Q1 2024 Magnachip Semiconductor Corp Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the first quarter 2024 Magnachip Semiconductor Corporation earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone. You will then hear an automated message device, and your hand is raised. To withdraw your question, please press star 11 again.

Okay.

Speaker Change: Good day and thank you for standing by if you walk into the first quarter 2024, <unk> Semiconductor Corporation earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session. We need to press star one on your telephone you didn't hear an automated message biasing. Your hand is raised to withdraw your question. Please.

Operator: Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Steven Pelayo. Please go ahead. Thank you.

Speaker Change: Press Star one again, please be advised today's conference is being reported I would now like to turn the conference over to Speaker today, Steven Pelayo. Please go ahead.

Steven Pelayo: Hello, everyone. Thank you for joining us to discuss MagnaChip's financial results for the first quarter ended March 31, 2024. The first 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.

Steven Pelayo: Thank you Hello, everyone and thank you for joining us to discuss magnitude its financial results for the first quarter ended March 31, 2014 for the first quarter earnings release that was issued today. After the market close can be found on the company's Investor Relations website webcast replay of today's call will be archived on our website. Shortly afterwards joining me today.

Steven Pelayo: Joining me today are YJ Kim, MagnaChip's Chief Executive Officer, and Shin Young Park, our Chief Financial Officer. YJ will discuss the company's recent operating performance and business overview, and Shin Young will review financial results for the quarter and provide guidance for the second quarter. There will be a Q&A session following the prepared remarks.

Speaker Change: They are YJ, Kim Mega chips, Chief Executive Officer, and Shin Young Park, our Chief Financial Officer, YJ will discuss the company's recent operating performance and business overview and Shin Young will review financial results for the quarter and provide guidance for the second quarter, there will be a Q&A session. Following our prepared remarks. During the course of this conference call. We may make forward looking.

Steven Pelayo: During the course of this conference call, we may make forward-looking statements about MagnaChip's 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 development.

Steven Pelayo: Statements about magnitudes business outlook and expectations are 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 filings such statements are based upon information available to the company.

Steven Pelayo: As of the date hereof and are subject to change for future development.

Steven Pelayo: 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 first quarter earnings release in the investor relations section of our website.

Steven Pelayo: Sept 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 as supplemental measures of magnitude operating performance that may be useful to investors a.

Steven Pelayo: Filiation up the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our first quarter earnings release in the Investor Relations section of our website with that I'll now turn the call over to YJ Kim YJ.

YJ Kim: Hello everyone, and thank you for joining us today and welcome to MagnetShip's Q1 earnings call. Our overall Q1 results were in line with our guidance. Q1 revenue was $49.1 million, down 13.9% year-over-year and down 3.5% sequentially. Consolidated gross profit margin was 18.3%, down 2.9 percentage points year-over-year and 4.4 percentage points sequentially, mostly due to the wind-down of the Transitional Foundry Service. Excluding transitional foundry services, revenue in our standard product business, which is comprised of MSS and PAS businesses, was up 10.6% sequentially, while gross margin was 21.2%, down 1.7 percentage points sequentially. The decline in gross margin was mostly due to lower GUMI FAB utilization, driven by the wind-down of the transitional foundry services, which also impacts PAS margins because they share the FAB.

Steven Pelayo: With that, I'll now turn the call over to YJ Kim. YJ? Hello everyone.

YJ Kim: Hello, everyone and thank you for joining us today and welcome to manage chips Q1 earnings call.

YJ Kim: <unk> Q1 results were in line with our guidance Q1 revenue was $49 1 million down 13, 9% year over year and down three 5% sequentially.

YJ Kim: Consolidated gross profit margin was 18, 3% down two nine percentage points year over year, and four four percentage points sequentially, mostly due to the wind down of the transitional foundry services.

YJ Kim: Excluding transitional foundry services revenue in our standard product business, which is comprised of MSS and taas businesses was up 10, 6% sequentially. While gross margin was 21, 2% down one seven percentage points.

YJ Kim: Sequentially the decline in gross margin was mostly due to lower gumi fab utilization driven by the wind down of the transitional foundry services, which also impacts margins.

YJ Kim: Margins because they share the fab.

YJ Kim: Despite typical Chinese New Year seasonality, the solid sequential revenue growth of our standard product business in Q1 suggests overall market conditions are improving, with the inventory correction possibly nearing an end for some verticals. In particular, we saw improvement in the inventory channel for our PAS business. We also saw better-than-expected demand for our design in the app-to-service OLED display market, and we benefitted from increased demand in our automotive display business. The PAS business strength was primarily from smartphones, e-motors, consumer appliances, and server power applications. Now, let me provide more detailed comments on each of our standard product business lines, beginning with M.S.S. Q1 revenue was in line with our guidance at $9.0 million, down 29.7% year-over-year and up 5.2% sequentially.

