Earnings call transcript: MagnaChip Q4 2024 beats forecasts, stock surges

MagnaChip Semiconductor Corporation reported stronger-than-expected earnings for Q4 2024, significantly surpassing analyst forecasts. The company posted an earnings per share (EPS) of $0.07, compared to a forecast of -$0.29. Revenue came in at $63 million, exceeding the expected $60.99 million. Following these results, MagnaChip’s stock rose by 11.13% in pre-market trading. According to InvestingPro analysis, the company appears undervalued, with analysts setting price targets between $6 and $8. For deeper insights into MagnaChip’s valuation and 10 additional exclusive ProTips, explore InvestingPro’s comprehensive research report.

Key Takeaways

• MagnaChip’s Q4 2024 EPS of $0.07 beat the forecast by $0.36.
• Revenue for Q4 2024 was $63 million, a 24% year-over-year increase.
• The stock price increased by 11.13% in pre-market trading after the earnings release.
• The company is focusing on becoming a pure-play power semiconductor firm.
• Strategic investments in power products and market expansion are underway.

Company Performance

MagnaChip demonstrated robust performance in Q4 2024, with revenue increasing by 24% year-over-year, despite a sequential decline of 5.1%. The company is transitioning its focus towards the larger power semiconductor market, which is over ten times larger than its previous OLED DDIC market. This strategic pivot is expected to drive long-term growth.

Financial Highlights

• Revenue: $63 million, up 24% YoY, down 5.1% QoQ
• EPS: $0.07, significantly above the forecast of -$0.29
• Gross Profit Margin: 25.2%, up 2.5 percentage points YoY
• Operating Loss: $15.7 million; Adjusted Operating Loss: $7 million
• Cash Balance: $138.6 million, up from $121.1 million in Q3

Earnings vs. Forecast

MagnaChip’s Q4 2024 EPS of $0.07 outperformed the forecast by $0.36, marking a significant positive surprise. The revenue of $63 million also exceeded expectations by $2.01 million. These results reflect the company’s successful strategic shift and operational efficiencies.

Market Reaction

Following the earnings announcement, MagnaChip’s stock surged by 11.13% in pre-market trading, reaching $4.49. This movement reflects investor confidence in the company’s strategic direction and financial performance. The stock’s current price remains within its 52-week range, with a high of $6 and a low of $3.56.

Outlook & Guidance

For Q1 2025, MagnaChip forecasts revenue between $42 million and $47 million, with expectations for mid to high single-digit growth for the full year. The company aims to achieve quarterly adjusted EBITDA breakeven by Q4 2025 and targets $300 million in annual revenue with a 30% gross margin within three years. This guidance underscores the company’s optimistic outlook and commitment to growth. With a market capitalization of $150.3 million and beta of 0.59, InvestingPro subscribers can access detailed financial health scores and comprehensive valuation metrics to better evaluate this growth trajectory.

Executive Commentary

CEO YJ Kim emphasized the strategic shift towards power semiconductors, stating, "The pure play power strategy we announced today focuses on shareholder value and prioritizes a return to profitability." He also highlighted the market potential, noting, "We see a great market opportunity in power semiconductors, which is greater than 10 times larger than the OLED DDIC market."

Risks and Challenges

• The transition to a pure-play power company may face execution risks.
• Market volatility and economic uncertainties could affect demand.
• The strategic shift requires significant capital investment, posing financial risks.
• Competition in the power semiconductor market remains intense.
• Supply chain disruptions could impact production and delivery timelines.

Q&A

During the earnings call, analysts inquired about market growth drivers and gross margin challenges related to the fab transition. The company confirmed exploring multiple strategic alternatives for its display business, indicating a proactive approach to addressing market dynamics and optimizing its portfolio.

Full transcript - MagnaChip Semiconductor Corp (MX) Q4 2024:

Conference Operator: Good day and thank you for standing by. Welcome to the MagnaChip Semiconductor Corporation Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to your speaker today, Stephen Pelayo, Investor Relations. Please go ahead.

Stephen Pelayo, Investor Relations, MagnaChip Semiconductor: Great. Thank you. Hello, everyone. Thank you for joining us to discuss Magachip’s financial results for the fourth quarter and full year ended 12/31/2024. The fourth quarter earnings release that was issued today before the market open can be found on the company’s Investor Relations website.

