Magnachip Semiconductor Corp. Q3 FY2024 earnings call

• Q3 revenue was $66.5 million, up 8.5% YOY and 25% sequentially, within guidance range. Consolidated gross profit margin 23.3%, down 0.3pp YOY but up 1.5pp QOQ.
• Standard Product business is pure-play, with PAS at 74.3% of revenue. PAS gross margin 19.4%, down YOY due to foundry utilization. MSS gross margin 38.7%, up YOY due to favorable product mix.
• Hired CTO and Assistant GM in PAS with expertise in power semiconductors. MSS making inroads with OLED panel makers and smartphone OEMs, with production ramps on DDICs for smartphones and new product sampling for mid/high-end smartphones and smartwatches.

For the third quarter, Magnachip's Standard Product business had revenue of $64.0 million. PAS (Power Advanced Solutions) represented 74.3% of Standard Product revenue in Q3, with reported revenue of $47.6 million, up 16.1% year-over-year and 21.2% quarter-over-quarter. MSS (Mixed Signal Solutions) revenue was $16.4 million, up 54.5% year-over-year and 41.8% sequentially. PAS revenue growth was broad-based across applications like industrial (solar, lighting, scooters/motorcycles), automotive (design wins in Japan/China), communication (low-voltage MOSFETs for foldables), consumer (TV, home appliances), and computing (PC/laptop power adapters). MSS revenue growth was driven by OLED DDICs for China smartphone OEMs, automotive, and Power IC for OLED IT, with production ramps and new product sampling in OLED driver technology.

• Q4 2024: Consolidated revenue $59M-$64M, MSS $15M-$17M, PAS $42M-$45M. Consolidated gross profit margin 21.5%-23.5%, MSS 37.5%-40.5%, PAS 17%-19%.
• Full-year 2024: MSS and PAS expected to grow double digits YOY. Transitional Foundry Services to be wound down by end of 2024. Consolidated revenue flattish, gross profit margin 21%-22%.

• Transition of foundry capacity from Transitional Foundry Services to standard products may take time, impacting gross margin in the near term. Market uncertainties related to OLED and other display technologies could affect product demand and revenue.

Q: Can you talk about what drives the recovery to target gross margin, especially for PAS?

A: PAS gross margin recovery involves converting foundry capacity to power products, but conversion will take time as it's not overnight. The transition of foundry usage to power products will gradually improve margins but not happen immediately.

Q: On MSS outlook, is the ramp-up lumpy with programs?

A: MSS ramp-up has programs like production of DDICs for smartphones and new product sampling, but guidance for 2025 will be provided later. The product pipeline is improving, but outlook for 2025 isn't currently guided.

Q: On OLED customers, any macro factors affecting customers in 4Q?

A: No significant macro factors seen affecting customers in Q4 compared to Q3, and guidance is based on quarterly visibility with better-than-seasonal expectations.

Q: Thoughts on emerging display technologies like microOLED for AR/VR?

A: Magnachip is a leader in microLED TV for leading TV manufacturers, but no mention of microOLED for VR at present.

Q: Additional factors to MSS gross margin improvement besides product mix?

A: MSS gross margin improvement is due to increase in automotive OLED, Power IC, and other segments with higher gross margins, boosting the overall product mix.