Magnachip Semiconductor Corp. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Announced a new strategy to focus on Power discrete and Power IC businesses, exploring strategic options for the display business. YJ Kim is voluntarily cutting his base salary by 20%, and the CFO is cutting hers by 10% until positive GAAP operating income for two consecutive quarters.
• Power business Phase 3: Expanding into larger markets like automotive, industrial, and AI. Launched over 40 new generation power products in 2025, with 27 new products launching in Q1 2025. Expect to invest $65 million to $70 million over three years to upgrade the Gumi fab.
• Q4 2024 results: Revenue was $63 million, up 24% year-over-year; consolidated gross profit margin was 25.2%, up 2.5 percentage points year-over-year. Standard products business up 13% year-over-year excluding transitional foundry services, with PAS and MSS showing growth in various market segments.

Segment Performance

• Standard Products: Q4 revenue was $63 million, up 24% year-over-year and down 5.1% sequentially. PAS (Power Analog Solution) revenue was $43.5 million, up 33.2% year-over-year and down 8.7% quarter-over-quarter. In Q4, PAS represented 71.5% of standard products revenue. MSS (Micro System Solution) revenue was $17.3 million, up 102% year-over-year and up 5.1% sequentially. On a full year basis, consolidated revenue increased 0.7% in 2024 versus 2023, with the standard product business up 13% year-over-year excluding transitional foundry services.
• Display Business: Magnachip is exploring all possible strategic options for the display business and will classify it as discontinued operations beginning with Q1 2025 financials.

Guidance

• Q1 2025: Consolidated revenue from continuing operations (Power Discrete and Power IC) expected to be in the range of $42 million to $47 million, down 8.9% sequentially due to seasonality but up 11.5% year-over-year. Consolidated gross profit margin from continuing operations expected to be 18.5% to 20.5%.
• Full-Year 2025: Consolidated revenue from continuing operations expected to grow mid to high single digit year-over-year. Consolidated gross profit margin from continuing operations expected to be 19.5% to 21.5%.
• Three-three-three strategy: Aim to reach a $300 million annual revenue run rate with a 30% gross margin target in three years.

Risks

• Uncertainties in executing the strategic shift, including the outcome of exploring strategic options for the display business.
• Impact of exchange rate fluctuations on financial results, as seen in the upside in PAS gross profit margin due to stronger US dollar against Korean won.
• Dependence on successful ramp-up of new generation power products and effective utilization of the upgraded Gumi fab to achieve profitability targets.

Q: End markets driving 2025 growth?

A: In 2025, growth is evenly distributed across consumer, communication, and computing, with new generation products aiding expansion into AI, industrial, and automotive markets.

Q: What are the drivers of gross margin improvement near term?

A: Near term gross margin is impacted by the wind down of transitional foundry services and the start of production of new generation power products in the second half of 2025. Longer term, it will be driven by increased contribution from new generation products and optimized utilization of the Gumi fab.

Q: Thoughts on cash use, including buybacks or inorganic activity?

A: $65 million to $70 million will be invested in upgrading the Gumi fab over three years, partially funded by a $26.5 million equipment financial credit agreement. Focus is on CapEx to support profitability and product mix improvement.

Q: Details on display business strategic alternatives?

A: Exploring all options including sale, joint venture, partnership, or wind down, ensuring customer transition and compliance with regulations.

Q: Timing of display business decision?

A: Necessary to focus on profitable growth in the power business, as display had fewer customers and less stable revenue compared to the broader market reach of the power business.