YJ Kim: Despite typical Chinese new year seasonality, the solid sequential revenue growth of our standard products business. In Q1 suggests overall market conditions are improving with the inventory correction, possibly nearing an end for some verticals in particular, we saw improvement in the IB.

YJ Kim: Inventory channel for our.

YJ Kim: Business, we also saw better than expected demand from our design for the App to service the OLED display market and we benefit from increased demand in our automotive display business.

YJ Kim: Key business trends was primarily from smartphones the motors consumer appliances and server power applications.

YJ Kim: Now, let me provide more detailed comments for each of our standard product business lines.

YJ Kim: Beginning with NSS.

YJ Kim: Q1 revenue was in line with our guidance at 90.

YJ Kim: Down 29, 7% year over year and up five 2% sequentially as we've mentioned before the quarter over quarter revenue growth was due to increased demand from automotive LCD and OLED product overall, we continue to collaborate with several OLED.

YJ Kim: As we mentioned before, the quarter-over-quarter revenue growth was due to increased demand for automotive LCD and OLED products. Overall, we continue to collaborate with several OLED panel makers and smartphone OEMs targeting the Chinese market. While third-party market researcher Omnia predicts only slight growth in the global smartphone market in 2024, the top five Chinese brands are forecast to enjoy more than 18% growth in OLED smartphone treatments. As a reminder, we have DDIC designs and customer engagements on the way that span the entire smartphone market spectrum, from the mass market tier to the premium tier segments, as well as other display markets, such as automotive.

YJ Kim: Panel makers and smartphone Oems targeting the China market, while third party market research are only up predict only slight growth in the global smartphone market in 2024 meter power five China brands forecast.

YJ Kim: Joey more than 18% growth.

YJ Kim: OLED smartphone shipments as a REIT.

YJ Kim: Minder, we have BD IC design and customer engagements underway that span the entire smartphone market backdrop from the mass market year to the premium segment as well as other display markets such as automotive we had an additional two new OLED design. This.

Yujia Zhai: We had an additional two new OLED designs this quarter that we'll discuss more in detail later. More specifically, during the quarter, our DisplayIC business had a new design for a high-end OLED smartphone for top-tier Chinese smartphone vendors. This design is based on our 2HD plus OLED DDIC that we sampled in Q1 2024. This chip provides the latest eight transistor LTPO panel feature support and is produced in 28 nanometer.

Speaker Change: Quarter, Yes, we'll discuss more in detail later.

Speaker Change: Yeah.

YJ Kim: More specifically during the quarter, our display IC business added new design in of a high end OLED smartphone top tier Chinese smartphone vendors.

YJ Kim: This design is based on our <unk> HD plus OLED EIC that we sampled in Q1 2020 for this shift provides the latest a transistor LTE patent feature support and is produced in 28 nanometer. We expect this designed to go into.

Yujia Zhai: We expect this design to go into production by the end of the year. We also started the initial ramp in Q1 for our first generation OLED DDIC chip for China, which will be taped out in 2022 for the after service market. We are now working to expand this segment with other Chinese panel makers. As mentioned previously, we received a pilot production PO as a second source supplier from a leading Chinese smartphone OEM. We expect revenue to begin in the second half of the year.

YJ Kim: Auction by the end of the year.

YJ Kim: We also studied the initial ramp in Q1, <unk> generation OLED, DDI chip or China, we taped out in 2022 for the App to service market. We are now working to expand this segment with the other China panel makers as mentioned previously we received a pilot production.

Yujia Zhai: As a second source supplier from a leading Chinese smartphone OEM, we expect revenue to begin in the second half of the year. Moreover, we also had been chosen to work with them on their fall 2024 model with our next generation chip that we taped out and expect to sample in Q2.

Yujia Zhai: Moreover, we have been chosen to work with them on their fall 2024 model with our next generation chip that we taped out and expect to sample in Q2 this quarter. Finally, we taped out in Q1 and expect to sample in Q2 our first smartwatch OLED DDIC. We're excited about this partnership with a smartwatch solution provider in China as it showcases our strategies to expand into new high-growth adjacent markets. With regard to our automotive DDIC business, we saw strengths in the first quarter that were likely to continue in Q2.

YJ Kim: Quarter.

YJ Kim: Finally, we taped out in Q1 and expect sample in Q2, our first smartwatch OLED DDI. We excited about this partnership with a smartwatch solution provider in China as it showcases our strategy is to expand into new high growth adjacent.