A webcast replay of today’s call will be archived on our website shortly afterwards. Joining me today are YJ Kim, MagnaChip’s Chief Executive Officer and Shinyoung Park, our Chief Financial Officer. YJ will discuss the company’s recent operating performance and business overview and Shinyoung will review financial results for the quarter and provide guidance for the first quarter and full year of 2025. There will be a Q and 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 are subject to risks and uncertainties 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’ll now turn the call over to YJ Kim. YJ?

YJ Kim, Chief Executive Officer, MagnaChip Semiconductor: Hello, everyone, and thank you for joining us today, and welcome to Magnet Ship’s Q4 earnings call. In addition to sharing Q4 earnings results, Magnet Ship 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 sales side analyst briefing later this morning to provide additional color on our strategy. As part of that strategy, we also announced today that Magnatrip is exploring all possible strategic options for the display business. This was a 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 Power Discrete and Power IC. 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 am voluntarily cutting my current base salary by 20%. And Shin Hyang Park, our CFO, has also agreed to a 10% voluntary decrease of our current base salary until such time as MagnaChip achieves positive GAAP operating income for two consecutive quarters. Unlike the display business, which primarily is served by a few panel customers, MagnaChip’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 ’20 ’20 ’5, the display business will be classified as a discontinued operations beginning with our Q1 twenty twenty five financials. Xinyoung 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 MagnetoTrip business from continuing operations will achieve quarterly adjusted EBITDA breakeven by the end of Q4 ’20 ’20 ’5, followed by positive adjusted operating income in 2026 and positive adjusted free cash flow in 2027.

Each of these targets will act as milestone towards achieving a goal in three years to reach a $300,000,000 annual revenue run rate with a 30% gross margin target. We’re calling this three year objective our three-three-three strategy. Net Engine’s power business is now entering a new phase that we call Phase III. During Phase I was our initial market entry and foundation period between 02/2012 and primary focus on mobile phones. Phase II was our market expansion into consumer home appliances, computing, smartphone, e bikes, 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 one kilowatt applications such as TVs, 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 anode storage, automation and robotics, as well as automotive and AI data center opportunities up to 100,000 kilowatt and above. Our Phase III strategy is underway now with today’s launch of series of next generation power products, including Gen five and Gen six LGBT, Gen six superjunction MOSFETs and Gen eight medium and low voltage MOSFETs.

We expect to release over 40 new generation Phase three products in 2025 with 27 new generation products launching in Q4 twenty twenty five with fully qualified commercial samples available. Launching in Q1. Q1 ’20 ’20 ’5, sorry, launching right now in Q1 twenty twenty five. And with our current product pipeline, we expect to increase the number of Phase III 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 fab.

For example, our Gen six Super Junction power devices not only deliver superior performance compared to the previous generation, but will also offer 30% more diaphragm wafer. Therefore, these new products, when fully ramped with 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 management, such as automotive, industrial and AI applications. We are targeting automotive, industrial and AI to represent more than 60% of MagnaChip’s future product mix, up from 30% in 2024. Notably So 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 $65,000,000 to $70,000,000 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 twenty twenty six, we expect almost half of our manufacturing capacity in the Goomy 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 twenty twenty four results. Q4 revenue was $63,000,000 up 24% year over year and down 5.1% sequentially. Consolidated Q4 revenue was above the midpoint of our guidance range of $59,000,000 to $64,000,000 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%. Sriniang will provide more details in our section.

Revenue in Q4 for our standard products business was $60,700,000 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 twenty twenty four.

Now I provide more details via business line. Reporting PAS revenue was $43,500,000 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 e mobility and battery management systems in China, deeper penetration within Korea smartphone 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 slightly 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 experienced strong growth. From a product perspective, we benefit from design wins for our Gen5 and Gen6 IGBT and Super Junction products in solar and motor drive applications. Despite motor’s 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 trends in home appliances for broadening a variable of 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 offset by declines elsewhere. Overall, the consumer market accounted for 35% of PAS revenue in 2024. The communication market represented 15% of PAS revenue in 2024 and increased more than 50% year over year fueled by design wins for battery effect in mainstream and flagship portable and AI enabled smartphones in Korea, along with expanding adoption in wearables, tablets and AI 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 twenty twenty four, driven by demand from China for PC and laptop power adapters. Finally, the automotive market was less than 5% of PS revenue in 2024 and outperformed 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 in China. Our applications span a wide range of vehicle subsystems with the recent design win for heater application with a China OEM. This adds to previous wins in power outlets and idle stopco functionality announced last quarter.

