Magnachip (NYSE:MX) Reports Q1 In Line With Expectations But Quarterly Guidance Underwhelms

Max Juang /
2024/05/02 4:50 pm EDT

Semiconductor manufacturer Magnachip Semiconductor (NYSE:MX) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 13.9% year on year to $49.07 million. On the other hand, next quarter's revenue guidance of $51.5 million was less impressive, coming in 5.7% below analysts' estimates. It made a non-GAAP loss of $0.28 per share, down from its loss of $0.24 per share in the same quarter last year.

Is now the time to buy Magnachip? Find out by accessing our full research report, it's free.

Magnachip (MX) Q1 CY2024 Highlights:

  • Revenue: $49.07 million vs analyst estimates of $48.73 million (small beat)
  • EPS (non-GAAP): -$0.28 vs analyst estimates of -$0.33
  • Revenue Guidance for Q2 CY2024 is $51.5 million at the midpoint, below analyst estimates of $54.6 million
  • Gross Margin (GAAP): 18.3%, down from 21.2% in the same quarter last year
  • Inventory Days Outstanding: 71, down from 76 in the previous quarter
  • Free Cash Flow was -$4.64 million compared to -$7.50 million in the previous quarter
  • Market Capitalization: $187.9 million

YJ Kim, Magnachip’s Chief Executive Officer, commented, “In Q1 we started the initial revenue ramp for OLED DDICs for the after-service market, and we were awarded two new designs targeted for a leading China smartphone OEM and also for a leading European EV maker. Our Power Analog Solutions (PAS) business revenue grew 12% sequentially driven by smartphones, e-motors, consumer appliances and server power applications, and we now are launching a slate of next-gen power products to help sustain our momentum. We also are encouraged that the power channel inventory showed signs of improvement in the first quarter.”

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.

Analog 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 by 22.5% on average per year. This quarter, its revenue declined from $57.01 million in the same quarter last year to $49.07 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 slow quarter for the company as its revenue dropped 13.9% year on year, in line with analysts' estimates. This could mean that the current downcycle is deepening.

Magnachip may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 15.5% next quarter, analysts are expecting revenue to grow 14% over the next 12 months.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity 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 DIO came in at 71, which is 14 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from Magnachip's Q1 Results

We were impressed by how significantly Magnachip blew past analysts' EPS expectations this quarter. We were also glad its inventory levels shrunk. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its gross margin shrunk. Overall, this was a mediocre quarter for Magnachip. The stock is up 4.5% after reporting and currently trades at $5.15 per share.

So should you invest in Magnachip right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.