Q4 2023 Magnachip Semiconductor Corp Earnings Call
Operator: Thank you for standing by, and welcome to the MagnaChip Semi-Conductor Corporation's 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode.
Okay.
Thank you for standing by and welcome to the Black the chips semiconductor Corporation's fourth quarter 2023 earnings conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again.
If your question has been answered and you'd like to remove yourself from the queue. Please press star one again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Steven Pelayo managing director of the Blue shirt group. Please go ahead great.
Operator: As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Steven Pelayo, Managing Director of the Blue Shirt Group. Please go ahead.
Steven Pelayo: Great. Thank you, Jonathan. Hello, everyone.
Steven Pelayo: Thank you for joining us to discuss Magnachips' financial results for the fourth quarter and full year ended December 31st, 2023. The fourth quarter earnings release that was issued today after the market closed 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.
Great. Thank you Jonathan Hello, everyone. Thank you for joining us to discuss magnitude its financial results for the fourth quarter and full year ended December 31, 2023, the fourth quarter earnings release that was issued today. After the market closed can be found on the company's Investor Relations website. The webcast replay of today's call will be archived on our website short.
Steven Pelayo: Joining me today are Y.J. Kim, Magnachips' Chief Executive Officer, and Shin Yong Park, our Chief Financial Officer. Y.J. will discuss the company's recent operating performance, business overview, and directional guidance for 2024, and Shin Yong will review the financial results for the quarter and provide guidance for the first quarter and full year 2024.
Afterwards, joining me today are YJ, Kim magnet chips, Chief Executive Officer, and Shin Young Park, our Chief Financial Officer, YJ will discuss the company's recent operating performance business overview and directional guidance for 2024, and Shenyang will review the financial results for the quarter and provide guidance for the first quarter.
Full year 2020 for YJ will then briefly recap the company's business strategy there'll be a Q&A session. Following the prepared remarks. During the course of this conference call. We may make forward looking statements about <unk> business outlook and expectations are forward looking statements and all other statements that are not historical facts reflect our beliefs and.
Steven Pelayo: will then briefly recap the company's business strategy. 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 Magnachips' business outlook and expectations. Such 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 due to future developments. Except as required by law, the company does not undertake any obligation to update these statements.
Predictions as of today, and therefore are subject to risks and uncertainties as described in the Safe Harbor statement found in our SEC filings such statements are based on.
On 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 also will discuss non-GAAP financial measures. The non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended a couple.
Mineral measures of magnitudes operating performance that may be useful to investors a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our fourth quarter earnings release, and the Investor Relations section of our website with that I'll now turn the call over to YJ Kim YJ.
Hello, everyone and thank you for joining us today and welcome to manage its Q4 earnings call first I believe it's important for investors to understand how our financial results fit into the big picture.
We undergo a substantial transformation in our business over the next couple of years first we had dramatically shifting priorities in our display business to be laser focused primarily on China. This strategy builds upon 20 erasure of OLED driver success, primarily in <unk>.
Steven Pelayo: During the call, we will also discuss non-GAAP financial measures. 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 earnings release under the investor relations section of our website. With that, I'll now turn the call over to Y.J. Kim.
And follows the industry's dramatic shift to China production second we will be working this year and next to Phil ideal Fab capacity, you know call me fab as we transition away from supplying noncore transitional foundry services to higher margin products.
Starting early this year, we began operating under a new structure that streamlines our go to market strategy strengthens the potential for increased shareholder value and also improve transparency for investors, let me provide more detail on each of these transitions.
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Yujia Zhai: Y.J.? Hello everyone. Thank you for joining us today and welcome to Magnet Chit's Q4 Earnings Call. First, I believe it's important for investors to understand how our financial results fit into the big picture as we undergo a substantial transformation in our business over the next couple of years. First, we are dramatically shifting priorities in our display business to be laser-focused primarily on China.
Our first major transition involves China, which is becoming the new center of the OLED display universe, we actually executing on our strategy to penetrate this vibrant market with feature rich OLED standard products and I'm pleased to say, we've made tremendous progress so far.
We've laid the groundwork for success by establishing a China dedicated entity and by building strong working relationship.
With Chinese panel makers, and leading smartphone Oems over the past few quarters, we've doubled our resources and staff in China are messing a team of more than 20 professionals dedicated especially to our OLED display business. In addition, we hired senior advisors.
Yujia Zhai: This strategy builds upon 20 years of OLED driver success primarily in Korea and follows the industry's dramatic shift to Chinese production. Second, we will be working this year and next to fill ideal fab capacity in our Kumi fab as we transition away from supplying non-core transitional foundry services to higher margin power products. And third, starting early this year, we began operating under a new structure that streamlines our go-to-market strategy, strengthens the potential for increased shareholder value, and also improves transparency for investors. Let me provide more detail on each of these transitions.
A top five semiconductor company, the financial services sector, and the China supply chain to help accelerate our progress and I know personally traveled to China are nearly a weekly basis to meet our strategic customers partners and <unk>.
Oems.
Work in China is beginning to pay off we've already secured two smartphone design wins with leading Oems and expect more underway. It's part of our strategy to serve the full spectrum of models from mainstream to more affordable I am confident that the results of our strategy will be.
Some apparent beginning later this year with more significant revenue growth expected in 2025. The second major transition involves the ideal capacity, we expected in our <unk> fab created by the wind down of the our transitional foundry services business.
Yujia Zhai: We plan to fill the ideal capacity with our existing power product portfolio as well as a new slate of next-generation power products that we will introduce over the next several quarters. We believe these products will be on par with some of the best global suppliers of power products. As we've said previously, this fab transition will depress gross margins until we can adequately replace the legacy transitional foundry services business with higher-margin power products. And we intend to share updates on our perspective on this transition on a quarterly basis. To help achieve our goal during these transitions, we've now streamlined the structure of the company by creating two main business entities to better align our product strategies and also to provide more transparency to investors through our new MMS, mixed signal solutions, which includes display and power IC products, and PAS, power analog solutions, our traditional power discrete business.