In summary, the sequential decline in Q4 for PAS was mostly in line with typical seasonal patterns, while the sequential strength in communications was 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 new delivering a strong new product pipeline for Power. We believe many of these new products will have similar performance to Tier one suppliers, which will give us an opportunity to penetrate new markets and help fill idyllumifac capacity created by the fader of the traditional foundry service business. We will share more details on our power business in the analyst briefing later this morning.

Turning to MSS. Q4 revenue was $17,300,000 up 102% year over year and up 5.1% sequentially. Including Power IC, MSS represented

Shinyoung Park, Chief Financial Officer, MagnaChip Semiconductor: 28.5%

YJ Kim, Chief Executive Officer, MagnaChip Semiconductor: of standard products revenue and slightly exceeded the high end of our guidance range of $15,000,000 to $17,000,000 Power IC revenue was relatively flat sequentially at 5,400,000 and increased 62.4% 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 Shingo to give you more details of our financial performance in the fourth quarter and provide Q1 and full year 2025 guidance. Xinya?

Shinyoung Park, Chief Financial Officer, MagnaChip Semiconductor: Thank you, IJ, and welcome everyone on the call. Let’s start with the key financial metrics for Q4. Total revenue in Q4 was $63,000,000 which came above the midpoint of our guidance range of $1,000,000 to $64,000,000 This was up 24% year over year and down 5.1% sequentially. Revenue from MSS business was $17,300,000 slightly exceeding the high end of our guidance range of $15,000,000 to $17,000,000 This was up 102% year over year and up 5.1% sequentially, primarily due to relative strength in automotive. PA and business revenue was $43,500,000 and was in line with the midpoint of our guidance range of $42,000,000 to $45,000,000 This was up 33.2% year over year and down 8.7% sequentially, primarily reflecting seasonality.

Revenue from transitional laundry services was down 5.9% sequentially at $2,300,000 and down from $9,600,000 in Q4 twenty twenty three as this business has been wound down as we’ve explained previously. Consolidated restructuring margin in Q4 was 25.2%, exceeding the high end of our guidance range of 21.5% to twenty three point five percent, up from 22.7% year over year and up from 23.3% sequentially. And then since gross profit margin in Q4 was 41.8% above the high end of the guidance range of 37.5% to 40.5%, up from 41.3% in Q4 twenty twenty three and up from 38.7% in Q3 twenty twenty four. Year over year improvement was primarily attributable to higher automotive and power IC revenue and despite lower than expected mobile display revenue. PA’s gross profit margin in Q4 was 20.5%, above the guidance range of 17% to 19%, up from 18.1% in Q4 twenty twenty three and up from 19.4% in Q3 twenty twenty four.

The upside versus guidance year over year and sequential improvement was mostly due to stronger than expected U. S. Dollar against the Korean won. Turning now to operating expenses. Q4 SG and A was $12,000,000 as compared to $12,100,000 in Q3 twenty twenty four and $12,100,000 in Q4 twenty twenty three.

Q4 R and D was $13,000,000 as compared to $14,400,000 in Q3 twenty twenty four and $15,400,000 in Q4 last year. As a reminder, R and D expense fluctuates quarter over quarter due to the timing and number of products in development. Stock compensation charges including operating expenses were $2,000,000 in Q4 compared to $1,800,000 in Q3 and $1,700,000 in Q4 last year. These charges fluctuate every quarter depending on the timing and the size of stock over grades. Q4 operating loss was $15,700,000 This compares to an operating loss of $11,000,000 in Q3 and an operating loss of $15,900,000 in Q4 twenty twenty three.

In Q4 twenty twenty four, ’4 point ’6 million dollars loss was recorded as a one time non cash impairment charge associated with the display deniers in accordance with U. S. GAAP. In the same period, RMB2 million was also recorded as other charges, which represent a one time cumulative financial impact in connection with certain Korea mandated employee benefits. On an non GAAP basis, Q4 adjusted operating loss was $7,000,000 compared to an adjusted operating loss of $9,000,000 in Q3 and an adjusted operating loss of $14,100,000 in Q4 last year.

