Magnachip Semiconductor Corporation (MX) Q3 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2017 MagnaChip Semiconductor Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Bruce Entin, Investor Relations. You may begin.

Thank you for joining us to discuss MagnaChip’s financial results for the third quarter ended September 30, 2017. The third quarter earnings release that we filed today after the stock market closed and other releases can be found on the Company’s Investor Relations website. A telephone replay of today’s call will be available shortly after the completion of the call and the webcast will be archived on our website for one year. Access information is provided in the earnings press release. Joining me today are YJ Kim, MagnaChip’s Chief Executive Officer; and Jonathan Kim, our Chief Financial Officer. YJ will begin the call with a discussion of the Company’s recent operating performance. Following YJ, Jonathan will provide an overview of our financial results. YJ will then briefly provide a recap as well as provide financial guidance for the fourth quarter of 2017. There will be a question-and-answer session following today’s prepared remarks. During the course of this conference call, we may make forward-looking statements about MagnaChip’s business outlook and expectations. Our forward-looking statements and all other statements that are not historical facts reflect our beliefs and predictions as of today and therefore, are subject to risks and uncertainties as described in the Safe Harbor discussion found in our SEC filings. 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, but are intended to illustrate an alternative measure of MagnaChip’s operating performance that may be useful. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our third quarter earnings release available on our website under the Investor Relations tab at www.magnachip.com. I would now like to turn the call over to YJ Kim. YJ?