We plan to fill their ideal capacity with our existing product portfolio as well as a new slate of next generation power products that we will introduce over the next several quarters. We believe these products will be on a par with some of the best global suppliers.
That's better.
We've said previously this fab transition will depress gross margins until we can adequately replace their legacy transitional foundry services business with higher margin products and we intend to share updates on our perspective on this transition on a quarterly basis.
To help achieve our goals during the transitions we have now streamlined the structure of the company by creating two main business entities to better align our product strategies and also to provide more transparency to investors through our new MMS mixed signal.
Our solutions, which includes display and power IC product and P. A S power analog solutions, our traditional power discrete businesses to help investors better track our business progress, we will breakout MSS N P. A S revenue as well.
Yujia Zhai: To help investors better track our business progress, we will break out MSS and PAS revenue as well as gross margin beginning on the Q1 earnings call. The reasons for deciding to separate the standard products business structurally and operate independently are mainly because Display and PowerIC are fabulous, and PowerDiscrete is an IDM business. In addition, the separation allows the following benefits.
Is it gross margin beginning on the Q1 earnings call the reasons for deciding to separate the standard products business structurally and operate independently.
Mainly because display and power IC are fabulous and power discrete is an IDM business.
In addition, the separation allows the following benefits one increase shareholder value by maximizing the valuation of each business. The separation allows a foundation for more efficient and transparent business structure that can fuel sustainable growth through strategic financing and investing.
Yujia Zhai: One, increase shareholder value by maximizing the valuation of each business. The separation allows a foundation for a more efficient and transparent business structure that can fuel sustainable growth through strategic financing and investment. Two, strengthen business performance management by establishing independent and responsible management systems.
Yes.
To strengthen business performance management by establishing independent and responsible management systems, three enhanced flexibility and business portfolio and increased strategic responsiveness. The environment changes, we are confident that the strategies at all.
Yujia Zhai: Three, enhance flexibility in the business portfolio and increase strategic responsiveness to environmental changes. We are confident that the strategies I've outlined will put us on a path to achieve a sustained recovery over the next two years. While we typically provide guidance for one quota only, I feel it's important in the current environment to provide directional guidance for 2024. We currently expect double-digit revenue growth in both the newly organized MSS and PAS businesses. Overall, we expect total company revenue to be flat to slightly up in 2024 over 2023, primarily due to the phase-out of the transitional foundry services. Gross margin for the consolidated company is expected to be in the range of 17% to 20% for the year, severely impacted by the ideal capacity when the traditional foundry service revenue winds down.
Online will put us on a path to achieve a sustained recovery over the next two years.
While we typically provide guidance for one quarter only I feel it's important in the current environment to provide directional guidance for 2024, we currently expect double digit revenue growth in both the newly organized MSS MTS businesses.
Overall, we expect total company revenue to be flat to up slightly in 2024 or 2023, primarily due to the phase out of the transitional foundry services.
Gross margin for the consolidated company is expected to be in the range of 17% to 20% it for the year severely impacted by the ideal capacity when the transitional foundry services revenue winds down while the near term outcome is disappointing vessel sure that my team and I.
Yujia Zhai: While the near-term outcome is disappointing, rest assured that my team and I are committed to working every day on behalf of our shareholders to improve the results. Now that I have provided a big picture context, let's review our Q4 results. Revenue was $50.8 million, and gross margin was 22.7%, both near the low end of our guidance range. During the quarter, our OLED business was impacted by slower design and progress than expected due to longer OEM evaluation cycles. During Q4, we also embarked on another key OLED project aimed at diversifying our customer base to enter the smartwatch display market. Our power business results were down 20.5% sequentially, primarily due to the ongoing inventory correction in industrial end markets, particularly in China's e-bike market and the solar sector.
I am committed to working every day on behalf of our shareholders to improve the results.
Now that I provided a better picture context, let's review our Q4 results.
Revenue was $50 8 million and gross margin was 22, 7% was near the low end about guidance range during the quarter. Our OLED business was impacted by slower design win progress than expected due to longer OEM evaluation cycles. During Q4, we also embarked on.
Another key OLED project aimed at diversifying our customer base to enter the smartwatch display market. Our power business results were down 25% sequentially, primarily due to the ongoing immaterial correction in industrial end markets, particularly in China's E bike market.
And the solar sector.
Yujia Zhai: Now, let me provide updates on each of our businesses under the 2023 Financial Reporting Convention. Beginning with our display business, Q4 revenue was in line with our expectation at $5.2 million, down 30.8% year-over-year and 18% for 18.3% sequentially. We received our first pilot production purchase order in China for our first trip from an after-service market player during the December quarter, and we are making progress on many additional fronts.
Now, let me provide updates to each of our business under the 2023 financial reporting convention beginning.
Beginning with our display business Q4 revenue was in line with our expectations at $5 2 million down 38% year over year and 18%.
18, 3% sequentially.
We received our first pilot production purchase order in China for our first chip from an App to service market player. During the December quarter, and we are making progress on many additional fronts, especially weekly Q4 marked the beginning of initial shipments in.
Yujia Zhai: Specifically, Q4 marked the beginning of initial shipments in China of our first OLED DDI chip that we taped out in 2022. In Q4 2023, we were awarded our first design win and related PO for the after-service market. While its immediate financial contribution is expected to be modest, it marks our first pilot production PO in China and is a significant step towards the acceptance of our product capabilities as well as our team's efforts. Moving on to our current generation of OLED DVI-C products.
Our in China of our first OLED DDI chip that we taped out in 2022 in Q4 2023, we were awarded our first design win and related appeal for their App to service market, while its immediate financial contribution expected to be modest in March.
Our first pilot production in China and is a significant step towards the acceptance of our product capabilities as well as our teams efforts.
Moving on to our current generation of OLED TV product, our third OLED <unk> chips successfully completed designing evaluation at a leading Chinese smartphone OEM and being a sign of high volume model for launch in Q2 2020 for this.
