Good afternoon. My name is [Hope] and I'll be your conference operator today. At this time I would like everyone to the MagnaChip Semiconductor's Fourth Quarter 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Robert Pursel, you may begin your conference.

Thank you, [Hope]. Good afternoon and thank you for joining us for MagnaChip's fourth quarter 2012 earnings conference call. A copy of the press release issued today is available on our Investor Relations website. A 72-hour telephone replay will be available shortly after today's call and this webcast will be archived on the company website for one year. Access information is provided in today's press release. Joining us today are Sang Park, MagnaChip Chairman and CEO, and Margaret Sakai, Executive Vice President and Chief Financial Officer. Sang will begin the call with an overview of our fourth quarter business highlights and Margaret will discuss our financial results. Following Margaret's financial discussion, Sang will provide our first quarter guidance, after which we'll open the call for questions. During the course of this call we may make forward-looking statements about MagnaChip's business outlook, including statements regarding our expectations for revenue, target gross and operating margins, as well as cost savings for 2013 and beyond. Our forward-looking statements and all other statements that are not historical facts [describe] our beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the Safe Harbor discussion found in today's press release. 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. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release. I would now like to turn the call over to Sang Park for a review of our fourth quarter business. Sang?

Thank you, Robert. I'm very pleased that we ended 2012 with a revenue of $819.6 million, up 6.1% from 2011 and outpacing the semiconductor industry which declined 3% this year. While the macro environment maintained [width], we have successfully aligned with the growing smartphone and tablet PC market, leveraged our strong relationship with [our broad] customers, and delivered 30% more new product in 2012 than the previous year. I believe that this will help differentiate us from our competitor and allow us to perform better than 2012. For 2012, gross margin improved 190% -- 190 basis points over 2011 as a result of our mixed business model. This hybrid model allow us to pull multiple levers to maximize fab utilization which averaged over 90% during 2012. During 2012, our Power Solutions segment grew 34.8% and our Foundry segment grew 15.2%. With our strong position in AMOLED display driver IC at the leading Korean smartphone maker, we expect our Display Solutions segment will grow this year. Our transition to these high-growth products was part of the business transformation that began over three years ago. Revenue from the smartphone and tablet grew nearly 30% of the total revenue in 2012 with over 50 products being shipped to nearly 30 different customers. In addition, this year we have expanded a range of products and diversity of our applications we are delivering the leading -- we are delivering to the leading Korean maker. This expansion will help us to manage any potential changes in the smartphone market landscape. Looking at the quarter, revenue of $218.1 million declined 1.7% and gross margin 30.1% was down 40 basis points compared to the previous quarter. But both were better than midpoint of our Q4 guidance range. Compared to the same quarter last year, Q4 revenue is up…

Thank you, Sang. Let me provide some financial highlights and a brief review of our statement of operations. Fourth quarter revenue of $218.1 million and a gross margin of 34.1% represented the eighth consecutive quarter we met or exceeded our financial guideline. For the full year 2012 revenue, grew 6.1% to $819.6 million from $772.8 million in 2011. Power Solutions revenue increased by 34.8% to $124.7 million in 2012 compared to $92.5 million in 2011. Gross margins for 2012 increased by 190 basis points to 32.2% of revenue from 30.3% of the revenue in 2011. Our gross margin improvement was a result of our mixed business model, higher-than-industry average fab utilization rates, and the very strict cost controls. GAAP net income for the full year 2012 was $193.3 million or $5.16 per diluted share compared to $21.8 million or $0.55 per diluted share for 2011. Adjusted EPS of $2.23 per diluted shares for the full year of 2012, our non-GAAP measurement was 33.5% higher than $1.67 per diluted shares in 2011. Reconciliation of our non-GAAP financial measures to GAAP measures can be found in today's press release. As a result of our continued strong financial performance, we repurchased 406,000 shares of our common stock during the fourth quarter and 4 million shares since the beginning of the common stock repurchase program. The total amount of our repurchase is, since we initiated our buyback, is $39.9 million. Now turning to our statement of operation, revenue for the fourth quarter was $218.1 million and within our guidance range for a decrease of 1.7% sequentially and increase of 20.6% year over year. For 2012, revenue was $819.6 million, up 6.1% from 2011. Revenue by business segment for the fourth quarter was $112.7 million for Foundry Services, $72.8 million for Display Solutions, and $31.9…

Thank you, Margaret. For our Q1 guidance, when we look at the normal seasonality of our business and the current macro environment, we expect our revenue will be in the range of $201 million to $209 million. Based on this revenue level and our [inaudible] loading forecast, w anticipate our gross margin will be in the range of 31% to 33%.