Thank you, Bruce, and good afternoon to everyone on our Q3 2017 conference call. We ended up with a strong financial performance in Q3. Revenue increased sequentially for the first three quarters. Gross profit margin, operating income and adjusted EBITDA in Q3 all will add their highest levels in more than four years. Revenue of $176.7 million declined year-over-year by 8.1% from $192.3 million, but increased 6% quarter-to-quarter and was at the higher end of the guidance range. The sequential improvement in revenue was driven primarily by double digit gains in both the power and display business lines. A key takeaway is that growth resumed in our OLED business in Q3, more on this later on the call. Gross profit margin of 28.5% in Q3 came in above the midpoint of the guidance range and compared to 28% in Q2 '17 and 20.4% in the third quarter a year ago. Foundry gross margin topped 30% in Q3. Operating income of $15.5 million or 8.8% of revenue was up nearly 60% from $9.7 million or 5.8% in the second quarter of this year and compared with operating income of $0.6 million or 0.3% in the same period a year ago. Adjusted EBITDA came in at $24.7 million or 14% in Q3, up 22% sequentially from 20.3 million or 12.2% in Q2 '17 and it more than doubled from the 10 million or 5.2% reported in Q3 last year. We achieved these improved financial results in Q3 despite a lingering slowdown in the China smartphone market and on August power outage that cause us to scrap wafers and briefly halt the production in our larger fab. Back in august, we estimated that the incident had the potential to impact Q3 revenue by up to 3 million and gross profit by up to 1.5 million, but we made a full recovery within the quarter. I would like to take a moment to thank publicly everyone in the factory for rising to the challenge and for keeping MagnaChip on track in Q3. When we reported our 2016 financial results back in February, we said our top priority in '17 would be focus on overall profitability. We identified gross profit and adjust EBITDA as key financial indicators and ask you to watch this space. We believe our financial results in Q3 and for the first nine months of the year are evident, so far that MagnaChip is meeting its commitment to achieve profitability. Let's take gross profit for example. Gross profit increased sequentially in each of the first three quarter of 2017 bringing the nine months total $138.5 million or $28.4 million more than we earned in the first three quarters of 2016. In our foundry business, the cumulative gross profit for the first nine months of 2017 actually slightly higher than the gross profit total for all of 2016. Adjusted EBITDA also has shown dramatic improvement through the first three quarters of 2017 the cumulative total for adjusted EBITDA was 58.1 million or 43% higher than the total for all 2016. Now, let's do a deep dive on the financial results and operating performance in our two operating segments beginning with the foundry. Foundry revenue in Q3 was 80.4 million down 1.4% from 81.5 million in Q2 and up 8.9% from 73.9 million in the third quarter of 2016. The combined fund revenue in Q2 and Q3 reflected the normal business patterns. Gross profit margin was 30.3% an increase of nearly seven percentage points from 23.5% in the third quarter of 2016 while gross profit margin in Q2 '17 was 28.7%. Fab utilization in Q3 remained in low to mid 90% range and we continue to benefit from improved product mix, reduction in manufacturing headcount and a strong pipeline of business from foundry customers serving multiple end markets. Foundry revenue from new products which is one indicator of pipeline strength increased 16% in the first nine months of 2017, as compared to the same period in 2016. And those new products accounted for 20% of total foundry revenue in Q3. And finally, this data point, our BCD and each square from process offering continue to be a foundry growth driver as revenue from this analog base technology increase a cumulative 80% through the first three quarters of this year, as compared to the first nine months of 2016. Since the foundry pipeline is an important gauge for future business, we continually look for ways to backfill it by attracting new foundry customers or by securing additional projects from existing customers. As part of these efforts, we conduct foundry technology symposiums around the work to showcase our specialized analog and mixed signal process expertise and customized manufacturing capabilities. So far this year, we’ve held foundry symposium events in Silicon Valley and in Taiwan where last week we had a record turnout of 170 attendees from customers and partners. Now, turning to our Standard Products Group, which includes our power and display standard products business slides. Revenue in the Standard Products Group was 96.2 million in Q3, down 18.7% from Q3 a year ago due primarily to previously disclosed softness in our OLED business. However SPG revenue in Q3 increased 13.1% sequentially from $85.1 million in Q2 of this year due to on improved revenue performance by both the power and display business, including the OLED business. Gross profit in the Standard Products Group was $25.9 million in Q3, an increase of 19% from $21.7 million in Q3 a year ago, and an increase of 12% from $23.1 million in Q2'17. Gross profit margin benefited from a better product mix on increase in fab utilization and by a planned reduction in the workforce earlier in the year. That’s the big financial picture in the Standard Products Group. Here's a business breakdown in details beginning with the power products. We’ve transformed our power business from top to bottom. We’ve invested in the development of premium products, killed the weak margin performance, streamlined the organization and installed the R&D top management the results have recently begun to show. Power revenue in Q3 hit $39 million, up 10.4% from Q2 '17, and up 16% year-over-year. We don’t break that gross profit margin for the power business, but last quarter we disclosed that gross profit had improved nearly 10 percentage points over the last two years. I can tell you that a richer product mix contributed to even further gross profit improvement in Q3. Main gross drivers in Q3 in the power business stem from demand for power