Magnachip (NYSE:MX) Misses Q1 Analysts' Revenue Estimates

Radek Strnad /
2023/05/03 4:24 pm EDT

Semiconductor manufacturer Magnachip Semiconductor (NYSE:MX) missed analyst expectations in Q1 FY2023 quarter, with revenue down 45.2% year on year to $57 million. Magnachip made a GAAP loss of $21.5 million, down on its profit of $9.53 million, in the same quarter last year.

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Magnachip (MX) Q1 FY2023 Highlights:

  • Revenue: $57 million vs analyst estimates of $61 million (6.55% miss)
  • EPS (non-GAAP): -$0.24 vs analyst expectations of -$0.19 (23.1% miss)
  • Revenue guidance for Q2 2023 is $60.5 million at the midpoint, below analyst estimates of $69.3 million
  • Free cash flow of $7.74 million, up from negative free cash flow of $56.7 million in previous quarter
  • Inventory Days Outstanding: 74, down from 94 previous quarter
  • Gross Margin (GAAP): 21.2%, down from 37.5% same quarter last year

YJ Kim, Magnachip's chief executive officer commented, "Our Q1 results continued to be affected by last year's OLED wafer shortages that impacted second half design-wins and the ongoing smartphone inventory correction in our Display business and weak consumer demand in our Power business. Despite the challenging environment, we remained focused on execution during the quarter. In our Display business, we successfully delivered our second OLED DDIC project sample ahead of schedule to a large non-Korean panel customer and remain on track for second half smartphone launches. We also completed the tape-out for a high-end smartphone project with a large Korean panel customer, with mass production on schedule near the end of this year. In our Power business, we continued our record pace of design-in and -win activities, driven by momentum in industrial, automotive and computing applications. Looking ahead, the macro environment remains uncertain. However, we believe we are bumping along the bottom for the Display business and we have hit the bottom in Q1 for our Power business."

With its technology found in common consumer electronics such as TVs and smartphones, Magnachip Semiconductor (NYSE:MX) is a provider of analog and mixed-signal semiconductors.

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

Magnachip's revenue has been declining over the last three years, dropping annually on average by 16.6%. Last year the quarterly revenue declined from $104.1 million to $57 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Magnachip Total Revenue

This was a difficult quarter for Magnachip, with revenue declining 45.2%, missing analyst estimates by 6.55%.

Magnachip's revenue growth has slowed for the last three quarters and the company expects growth to turn negative next quarter guiding to a 40.3% year on year decline, but analysts think it will recover next year, as consensus NTM revenues are forecast to grow 43.1%.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Magnachip Inventory Days Outstanding

This quarter, Magnachip’s inventory days came in at 74, 19 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Key Takeaways from Magnachip's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Magnachip’s balance sheet, but we note that with a market capitalization of $367.3 million and more than $212.1 million in cash, the company has the capacity to continue to prioritise growth over profitability.

The strong improvements in Magnachip’s inventory levels were a positive. On the other hand, it was worrisome to see that the revenue growth was quite weak and the revenue guidance for the next quarter missed analysts' expectations. Additionally, EPS missed expectations in the quarter. Overall, this quarter's results could have been better. The company is down 3.92% on the results and currently trades at $8.33 per share.

Magnachip may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.