Magnachip Semiconductor Corporation

Hello, and thank you for standing by. Welcome to MagnetChip Semiconductor Corporation third quarter 2025 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 the questions on 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. I would now like to hand the conference over to Mike Bishop. You may begin.

Thank you. Hello, everyone, and thank you for joining us to discuss MagnetChip's financial results for the third quarter ending September 30, 2025. The third quarter earnings release was issued today after the close of market and can be found on the company's investor relations website. The webcast and replay of today's call will be archived on our website shortly afterwards. Joining me on today's call are Camilla Martino, MagnetChip's Chief Executive Officer, and Shin-Young Park, our Chief Financial Officer. Camilla 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 fourth quarter. There will be a Q&A session following the prepared remarks. During the course of the conference call, we may make forward-looking 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 developments. Except as otherwise required by law, the company does not undertake any obligation to update these statements During the call, we'll also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended as 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 Camilla Martino. Camilla?

Thank you, Mike, and good afternoon, everyone. It has been approximately two and a half months since I was appointed interim CEO. Magaship is a company with a rich history of innovation, a reputation for high reliability and quality, and strong customer relationships. With that said, for the past couple of years, I believe we have failed to execute on our promises. I know our shareholders are frustrated and naturally upset. We are moving quickly to improve financial fundamentals and deliver long-term shareholder value. There are five very critical objectives for both Xinyang and myself. Number one, to reposition our product portfolio to be significantly more competitive. Number two, to right-size our OpEx structure for a pure play power business. Number three, conserve cash. Number four, increase our transparency with our shareholders. And number five, explore strategic alternatives. Consistent with our communications back in August, our board continues to review all strategic alternatives. At the same time, I see tremendous potential here. especially with a lineup of a new generation of products either recently launched or to be launched soon and with a very strong product roadmap ahead. I believe we can execute our product strategy to deliver on that potential. After joining the management team, we undertook a complete bottoms-up analysis of the company to highlight ways to correct course and put us on a path to recovery. We identified some significant changes in the near term and medium term that will require precise product planning and execution. I would like to present on this call our findings so far and outline the initial steps in our plan to address our issues and also our opportunities for the short term. My goal today and going forward is to be transparent about where we stand and where we are headed. the challenges we will likely face along the way, and our plans to address them. Let me first share our high-level results of Q3. Q3 revenue came in at $49.9 million, at about the midpoint of our guidance range. And gross profit margin was 18.6%, which was at the low end of the guidance range. These results reflect three realities. One, the pricing pressure on our legacy products is especially intense in China. Some business we actually have to walk away from. Number two, lower fab utilization as a result of this pricing pressure, and also due to the higher level of months of inventory at the end of Q3, especially in China. On the positive side, we did see significant strength in the communications segment with revenue increasing 34% sequentially, quarter-and-quarter, and 95% year-over-year. Regarding fab utilization, while we anticipate fab utilization rates will decline again in Q4, we believe that the Q4 fab utilization rate is likely to hit the low point of around the mid-50s to manage the mid-50 percentile to manage higher levels of inventory in the channel, and we expect to execute a $2.5 million incentive program to try and address it. In the meantime, we cannot afford idle capacity, and so we are pursuing every opportunity to aggressively load the fab with existing products to sustain operating leverage and stabilize, and then improve gross profit margin until our new generation products contribute more meaningfully. After Q4, we expect utilization to begin to recover, and we believe the new generation products will improve this metric in the future. These financial and operating results and the results of our analysis led us to create five objectives that I stated earlier, and I would like to elaborate on each one of these now. Our first objective is to reposition our product portfolio to be significantly more competitive. Magnchip's results clearly show the headwinds we are facing. Our competitive product position in China's industrial markets and the global consumer TV sector has significantly worsened over the past year. Intense price competition coupled with an aging product portfolio have taken their