Yujia Zhai: Adjacent markets with regard to our automotive DDI business, we saw strength in the first quarter that will likely to continue in Q2, notably we had a new OLED design wins in EV and edge comments production in Q2 targeting for a leading European automaker.

Yujia Zhai: Notably, we had a new OLED design win in EV that has come as production in Q2, targeted at a leading European automaker. Our PowerIC business is now including MSS. We saw sequential strengths from LED TVs during Q1 and expect business to broaden to include multiple notebooks and tablet models in Q2. We continue to secure new design wins with a major Korean customer. Moving on to PAS, Q1 revenue was $36.5 million, down 5.6% year-over-year and up 12% quarter-to-quarter.

Yujia Zhai: How I see business is now including MSS, we saw a sequential strength.

YJ Kim: Led Tvs during Q1 and expect business to broaden to include multiple notebooks and tablet models. In Q2, we continued to secure new design wins with a major Korean customer.

YJ Kim: Moving onto Q1 revenue was $36 5 million down five 6% year over year and up 12% quarter to quarter.

Yujia Zhai: The sequential increase was due primarily to increased demand for medium voltage MOSFETs for industrial e-motor markets in China, consumer appliances, and server power. The results are in line with our earlier expectation for gradual recovery in our power business during the first half of 2024 and are further supported by initial signs of inventory reduction in the distribution channel for our PAS products. More specifically, we saw strengths in the high-speed e-motor market for scooters and motorcycles, where we benefit from the approximately doubling of the bill of materials compared to a traditional e-bike.

Yujia Zhai: The sequential increase was due.

Yujia Zhai: Primarily to increased demand for medium voltage MOSFET or industrial E motor market in China consumer appliances and server power. The results are in line with our earlier expectation for gradual recovery in our pub business. During the first half of 2024 and further supported.

Yujia Zhai: My initial signs of winter inventory reduction in the distribution channel for our <unk> products.

Yujia Zhai: More specifically, we saw strength in the high speed E motor market with scooters and motorcycles, where we benefit from the approximate doubling of the bill of materials.

YJ Kim: Compared to a traditional knee, but we believe our power solution for E Motors are now outperforming our competition.

Shin Young Park: We believe our power solutions for e-motors are now outperforming our competition. We are seeing steady demand for low-voltage MOSFETs due to contributions from new high-end smartphone models, as well as increased demand for mid-range smartphones. Further, the PAS design pipeline looks solid for the next generation of smartphones coming in late 2024 and into 2025. We saw a sequential uptick in demand for our superjunction MOSFETs and obtained a 600-volt design win in the PC power and power supply market.

Yujia Zhai: We're seeing steady demand in low voltage MOSFET due to contribution from new high end smartphone models as well as increased demand in mid range smartphone further the design pipeline looks solid for the next generation of smartphones coming in late 2024 and into 2025.

Shin Young Park: We saw a sequential uptick in demand for our Super Junction MOSFET and obtained a 600 volt design win in the PC power and power supply market. We also had an IGT design win at 650 volt from a major Korean appliance company.

Shin Young Park: We also had an IGBT design win at 650 from a major Korean appliance company. Lastly, with automotive power, we had our first medium-voltage MOSFET-designed wind for an electric cooling fan with a China-based SUV supplier, as well as additional power steering-related wind in Korea. We have a strong product pipeline for power in 2024, and they are on track. These products are expected to contribute revenue by the end of the year. The new 650 volt IGBT finished the qualification, and they expect to begin commercial samples this month.

Shin Young Park: Lastly, within automotive power, we had our first medium voltage MOSFET design win.

Shin Young Park: Electric cooling fan with a China based SUV supplier as well as additional power steering related win in Korea.

Shin Young Park: We have a strong product pipeline for power in 2024, and they are all on track.

Shin Young Park: Products, we expect to contribute revenue by end of the year.

Shin Young Park: <unk> 650 volt LGBT finished qualification and expect to begin commercial samples. This month's sixth generation LGBT and Super Junction samples will begin in this quarter Q2, and eighth generation V. MOSFET samples is ready and ace generation and demos.

Shin Young Park: Sixth generation IGBT and superjunction samples will begin this quarter Q2, and eighth generation LV MOSFET samples are ready, and eighth generation MV MOSFET samples are ready in this second quarter 2024. In summary, PAS saw strong sequential growth in Q1. With the addition of new products and streamlined channel inventory, we are optimistic about the growth trajectory in 2024. In MSS, we are executing our China-focused strategy and making steady inroads with the top tier panel makers and major smartphone OEMs. I will come back to wrap up the call after Shin-Yung gives you more details about financial performance in the first quarter and provides Q2 guidance.