Yujia Zhai: Our third OLED DVI-C chip successfully completed design and evaluation at a leading Chinese smartphone OEM and has been assigned a high-volume model for launch in Q2 2024. This resulted in a design win with obtaining pilot production PO as a second source supplier. For this leading Chinese smartphone OEM, we've been qualified and added to their approved vendor list. Moreover, we've been chosen to also work with them on their fall model, with our next generation chip, which we prioritize and will sample next quarter. Additionally, our second chip is still going through the design in evaluation phase at a global smartphone OEM. We will provide an update on this once we receive the status of the OEM evaluation. Last year, we announced that we began developing another OLED DDI chip targeted at the fast-growing portable smartphone market. Third-party research firm China Security estimates global portable handsets are projected to grow over 50% a year over year the next few years and reach over 100 million units by 2027 from just approximately 15 million units today.
Resulted in a design win with obtaining pilot production P O as a second source supplier for this leading Chinese smartphone OEM, we have been qualified and Eddie to their proven the list more we've been chosen to also work with them on their fall model.
With our next generation chip, which we prioritize and where sample next quarter.
Additionally, our second chip is still going through design and evaluation phase at a global smartphone OEM, we will provide an update on this once we receive the status from the Oems evaluation.
Mid last year, we announced that we began developing another OLED DDI chip targeted for fast growing smartphone market third party research from China Security. These estimates global photovoltaic sets are projected to grow over 50% on a year over year.
The next few years and rich over 100 million units by 2027 from just approximately 15 million units today.
Yujia Zhai: Finally, we are excited to announce that we partnered with a watch solution maker in China during Q4 to develop a new product targeting the OLED smartwatch display market. This is an adjacent market where we are applying our smartphone DDIC technology know-how and development expertise. The delivery of the first sample is expected in mid-2024.
Finally, we're excited to announce that we partner with our watch solution maker in China during Q4 to develop a new product targeting the OLED smartwatch display market.
Is an adjacent market, we are applying our smartphone DVI technology Knowhow and development expertise the delivery of first sample is expected in mid 2020 for this initiative demonstrates our strategy to expand into new high growth markets with new product offerings that show.
Yujia Zhai: This initiative demonstrates our strategy to expand into new high-gross markets with new product offerings that showcase our ability to innovate across segments. With regard to our OLED automotive business, we began production shipments to our large Korean panel maker for three different car models from two top-tier European car manufacturers between May and July 2023. Modest revenue from those devices began on May 23, and is expected to continue for a few years, given longer automotive cycles. Moving on to our power business. Q4 revenue was $36 million, down 22.3% year-over-year and 20.5% sequentially. sequentially, our power business was impacted by an ongoing inventory correction in industrial and markets, particularly e-bike and solar. We also saw weakness in consumer TV and PC power.
Okay, I will need to innovate across segments.
With regard to our OLED automobile business, we began production shipments to our large Korean panel maker for three different car models from two top tier European car manufacturers between May and July 2023 modest revenue from those devices.
And in May 23, and is expected to continue for a few years given longer automotive cycles. All of these efforts underscore our commitment to innovation and market expansion.
Moving on to our power business Q4 revenue was $36 million down 22, 3% of your year over year and 25% sequentially.
Sequentially, our power business was impacted by an ongoing inventory correction in industrial end markets, particularly E bike and solar we also saw weakness in consumer TV and PC power on a positive note. We secured two new smartphone design wins for our low voltage <unk>.
Yujia Zhai: On a positive note, we secured two new smartphone design wins for our low-voltage MOSFET family, which grew more than 20% sequentially in the fourth quarter for that product family. While the overall power business results in the fourth quarter were disappointing, we currently expect a gradual recovery in our power business in the first half of the year with increased momentum in the second half. Our major markets, such as consumer, computing, and communication, already underwent a major inventory correction over the last year. We continue to focus on execution in Q4.
Fat family, which grew more than 20% sequentially in the fourth quarter for that product family.
While the overall power business results in the fourth quarter was disappointing. We currently expect a gradual recovery in our power business in the first half of the year with increased momentum in the second half our major markets such as consumer computing and communications already underwent a major inventory correction over the long.
Last year.
We continue to focus on execution in Q4, we developed and launched new power products and saw strong momentum in our design win activities. In Q4, we secured a new design win and began mass production for a major U S. Automotive brand that would contribute to revenue growth in 2024.
Yujia Zhai: We developed and launched new power products and saw strong momentum in our design win activities. In Q4, we secured a new design win and began mass production for a major US automotive brand that would contribute to revenue growth in 2024. I am extremely proud of the progress we've made in our automotive business, as revenue for the full year 2023 is up over three times compared to 2022. I look forward to building on this momentum in the coming years. We also continue to innovate. In October, we announced two new 650-volt superjunction MOSFETs that reduced the overall footprint by nearly 60% as compared to other products from competitors. These new MOSFETs offer excellent design flexibility, efficient heat dissipation, and low resistance characteristics.
I am extremely proud of the progress we've made in our automotive business as revenue for the full year 2023 is up over three times compared to 2022 and look forward to building on this momentum in coming years.
We also continued to innovate in October we announced two new 650 volt Super junction MOSFET that reduce the overall footprint by nearly 60% as compared to other products from competitors. These new MOSFET offer excellent design flexibility efficient heat.
This patient and low resistance characteristics as a result, they are well suited for various application they require compact size and high efficiencies such as OLED Tvs servers lining products and laptop Chargers and adapters in summary, our power business.
Yujia Zhai: As a result, they are well-suited for various applications that require compact size and high efficiency, such as OLED TVs, servers, lightning products, and laptop chargers and adapters. In summary, our power business, and our product portfolio are getting stronger as we continue to focus on rolling out our next generation power products to maintain our momentum of design ends and wins. These new products will provide the foundation to fill our Gumi fab, achieve better margins, and help us get back to profitability. Entire families of our next generation products will be available in 2024. We will be releasing the next-generation 650-volt IGBT in the first half of 2024, followed by 6th-generation superjunction MOSFETs and 6th-generation IGBTs in Q3 of this year, and 8th-generation medium-voltage MOSFETs and 8th-generation low-voltage MOSFETs in Q4 of this year.