Net loss in Q4 was $16,300,000 as compared with a net loss of $9,600,000 in Q3 and a net loss of $6,000,000 in Q4 last year. A substantial portion of our net foreign currency gain or loss is associated with intercompany long term loans, which are denominated in U. S. Dollars and affected by changes in the exchange rate between the Korean won and the U. S.

Dollar. Therefore, the net loss in Q4 twenty twenty four on a GAAP basis had differed compared with a year ago or a quarter ago as the Korean won depreciated relative to U. S. Dollar in Q4 twenty twenty four, whereas the Korean was appreciated during Q3 twenty twenty four and Q4 twenty twenty three. However, this financial loss is not necessarily a relevant measure of our operating performance as we cannot control the size of the effect and the aforementioned net foreign currency gain on loss is a non cash item.

Q4 adjusted EBITDA was negative $2,600,000 This compares to a negative $4,900,000 in Q3 and negative $10,000,000 in Q4 last year. Our GAAP diluted loss per share in Q4 was $0.44 as compared with diluted loss per share of $0.26 in Q3 and diluted loss per share of $0.16 in Q4 last year. Our non GAAP diluted earnings per share in Q4 was $0.07 This compares with a non GAAP diluted loss per share of $0.34 in Q3 and non GAAP diluted loss per share of $0.21 in Q4 last year. Our weighted average non GAAP diluted shares outstanding for the quarter were 37,700,000 shares and 37,500,000.0 shares in Q3 and 38,800,000.0 shares in Q4 twenty twenty three. Under our 50,000,000 stock buyback program authorized in July 2023, we repurchased in Q4 twenty twenty four approximately 700,000.0 shares for an aggregate purchase price of $2,900,000 leaving about $24,600,000 remaining authorization as of 12/31/2024.

Moving to the balance sheet. We ended Q4 with cash of $138,600,000 At the end of Q3, we had a cash of $121,100,000 and $30,000,000 non redeemable short term financial investment, which was transitioned back to cash on 11/05/2024. The primary cash outflow during the quarter was approximately $7,400,000 of CapEx and $2,900,000 of stock buybacks. Net accounts receivable at the end of the quarter totaled $28,400,000 and $28,700,000 at the end of Q3 twenty twenty four. Our days there is outstanding for Q4 was forty one days and compares to forty days in Q3.

Our average days in inventory for Q4 was sixty days and compares to sixty five days in Q3. Inventories net at the end of the quarter toward $30,500,000 and $36,100,000 at the end of Q3 twenty twenty four. Lastly, Q4 CapEx was $7,400,000 As noted previously, our CapEx forecast for the full year 2024 was to spend at the higher end of $10,000,000 to $12,000,000 range and we spent $11,600,000 primarily for our PA estimates and Kumifat. Now let me provide financial related comments regarding our strategy to become a pure play power company. One, effective 01/01/2025, we transferred the power IC portion of MSS to MegaNetchi Semiconductor Limited, our existing Korean operating company, where the PAS business line already reside.

Together, PAS, which is our Power Discrete business and Power IC comprise our Power Solutions business line, which represents Magnitude’s going forward continuing operations. Two, with our strategy to become a pure play power company, we expect the display business to be classified as discontinued operations beginning in our Q1 twenty twenty five financials and reported separately from our continuing operations that will comprise PAS and Power IC business lines. As a reminder, we had longed down transitional boundary services by the end of twenty twenty four and do not expect to report such revenue separately beginning with Q1 twenty twenty five financial returns. Three, YJ mentioned earlier that we expect over time to achieve higher revenue per wafer and improved product mix at our Kumiya fab. To achieve those goals, we currently expect to invest approximately $65,000,000 to $70,000,000 over three years to upgrade at the Gumi fab.

In 2025, we expect total CapEx including maintenance to be in the range of $26,000,000 to $28,000,000 which includes approximately $14,000,000 to $15,000,000 to upgrade the Kumi fab. Total CapEx in 2024 was $11,600,000 The depreciation cost from the new investment in the Kumi facility won’t begin to be fully reflected in our financial statements until 2027. At that time, we anticipate that a more robust portfolio of new generation power products will at least partially offset the impact. It is important to note that from a cash management standpoint, the CapEx investment in Gumi will be partially funded through a previously announced $26,500,000 of equipment financial credit agreement. This is tied to specific equipment purchases or upgrades in our equipment fab.