Shin Young Park: The samples are already in this second quarter 'twenty four.

Shin Young Park: In summary.

Shin Young Park: So strong sequential growth in Q1, with the addition of new products and streamline channel inventory, we are optimistic for the growth trajectory in 2024, and MSS, we're executing our China focused strategy and making stay in roads with a top tier panel makers and major.

Shin Young Park: Smartphone Oems.

Shin Young Park: Come back to wrap up the call that the Shinier and gives you more details of our financial performance in the first quarter and provide Q2 guidance JM. Thank you Jay and welcome everyone on the call.

Shin Young Park: Thank you, I.J., and welcome everyone on the call. Quarter revenue in Q1 was $49.1 million, which came slightly above the midpoint of our guidance range of $46 to $51 million. This was down 13.9% year-to-year and down 3.5% sequentially. Revenue from the MSS business was $9 million, at the midpoint of our guidance range of $8 to $10 million.

Shin Young Park: Several key financial metrics for Q1.

Shin Young Park: Quarter, ending in Q1, with $49 $1 million, which being slightly above the midpoint of our guidance range at 46.

Shin Young Park: $1 billion.

Shin Young Park: This was down 13, 9% year on year and down three 5% sequentially.

Shin Young Park: Revenue from NSS did net was $9 million at the midpoint of our guidance range of $8 million to $10 million.

Shin Young Park: This was down 29.7% year-over-year, but up 5.2% sequentially. P&A business revenue was $36.5 million, and at the midpoint of a guidance range of $35 to $38 million. This was down 5.6% year-over-year, but up 12% the question.

Shin Young Park: Was down 29% year over year, but up.

Shin Young Park: 42% sequentially.

Shin Young Park: <unk> revenue was $36 5 million and at the midpoint of our guidance range of $35 million to $38 million.

Shin Young Park: This was down by 26% year over year, but up 12% sequentially.

Shin Young Park: Revenue from Transitional Foundry Services declined to $3.5 million as we continue to wind down this service over the next couple of quarters, as we've explained previously. Consolidated growth factor margin in Q1 was 18.3%, leaving our guidance range of 17% to 20% but down from 21.2% year-over-year and down from 22.7% sequentially. MSF's gross profit margin in Q1 was 44.6%, above the upper end of the guidance range of 40 to 43%, up from 30.2% in Q1'23 and up from 41.3% in Q4'24.

Speaker Change: So having advanced transitional Sanjay is declined to $3 $5 million.

Shin Young Park: Continue to wind down the service over the next couple of quarters as we've explained previously.

Shin Young Park: And so what april's back in margin in Q1 was 18, 8% within our guidance range of 17% to 20%, but down from 21, 22% year over year.

Shin Young Park: From 22, 7% sequentially.

Shin Young Park: And then this gross profit margin in Q1 was 44, 6% above the upper end of the guidance range of 40% to 43%.

Shin Young Park: Around 32% in Q1, 'twenty, three and up from 41, 3% in Q4 'twenty.

Shin Young Park: The margin extension was primarily due to non-recurring engineering revenue and higher than expected revenue from our first generation VDIC for the after service model. The volatility of MSS-Glucosamogen is also due to the smaller relative size of HIV.

Shin Young Park: The margin expansion was primarily due to nonrecurring engineering revenue and higher than expected revenue from our first generation of the EIC April after service market.

Shin Young Park: The volatility of the MSS gross margin, albeit a smaller relative size of each.

Shin Young Park: QAO's gross profit margin in Q1 was 15.4%, below the midpoint of the Biden's range of 15-18% and down from 26.7% in 2021-2023 and down from 18.1% in 2024-2025. The severe and sequential decline was mainly due to a lower greenhouse gas utilization rate from the wind-down of transitional faucet services and an unfavorable product mix.

Shin Young Park: <unk> gross profit margin in Q1 was 15%.

Shin Young Park: The guidance range of 15% to 18%.

Shin Young Park: Turning now to operating expenses, Q1xGNA was $11.3 million, as compared to $12.1 million in Q4 2023 and $12.2 million in Q1 last year. The sequencer in the over-year decline in SG&A was CRIMOLA-2022, our cost reduction effort with respect to certain one-time employee-related benefits. Q1 R&D was $11.2 million, as compared to $16.4 million in Q4'23 and $13.3 million in Q1 last year. As a reminder, R&D Extension 2.4 last year included higher mask set costs due to the timing of project development.