As our product folio is getting stronger as we continue to focus on rolling out our next generation power power.
Our products to maintain our momentum of design ins and wins. These new products will provide a foundation to fill our gumi fab achieve better margin and help us get back to profitability and tie your families. Our next generation products will be forthcoming in 2000.
24.
We will be releasing the next generation 650 volt IGT in the first half 2024, followed by sixth generation Super Junction MOSFET and sixth generation RGB keys in Q3 of this year and as generation medium voltage MOSFET and agent generation low.
Voltage MOSFET in Q4 of this year.
Yujia Zhai: We expect these next-generation product families to match or surpass the performance of our Tier 1 competitors. This will position us well to compete for high-end industrial and automotive markets, as well as serve our existing markets, such as consumer computing and communications, better. Additionally, we will be introducing a new line of commodity products by the end of the fourth quarter to improve fab utilization. I'll come back to wrap up the call after Shin-Young gives you more details of our financial performance in the fourth quarter and provides Q1 and full year 2024 guidance. Shin-Young?
We expect these next generation product families to match or surpass the performance of our tier one competitors. This will position us well to compete for high end industrial and auto loan market as well as serve our existing markets such as consumer computing and communications better. Additionally.
Ali we will be introducing a new lineup of commodity products by the end of the fourth quarter to improved fab utilization.
Come back.
To wrap up the call. After <unk> gives you more details of our financial performance in the fourth quarter and provide Q1 and full year 2024 guidance Changyou. Thank you <unk> and welcome to everyone on the call, let's start with key financial metrics for Q4 total revenue in Q4 was $50 8 million.
Shin Young Park: Thank you, I.J., and welcome to everyone on the call. Let's start with key financial metrics for Q4. Total revenue in Q4 was $50.8 million, down 17% sequentially and down 16.7% year-over-year. Revenue from the center proxeness was $41.2 million, and revenue from transitional funder services was $9.6 million. We didn't send our products.
<unk> thousand 17% sequentially and down 16, 7% year over year.
Revenue from <unk> was $41 $2 million in revenue from transitional foundry services.
<unk> $9 $6 million. We then send our product display business revenue was $5 $2 million and power business revenue was $36 million.
Shin Young Park: Display business revenue was $5.2 million, and power business revenue was $36 million. Gross margin in Q4 was 22.7%, down from 23.6% in Q3, mainly driven by lower fab utilization. Compared to the same period last year, gross margin decreased 370 basis points from 26.4%, primarily as a result of unfavorable product mix, lower fab utilization, and higher fab costs.
Gross margin in Q4 was 22, 7% down from 23, 6% in Q3, mainly driven by lower fab utilization compared to the same period last year gross margin decreased 370 basis points from 26, 4% primarily as a result.
Favorable product mix, lower fab utilization and higher freight costs going forward. Please keep in mind that there likely will be more volatility in our gross margin due to the relative sizes of the newly organized businesses on a standalone basis.
Shin Young Park: Going forward, please keep in mind that there likely will be more volatility in our gross margin due to the relative sizes of the newly organized businesses on a standalone basis. In addition, among other things, product mix, step utilization, and input manufacturing costs will impact our quarterly gross margin by business. As a reminder, our Transitional Foundry Services contract with S&P Key Foundry expired at the end of August 2023, and we are planning to wind down these foundry services starting in Q1 2024, and the revenue is expected to be approximately $2 to $3 million per quarter in the first half of 2024. Transitional foundry services account for approximately 30% of our grooming capacity when fully utilized with foundry products. This anticipated decline is significantly impacting our factory utilization rate in Kunming, which is negatively impacting our product gross margin for the power business.
In addition, among other things product mix that utilization and improved manufacturing cost will impact our quarterly gross margin by business.
As a reminder, our traditional foundry services contract with <unk> expired at the end of August 2023, and we are planning to wind down. This foundry services starting in Q1 2024, and the revenue is expected to be approximately $2 million to $3 million per quarter in the first half of 2020.
Sure.
Transitional foundry services accounts or approximately 30% of our gloomy capacity when fully utilized with the following day product.
This anticipated decline is significantly impacting our factory utilization rate in cooney, which is negatively impacting our product gross margin for the power business.
Shin Young Park: Turning now to operating expenses, Q4 combined R&D and SG&A was $27.5 million. This compares to R&D and SG&A of $23.7 million in Q3 2023 and $26.2 million in Q4 last year. R&D in Q4 was 15.4 million dollars as compared to 11.6 million dollars in Q3 and 13.7 million dollars in Q4 last year due to higher mask set costs. Stock compensation charges, including operating expenses, were $1.7 million in Q4 compared to $2.1 million in Q3 and $1.5 million in Q4 last year.
Turning now to operating expenses Q4, combined R&D and SG&A was $27 5 million.
This compares to R&D and SG&A of $23 $7 million in Q3, 2023, and $26 $2 million in Q4 last year.
R&D in Q4 was $15 $4 million as compared to $11 $6 million in Q3, and $13 $7 million in Q4 last year due to higher mask that cost.
Stock compensation charges included in operating expenses were $1 $7 million in Q4 compared to $2 1 million in Q3 and $1 $5 million in Q4 last year.
Shin Young Park: Q4 operating loss was $15.9 million. This compares to an operating loss of $9.2 million in Q3 and an operating loss of $10.1 million in Q4 2022. On a non-gap basis, Q4 adjusted operating loss was $14.1 million compared to adjusted operating loss of $7.1 million in Q3 and $8.6 million in Q4 last year. Net loss in Q4 was $6 million as compared with a net loss of $1.2 million in Q3 and a net income of $3 million in Q4 last year. Q4 adjusted EBITDA was negative $10 million.
Q4 operating loss was $15 $9 million. This compares to an operating loss of $9 $2 million in Q3, and operating loss of $10 1 million in Q4 2022 on.