So, [Hope], this concludes our prepared remarks. We will now open the call for questions.

[Operator Instructions]. Our first question comes from the line of Terence Whalen, Citigroup.

Yeah, hi. Good afternoon and thanks for taking the question. This one is a higher-level question on gross margin. Obviously we've made very good progress over the past couple of years with gross margin. We saw a 2-point increase in 2012. My question, as we look forward to 2013, what are the key swing factors that would determine whether gross margin goes up maybe a point or two points? What are the different puts and takes that you see influencing gross margin most significantly across utilization, products mix and anything else? Thanks.

Terence, we don't provide guidance for the 2013, but that is our goal, 1% to 2% gross margin improvement every year. And really up to two things you spelled which is definitely utilization of our fab, and number two, is our product mix. I don’t think there is anything else. I mean there are a lot of minor things influencing to this number, but I think those are the two major points.

Okay, terrific. Then my follow-up is on the power business, it sounds like some, you know, modest softness in the PC area of the power business. Can you refresh us on understanding the components of the power business? And even though PC is soft right now, can you let us know whether you're seeing any sort of a cyclical improvement from maybe the Chinese industrial market? Thank you.

As of now, let me divide into two categories. One is power mass fab, and takes up about 61%, and 18% is PMIC, and rest of them are module. And just looking into that biggest market today is Korea; they are more consumer related. And then second biggest -- that probably about 42%, 45% -- and China is a number two and that's maybe about between 35% to 40% and is more industrial. And Taiwan, which is only now just below 20%, is notebook.

Thanks. Over to queue. Thank you.

You're welcome.

Thanks, Terence.

Your next question comes from the line of Raji Gill, Needham & Co.

Yes. Thanks for taking my question, and congrats on solid results. Sang, you talked about kind of returning to kind of some normal seasonal patterns in kind of Q2 and for the rest of the year. Perhaps if you could remind us kind of -- what is kind of your normal historical seasonal patterns by quarter, to give us some sense of kind of the cadence of the numbers.

Right. Even though we align with the smartphone and tablets and more than 60% of other revenue coming from so-called wide range of consumer products, and typically these products lowest in the first quarter and grow second, peak at third quarter, and slightly down fourth quarter. And that's our seasonality. Last few years there's a lot of unusual patterns in electronic business, so you're going to go back five, six years of this company. And just looking at the history and that's the pattern -- excuse me.

And the guidance for Q1, could you provide a little bit of color on the specific segments kind of what are you seeing for display, power and manufacturing services?

The power will be flat and Display Solutions slightly up, and foundry slightly down.

On the foundry side, could you maybe talk a little bit about if you experienced any volatility related to kind of, you know, Apple's procurement cycle at all and any volatility of the foundry customer side in Q4 and Q1?

We're not free from that. Obviously that showed inventory correction took off -- took out all my upside. But because of we are well-diversified and we're able to meet the market expectations, and just remind that compared to fourth quarter of -- I mean let's say that the first quarter of 2011 and compared to our midpoint of Q1 guidance, we still grow 16%. So there is -- and gross margin improved 380 basis points. That said, we are fundamentally restructure the company and we align well, but we could do better if there was no short-term inventory correction. So that has an impact, but we are well-diversified as we say that to the market a number of times.

Got it. And just last question, the OpEx, you know, was down nicely in Q4 around $39 million. How should we be looking at the OpEx going forward? Thank you.

[inaudible] OpEx is going forward, we, you know, we expect it between $42 million and $45 million per quarter, which is depending on number of, you know, the R&D project.

Thank you.

Thank you, Raji.

Your next question comes from the line of Ross Seymore, Deutsche Bank.