MOSFETs based on super junction switching technology featuring LCD TVs from Korea and China as well as for industrial applications including LED driving, power supplies and power tools. Demand for battery MOSFET was solid for smartphone applications and our IGVT power offerings were also in demand for e-bikes and other industrial motor control applications. Super junction MOSFET hit double digit dollar revenue per quarter for the first time in company history. Now turning to the display standard products business, revenue in the display business in Q3 was $57.2 million, a decline of 32.4% from $84.7 million in Q3 of 2017 standing from a decline in the OLED business due to previously disclosed product timing issues and a slowdown in the China smartphone market. However, revenue in the display business in Q3 increased sequentially by 15% due to a resumption of growth in our OLED display business and continued strong demand of LCD display drivers for large panel UHD TV. Notably revenue for the non-OLED display drivers increased for the second straight quarter and our display driver ICs currently are designed into 32 models of HDTV primarily from Korean and Chinese TV manufacturers. Let's turn now to OLED. As a background, we disclosed our forecast earlier this year which indicated that our OLED business would bottom in the second quarter of 2017 and resumed revenue growth in the third quarter. By the time now that's exactly what happened. Revenue from OLED display driver IC is decreased 15.6% sequentially in Q3 as we commence the volume product of new 110 nanometer design wins as well as the new 55 and 40 nanometer design wins to meet customer demand. The new 55 and 40 nanometer OLED display driver ICs allow for bezel less smartphones, ultra wide aspect ratios like 19 by 9 or 19.5 by 9 and high resolution screens ranging from full HD plus to Y2HD plus resolutions. OLED revenue in Q3 totaled $17.6 million as compared with $13.2 million in Q2 '17 and represented 31% of the total display business in Q3. OLED revenue growth in the third quarter likely was constrained in part by the delay of certain product launches by Chinese smartphone makers that apparently were waiting until now to evaluate the features of a flagship OLED smartphone that just recently went on sale from a leading global brand. We believe this now clears the way in the coming months for the Chinese smartphone makers to introduce new mid-range and the high-end smartphone models in China and elsewhere. The smartphone market may have been slower earlier this year, but we've been busy preparing for the eventual recovery especially in China market. We've introduced four new advanced OLED display driver ICs so far this year including a second 40 nanometer display driver IC that we sampled a few weeks ago. So, now we have two 40 nanometer and two 55 nanometer versions of different features sets. That allow for flexible and/or bezel less smartphones with ultra wide aspect ratios and screen resolutions ranging from full HD plus to WQHD plus. So far this year, we’ve secured design wins for about a dozen different smartphone models from multiple leading smartphone markers. And we commenced volume production late in the third quarter on 40 and 55 nanometer drivers as well as our 110 nanometer OLED the driver in order to begin to meet customer demand on latest new smartphone models. A second generation 55-nanometer flexible bezel less display driver is expected to begin production in Q1 2018. The second 40-nanometer flexible bezels display driver, which just sample a few weeks ago, is expected to begin production in the first half of 2018. We currently expect to generate modest sequential growth in our OLED business in the fourth quarter due prime to a slow pace of new smartphone introduction in the second half of this year. This was due to a plan by many smartphone makers to delay a product to be more competitive with the latest phone from a global brand. Now that the global brand has introduced its flagship OLED model, we’d expect to see a broader pick up in smartphone launches in China beginning as soon as later this year and into the first quarter of 2018. We have already seen one major smartphone maker in China that has already launched a high-end OLED smartphone using one of our new driver ICs. We are setting our sites higher for 2018 and continued expect our OLED business to once again substantially see the industry rate abroad in 2018. Based on our current visibility and inside about multiple smartphone introduction that are in the works for the first quarter and beyond. We believe, we have the potential to generate OLED revenue that were ramp in 2018 and exceed 50% growth or clearly exceed 100 million for 2018. Now, let’s talk about the competitive environment. There is a lot of noise in the market about potential OLED competition. But as a standard right now, we are only non-captive supplier of OLED display driver ICs to the top two OLED panel markers in the world. Competing against the internal suppliers within these screen panel markers has shortened our engineering and manufacturing skills and fine-tuned our understanding and development of the latest IP to meet demanding OLED panel requirement. We’ve said this before, it’s worth repeating. We’ve been in the OLED business for 10 years and have deep experience in this space. We have unique IP about 50 noble design and process technology patterns relating to LED and strong relationships with the world’s top two AMOLED panel makers that have manufacturing lead estimated years and overwhelming market share. Finally, we operate in a country that used OLED IP as a natural treasure. We take it as a given that at some point somewhere down the road, there will be OLED new comers. But we have a wide lift and we are not standing still. We already are working on next generation 32 and 28 nanometer display driver IC that could well be introduced in late 2018 or in 2019. And our broad power and display product portfolios and specialized foundry services help us to expand our footprint and deepen our relationship with customers all along the smartphone for food chain in China and elsewhere. Now, I'll turn the call over to Jonathan to review our financial, and then I will come back to sum up and provide financial guidance. Jonathan?