This new investment equipment is expected to drive development of the new generation power product portfolio and upgrade new tools to optimize product mix and improve gross profit margin. Four, as a result of the strategy changes we are making, we are now targeting quarterly adjusted EBITDA from continuing operations to be breakeven by the end of Q4 twenty twenty five. To achieve this, we’ll explore and execute all available cost reduction initiatives to align our spending levels with a strategy to become a pure play power company, while enabling us to continue to make progress towards our three-three-three strategy. Now moving to our first quarter and full year 2025 guidance. While actual results may vary, for Q1 twenty twenty five, Magna to currently expect consolidated revenue from continuing operations, which includes Power Discrete and Power IC businesses and excludes our formal display business to be in the range of $42,000,000 to $47,000,000 down 8.9% sequentially due primarily to seasonality, but up 11.5% year over year at the midpoint.

This compares with equivalent revenue of $48,900,000 in Q4 twenty twenty four and $39,900,000 in Q1 twenty twenty four. Consolidated gross profit margin from continuing operations to be in the range of 18.5% to 20.5% due to the seasonal sequential decline in revenue and the wind down of transition of larger services impacting fab utilization. This compares with equivalent gross profit margin of 23.2% in Q4 twenty twenty four and seventeen point six percent in Q1 twenty twenty four. For the full year 2025, which was at the stage to become a pure play power company, we currently expect consolidated revenue from continuing operations to grow mid to high single digit year over year as compared with equivalent revenue of $185,800,000 in 2024. Consolidated gross profit margin from continuing operations between 19.5% to 21.5%, reflecting the fact that we have completed the wind down of transition of laundry services and new generation power products will just begin production in the second half twenty twenty five.

This equivalent gross profit margin was 21.5% in 2024. Thank you. And now, I’ll turn the call back over to YJ for his final remarks. YJ?

YJ Kim, Chief Executive Officer, MagnaChip Semiconductor: The pure play power strategy we announced today focuses on shareholder value and prioritizes a return to profitability, supported by clearly articulated and transparent short and medium term financial targets. We see a great market opportunity in power semiconductors, which is greater than 10 times larger than the OLED DDIC market. We have a proven track record in power with design, manufacturing and shipping more than 23,000,000,000 units during the past eighteen years. The primary goal of our March strategy are to reach a $300,000,000 annual revenue runway with 30% gross margin in the next three years. We are excited about the large rollout of our new generation products happening now through 2026.

These products address higher valued markets with better performance and lower costs. We are upgrading our boomy fab to manufacture more of these new generation products. Our plan is to convert the fab to serve 70% of the capacity with new products. These will help optimize our Gumi fab for better profitability. As I’ve said in the past, we are focused on maximizing shareholder value and we believe prioritizing a return to profitability by focusing on the power business offers our shareholders the greatest potential.

In addition to our medium term or three year goals, we have set very specific short term milestones after the display business have been discontinued. These milestones including achieving from continuing operations: one, quarterly adjusted EBITDA breakeven by the end of Q4 twenty twenty five followed by two, positive adjusted operating income in 2026 and three, positive adjusted free cash flow in 2027.

Stephen Pelayo, Investor Relations, MagnaChip Semiconductor: Now, I will turn the call back to Steven. Steven? Thanks. That concludes our prepared remarks. Now let’s open the call for any questions that you may have.

Operator, please go ahead.

Shinyoung Park, Chief Financial Officer, MagnaChip Semiconductor: Thank you.

Conference Operator: Our first question comes from the line of Suji Desilva with Roth Capital. Your line is now open.

Suji Desilva, Analyst, Roth Capital: Good morning, YJ, Shingyong, best of luck on the strategic transition here. Maybe you could talk first, YJ, about the Power segment, the end markets you think will drive the mid single that will most drive the mid high single digit year over year growth in 2025 as a starting point, which end markets you think would be the most best contributors there?

YJ Kim, Chief Executive Officer, MagnaChip Semiconductor: Yes. In 2025, I think it’s evenly distributed to the strength, whole deals in consumer communication computing, but with the new generation that we just launched 27 new products, we think that will help us grow more into the AI computing area as well as industrial and automotive.

Suji Desilva, Analyst, Roth Capital: Okay, that’s helpful. And then the profitability targets, the gross margin, Xinyang maybe what are the drivers of gross margin improvement near term? Just to understand from the Power business, what were the key elements there of trending gross margin up towards the 30% long term target?

