vary widely across many subsystems in a vehicle. More recently, we obtained design wins for additional applications such as power outlets and ideal stop-go functionality. The communication segment shows slight sequential improvements with my continued demand for low-voltage MOSFETs for high-end portables and leading-edge AI smartphones in Korea. We also have seen incremental design opportunities for tablets, wearables, and China smartphones. In consumer, we saw growth from PV driven by strong seasonal demand from Korea. Further, we continue to see steady demand for our super junction MOSFET and IGBT products in home appliances such as refrigerators and induction cooktops. Additionally, we expect a recent design-in for air purifiers to transition into a design win in Q4. While a relatively small contributor, the computing segment saw strong growth driven by seasonal demand from China for PC and laptop power adapters. In Q3, we hired a chief technology officer and assistant GM in PAS. He's a proven expert in the field of power semiconductors with more than 20 years of experience. Prior to joining MagnetChip, he worked at Hyundai Mobis, where he led the development of IGBT and SIC products for automotive applications. Prior to Hyundai Mobis, he made a significant contribution to the company by entering the planar MOSFET market for the first time and achieving the largest market share of super junction MOSFETs in Korea. His rich experience and knowledge of power semiconductors, his insight into automotive markets, and his ability to develop power semiconductor products will greatly contribute to our company's technology and product roadmaps and overall competitiveness. In summary, the strong sequential growth in Q3 for PAS was ahead of typical seasonal patterns and was driven by leaner distribution channels and design wins for existing and new products. We are continuing to execute in delivering a new strong product pipeline for power in 2024. We believe many of these new products will have similar performance to Tier 1 suppliers, which will give us an opportunity to penetrate new markets and health field IDLE Gumi Fab capacity in 2025, created by the phase-out of the traditional foundry services businesses. Turning to MSS, Q3 revenue was $16.4 million, up 54.5% year-over-year, and up 41.8% sequentially. The results represented 25.7% of standard product revenue and was near the high end of our guidance range of 14.5 to $16.5 million. The quarter-over-quarter revenue growth was due to increased demand from OLED DDITs for China smartphone OEMs, as well as for automotive and Power IT for OLED IT. During Q3, We continue to make inroads with OLED panel makers and smartphone OEMs focusing on the China market. At a high level, we have several DDIC at different stages of development, customer evaluation, and in production. These designs cover the broad smartphone market spectrum, from mass market to premium segment, and extend to other display markets like automotive and wearable tech, including smartwatches. In line with our original expectations, we have now moved into production on two smartphone models. More specifically, following the purchase order received in Q2, we started initial production and shipment in Q3 for a QHD Plus DDIC for a premium smartphone model from a leading China OEM. We are the primary DDIC supplier for this model, and we expect increased shipment growth to this customer throughout Q4. During Q3, we also received a purchase order as a second-source supplier from another leading China smartphone OEM and come as shipments in October. We believe this initial win gives us an opportunity to deepen our relationship and positions as well for future smartphone models. As mentioned in our Q2 call, we began sampling our next-generation DDIC in October. This OLED driver is targeted for mid- to high-end smartphone models in China and incorporates advanced IP, including sub-pixel rendering , refined color enhancement, and brightness uniformity control. Notably, this chip reduces power consumption by more than 20% compared to the previous generation. We expect a China panel maker to begin evaluation in Q4 and move into production in 2025. We plan to introduce this chip to multiple China OLED panel makers to further diversify our customer base next year. Evolutions are on the way for a new DDIC targeted at the smartwatch market. We look forward to leveraging this relationship with a China module maker to expand into new high-growth adjacent markets. With regard to our automotive DDIC business, revenue increased for the third quarter in a row. The business was driven primarily by increased demand from a panel maker that supplied to multiple automakers in Europe. We also saw DDIC growth for automotive LCD. Our Power IT business, which is including MSS, so sequential and year-over-year growth, driven primarily by increased demand for OLED IT, tablets, and notebooks. We continue to develop new Power IT products for both LCD TV and OLED IT applications for potential new customers. In summary, within MSS, we are executing our strategy and making inroads with top tier panel makers and major smartphone OEMs. Our decision to act locally was the right strategy for our OLED business in China. At the same time, we are also working to drive revenue from adjacent markets in wearable automotive, TV, and IT. For Q4, we currently see flat-ish revenue sequentially, which is better than typical seasonality in this market. In conclusion, we believe that with the growing trend of AI-enabled smartphones and PCs, Power consumption is on the rise. It is crucial to reduce the overall power usage of these systems. The display is a major power consumer and one of the few areas where power can be significantly reduced by switching from LCD to OLED panels. As smartphones incorporate high-performance AI capabilities and adapt larger, affordable, and flexible displays, the need for power-efficient OLED DDIC has become increasingly important. Our newest and most advanced OLED DDIC offers a power reduction of over 20% compared to the previous generation using the same process technology. Additionally, smartphone OEMs are looking to offset the rising power demands of AI features by utilizing advanced battery-fed technologies like those in our PAS segment, alongside the growing use of the OLED screens. I will now turn the call over to Xunyong to give you more details of our financial performance in the third quarter and provide Q4 guidance. Xunyong.