Thank you, YJ, and welcome to everyone on the call. YJ provided a detailed view of our business and financial performance in Q3, so I'll provide context on our financial results of the first nine months of 2017 and provide commentary onto below the line of P&L items and balance sheet highlights for the third quarter. Let's start with how our high grade business model worked to our financial advantage in the first nine months of 2017, by balancing out our revenue and helping MagnaChip avoid a downdraft in our cumulative financial results. Revenue for the first nine months of 2017 was $505.1 million, down $2.4 million or 0.5% as compared to $507.5 million in the first nine months over '16. This relatively flat year-over-year performance was achieved despite a 45.5 million decline in revenue from our Standard Products group during the same period, stemming from weakness in our display business and also a slowdown in the china smartphone market. However that 45.5 million revenue decline was offset in large part by a 43.3 million increase in revenue from the foundry services group during the same timeframe. The offsets from our two operating segments helped explain how total cumulative revenue was flat in the first nine months of 2017 versus 2016 while beneath the surface revenues from the different business lines were moving in opposite directions. And it helps to explain the benefit of having a diversified unbalanced standard products portfolio and a foundry service business as well. The two operating segments account for essentially all of the revenue for MagnaChip. For the first nine months of 2017, our foundry services group represented 47.4% of total revenue for the Company up from 38.7% of revenue for the first nine months of 2016. In comparison our Standard Products group which includes the display and power business lines represented 52.6% of revenue down from 51.3% in the first three quarters of 2015. Our top 10 largest customers accounted for 59% of revenue in the first three quarters of 2017, down from 65% in the same period a year ago. Turning to gross profit, YJ discussed the progress we have made in generating gross profit dollars in Q3 and the same can be said of the progress we made for gross profit margin over the first three quarters of the year. Over the first nine months of 2017 total gross profit margin increased to 27.4% compared to 21.7% for the same period of 2016. The increase in total gross profit margin can be tracked back primarily to a 52.5% increase in gross profit dollars from our foundry services group. Gross profit margin in the foundry services group was 29.2% over the first three quarters of 2017, up nearly six percentage points from 23.4% in the same period a year ago. Gross profit margin in the Standard Products Group was 25.8% over the first three quarters of 2017, up approximately 5 percentage points from 20.9% in the same period of 2016. As a side note gross profit margin in the OLED display driver IC business, once again, was higher than the corporate average in Q3 as well as for the first three quarters of 2017. Gross profit margin in both the Standard Products Group and the foundry services group benefited from a richer product mix and increase in fab utilization and a favorable impact from the reduction in headcount that occurred in the first half of 2017. As a reminder the headcount reduction is expected to generate annual cost savings of approximately $24 million with expected payback period of less than 1.5 years. Now, turning to adjusted EBITDA, another key financial indicator for MagnaChip. Why they mentioned that adjusted EBITDA more than doubled in Q3 this year as compared to Q3 a year ago. And the same can be said for the nine month period. For the first three quarters of 2017 adjusted EBITDA was $58.1 million or more than twice the adjusted EBITDA of $26.6 million in the first nine months of 2016. Now turning back to the P&L. Selling, general and administrative expenses were at $17.3 million or 9.8% of revenue for Q3 as compared to $20.1 or 10.4% of revenue for Q3 a year ago. The decrease was primarily attributable to a decrease in salary spends as a result of our headcount reduction. SG&A was also lower than otherwise will be expected due to an adjustment of certain accruals related to performance based compensation expense estimated based on our latest financial sanctions for 2017. Research and development expenses were $17.6 million or 9.96% of revenue in Q3 as compared $18.4 million or 9.6% during the same period in 2016. The decrease of $0.9 million or 4.8% was primarily attributable to a decrease in salary expense as a result of our headcount reduction of non key R&D personnel. We continue to believe that R&D expense would like to be rise in 2018 as we continue to invest in new initiatives including new OLED products to fuel profitable growth in the future. Net foreign currency loss for the third quarter was $3.7 million compared to a net foreign currency gain of $33.2 million for the third quarter of 2016. A substantial portion of our net foreign currency gain or loss is non-cash translation gain or loss associated with the intercompany long-term loans to our planned subsidiary which has denominated in U.S. dollars and is affected by the changes in the exchange rate between Korean won and the U.S. dollar. Operating income increased by $14.9 million in Q3 to $15.5 million compared to $0.6 million in Q3, 2016. The increase in operating income resulted from an $11.2 million in gross profit, a $2.8 million decrease in SG&A expenses and a $0.9 million decrease in R&D expenses. Net income on a GAAP basis for the third quarter was $5.6 million or $0.16 per basic share and $0.15 per diluted share as compared with net income of $29.9 million or $0.86 per basic share and $0.85 per diluted share in third quarter of 2016 and compared with a net loss of $8.1 million or $0.24 per basic share in the second quarter of 2017. The decrease in our net income year-over-year on a GAAP basis is primarily due to the net foreign currency changes, which is primarily comprised of non-cash translation associated with our intercompany long-term loans. There were 34.1 million basic weighted average number of shares outstanding and 45.5 million diluted weighted average number of shares outstanding. The difference between earnings per basic share and diluted share primarily relates to the dilutive effect of including the Company's exchangeable notes as if there were converted into the shares at the beginning of the period. Adjusted net income a non-GAAP financial measure for the third quarter 2017 totaled $11.4 million or $0.33 per basic share and $0.28 per diluted share as compared with adjusted net loss of $1.3 million or $0.04 per basic share in the third quarter of 2016 and compared with adjusted net income of $7.8 million or $0.23 per basic share and $0.21 per diluted share in the second quarter of 2017. Turning to the balance sheet, cash and cash equivalents totaled $128.4 million at the end of the third quarter, a decrease of $3.1 million from $131.5 million at the end of the second quarter of 2017. Inventories, we continue to tightly manage inventories in Q3 in a way to produce sufficient level of inventories needed to support the growth of the business and also to preserve working capital. Inventory at the end of the Q3 were $37.2 million as compared with $72.1 million at the end of the third quarter of 2016 and $38.1 million at the end of second quarter of 2017. Accounts receivable was $86 million at the end of Q3 as compared with $66 million at the end of Q3 2016 and $76 million at the end of Q2 2017. The year-over-year increase in accounts receivable reflects a deliberate and strategic financial decision to significantly limit the passes of offerings discounts to customers exchange for early payments. The change impact was made possible by the substantial increase in our cash position from year ago levels Capital expenditures in Q3 were 8.5 million, as compared to 5.4 million in Q2 2017 and 5.5 million in Q3 2016. Capital expenditures through the first nine months of 2017 were 19.3 million, an increase of 7.9 million or 69.8% from 11.3 million for the first nine months of 2016. The increase was mainly due to equipment purchases to support demand from our customers. Based on our current estimates, we now anticipate 2017 capital expenditures will be up to approximately 32 million an increase of approximately 2 million from previously disclosed forecast. MagnaChip intense to install additional fab equipment to be able to satisfy product demand and feature periods from a particular new foundry customer, which is a good example of how we continue before that fill our foundry pipeline as noted by YJ earlier. In summary, we’ve managed MagnaChip business to enhance profitability and to invest the initiatives to feel profitable revenue growth in the future. We’ve made good progress so far, but this effort is an open ended hope not a project or a campaign within end date. With that, I’ll turn the call back to YJ. YJ?