On a non-GAAP basis Q4, adjusted operating loss was $14 $1 million compared to adjusted operating loss of $7 1 million in Q3, and $8 $6 million in Q4 last year.
Net loss in Q4 was $6 million as compared with a net loss of $5 $2 million in Q3, and a net income of $3 million in Q4 last year.
Q4, adjusted EBITDA was negative $10 million. This compares to a negative $2 $7 million in Q3 and negative $4 8 million in Q4 of last year.
Shin Young Park: This compares to a negative $2.7 million in Q3 and negative $4.8 million in Q4 last year. Our gap diluted loss per share in Q4 was $0.16 as compared with diluted loss per share of $0.13 in Q3 and diluted earnings per share of $0.07 in Q4 last year. Our non-gap diluted loss per share in Q4 was $0.21.
Our GAAP diluted loss per share in Q4 was 16 cents as compared with diluted loss per share of <unk> 10 in Q3 and diluted earnings per share of <unk> 77 in Q4 last year.
Our non-GAAP diluted loss per share in Q4 was 21.
Shin Young Park: This compares with diluted loss per share of $0.04 in Q3 and $0.36 in Q4 last year. Our rated average diluted shares outstanding for the quarter were 38.8 million shares. In Q4, under our new stock buyback program authorization of $50 million, we repurchased approximately 1.1 million shares, or $8.2 million. We had about $36.4 million remaining in the new $50 million program at the end of December 31, 2023. Moving to the balance sheet, we ended the quarter with no debt and cash of $158.1 million, down from $166.6 million at the end of Q3. The primary cash outflow during the quarter was approximately $8.2 million of stock buyback.
This compares to a diluted loss per share of four cents in Q3, and 36, 36% in Q4 last year.
Our weighted average diluted shares outstanding for the quarter were $38 8 million shares in Q4 under our new stock buyback program authorization of $50 million, we repurchased approximately one 1 million shares or $8 $2 million, we had about $36 $4 million remaining out of the new 50.
Million program at the end of December 31, 2023.
Moving to the balance sheet, we ended the quarter with no debt and cash of $158 $1 million down from $166 $6 million at the end of Q3 2020 to be the primary cash outflow during the quarter was approximately $8 $2 million of stock buybacks net.
Shin Young Park: Net accounts receivable at the end of the quarter totaled $32.6 million, which represents a decrease of 20.6% from Q3. Our data says outstanding for Q4 was 59 days and compares to 62 days in Q3. Our average days in inventory for Q4 was 77 days, compared to 61 days in Q3. The absolute dollar value of our inventory was up slightly quarter over quarter, while lower cost of sales primarily drove the calculation for days of inventory higher. Specifically, inventories net at the end of the quarter totaled $32.7 million.
Accounts receivable at the end of the quarter $232 6 million, which represents a decrease of 26% from Q3 2023.
Our days sales outstanding for Q4 was 59 days and compares to 62 days in Q3.
Our average days in inventory for Q4 was 77 days and compares to 61 days in Q3, the absolute dollar value of our inventory was up slightly quarter over quarter, while our lower cost of sales primarily drove the calculations of our days of inventory higher.
Specifically inventories net at the end of the quarter to ordered $32 $7 million.
Shin Young Park: This compares to $30.8 million in Q3 2023. Lastly, Q4 CapEx was $4.7 million, and for the full year 2023, we spent $7 million, in line with our previous estimate that we affirmed last quarter. Now moving to our first quarter and full year 2024 guidance. Beginning Q1, we'll begin reporting results under the newly organized businesses MSF and TAS. While actual results may vary, for Q1 2024, Magnitude currently expects consolidated revenue to be in the range of $46 to $51 million, including approximately $3 million of transitional boundary services, and MSS revenue to be in the range of $8 to $10 million. This compares with MSS equivalent revenue of $8.6 million in Q4 2023, and PAS revenue is expected to be in the range of $35 to $38 million.
This compares to $38 million in Q3 2023.
Lastly, Q4, Capex was $4 7 million and for the full year 2020, we spent $7 million in line with our previous estimate the reaffirmed last quarter.
Now moving to our first quarter and full year 'twenty to 'twenty two for 2020 guidance bigger.
Beginning in Q1, we will begin reporting reserved under the newly organized an instance, MSS NPA as well.
Actual results May vary for Q1 2024 magazines. You currently expect consolidated revenue to be in the range of $46 million to $51 million, including approximately $3 million with transitional foundry services.
NSS revenue to be in the range of $8 million to $10 million. This compares with MSS equivalent revenue of $8 $6 million in Q4, 2023 P. S revenue to be in the range of $35 million to $38 million.
Shin Young Park: This compares with PAS equivalent revenue of $32.6 million in Q4 2023, and consolidated gross profit margin to be in the range of 17-20%. MSF expects its gross profit margin to be in the range of 40 to 43 percent, which includes the positive impact of expected one-time non-recurring engineering revenue. This compares with MSF's equivalent gross profit margin of 41.3 percent in Q4 2023, which also included one-time non-recurring engineering revenue. PAS expects its gross profit margin to be in the range of 15% to 18% due primarily to the expected decline in Transitional Bondage Services revenue.
This compares with Paa's equivalent revenue of $32 $6 million in Q4 of 2023.
Consolidated gross profit margin to be in the range of 17% to 20% M.
MSS gross profit margin to be in the range of 40% to 43%, which includes the positive impact of expected onetime nonrecurring engineering revenue. This compares with NSS. Your current gross profit margin of 41, 3% in Q4 2023, which also included onetime nonrecurring engineering.
<unk> gross profit margin to be in the range of 15% to 18% due primarily to the expected decline in transitional foundry services revenue.
Shin Young Park: This compares with a PAS equivalent gross profit margin of 18% in Q4 2023. For the full year 2024, we currently expect MSS revenue to grow double digits year over year as compared with MSS equivalent revenue of $44.4 million in 2023. PAS revenue is expected to grow double digits year over year as compared with PAS equivalent revenue of $151.3 million in 2023. Consolidated revenue flexed up slightly over the year as recovery in MSSPAS is offset by the phase-out of transitional voluntary services.