Shin Young Park: That compensation charges included operating expenses of $0.9 million in Q1, compared to $1.7 million in Q4 and $1.1 million in Q1 last year, to an operating amount of $13.5 million, with comparison to an operating loss of $15.9 million in 2004 and an operating loss of $21.8 million in 2021. On a non-gap basis, Q1 adjusted operating loss was $12.6 million compared to an adjusted operating loss of $14.1 million in Q4 and $12.2 million in Q1.

Shin Young Park: The net loss in Q1 was $16.4 million, as compared with a net loss of $6 million in Q4, and a net loss of $21.5 million in Q1. August's GDZAT was $-8.4 million. If compared to a $-10 million in Q4, a $-7.9 million in Q1 loss, or get diluted lung pressure in 2-1-1 at 40 cents. That's compared with diluted lung pressure of 15 cents in 2-4 and diluted lung pressure of 49 cents in 2-1-1, which are not yet allowed to share in Q1 2018. This compares the dilute loss pressure of 21 cents in 2-4 and 24 cents in a 2-1 loss.

Shin Young Park: Our weighted average value of shares outstanding for this year's award is 38.5 million shares. Under our $50 million Stop Violence program, authorized in July 2023, we will purchase, in June 2024, approximately 0.6 million shares for $4.1 million, leaving about $32.3 million remaining in authorization at the end of March 2021. Moving to the balance sheet, we ended Q1 with cash of $171.6 million, which included approximately $29.7 million in long-term borrowing, up from $158.1 million at the end of Q4.

Shin Young Park: We added the Loan Form Borrowing in March this year to further opportunistically take advantage of playable loan financing terms while exploring strategy options, including shared buybacks and strategy investments to enhance your holder value. The small bear has a variable interest rate, and the initial interest rate was 4.86% per annum, and matures on March 26th, 2027. We clashed, or we hit copper in the club.

Shin Young Park: Please refer to the Form 8K filed on March 29, 2024 for further details. Net accounts for Silverlight increased by $33.3 million, which represents a decrease of 7.2% from Q4 2020. Our day-to-day outstanding for Q1 was 66 days, compared to 69 days in Q4.

Shin Young Park: Our average days in inventory for Q1 was 71 days, and this compares to 77 days in Q4. Inventory net at the end of the quarter was $31.5 million and $32.7 million in Q4 2020. Lastly, Q1 CapEx was $4.7 million. For the full year 2024, we anticipate spending approximately $10-12 million, primarily on our PAS business and Kumi's bed. This includes approximately $3-4 million of long-term CapEx for our newly established operating entity. Now moving to our second quarter and full year 2024 guidance.

Shin Young Park: While actual reserves may vary for 2-2024, Magnet just currently expects consolidated revenue to be in the range of $49-54 million, including about approximately $1.1 million of conditional bond reserves. MSF's revenue is in the range of $9.5 to $11.5 million. This compares with MSF Incubus revenue of $9 million in Q1 2024 and $12.4 million in Q2 2020. PAS revenue is in the range of $38-$41 million. This compares with PAS equivalent revenue of $36.5 million in Q1 2024 and $39 million in Q2 2024.

Shin Young Park: Consolidated gross profit margin is expected to be in the range of 17 to 19 percent, and MSF gross profit margin is expected to be in the range of 30 to 33. This compares with MSF's equivalent gross profit margin of 44.6% in Q1 2024, which included non-recurring engineering revenue, and 36.4% in Q2 2020. PAS expects its gross profit margin to meet the range of 15 to 17 percent, primarily as a result of the impact of higher capacity from the expected decline in traditional foster services rates.

Shin Young Park: This compares with a PAF equivalent gross profit margin of 16.4% in June 2024 and 23.1% in June 2020. For the full year 2024, we reiterate our prior guidance. MSF's revenue to the world grew double-digit year-over-year as compared with its equivalent revenue of $44.4 million in 2020. PAS revenue is expected to grow double-digit year-over-year as compared with its equivalent revenue of $151.3 million in 2020. Consolidated Revenue flexes slightly over here as Recovery, MSF, and QES are offset by the base-out of Transitional Volunteer Services.

Shin Young Park: Consolidated for a stocking margin between 17 to 20%, primarily as a result of the impact of higher capacity expected from the phase-out of transitional bondage or repayment, compared to the consolidated construction margin of 22.4% in 2026. Thank you, and now I'll turn the call back over to Y.J. for the appointment remarks.

Yujia Zhai: As we noted in our previous audience call, we are undergoing a substantial transformation of our business over the next couple of years. First, we have shifted the priorities in our display business to be laser focused primarily on China business expansion. We have now begun operations at our new Chinese entity, Magnitude Technology Company, MTC, with our Chinese headquarters now up and running. And we expect to significantly expand our Chinese operation in 2024.