Thank you, Jonathan. As we enter the homestretch of 2017, we feel very good about progress we’ve made so far this year on the financial and operation front. Our key financial indicators have moved in the right direction, as gross margin and adjusted EBITDA in Q3 were at the highest levels in more than four years. We’ve executed well in our three business lines in Q3. We breathe new life in our Power Standard Products business and may progress on both the top and bottom-line. Our fab utilization, which was only in the low to mid-60% range two years ago, today is covering in the low to mid-90% range. Takeout to up and the long-term pipeline is getting strong. Our non-OLED display business has grown for two straight quarters and we now are designing to nearly three dozen UHD TV models. The OLED business is coming back slowly at first, but there is a little down about the direction it is heading. Smartphone makers hit the pause button in recent months. So they’re new product launches, which core insight with a leading global brand good reflection model has just now hit the market. We whether that slowdown and we are in a really good position to capitalize on what we see becoming recovery. It is becoming clear to us that OLED is becoming the defect or standard display panel in mid-range and high in smartphones. We’ve introduced four state-of-the-art OLED displays of ICs and already secured about a dozen design wins for OLED smartphones in China, Korea and elsewhere. A few have been introduced and other should appear in Q1. We believe our smartphone design footprint with significantly grow from current levels in 2018. We continue to innovate with new display driver ICs for our product augment. We are far long in the development of the next-generation 32 and 28 nanometer OLED display driver ICs, with even more advanced features that would was debut either in late 2008 or in 2019. As the only non captive supply of OLED display driver ICs, we have a wide-leading the market for OLED display driver ICs and we don’t intend to take our foot off the product development cash flow. Based on our OLED design wins and our current visibility, we believe our growth will be gain momentum as china smartphone makers begin to unveil various dazzling new models in Q1. As a result of our new product and design wins deep relationship with the top two panel makers, we are confident that MagnaChip will grow faster than the OLED panel industry in 2018. And we currently anticipates that we have the potential to generate OLED revenue that will exceed 50% growth will clearly exceed 100 million in 2018, based on the design wins we have in-house or in the pipeline. The third quarter is a typically seasonal revenue peak for MagnaChip and this 2017 is following our season notes. While timing shift with several new OLED smartphones into Q1 2018, we still expect a slight uptick in our OLED business Q4. Power likely will be flattish and the non OLED display and foundry business will likely drift lower consistent with Q4 seasonal patterns. Looking ahead down many ways to grow our business over time and across the board and we have set ourselves up nicety to just that. With that, let's turn now to our forward-looking guidance. For the fourth quarter of 2017, MagnaChip anticipates revenue to be in the range of 171 million 177 million flattish or down sequentially 0.6% at the midpoint of the projected range due to the typical seasonal factors. The guidance for the fourth quarter compared with revenue of 176.7 million in the third quarter of 2017 and 180.5 million in the fourth quarter 2016. Gross profit margin to be in the range of a 27% to 29% despite, an increase in raw silicon wafer prices as compared to 28.5% in the third quarter of 2017 and 25.5% in the fourth quarter of 2016. Now, I'll turn the call back to Bruce. Bruce?

