Magnachip (NYSE:MX) Q4: Beats On Revenue But Quarterly Guidance Underwhelms

Anthony Lee /
2023/02/16 4:14 pm EST

Semiconductor manufacturer Magnachip Semiconductor (NYSE:MX) reported Q4 FY2022 results that beat analyst expectations, with revenue down 44.7% year on year to $61 million. However, guidance for the next quarter was less impressive, coming in at $57 million at the midpoint, being 8.51% below analyst estimates. Magnachip made a GAAP profit of $2.97 million, down on its profit of $53.6 million, in the same quarter last year.

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Magnachip (MX) Q4 FY2022 Highlights:

  • Revenue: $61 million vs analyst estimates of $59.7 million (2.22% beat)
  • EPS: $0.07 vs analyst estimates of -$0.31 ($0.39 beat)
  • Revenue guidance for Q1 2023 is $57 million at the midpoint, below analyst estimates of $62.3 million
  • Free cash flow was negative $56.7 million, down from positive free cash flow of $15 million in previous quarter
  • Inventory Days Outstanding: 81, up from 79 previous quarter
  • Gross Margin (GAAP): 26.4%, down from 35% same quarter last year

YJ Kim, Magnachip's chief executive officer commented, "We closed the fourth quarter with $61.0 million revenue, near the high-end of our guidance range. Q4 results continued to reflect the impact of severe wafer shortages and inventory correction in our Display business and deteriorating consumer demand in our Power Solutions business. Despite the challenges of this past year, we stayed focused and achieved milestones that set the foundation for recovery in 2023. In Display, we expanded our OLED business into international markets by winning a new tier one panel customer outside of Korea and strengthened our global supply chain by qualifying two additional foundries. Further, in Q4, we successfully qualified two OLED projects with our two leading panel customers and expect to begin shipping at the end of this quarter. In Power Solutions, we achieved a record year with 2022 revenue up 1.2% despite the slowdown in the 2nd half due to macro weakness. Further, our Power Solutions business won a record 209 design-in/wins, more than double compared to previous years."

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 11.8%. Last year the quarterly revenue declined from $110.3 million to $61 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

Despite Magnachip revenues beating analyst estimates, this was still a slow quarter with a 44.7% revenue decline.

Magnachip might be headed for an upturn. While the company is guiding to revenue declines of 45.2% year on year next quarter, analyst consensus sees 21.3% growth over the next twelve months.

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 81, 28 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Magnachip's Q4 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 $453.7 million and more than $225.5 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Magnachip outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was less good to see that revenue has declined significantly and that revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for Magnachip. The company is flat on the results and currently trades at $10.27 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.