Yujia Zhai: We are strengthening strategic relationships with panel customers, OEMs, and suppliers. I am encouraged with the progress thus far. Two, Q1 is the first period in which our financial results reflect the operating performance under the new MSS and PAS structure. The separation of those businesses streamlines our go-to-market strategy, strengthens the potential for increased shareholder value via strategic investment, and also improves transparency for investors. Three, we are working very hard to fill the ideal fat capacity in our GourmetFab caused by the winding down of the transitional boundary services.

Yujia Zhai: Our current power products are experiencing an increase in demand, and we are launching a new slate of higher-margin products throughout the year. I look forward to sharing updates and our progress on future earnings calls. Now, I will turn the call back to Steven.

Steven Pelayo: Thank you. That concludes our remarks section of the call today. Operator, you may now open up the call for questions. Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1.

Operator: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1 1 on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press star 1 1 again. We will pause for a moment while we compile our Q&A list. Our first question comes from Quinn Bolton on Needham. Your line is open.

Operator: We can, but it's a little bit of breaking up.

Quinn Bolton: Okay, hopefully this comes through. I guess I wanted to ask, YJ, the biggest, you've introduced a number of new products in the MSS segment over the last, you know, 12 to 24 months, and it sounds like a lot of those are slotted to start to go into production, you know, towards the end of this year and into early 2025, and I guess, you know, as you look at the number of new products, could you kind of just rank order, which do you think are going to be the biggest contributors to growth in the second half in the MSS segment?

Yujia Zhai: Okay, very good, Koen. Thank you.

Yujia Zhai: So the initial business ramp right now started with the first-generation product we taped down in 2002. That's the after service market. And then we announced the win with our second generation product with one of the key Chinese phone makers that expects to go to revenue in the second half. And today we taped out, and it's going to sample the third generation product. And that one will also go into production towards the fall or end of the year.

Yujia Zhai: And then we will have another product that will hit the market that takes out and samples this in the next quarter. So in terms of volume products, it's going to be the second generation product that we talked about that we want that will go into production in the second half. And then the chip that we will sample this quarter in the second quarter that will be aligned with the fall model. And those two will be the high volume models.

Yujia Zhai: And additionally, we also said we sampled QHD plus high-end models, and that will also drive decent revenue starting at the end of the year. So, and then there's a smart watch that we taped that will sample. So those are the products that will drive revenue. And I think the high end and the second generation and the first third generation, you know, have good potential towards the end of the year.

Yujia Zhai: It sounds like, to summarize, the second generation, where you already have a win with the Chinese smartphone maker going into production in the second half, and then the third generation product, which you expect to start to ramp perhaps a little bit later in the fall, but before you're in, those are the two sort of highest volume runners, as you see it today.

Yujia Zhai: Yeah, and then I would say because the QHD is a high end, even the volume may be a little lower, but the higher ASP, so that we sample that will also hit towards the end of the year, and it will probably have a decent revenue as well.

Quinn Bolton: Got it. Okay, perfect. And then just, you know, kind of looking at the On the PAS segment, you've commented that you're starting to see some signs of inventory clearance, you know, kind of wondering how much longer inventory is going to be a headwind. Do you think it sort of continues into the second half of the calendar year? Do you think we'll be mostly through it by the end of the second quarter?

Quinn Bolton: Just any update on, you know, kind of where you think we are on the inventory clearance? And I guess a related question, you know, as you get better line of sight into inventory and the channel, do you have any sense where consumption is today of your product versus what you're shipping, which I imagine you're still shipping below? Thank you.

Yujia Zhai: Yeah, thank you, Quinn. So, you know, we sell about the, I would say about 80% in Asian region and then 20% in the Europe and US, and for the industrial market and automotive tend to be very big portions for other power makers they tend to be maybe 78 percent but for us industrial automotive is like 35-40 percent and so for us the consumer communication and computing already went through the inventory correction a year and a half so in the first quarter our industrial segment actually grew over the fourth quarter and even this quarter we expect the industry to grow.

Yujia Zhai: They tend to be maybe 78%, but for us industrial automotive is like $35, 40% and so.

Yujia Zhai: For us the consumer communication and computing already went through the inventory correction.

Yujia Zhai: And a half so in the first quarter, our industrial segment actually grew over fourth quarter and even this quarter, we expect the industry to grow.

Yujia Zhai: On the consumer side, we grew in Q1, and then we expect flattish growth in Q2. Communication was slightly down in Q1, but we expect strong growth in Q2. So, you know, for us, the inventory correction in the industrial segment for us seems to have gone away. So, we're already adjusted.

Yujia Zhai: On the consumer we grew in Q1, and then we expect flattish in computing, we grew and I expect flattish in Q2 communication.