Hi, this is Mike Chu for Ross. Congratulations on a great quarter. And I just had a question about the inventories. You did explain why it went up in the quarter. Do you expect that to stay at those higher levels in 1Q or do you expect the inventory to come down in the first quarter?

For the inventory, it's depending on the product mix still right now. Then for the first quarter we are expecting pretty much the same level. And then, you know, we are currently evaluating our days of inventory target range.

But as Margaret explained, we're selling more of AMOLED DDI, probably this number stay high because of longer manufacturing cycle time. But as we do more foundry, probably this number is coming down a little bit.

Okay. And as a follow-up, just wondering if you could provide us with some guidance on CapEx for 2013 and even 2014 if you have it.

You know, as we showed in our, you know, the midterm business model, our CapEx expectation annual basis is between $50 million to $60 million every year, which includes $5 million to $10 million maintenance CapEx.

And we [inaudible] to grow if the market supports.

Okay. And I guess my final question, could you just remind us on your debt on your balance sheet if you have any calls or when that mature, and if there's any way that you could actually repay that debt earlier than when it's due in 2018?

That is outstanding, the [$205 million], and that maturity is in 2018 with non-call for four years.

Okay. So there's no way to repay that earlier than the call date?

2014. So we issued in 2010, so, 2014 is the year we can consider.

Okay, great. Thank you.

Thanks, Mike.

Your next question comes from the line of C.J. Muse, Barclays.

Good afternoon. Thank you for taking my question. I guess first question, specific to your foundry business, can you talk about I guess the visibility you have today to your customer demand and how that will factor in to how you run your utilization in Q1, Q2?

The Q4 was slightly higher than 90% and Q1 we expect just below that number. And obviously we do have 12 months rolling forecast from customer, but also that's subject to change. We're looking at year-to-year and it looks pretty healthy.

Got you, very helpful. As a follow-up, I guess a question on your prepared remarks, I believe I heard you talk about top two mobility customers growing 35% year over year in Q4, and I guess I'm trying to understand, you know, your foundry business was up 65% year over year, and so I guess, are you including display within that number as well? Any clarity there would be helpful.

So, any display related foundry show up in our Display Solutions business.

Okay. So the number you're reporting was in aggregate, okay.

Yes.

Great, very helpful. Thank you.

Thank you, C.J.

Your next question comes from the line of Nick Gadios, UBS.

Yes, hi. Just a little bit of a follow-up on the prior one, maybe if you could clarify how should we look at direct and indirect exposure to Samsung and Apple respectively and how this is balancing. I mean my guess would be that mix has changed from last year, in particular your AMOLED presence has gone up. So, any color to there would be very useful. And I've got two follow-ups. Thank you.

Okay. So, Nick, you're asking what is our direct and indirect exposure to Samsung and Apple and how --

Right. You said before it was 40% also, right? So, how has that changed? How do we look at Apple versus Samsung? Is Samsung bigger considering your ramp-up in AMOLED last year? Thank you.

We -- it's over 2012, maybe our exposure to company maybe close to 46%, 47% -- and what was the other question?

Apple versus Samsung mix, has it changed? With AMOLED, is it more Samsung --

You know, that's interesting question. When you're looking at these two leaders, their new product introductions start off not synchronized and we really appreciate that. So, you know, two company taking turn and bring the new product definitely is going to help us, if that is any help for your question.

Okay. No [inaudible] but it meets my first follow-up which is your foundry revenue is down as you expressed it in Q1. Actually doesn’t necessarily look that bad if we consider that for instance UBS forecast iPhone units down 21% q-over-q in the March quarter. What is coming into your foundry products or new customers or anything like that which actually allows you to offset the well-publicized Apple-related decline?

You know, we do have definitely the major customer in our foundry business, but also we're still well-diversified, not only smartphone and tablet PC, and therefore when a customer demand is sort of reduced because of short inventory correction, and we can use another customer demand and able to fill the fab. So that's the company's strength of being diversified.

Okay. And I guess what I was going about is, is any of the Samsung related exposure in foundries in Q1 effectively growing and offsetting the Apple-related year-over-year decline?

In the Foundry segment, Samsung-related business still is relatively smaller than the other company.

Okay. Great. Perfect.

-- grow second half.