This concurrent with Azure equivalent gross profit margin of 18% in Q4 of 2023.
For the full year 2024, we currently expect NSS revenue to grow double digits year over year as compared with MSS equivalent revenues $44 $4 million in 2023.
<unk> revenue to grow double digits year over year as compared with the equivalent revenue up 151 $3 million in 2023.
Consolidated revenue flat to up slightly year over year as recovering M. S. S. P. S is offset by the phase out of transitional foundry services Consol.
Shin Young Park: Consolidated gross profit margin between 17-20% due to idle capacity expected from the phase-out of Transitional Foundry Services. This compares with a consolidated gross profit margin of 22.4% in 2020. Thank you. And now I'll turn the call back over to Y.J. for his final remarks.
Consolidated gross profit margin between 17% to 20% due to either capacity expected from the Paydown of transitional foundry services. This compares with the consolidated gross profit margin of 22, 4% in 2023.
Thank you and now I'll turn the call back over to Jay for his final remarks.
Yujia Zhai: Y.J.? I want to emphasize points I made earlier because they are important for investors to understand where we are and where we are headed. One, our display business is building upon our past success in Korea to focus more squarely on China. As a sign of the importance of the Chinese market, we have formed a dedicated Chinese operating entity, enabling us to forge strategic partnerships with key players in the smartphone, TV, automotive, and ecosystem.
I want to emphasize points I made earlier because they are important for investors to understand where we are and where we're headed one our display business is building upon our past success in Korea to focus more squarely on China.
One of the importance of the China market, we have formed a dedicated China operating entity, enabling us to forge a strategic partnerships with key players in the smartphone television automotive and ecosystems. This move strengthens our market presence and fosters valuable relationship.
Yujia Zhai: This move strengthens our market presence and fosters valuable relationships within the industry. As we benefit from these strategic initiatives in our China operations, we are optimistic about the trajectory ahead for our display business. Two, we are dealing ahead of an unexpected drop in fab capacity in our Gumi fab as a result of the expected drop off in transitional foundry services and will provide regular updates on our plan. Three, we've separated the structure of the company into two entities to increase shareholder value by maximizing the valuation of each segment, strengthening business performance management, and enhancing flexibility to respond to changes in the business environment.
Within the industry as we benefit from the strategic initiatives in our China operations, we are optimistic about the trajectory of head for our display business.
We are dealing head on with.
This unexpected drop in fab capacity in our gumi fab as a result of the expected drop up in transitional foundry services and we will provide regular updates on our plans.
Three we separated the structure of the company into two entities to increase shareholder value by maximizing the valuation of each segment strengthening business performance management and enhancing flexibility to respond to changes in the business environment. The move also will drive the medical inquiry.
Yujia Zhai: The move also will dramatically increase our transparency to the investor community. Thank you to our shareholders for your patience. We appreciate your support as we work to achieve our goals.
Our transparency to the Investor community. Thank.
Thank you to our shareholders for your patience. We appreciate your support as we work to achieve our goals now I will turn the call back to Steven Steven.
Steven Pelayo: Great, thank you. That concludes the prepared remarks section of our call today. Operator or Jonathan, would you now open up the call to questions?
Great. Thank you that concludes the prepared remarks section of our call today, operator, or Jonathan would you now open up the call for questions.
Operator: Certainly, one moment for our first question. And our first question comes from the line of Suji DeSilva from Roth Capital Markets. Your question, please. Hi Y.J., Hi Shin-Young.
Certainly one moment for our first question.
And our first question comes from the line of <unk> Silva from Roth Capital markets. Your question. Please.
Hi, YJ, Hi, Shin young so widely in the display market in China. You say you have two smartphone OEM wins are those wins secured directly by you or by the display partner you have.
Yujia Zhai: So Y.J., in the display market in China, you say you have two smartphone OEM wins. Are those wins secured directly by you or by the display partner you have? I'm just trying to understand how those OEM wins are going to be secured. Yes, in China, we sell to the panel customer and the smartphone OEMs. They also dictate on which DDIC they like to use as well.
Just to understand how those OEM wins are going to be.
Secure going forward.
Yes.
In China, we sell through the panel customer.
And the smartphone Oems.
They also dictate on the which <unk> like to use as well so as.
Yujia Zhai: So, As I said, we doubled our resources in the last few quarters. We have more than 20 professionals, and we have added three more direct OEM sales to the smartphone and to the OEMs. I've also hired three advisors to help out from the top 5G semiconductor companies and the supply chain, so forth. So we are using both sell to the panel as well as the small OEMs, and that's how we're going to accelerate and win more And what is the after-service market? Is that a special market that needs special products? Yes, so let me talk about the after service market. So the after service market is, is like either refurbishing a phone or when your screen goes off, then you have to replace it. According to market research, that market is now anywhere between 10 to 20% of the smartphone market. And as you saw, there's an increase in used smartphones.
As I said that we doubled our resources in the last few quarters, we have more than 20 professionals and are also we have added three more direct OEM sales to a smartphone and to the Oems and I've also hired three advisors.
To help out from the top five semiconductor companies and supply chain so far so.
We are using both sell add to the panel as well as the.
Small Oems and that's how we're going to an accelerated and win win more sockets.
Okay.
Also in the display market can you tell me how many products you have now targeting the China market in total and what does the after service market is that a special market that need special products.
Yes, So let me talk about the asset service market. So after service market is a is like either refurbish of.
Phone or when you screen goes off then you have to replace.
According to market research that market now is anywhere between 10% to 20% of smartphone market energy. So there is a increase in use smartphones. So I think thats, what we are seeing and thats the first.
Yujia Zhai: So I think that's what we have seen. And that's the first question answer. And then, the number of products we now have in China, we have three, and I said we're going to have another chip coming out next quarter, and then we are working on the affordable and the mainstream products that will be all out this year. Okay, great. And then last question, as you convert the Foundry services, Agumi, to power, how should we size the revenue opportunity once that is fully converted incrementally for your power business? The opportunity, at least capacity. Yeah, so I think there are two vectors there.