toll. Despite that, the engineering foundation here at MegaChip is solid, and we are taking decisive actions to stabilize our competitive position that we can then build upon. Namely, we are fast-tracking new generation product development to improve our competitiveness and achieve revenue growth, margin expansion, and a return to improve rates of fab utilization. Areas of focus for these new generation products are our low and medium voltage MXT MOSFET products, our super junction MOSFET products, and also our IGBT products. We are well underway with this initiative. During the first nine months of 2025, we have released 30 new generation products. compared with only two new generation products in the same time period for 2024. In Q4 2025, we currently expect to launch at least another 20 new generation products, giving us a total of at least 50 new generation products in 2025 as compared to only four new generation products in all of 2024. Generally speaking, we consider a new generation product is one in which we achieve a greater than 30% improvement in performance per unit area. The challenge is the revenue ramp time for these new generation products to impact our financial results. New generation products will take multiple quarters or more to meaningfully contribute to the income statement depending on the market segment. However, we are already seeing the initial results in Q3 as 2% of the total revenue came from new generation products. We expect that number to be approximately 10% in Q4 and 2026. We are also very excited about our IGBT announcement today. We have signed a strategic licensing agreement with Hyundai Motors regarding the use of IGBT technology, which stands for Insulated Gate Bipolar Transistor Technology. We have been developing this together for many years now. We believe this agreement will enable us to expand our IGBT footprint beyond automotive markets into industrial, AI and renewable markets. Industry analysts forecast the IGBT market, which will reach nearly $17 billion by 2029, up from $11 billion in 2024. Hyundai Mobus is a global auto parts provider focused on delivering differentiated mobility solutions that combine software and hardware together. And it is also associated with Hyundai Motor Company, the world's third largest automotive manufacturing company. This partnership is still in its early stages, but we expect to see qualification results in 2026. and currently expect initial revenue to start in 2027. Moving to the second objective, to right-size our OPEX structure for a pure play power business. We have initiated multiple OPEX cost reduction programs, including workforce streamlining that will generate approximately $2.5 billion of annualized OPEX savings. We will see the early impact of these actions in Q4 2025. With the current shutdown of the display business and the execution of this workforce reduction program, our overall headcount is expected to be reduced by more than 20% when comparing the end of 2025 versus the end of 2024. And for non-factory employees, we expect the headcount reduction to be nearly 40% when comparing at the end of 2025 versus the end of 2024. These initiatives that I just referenced are foundational to our third objective. The third objective is conserving cash. We have reduced our CapEx investments to both conserve cash and lay the groundwork for our recovery. As we have already announced, among the first actions being taken in our plan is cutting capital expenditures for our GumiFab upgrade by more than 50% over the next two years as we prioritize capital allocation. Our deliberate investment in CapEx for our GumiFab was made to support the growth of our new generation power products that are critical to our financial recovery. I can say now that with these actions we have implemented, I believe we are moving in the right direction. Now, let me comment briefly on our fourth and fifth objectives involving being transparent, and being and exploring strategic options. Let me assure you that I am personally committed to being transparent with our investors. Finally, the board and management team are fully aligned as we explore all strategic options available to us. Moving to my final thoughts here. During my years in the semiconductor industry, I've held executive roles in several chip companies, including as CEO of a publicly held semiconductor company. I have also lived and worked in Asia for many years as a senior executive for a global chip company, and so I'm very familiar with what it takes to compete here. With that said, I will be blunt. Turning MagnetShip around will take time and require an all hands on deck approach with intense focus from our management team. The next few quarters will remain challenging as our legacy products decline and our new generation products begin to ramp. But we also have several reasons for optimism. For example, I really believe we have a strong engineering team led by an intelligent CTO who's driving our entire product roadmap. a growing customer base, and in addition, a clear product roadmap that targets higher margin power segments. We are planning to have more definitive details on our go-forward operating strategy during our Q4 call early next year. With that said, I will hand the call over to Xinyuang for more detail on the financial results and guidance. and then come back for final remarks. Jinyoung?