Okay, got it. And just one point of clarification on what you said before, when you talk basically about your growing -- your DC to DC exposure for smartphones in Samsung in H1 2013, that's AMOLED, right, specifically?

Well, we mentioned that there are also power amplifier DC to DC and we are working with them on LED backlight. So it's more than one product for the Korean company smartphone applications.

Right. Perfect. Thank you very much.

You're welcome.

Thanks, Nick.

[Operator Instructions]. Your next question comes from the line of Jay Srivatsa, Chardan Capital Markets.

Thanks for taking my questions. Congratulations on good numbers, Sang and Margaret. The question I had, Sang, your power [management] business has definitely declined as you increased your exposure to the power -- PMIC business. As you look at fiscal '13, what are your expectations in terms of continued growth in the PMIC side?

Our mass spec business is not shrinking, we're expecting will increase into 2013, but obviously our expectation is power management IC is going to outgrow by far the mass spec. So, our company commitment to the customer is we want to maintain mass spec business, but at the same time we want to increase power management IC. And in my statement, I said that power management IC, in addition to TV backlighting controller and now we're working with a smartphone application, also we started power management IC for SSD. As you know, it's a humongously big potential market and we have two leading DRAM maker -- I mean the flash maker, [NAM] flash maker in Korea. So we have a design-in into one, working with the other one. So that will be a really good opportunity once we complete it. And also LED lighting is continuously we had very sizable revenue second half of 2012 and now we have a product available for the open market and we expect that this is going to generate additional revenue. So it's not just single product in PMIC, some multiple markets and multiple applications and multiple products, and that's why we have a very good hope. And also [super-junction] mass spec we do have a lot of design into Korean markets and Chinese markets and working with a Taiwanese customer we have a very high expectation. And also our -- the high-power module is going well. So all those add up as a non-mass spec business, we expect that we're going to have one other good year for the power in 2013.

All right. One of the players in your space, [Diodes], made an acquisition of a Chinese company in the power management side. What are your thoughts in terms of competitive space in China given that acquisition by [Diodes]?

We've never done any comparison to BCD. I don’t believe we consider them as a competitor. So in that BCD market, obviously we have no data that we can share with you. But definitely China is a big market and we mostly penetrate into industrial application customers. I don’t believe BCD have. And so we're not really concerned about [Diodes] acquiring BCD. It's of completing our product on time and bring the satisfying service to the customer, that's probably more challenge for us.

All right. Last question, on the display side, I think it looks like the display revenues appear to be doing really well for you, and you've guided for some modest increase. Is it coming off the continued success of some of the products from your large customer in Korea or some of the products that are coming up for launch that I think is expected in the next quarter or so? What is driving your demand for displays in Q1?

It's AMOLED driver for the cell phone -- smartphone I should say.

Okay. Thank you.

You're welcome.

Thanks, Jay.

Your next question is a follow-up question from the line of Terence Whalen, Citi.

Thank you for taking the follow-up. This one is regarding the foundry business, obviously had significant success in foundry in 2012. The question is a little bit of a broad-based question, as we look into 2013, will growth in the foundry business be driven by higher volumes at existing customers or will it be driven by new additional customers? How do you see growth in the foundry business changing in 2013 versus 2012?

What we're looking at possibly is growth from existing customers first half compared to 2012. Second half I expect there are a number of new customers and it will not be very heavy volume but it's a sizable volume, but number of customers, that's our expectation for the growth in second half of 2013.

And then, Sang, can you update us on the success that you've had in terms of migrating some of the newer foundry customers, some of the higher-margin processes, can you give us a feel for how that's progressing? Thanks.

It is a very customer-specific question, but obviously we are shifting customers more to European and US customer, and that progress is well-made.

Terrific. And then my last follow-up was on the tax line. Can you help us understand how we should be modeling the GAAP effective tax rate out into 2014? Just trying to understand at what point should we begin stepping that up. And also just in general where we stand with the NOL today. Thanks.

Okay. You know, towards the end of 2012, our NOL balance is approximately $280 million, and further, cash tax expenses is going to be still between $10 million to $15 million. The deferred tax asset is one of reconciliation items to calculate our adjusted net income. So, no impact on our earnings per share, adjusted earnings per share diluted calculation.