A question and answer.
And then.
D a.
What was the how many products do you have the number of products.
<unk> products, we now have in China, we have three and I said, we're going to have another chip coming out next quarter and then we are working on the affordable in the mainstream.
<unk>.
That that would be all out this year.
Okay.
Okay, Great and then last question as you convert the foundry service isn't going to meter power, what how should we size the revenue opportunity once that's.
Fully converted incrementally for your power business the opportunity at least capacity wise.
Yes. So I think there are two two vectors. There one is how are we going to fill the fab.
Yujia Zhai: One is how we're going to fill the fab. How are we going to fill the fab during the transition? First of all, you know, we're going to have a bunch of new products. As I said today, we have a slew of new generation coming out all this year.
How are we going to fill the fab is during the transition first of all we.
We're going to have a bunch of new <unk>.
As I said today, we have a.
Slew of a new generation coming up this year. So we have 650 volt <unk> first half followed by sixth generation Super Junction and <unk>, III, and <unk> generation and the and low voltage in the fourth quarter and then another commodity product line to fill the factory in fourth quarter. So that is a product.
Yujia Zhai: So we have a 650-volt IGBT in the first half, followed by 6th generation superjunction and IGBT in Q3, and 8th generation ND and low voltage in the fourth quarter, and then another commodity product line to fill the factory in the fourth quarter. So that is a product strategy to fill. And then, in the second half, we will be converting the fab to power products and filling it up. So once all that is achieved, we expect revenue to go beyond what we did in the past. But you know, it will take a little time. Understandable. Maybe one last question for Shin Young, and I'll go, I'll come back in the queue. Shin Young, for the NRE, for the gross margin for MSS, how much of that was an NRE benefit? If you could roughly size that, though, it's probably the normalized basis.
Strategies to Phil and then in the second half, we will be converting the fab two power products and fill it up so the once all that is achieved.
We expect to revenue to go beyond what we did in the past, but you know it will take a little time.
Understood maybe one last question for Shane Young and they'll go.
Back in the queue Shin young.
For the gross margin for MSS, how much of that was then already benefited you can roughly size that that'll be helpful.
It's probably the normalized basis, that's probably 30%.
Shin Young Park: It's probably 30% plus. 30% of the..., of the market? No, no, no.
30% of the.
The market doesn't know that is a 41% is just because of that the one time things, but without that NR, a kind of normalized play at that at this stage. Its 30, plus 30% on a couple of percentage more than that yes.
Shin Young Park: So 41% is just because of the one-time thing. So we've asked that NRE kind of normalize this way at this stage, so 30%, like a couple percentage more than that.
Okay. Thanks, guys.
Thank you one moment for our next question.
And our next question comes from the line of Quinn Bolton from Needham Your question. Please.
Shin Young Park: Yeah. Got it, got it all, okay. Thanks guys. Thank you one moment for our next question. And our next question comes from the line of Quinn Bolton from Needham. Your question, please. Hey guys, Nick Doyle on behalf of Quinn Bolton.
Hey, guys, Nick Doyle on for Quinn.
A quick one will you provide historical breakout of MFS.
Yes.
Oh, yes.
Okay.
Nicolas Emilio Doyle: Just a quick one. Will you provide a historical breakdown of MSS and BAS? We will, we will. Okay, technically, like when we report the Q1 quarterly, you're going to see the competitive the historical period recast on the same basis. Right. So we'd at least see the first quarter, but hopefully, we could get some second and third quarter numbers.
That technically like when we report the Q1 quarterly and Youre going to see the competitive the historical period.
On the same basis.
Right, so we'd at least through the first quarter, but hopefully we can get some.
Second and third quarter numbers, great. So for gross margins you mentioned now we should expect volatility you're winding down the transitional foundry services.
Nicolas Emilio Doyle: Great. So for gross margins, you mentioned we should expect volatility. You're winding down the transitional founder services, I think by the end of the second quarter. So how long will that fee FAB be, you know, at least 30% underutilized? I guess I'd expect margins to maybe bottom in 2Q and remain low, maybe flat 30Q into 4Q, perhaps. After last quarter, I think we are expecting margins to bottom in the 3Q, 4Q time frame. So are you kind of pulling that in with maybe an accelerated foundry wind down? I guess what's the best way to think about, you know, the margin path?
I think by the end of the second quarter. So how long will that she should be.
At least 30% underutilized I I guess I would expect margins to maybe bottom into two and remained low maybe flat storage you into <unk>, perhaps.
After last quarter I think we are expecting margins to bottom and three Q4 Q timeframe. So are you kind of pulling that in which may be an accelerated foundry wind down I guess, what's the best way to think about the margin path.
Okay.
And as we are going to still have some foundry services revenue like $2 million to $3 million per quarter in Q1, and Q2. So technically we can't really do anything about a 30% capacity in our <unk> fab and we are going to wind down after the Q2 so.
Shin Young Park: I mean, we are going to still have some boundary services revenue, like $2 to $3 million per quarter in Q1 and Q2. So technically, we can't really do anything about the 30% capacity in our Gumi fab. And we are going to wind down after Q2. So, I mean, we're going to see some of the IDA capacity in the second half as well until we fully convert that fab capacity to power the PAS, the product. So you're going to see that kind of margin of depression throughout the year.
We are going to see some of the idle capacity in the second half as well until we fully convert that that capacity to power.
The product so youre going to see that the margin kind of depression of USD.
But I think.
In the second half the difference is that we are rolling out by the time.
Although new generation, which has a higher margin and lower costs. So that will be the lever that we will try to maximize the margins.
Okay, I think I understand.
I mean, when you kind of finish the idling process, maybe maybe margins bottom in the third quarter, and then and then stay flat.