Yujia Zhai: Slightly down in Q1, but we expect strong growth in Q2 so.

Yujia Zhai: For us the inventory correction in industrial segment for us.

Quinn Bolton: And the usually second half, the Q3, Q4 is a strong quarter, a season for us, given that we have more consumer communication and computing segments, which tend to be cyclical. So we are guiding up in the future, and then we see a strong Q3. So that's how we see based on today's indicators.

Yujia Zhai: Gone away.

Yujia Zhai: <unk> already adjusted and usually second half the Q3 Q4 is a strong quarter.

Quinn Bolton: Quarter of season for us given that we have more.

Quinn Bolton: <unk> communication and computing segments, which tend to be cyclical so.

Quinn Bolton: We are guiding up into Q2, and then we see a strong.

Quinn Bolton: Q3s, so that's how we see.

Quinn Bolton: Based on today's indicators.

Yujia Zhai: Got it. One last quick clarification. I think you said it was consumer and comms where you had sort of a flatter outlook in the second quarter. Is that just more what you would call seasonality, or are there other factors slowing in demand that are leading to a flatter outlook for those two segments?

Speaker Change: Got it one last quick just clarification I think you said it was consumer and comms, where you had sort of a flatter outlook in the second quarter or is that just more.

Yujia Zhai: What you would call seasonality or are there other factors slowing in demand.

Yujia Zhai: That are leading to a flatter outlook for those two segments.

Quinn Bolton: I think it's also really aligning with some of the consumer or computing communication models. So I think it's, I wouldn't say it's really turned to seasonality, but there's also model alignment and so forth. So, you know, I think it goes up and down for us. So I don't think it's a pure seasonality. The Q2 is seasonality overall is better for us.

Yujia Zhai: I think it's also really aligning with some of the consumer or computing communication model. So.

Quinn Bolton: I think it's I wouldn't say, it's really tied to seasonality, but it's also model alignment and so forth. So.

Quinn Bolton: I think.

Quinn Bolton: It it goes up and down for us. So I don't think is a pure seasonality Q2 is seasonality as the overall is better.

Operator: Got it. Okay. Thank you. Yeah. One moment for it.

Quinn Bolton: Yes.

Operator: One moment for our next question. Our next question comes from Andrew Northcutt with Oppenheimer. Your line is open.

Speaker Change: Got it okay. Thank you.

Operator: One.

Andrew Northcutt: One moment for our next question.

Andrew Northcutt: Our next question comes from Andrew <unk> with Oppenheimer. Your line is open.

Andrew Watson: Hey guys, this is Andrew Watson and Martin. Thanks for taking the question. You touched upon it a little bit, but can you talk a little bit about how much exposure the PAF segment has to the consumer home appliance market? And how do you think China's recently announced home appliance trade and subsidy will impact the business? Thank you.

Andrew Northcutt: Hey, guys. This is Andrew also Martin Thanks for taking the question.

Andrew Watson: So part of it a little bit, but can you talk a little bit about how much exposure. The PAF segment has to the consumer home appliance market and how do you think China has recently announced home appliance traded subsidy.

Andrew Watson: Impact the business. Thank you.

Yujia Zhai: Could you repeat the subsidy on consumer appliances by whom? China? Yes, by China. Okay.

Speaker Change: Could you repeat the subsidy on consumer clients by whom.

Yujia Zhai: China.

Yujia Zhai: So, you know, mostly the consumer is mostly in Korea at the moment. We do some in the consumer in China. We do more of the industry like e-bikes and communications and cell phones in China. But I think that will also, if they are doing that, I think that will also help us out. Because China definitely is about 45 percent, 40 to 45 percent of revenue for us in PAS.

Speaker Change: Yes by China.

Yujia Zhai: So.

Yujia Zhai: Mostly the consumer.

Yujia Zhai: It's mostly in Korea at the moment, we do some in consumer in China, we do more of.

Yujia Zhai: The industry like E bikes and.

Yujia Zhai: Communications and cell phone.

Yujia Zhai: In China, but I think that will also if they are doing that I think that will also help us out because China definitely is about 45%, 40% 45% of revenue for us.

Speaker Change: Perfect. Thank you.

Speaker Change: One of them is for our next question.

Operator: One moment for our next question. The next question comes from Suji DeSilva on the RothHK Webcam.

Ralph HK: Our next question comes from <unk> Silva with Rush, Ralph HK webcam.

Suji DeSilva: Hi, Y.J. Hi, Shin Yong. So, Y.J., the Chinese smartphone wins. Can you talk about whether those are a premium model or mainstream or across the platform, trying to understand what the initial ramp could look like for those?