Thank you, YJ. So, Linda, this concludes our prepared remarks. We would now like to open the call for questions.

[Operator Instructions] And our first question comes from the line of Rajvindra Gill from Needham. Your line is now open.

Just a question on the gross margin. So the foundry margins have done very well the last several quarters and that's clearly due to higher utilization rates an also I would imagine part of the cost restructuring initiatives. How do you think about the foundry gross margins going forward since it drove -- it’s been driving a tremendous amount of the increase in gross profit? Are we going to see more margins, higher favorable mix shift in foundry? How do we think about the foundry gross margin specifically going forward?

Sure. And when we think about profitability and gross margin, there are many components and we have to be doing many things right all at the same time to maintain a good growth probability. And as you know we have already done some significant actions to improve profitability. And we already mentioned that we looked at product portfolio, bought in some new customers, we’re churning also new opportunities. And so, there are significant actions that we’ve done on the revenue side as well as the cost side. As you know we’ve done a recent headcount reduction, so these are kind of activities that we have consistently and successfully executed up until this point. But I think it’s important to know that we’re not stopping there and we will continue to look for these kinds of activities with the focus on profitability.

Okay. And you’ve mentioned that the OLED gross margin is higher than corporate average. So as OLED is going to increase 50% year-over-year based upon what your forecast is saying. We should start to see a favorable mix shift, the impact of that on gross margins going into next year. Is that fair to assume that OLED will be also a gross margin driver next year in addition to revenue?

Right, so when we have better product mix, obviously, that has a positive impact to our gross margin. But there are also some -- there could be some headwinds and we did mention the overall wafer pricing sort of going up and that’s what we’ve been seeing out in the market. So we’re continuing to closely monitor the situation. We’ll obviously address that issue to make sure that it has minimal impact. And also on the side -- on OLED side, LCD pricing has also been decreasing. So these are some of the things that I had also talk about earlier with regards to the probability that there are many moving parts, and we will be addressing these items and again our focus is on profitability.

Sure. And last question from me, YJ. So, a lot of excitement around OLED for you guys, but you kind of mentioned in Q4 some sequential growth now that the new phone is come out in the top OEM, obviously has better sense of when the production going to be. I would expect maybe that the Q4 OLED number might be would have been higher given that the Chinese OEMs now, I think, have a good sense of the timing. So why don’t you talk to that issue real quick?

Yes. So I think that the product launch from that global brand I think where everyone is expecting to be September and roll it out September, but we know that it’s just shipping this week, which is November, but two months later. So that have the kind of shift to the whole value chain, food chain, who want to think and actually see and see the reaction. I think everyone saw that and global phone had key features I’m sure which you’re aware of including the ultra wide aspect ratio including the nuts design and the AMOLED and bezel less and so forth. So our chip and there we take that in 40 and 55 had all these features, so our customers may be trying to be more competitive and that has shifted many of the product launch into Q1 '18. But as we said that we have about dozen design wins that we know in the pipeline. So, we feel confident that we can exceed 50% growth next year as well as clearly exceed $100 million in revenue for OLED next year.

Thank you. And our next question comes from the line of Suji De Silva from ROTH Capital. Your line is now open.

Hi, YJ. Hi, Jonathan. Congrats on the progress here on the adjusted EBITDA and all the metrics. As I look at the OLED business. Can you talk about the -- update us on progress of recycling customer and when the timing of that customer ramping would be versus your primary customer?