Yujia Zhai: But I think the second half, the difference is that we are rolling out by the time all the new generation, which has a higher margin and lower cost. So that will be the lever that will try to maximize the margins. Okay, I think I understand. I mean when when you kind of you know finish the idling process maybe maybe margins bottom in the third quarter and then and then stay flat until you know fill up the fab that's what it sounds like so in the power business you talked about an auto win that will contribute in 2024 so a couple questions there just how do we think about sizing that when maybe when will it begin to ramp what was the main you know technical driver of that design when and and then how does that ramp play out with your you know gimme fab utilization sounds like that would kind of help in the three to four key time, So the automotive, as you know, we we did not have any automotive business about two calendar years ago, and the 22 was first year, maybe it was 1% or less than 1% revenue. Last year, we had about, 5% of revenue. So and then this year will still grow a high double digit.
Until you know fill up the fab.
That's sort of it sounds like so in the power business you talked about an auto wins that will contribute in 2024. So a couple questions. There just how do we think about sizing that when maybe when will it begin to ramp what was the main technical driver of that design win and.
And then how does that ramp play out with your you know give me fab utilization it sounds like that would kind of help them through Q4 timeframe.
So the automotive as you know we didn't have any automotive business about two calendar years ago and the.
The 22 was the first year, maybe it was 1% or less than 1% revenue last year, we had about.
5% of revenue so and then this year it will still grow.
High double digits.
So that's the.
The about size of the automotive business so.
We now have more than two dozen of design ins and wins in automotive and we are still having the momentum.
Yujia Zhai: So, that's about the size of the automotive business. But we now have more than two dozen design ends and wins in the automotive business, and we are still having momentum. Thank you. Thank you. One moment for our next question. And our next question comes from the line of Martin Yang from Oppenheimer.
Thank you.
Thank you one moment for our next question.
And our next question comes from the line of Martin Yang from Oppenheimer. Your question. Please.
Alright. Thank you for taking my question. My first question is about your custom.
Zhihua Yang: Your question, please. Hi, thank you for taking my question. My first question is about your customer engagement activities in China. Can you talk about how many customers you are actively engaged with, and are the new wearables and aftermarket wings with the same customers? Yes, a very good question.
Customer engagement activities in China can you talk about how many.
Customers are you actively engaged with and our new Wearables.
<unk> aftermarket wins with the same customer.
Yes, it's a very good question. So we are.
Yujia Zhai: So we are discussing with direct panel customers like the panel guys. So we have two panel guys we're doing business with now. And we are actively engaged with the top five out of six smartphone OEMs directly. And so that's what we are doing. Got it. Thank you. A question on the margins for these power discrete products.
Discuss so we are discussing with.
Direct panel customer.
The panel guys. So we have a two panel guys, we're doing business now and we.
We are actively engaged with the top.
Five out of six.
Smartphone Oems directly and so thats, what we are doing.
Got it thank you.
A question on the margins for power discrete products and.
Zhihua Yang: And, you know, how does the current margin compare to historical levels, especially historical levels? And what needs to happen before we see that discrete power product margin recover back to where it was? I mean, as Yujia mentioned, once we convert that 30% of the either capacity for the power discrete, but we are going to rolling out a new generation power product series of them, which we're going to have a higher margin. So once we kind of replace the boundary product, I guess you've seen the negative margin. The thing is, AST was fixed for those products, but the cost was high. So the power companies now have to absorb those fixed costs from those boundaries.
How does the current margin compares to.
Historical levels, especially historical peaks and what needs to happen.
Before you see that discrete product power product margin recover back to where it was.
I mean, that's why Jay mentioned that like once we confirm that the 30% of idle capacity for the power discrete but we are going to rolling out with a new generation power product series of them, which we're going to have a higher margin. So once we kind of replaced.
The voluntary product I guess, you've seen the negative margin. The thing is a S. P was fixed for those products, but the cost was high so the power now have to absorb those fixed costs on those voluntary but if we feel that capacity with a higher margin product based on the new generation product theory, and we have a potential to go back to the our history.
Shin Young Park: But if we feel that capacity with a higher-margin product, based on the new generation product series, and we have the potential to go back to our historical kind of high level. Thank you. Yeah, so I think that that's a very, we've been saying that today, that is our top priority, and it's about having the right product portfolio. And so we already had a 650 volt super junction in the October release, that's like 60% better than before. We are introducing the new 650 volt IGBT in the first half, followed by 6th generation super junction and 6th generation IGBT in the third quarter, and 8th generation medium volt and low voltage MOSFET in the fourth quarter. And additionally, we'll have a new line of commodity products in the fourth quarter. So those will drive to fill the fat with a better margin and better performance.
Michael at a high level.
Got it and do.
So what else needs to happen fundamentally for for you to fully fill that capacity.
Yeah. So I think that's a very.
We've been saying that today.
That is our top priority and it's about having the right product portfolio.
And so we already had 650 volt Super junction in the October release, that's like 60% better than before.
Introducing the new 650 volt <unk> in first half followed by sixth generation Super Junction and sixth generation <unk> in the third quarter and eight generation medium voltage and low voltage MOSFET and enforced quarter and Additionally, we will have a new lineup.
Commodity product on the fourth quarter. So those will drive to fill the fab with a better margin and better performance.
Yujia Zhai: Thank you, YJ. Thank you. This does conclude the question and answer session for today's program. I'd like to hand the program back to Steven Pelayo for any further remarks. Okay, great.
Thank you Roger that's it for me.
Thank you.
Does conclude the question and answer session of today's program I'd like to hand, the program back to Steven Pelayo for any further remarks, okay. Great. Thank you. This concludes our Q4 earnings conference call. Please look for details of our future events on magnitude Investor Relations website, Thank you and take care.
Steven Pelayo: Thank you. This concludes our Q4 Earnings Conference Call. Please look for details of our future events on MagnaChip's Investor Relations website. Thank you, and take care. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. All right, we're done. Yujia Zhai, Steven Pelayo, Yujia Zhai, Nicolas Doyle, Zhihua Yang, Shin Park, Methanex Corp
Thank you, ladies and gentlemen for your participation in today's conference. This.
It does conclude the program you may now disconnect good day.
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