So, Terence, the best way to look at it is if you're looking for a rate to use for modeling purposes, I think Margaret feels comfortable with still going with 10 to 15 per year for taxes.

Into 2014, is that correct?

Yes, correct.

Okay, great. Thank you.

You're welcome.

Your next question is a follow-up question from the line of Raji Gill, Needham & Co.

Just on the taxes real quick, you're saying, Robert, 10% to 15% tax rate or $10 million to $15 million of cash taxes for you?

Yeah, dollars, dollars. There is no tax rate. So, $10 million to $15 million.

Okay, all right. And Sang, you talked about adding some new foundry services for the touch business related to some Korean customers. I was wondering if you could maybe elaborate on that and kind of your foray into the touch market.

The market expect that there will be solid growth in mid to low end of smartphone. And obviously, Korean company is leading into that market and worldwide, and obviously they're looking for the local supplier, except one. And most of Korean touch -- the fabless company using our [inaudible] technology and the forecast we're receiving and some of them will be successful and ramping up their volume in second half. That's what I was referring to.

Okay. Thank you.

You're welcome.

Your next question is a follow-up question from C.J. Muse, Barclays.

Thanks for taking the follow-up. I guess, could you provide any granularity in terms of mix-wise on the display side between where you were in terms of AMOLED traditional TFD and maybe quad HD last year versus what you expect this year? And then as part of that question, given that mix shift that will likely happen, do you think you can get display gross margins in excess of 30% at some point this year?

Since the customer concentration is there for AMOLED, we're not sharing any gross margin numbers in that area. But obviously it is higher than average TFD gross margin, that's as far as I can say. And what was your first question, C.J.?

Just trying to understand the mix shift between traditional TFD and I guess higher-quality, higher-ASP AMOLED or quad HD.

Okay. We don’t do a whole lot of TFD mobile driver. We only do now in volume AMOLED, so which is definitely high-definition. And I'm sure they will bring up ultra-high-definition smartphone sometime this year too. And I hope that we will be there with them.

Okay. One last question, can you talk about the competitive environment on the foundry side? And here I'm particularly interested in your thoughts on [SK Hynix] talking about becoming a foundry supplier, CMOS image sensors and other. Is that a threat that I guess -- on the roadmap or something that is not concerning?

Definitely we're not doing any CMOS imaging sensor foundry. We're completely out of that market a long time ago and as one of our restructuring. And they're not really in open foundry market and they're also, as far as I know, they're more into leading-edge technology and we are more into analog and mixed signal. So as of today, there is no crossover.

Very helpful. Thank you.

You're welcome.

Your next question is a follow-up question from the line of Jay Srivatsa, Chardan Capital Markets.

Thanks for taking my follow-up. Just a couple of housekeeping ones. Were there any 10% customers? And if so, what percentage was it in Q4?

I think that we only -- yeah, go ahead.

We do have only one, you know, the customer that is, you know, revenue is 10%, you know, greater than the 10% of total company revenue.

And they're a Korean customer.

Okay. And then in terms of stock repurchase, it looks like you've continued the program in Q4. What are your plans in fiscal '13 in terms of stock repurchase program?

We still do have, you know, remaining $20 million, the balance that, you know, [inaudible] the approval. So as we did, you know, ongoing basis, we will review and then do it at proper execution.

Okay. Thank you.

Thanks, Jay. You're welcome.

Our final question is a follow-up question from the line of Ross Seymore, Deutsche Bank.

Hi again, this is Mike Chu for Ross. Just a quick follow-up, for the OpEx guidance, just wanted to clarify, did you say it was $42 million to $45 million for the first quarter? And I'm assuming that includes amortization.

Yeah. What I meant was, you know, between the $40 million to $45 million, depending on the number of our R&D projects for, you know, going forward. And also it is including amortization too.

Okay, perfect. Thanks.

Thanks, Mike.

There are no further questions at this time. I would like to turn the call back over to Mr. Robert Pursel.

Okay. Thank you, [Hope]. So in closing, what I'd like to say is that our next earnings release and conference call is scheduled for April 30, 2013. So please look for these details and others for other upcoming financial events on MagnaChip's Investor Relations website at www.magnachip.com. So thank you for joining us today.

This concludes today's conference call. You may now disconnect.