Shinyoung Park, Chief Financial Officer, MagnaChip Semiconductor: Yes. So for the near term, at least for 2025, we gave the annual outlook, that’s going to be 100 basis points lower than 2024. And that’s mainly because of the fact that we’ve wound down the transition of Ontario Services, the fabs we have. So that’s impacting our utilization. And also our new power generation product will be just begin production in the second half of twenty twenty five.

So that’s the near tomorrow look. But to achieve the March strategy, we’re going to have a new car product coming out starting in the second half and more in 2026. And YJ said about half of the our 2026 revenue will be coming from the new generation power product. So we’re going to increase the portion of the new by the end of the next year. So we are going to increase the portion of that.

And with that, the more new generation product contribution and also you’re realizing our GumiFap is that the high end market targeted product, we can expand our gross margin in the longer term.

Suji Desilva, Analyst, Roth Capital: Okay. That’s helpful, Shiyang. Maybe one last question, Wai Jae, on the cash balance and the balance sheet and the use of the proceeds. I know you’re going to be use of the cash and then potential proceeds from the restructuring. I know you’re going to have CapEx needs in the next few years, but are there any thoughts on the use of the cash, perhaps buybacks or other inorganic activity?

Any color there would be helpful.

YJ Kim, Chief Executive Officer, MagnaChip Semiconductor: Yes, Susan, very good. So as you saw today, we announced we’re going to spend $65,000,000 to $70,000,000 upgrading our facility in Kumi. And that’s where we’re going to richly support quick transition to make the new products. And that’s one of the key area of our spending, so to improve the profitability and product mix.

Shinyoung Park, Chief Financial Officer, MagnaChip Semiconductor: Yes, Suji, that $65,000,000 to $70,000,000 spending will going to be spent, I mean, invested in over three years, not like everything in like 2025. And also, as I mentioned, we actually have a $26,500,000,000 of the credit line, if we open with a bank in Korea, which is actually the interest rate is less than four percent and ten year maturity. So with a three year interest only and the amortizing payment afterwards. So that we can actually partially fund the our intended investment in Kumifat and that’s what’s going to we’re going to manage our cash balance on the balance sheet.

Suji Desilva, Analyst, Roth Capital: Okay. All right. Thanks.

YJ Kim, Chief Executive Officer, MagnaChip Semiconductor: Thank you.

Conference Operator: Our next question comes from the line of Nicholas Doyle with Needham. Your line is now open.

Nicholas Doyle, Analyst, Needham: Hi guys. Thanks for letting me ask a question. Struggling a bit with the calendar 2025 gross margin guide. Is the Gumi fab headwind a bit stronger in 2Q or maybe even further into 2025? Or is that greater impact from the underutilization?

Or is that the Power IC business just operates lower margin versus display. I mean, I know you talked about these new products ramping and that impacts as well, but any more color would be helpful. Thanks.

Shinyoung Park, Chief Financial Officer, MagnaChip Semiconductor: Nick, probably like if you look at 2024, we still had $10,600,000 of the voluntary services revenue, which we produced in our Rycomi fab. So though that voluntary service revenue, I mean, the portion has negative margin that was actually helping to share the fixed cost in our Rycomi fab. Now we’ve wound down the business completely by the end of Q4 last year. That means about 20 of our Kumi fat and the facility is actually idle. So that portion has to be converted.

But as we explained previous I mean during the call, we are going to do that not only to just increase the capacity, we are going to upgrade the community facility to support the more to support the higher the new generation power product going forward. So that I mean transition will take time and that’s why we’re going to invest in ComiFab for three years. So that under utilization from the phase out of transition of boundary services and also the new power product just begin the production in the second half of twenty twenty five were going to impact the 2025 gross margin for the whole company. So the first half, we are getting the growth impact first half obviously because we’re going to get the benefit from the new generation power products starting in the second half. So you’re going to see a little improvement in the second half, but the first half you’re going to see both impact like impacting the utilization rate like adversely you’re seeing that impact for the overall.

Nicholas Doyle, Analyst, Needham: Okay. That makes sense. And what kind of OpEx level do you assume to get to that positive adjusted EBITDA by 2Q twenty twenty five? Thanks.

Shinyoung Park, Chief Financial Officer, MagnaChip Semiconductor: So for the OpEx, I mean, Nick, you know that we actually the share service and the overhead function supported both display and power together. So there’s got to be some efficiency in there too. But roughly speaking, like I think probably 35% to 40% of our OpEx was tied to the display business.