You're talking the panel customer?

Correct.

So as I said today, in the transcript that the all of our 110, 55 and 40 nanometer have begun production in the Q3, so all of my two panel makers have gone to production.

Okay great appreciate that update. And then as we look ahead to the 55 and 40 nanometer ramps. Are those parts are we seeing the majority of the customers are moving towards new features? Or is it just a handful and some of that sticking with the more traditional rigid form factors? What's the kind of mix you can see as OLED ramps up in '18?

It's a very good question. So, a lot of people I think divided based on rigid and flexible, but our view is different. We called rigid which is traditional rigid. And then there is a bezel less rigid, and then there is a flexible and bezel less, okay, all our chip does either bezel less or flexible bezel less. So, we are more progressive and more sexy to the end customer. So, we don't -- we're not shipping our state-of-the-art drivers, enable all these features with ultra wide aspect ratio and at least bezel less design, so it doesn't look like rigid. So, that's our key benefits.

Okay. So more flexible for the customers and sounds like so.

So from the end user perspective even the rigid would look like more like flexible and that's why we called bezel less rigid and we just call it bezel less. It requires a different packaging technology. So, we are one the leader in that.

And then also OLED, power business started to grow again. Should we expect that business to kind a resume a growth trajectory? Or are you still pooling that portfolio?

We are continuing to doing what we're doing. We are doing the portfolio optimization. We are pushing hard to make the premium portion of business growth, so that's what we're continuing doing. We are making steady progress. And you saw the progress we have made over the last 24 months with the 10 percentage points in gross margin up and we are continuing making steady progress.

Okay. And then lastly, Jonathan, the restructuring cost benefit. Is there still impact from that filling some in the early 2018 timeframe? Or is that impact largely being comprehended in the numbers? Thanks.

The full effect of the cost savings international as a headcount reduction is being reflected in Q3, of course, we will continue to benefit from account reduction that we completed.

[Operator Instructions] And our next question comes from the line of Amanda Scarnati from Citi. Your line is now open.

Just for continuing on the OLED trajectory. What was the percentage details for OLED this quarter versus last quarter?

So, the OLED counted for 31% of the display this quarter in Q3 and last quarter was also 31%. But the actual number is 17.6 million and last quarter was around 15 million. So, we grow about 15.6% from Q2.

And then as we expect to see more Chinese smartphones coming out early next year and strong growth in OLED to hit that 100 million potential target. Do you expect to see that percentage of detail of the display business grow or should we also see continued strong growth another areas of the display business?

We are only guiding the outlook of the OLED at the moment because OLED has been very key focus for a lot of the investors. So, right now, we feel very good about the OLED pipeline. And so based on the designs and the competitiveness and we are sure in the OLED outlook despite, we’re not in Q4 guidance yet.

And then the next question I have is on CapEx. Just wanted to make sure that I heard that comment correctly that it's estimated to be about 32 million for 2017. And is that the correct number? It seems like quite a bit step up from last year. Can you talk about what’s going on there? And how those expectations changed since last quarter?

So, yes, you did hear right. So, the previous estimate that we made was about 30 million. We added approximately 2 million to that budget and it's in connection with a new foundry customer that we brought in. And here is a good example of the foundry services group bringing in new customers to back to our pipeline as YJ mentioned in his prepared remarks. With respect to the CapEx and how we should be look at it, we’ve historically trended about 4% to 5% of revenue in CapEx. And I think also is in line with that range. And so, when we look at CapEx, we are very careful about how we spend CapEx every dollar that we put into an equipment, we want to make sure that the equipment full utilized and also at the same time obviously we try to be smart about how we use our CapEx to make sure that we’re meeting the demand of our customers.

And then, is there any gross margin benefits locked from the restructuring and the employee severance? Or is that you much all take it out at this point?

So as mentioned earlier, Q3 does reflect the full benefits of the headcount reduction.

Thank you. And I'm showing no further questions over the phone lines at this time. I would like to turn the call back over to Bruce Entin for closing remarks.

Okay, thank you Linda. So, this concludes our third quarter earnings conference call. Please look for details of our future events on MagnaChips, investor relations website. Thank you for joining us today.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.