Magnachip (NYSE:MX) Reports Weak Q3

Anthony Lee /
2023/11/02 4:12 pm EDT

Semiconductor manufacturer Magnachip Semiconductor (NYSE:MX) fell short of analysts' expectations in Q3 FY2023, with revenue down 14% year on year to $61.2 million. Turning to EPS, Magnachip made a GAAP loss of $0.13 per share, improving from its loss of $0.38 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) Q3 FY2023 Highlights:

  • Revenue: $61.2 million vs analyst estimates of $61.8 million (0.95% miss)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.17
  • Revenue Guidance for Q4 2023 is $52.5 million at the midpoint, below analyst estimates of $62.2 million
  • Free Cash Flow of $973 thousand is up from -$11.2 million in the previous quarter
  • Inventory Days Outstanding: 60, down from 70 in the previous quarter
  • Gross Margin (GAAP): 23.6%, down from 24.2% in the same quarter last year

YJ Kim, Magnachip's Chief Executive Officer commented, "Our Q3 results were in-line with our guidance. In our Display business, we have completed the qualification of two DDI chips at our new tier 1 panel maker and are going through the qualification process with two smartphone makers. We are now working on additional Driver ICs that cover broader segments of the smartphone market to include mass market smartphones in addition to the premium models. Despite near-term market challenges, our outlook for long-term growth remains positive. Our confidence is driven by our strong belief that our display products offer distinct competitive advantages that position us well for success in the rapidly growing OLED market in Asia".

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 18.4% on average per year. This quarter, its revenue declined from $71.2 million in the same quarter last year to $61.2 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

Magnachip had a difficult quarter as revenue dropped 14% year on year, missing analysts' estimates by 0.95%. 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 13.9% next quarter, analysts are expecting revenue to grow 6.69% over the next 12 months.

Our recent pick has been a big winner, and the stock is up more than 2,000% since the IPO a decade ago. If you didn’t buy then, you have another chance today. The business is much less risky now than it was in the years after going public. The company is a clear market leader in a huge, growing $200 billion market. Its $7 billion of revenue only scratches the surface. Its products are mission critical. Virtually no customers ever left the company. You can find it on our platform for free.

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 60, which is 2 more days than its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are slightly above the long-term average.

Key Takeaways from Magnachip's Q3 Results

Although Magnachip, which has a market capitalization of $299.1 million, has been burning cash over the last 12 months, its more than $166.6 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

We were impressed by Magnachip's strong improvement in inventory levels. We were also excited its EPS outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter underwhelmed, something we've consistently noticed with semiconductor companies this quarter. Lastly, Magnachip announced that the formal separation of its display and power businesses is expected to be completed on January 1st, 2024. This will likely help investors analyze the business better. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $7.76 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

Join Paid Stock Investor Research

Help us make StockStory more helpful to investors like yourself. Join our paid user research session and receive a $50 Amazon gift card for your opinions. Sign up here.

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