Suji DeSilva: Hi, YJ, Hi, Shin young so.

Speaker Change: Y J.

Suji DeSilva: Ana smartphone wins can you talk about whether those are our premium model or mainstream or across the platform trying to understand what the initial ramp to look like for those wins.

Yujia Zhai: Yeah the one that we announced a new win it's a really high-end it's a QHD plus the QHD plus as you know is higher than the WXGA which is a resolution of iPhone so it's a higher than that so we see that segment growing starting this year so we are preparing more solution around there and this is the first one that we are going there with a new model and that's for the top three Chinese smartphone maker

Y.J.: Yes, the one that we announced a new win that's a really high end, it's acute HD plus.

Yujia Zhai: Ph D plus as you know is higher than the W. S.

Yujia Zhai: <unk>, which is the resolution of iPhone se.

Yujia Zhai: Higher than that so we see that segment growing starting this year. So we are preparing more.

Yujia Zhai: Solution around there and this is the first one that we are going there with a new model and.

Yujia Zhai: Well that's for the top three Chinese smartphone maker.

Yujia Zhai: Okay.

Suji DeSilva: Okay. Okay, and then you talked about in the power segment, you talked about server opportunities. Can you talk about whether that's early or that's starting to ramp, and what the kind of opportunity is, whether it's AI-type servers, or just some color there as to what the opportunities that seem like it's newer to you and the competitive landscape there, perhaps, would be interesting to know as well.

Yujia Zhai: Okay.

Speaker Change: Okay, and then you talked about a thing in the power segment, you talked about server opportunity can you talk about whether that's early or that's starting to ramp in.

Suji DeSilva: The kind of opportunity is whether it's AI type servers or just.

Suji DeSilva: Some color there as to what the opportunities that the team. It seems like it's newer to you in the competitive landscape there, perhaps it'd be interesting to know as well.

Yujia Zhai: Yeah, so we are starting the server power supply. So we got qualified and started shipping. And we do hear that the AI portion of servers is the fastest growing within the server segment. So we look forward to see whether we get more subsequent designs in the AI servers in the future.

Speaker Change: Yes. So the we are starting the server powers. So we got qualified and start shipping.

Yujia Zhai: And we do hear that the AI portion of servers are the fastest growing within the server segment. So.

Yujia Zhai: We look forward to see what do we get more subsequent design indeed.

Yujia Zhai: Servers in the future, but the dish for the server power supply.

Suji DeSilva: One last quick question, the formation of the MTC, the China organization, their entity, just wondering what the implications of that are from an MX perspective and sort of running the business, and thoughts as to what that maybe allows you to do that you maybe couldn't in the past. Yes, the creation of MPC is to address the Chinese customer well with a local presence. You know, I think given the sensitivity there politically, I think it's good to have a local company focused on Chinese suppliers and then have an independent operation to service and support and grow opportunities with an independent operation. So that's the idea, and that's been very welcomed by the Chinese customer. All right. Thanks, Yujia.

Yujia Zhai: Sort of hours. So maybe one last quick question on the formation of the Mtc China organization.

Suji DeSilva: Organization their entity just wondering what what the implications of that are from a from a M.

Suji DeSilva: Max perspective, and sort of running the business and thoughts as what that maybe allows you to do or that you maybe couldn't in the past any thoughts there would be helpful.

Yujia Zhai: Yes for the creation of MPC is to address the Chinese customer well with a local presence.

Suji DeSilva: I think given the.

Suji DeSilva: The sensitivity there are politically I think it's good to have a local company focus in Chinese suppliers, So and then.

Suji DeSilva: A growing opportunity with independent operation. So that's the idea and that's been very welcomed by the Chinese customers.

Speaker Change: Okay, alright, thanks, Roger thank.

Operator: And I'm not showing any further requests at this time. I'd like to turn the call back over to Steven for any closing...

Speaker Change: Thank you.

Suji DeSilva: And I'm not showing any further questions. This time I'd like to turn the call back over to Steven for any closing remarks.

Steven Pelayo: Great, thank you. This concludes our Q1 earnings conference call. Please look for details of our future events on Magnus Hipp's Investor Relations website. Thank you and take care. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.

Steven Pelayo: Great. Thank you. This concludes our Q1 earnings conference call. Please look for details of our future events on <unk> investor relation website, Thank you and take care.

Steven Pelayo: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Steven Pelayo: Yes.

Steven Pelayo: Okay.

Steven Pelayo: [music].

Steven Pelayo: Okay.

Steven Pelayo: [music].

Steven Pelayo: Okay.

Steven Pelayo: Okay.

Steven Pelayo: [music].