Magnachip Semiconductor Corporation

Good day, and thank you for standing by. Welcome to the Magna CHIP Semiconductor Corporation fourth quarter 2024 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 will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen Paleo, Investor Relations. Please go ahead.

Great. Thank you. Hello, everyone. Thank you for joining us to discuss MagaChip's financial results for the fourth quarter and full year ended December 31st, 2024. The fourth quarter earnings release that was issued today before the market opened 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 Shin Young will review financial results for the quarter and provide guidance for the first quarter and full year of 2025. 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 are therefore subject to risk and uncertainty as described in the Safe Harbor Statement found in our SEC filings. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements 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 as supplemental measures of MagnaCHIP'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 fourth quarter earnings release in the investor relations section of our website. So with that, I'm now going to call over to YJ Kim. YJ?

Hello, everyone, and thank you for joining us today, and welcome to Magnet Chip's Q4 earnings call. In addition to sharing Q4 earnings results, Magnet Chip management and the board of directors today announced a new strategy to become a pure play power company. Focusing its investments on the power discrete and power IC businesses, to drive profitability and maximize shareholder value. We will host a separate sell-side analyst briefing later this morning to provide additional color on our strategy. As part of that strategy, we also announced today that MagnetShip is exploring all possible strategic options for the display business. This was an extremely difficult decision for me the management team, and the board of directors when considering both our valued customers and employees. While we have a rich and competitive portfolio of OLED display technology, after a careful review of our business outlook, we've determined that the greatest potential for profitable growth lies with our power solutions business, including PowerDiscrete and PowerIC. Achieving profitability is our highest priority and in the best interest of our shareholders and other stakeholders. As a sign of my own personal commitment to the long-term success of Magnitude's new strategy, I'm voluntarily cutting my current base salary by 20%. And Shin Young Park, our CFO, has also agreed to a 10% voluntary decrease of her current base salary, until such time as Magnetichip achieves positive GAAP operating income for two consecutive quarters. Unlike the display business, which primarily is served by a few panel customers, Magnetichip's power business caters to a broad array of industries and customers that we believe have more stable long-term growth prospects. We therefore have launched a strategic process for the display business. While our goal is to complete this process by end of Q2 2025, the display business will be classified as a discontinued operations beginning with our Q1 2025 financials. Xun Yang will explain this in greater detail later in the call. As mentioned previously, Our utmost short-term goal is a return to profitability. By focusing on the power business, our goal is that magnitude business from continuing operations will achieve quarterly adjusted EBITDA break-even by the end of Q4 2025, followed by positive adjusted operating income in 2026, and positive adjusted free cash flow in 2027. Each of these targets will act as milestones towards achieving a goal in three years to reach a $300 million annual revenue runway with a 30% gross margin target. We're calling this three-year objective our 3-3-3 strategy. Managed power business is now entering a new phase that we call phase three. During phase one was our initial market entry and foundation period between 2007 and 2012, and primary focus on mobile phones. Phase two was our market expansion into consumer home appliances, computing, smartphone, e-bike, solar, and lighting. Most of these efforts were aimed at a small portion of the performance segment serving up to 10 kilowatts. Many of our greatest success were in sub-1 kilowatt watt applications such as TV, smartphones, and eBuy. For phase three, we are expanding our addressable markets into larger and higher performance markets. These include additional industrial segments such as energy storage, automation and robotics, as well as automotive and AI data center opportunities up to 100,000 kilowatt and above. Our phase three strategy is under way now with today's launch of series of next generation power products, including Gen 5 and Gen 6 LGBT, Gen 6 super junction MOSFETs, and Gen 8 medium and low voltage MOSFETs. We expect to release over 40 new generation phase 3 power products in 2025, with 27 new generation products Launching in Q4 2025 with fully qualified commercial samples available. Launching in Q1. Q1 2025, sorry. Launching right now in Q1 2025. And with our current product pipeline, we expect to increase the number of phase three new generation power products to approximately 55 that we expect to introduce in 2026 versus 2025. We expect new generation power products to drive higher revenue per wafer at our Gumi fan. For example, our Gen 6 super junction power devices not only deliver superior performance compared to the previous generation, but will also offer 30% more die for wafer. Therefore, these new products, when fully ramped, will drive meaningfully higher gross margins compared to the previous generation. These innovative product families will open new high-value market opportunities for magnitude, such as automotive, industrial, and AI applications. We are targeting automotive, industrial, and AI to represent more than 60% of magnitude's future product mix, up from 30% in 2024. Notably... Up from 37%. Up from 37% in 