YJ Kim, Chief Executive Officer, MagnaChip Semiconductor: And the other thing, Nick, you asked about Power IC. Power IC is not made in Qumit Fab. It’s a pure fabless and Power IC typically has around 40% gross margin, which is much better gross margin product line. Very helpful. Thank you.

Shinyoung Park, Chief Financial Officer, MagnaChip Semiconductor: Thank you.

Conference Operator: Our next question comes from the line of Martin Yang with OpCo. Your line is now open.

Martin Yang, Analyst, OpCo: Thank you for taking the question. My first question on power, especially when you look at your approach to high value markets like industrial AI. Can you maybe talk about does it require you to take a new go to market strategy? How do you go about attacking those higher value customer base or segments?

YJ Kim, Chief Executive Officer, MagnaChip Semiconductor: Yes. So as I explained, initially when we came out this power business eighteen years ago, we addressed less than 100 watt application. And with the new generation, second generation, we went up to 10 kilowatt or mostly 1,000 watt where we became number one in our target accounts. Now with the new generation super junction and Gen eight MB MOSFETs, the products are about 30% to 40% better performance than the previous generation. Yet the cost is we can produce 30% more doubtful wafer.

So that drives higher doubtful wafer or low cost and higher performance. So with that, we will be able to penetrate into more high valued application in the AI server to high end industrial market like energy storage system to automotive inverter, where you can get much better ASP and margin. So that’s our strategy. And we just introduced 27 new products today and full commercial quantified samples are available now. So our goal is to hit the production by the end of this year with those products.

Martin Yang, Analyst, OpCo: Thanks, Raji. My next question is on the display business. When you look at the different strategic alternatives, because this is different from a potential buyout of the company, is it open you to different sets of potential buyers or partners when you explore the display business, alternative solutions?

YJ Kim, Chief Executive Officer, MagnaChip Semiconductor: So we are looking at every option possible. So as you said, the sale of the business or certain assets to joint venture to partnership to even wind down. So we’re looking at all options and we’re going to do it, make sure that our customers are happy and they have seamless transition as well as we abide with any regulation of Korean or U. S. Regulations.

Martin Yang, Analyst, OpCo: Got it. Last question from me is, can you maybe talk a little bit more about the timing of the decision? Any context you could give us on why now?

YJ Kim, Chief Executive Officer, MagnaChip Semiconductor: The timing? Well,

Shinyoung Park, Chief Financial Officer, MagnaChip Semiconductor: as

YJ Kim, Chief Executive Officer, MagnaChip Semiconductor: we said, it was very extreme decision for me personally and also to the Board and the management. But the it is best that we hit the profitability. That’s our number one goal and that’s the highest priority at the best interest of shareholders and stakeholders. So the Power business has a broader range of industry and customers and more stable. We already have more than 200 customers in Asia, whereas the display, as you know, it’s really few panel maker at the customer.

So and depending on their situation, it’s very hard to control the fate of your revenue ramp. So with that, we made a prudent decision to go with the pure play company, where we’re going to restore the profitability back as soon as possible as well as broad perspective to grow. And also you saw, we announced $65,000,000 to $70,000,000 investment. So I think we cannot afford to invest that kind of into businesses. We wouldn’t do that and progress we see and where we’re going to turn around more to quicker profitability is our business and more opportunities.

Yes, makes sense. Thank you. Thank you.

Conference Operator: Thank you. And I’m currently showing no further questions at this time. I’d like to hand the call back over to Stephen Palayo for closing remarks.

Stephen Pelayo, Investor Relations, MagnaChip Semiconductor: Great. Thank you. This concludes our Q4 earnings conference call. Following today’s earnings call, we are hosting an analyst briefing where YJ, Shenyang and other members of management will share more details on today’s announcement. On March, we will be attending the thirty seventh Annual ROTH Conference in Dana Point, California for one on one investor meetings.

Attendance at the conference is by invitation only. For interested investors, please contact your respective sales representative to register and schedule one on one meetings with the management team. That concludes our prepared remarks for our call today. Operator, you may now pardon me, that concludes our remarks. That’s it.

We look forward to meeting with you for future events, and you can find details on those on Magatube’s Investor Relations website. Thank you and take care.

Conference Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.

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