2024. Notably, we already have ongoing engagement to penetrate automotive markets, which expect to reach over 10% of our revenue by 2027, from less than 5% of our revenue in 2024. To support this transition to high-performance new generation products, We will invest 65 to 70 million over the next three years to upgrade production equipment at our manufacturing facility in Gumi. When these new power products enter production, we anticipate top-line growth and meaningful bottom-line improvement. By the end of 2026, we expect almost half of our manufacturing capacity in the Gumi Fab will come from these new generation of products. We will discuss all of this in greater detail at today's analyst briefing. Now, let's step back and review Q4 and 2024 results. Q4 revenue was $63 million, up 24% year-over-year. and down 5.1% sequentially. Consolidated Q4 revenue was above the midpoint of our guidance range of 59.0 to 64.0 million. Consolidated Q4 gross profit margin of 25.2% was up 2.5 percentage points year-over-year and up 1.9 percentage points sequentially. The overall Gross margin results exceeded our guidance range of 21.5% to 23.5%. Xun Yang will provide more details in our section. Revenue in Q4 for our standard products business was $60.7 million, up 47.5% year-over-year and down 5.1% sequentially. Standard products business gross margin was 26.6%, up 2.2 percentage points sequentially. On a full year basis, consolidated revenue increased 0.7% in calendar 2024 versus 2023. Excluding transitional foundry services, our standard product business increased 13% year over year, with MSS up 22.5% and PAS up 10.2%. Both of these business line growth rates were in line with our guidance for double-digit growth provided at the beginning of 2024. Now, I provide more details by business slide. Record EPS revenue was 43.5 million, up 33.2% year-over-year, and down 8.7% quarter-over-quarter. The year-over-year increase was primarily driven by the expansion of high-end mobility and battery management systems in China, deeper penetration within Korean smartphones, as well as increased market share. The sequential decline was mostly due to seasonality in each of our market segments, except in communication, where we enjoyed meaningful quarter-on-quarter growth. Within standard products, PAS represented 71.5% of revenue in Q4. The industrial market remains stable to slide it down in 2024 and represented 39% of PAS revenue. A shift towards high-speed e-motors and battery management systems with higher bump content offset decline in e-bike demand. Similarly, growth in solar pumps offset weaker solar inverter sales. LED lighting remains steady, while power tools, including welders, expand strong growth. From a product perspective, we benefit from design wins for our Gen 5 and Gen 6 IGBT and super junction products in solar and motor drive applications. Despite modest year-over-year growth, our revenue in the industrial market outperformed competitors driven by our diversified end market strategy. In consumer, we achieved High single-digit growth driven by strengths in home appliances for broadening available products, including refrigerators, cooktops, and a new design win in Q4 for air purifiers. TVs were relatively flat year-over-year, with notable strengths in Korea upset by declines elsewhere. Overall, the consumer market accounted for 35% of PAS revenue in 2024. The communication market represented 15% of PS revenue in 2024 and increased more than 50% year-over-year, fueled by design wins for battery fat in mainstream and flagship portable and AI-enabled smartphones in Korea, along with expanding adoption in wearables, tablets, and AR glasses. Additionally, we gained traction with multiple brands in China and Japan, further strengthening our presence in smartphone, tablet, and wearable markets. While a relatively smaller contributor at 8% of PAS revenue, the computing market saw more than 25% growth in calendar 2024 driven by demand from China for PC and laptop power adapters. Finally, the automotive market was less than 5% of PAS revenue in 2024 and from the broad automotive market last year, declining less than 5%. We strengthened our position in Korea with new design wins, driving greater market penetration, while ramping up production for multiple automotive customers in Japan and China. Our applications span a wide range of vehicle subsystems, with a recent design win for heater application with a China OEM. This adds to previous wins in power outlets and either stop-go functionality announced last quarter. In summary, the sequential decline in Q4 for PAS was mostly in line with typical seasonal patterns, while the sequential strengths in communications were driven by preparation for new product launches for 2024 The double-digit growth was fairly broad-based driven by communications, consumer, and computing markets, while very slight declines in industrial and automotive relatively outperformed their respective markets. As we have mentioned before, we continue to execute on delivering a strong new product pipeline for power. We believe many of these new products will have similar performance to T1 suppliers, which will give us an opportunity to penetrate new markets and help fill idle capacity created by the failure of the transitional boundary service business. We will share more details on our power business in the analyst briefing later this morning. Turning to MSS, Q4 revenue was $17.3 million up 102 percent year-over-year and up 5.1 percent sequentially, including PowerIC. MSS represented 28.5 percent of standard products revenue and slightly exceeded the high end of our guidance range of $15 to $17 million. PowerIC revenue was relatively flat sequentially at 5.4 million and increased 62.4 percent year-over-year. On a full year basis, total MSS revenue increased 22.5% year-over-year. Now, I will turn the call over to Xinyu to give you more details of our financial performance in the fourth quarter and provide Q1 and full year 2025 guidance. Xinyu.