Good day, ladies and gentlemen, welcome to the Quarter Four 2018 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 call will be recorded. I would now like to introduce your host for today's conference, Bruce Entin, Head of Investor Relations. Please go ahead, sir.

Thank you, Chris, and thank you for joining us to discuss MagnaChip's financial results for the fourth quarter ended December 31, 2018. The fourth quarter earnings release that we filed today after the stock market close and other releases can be found on the company's Investor Relations website. The 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 release. Joining me today are YJ Kim, MagnaChip's Chief Executive Officer; and Jonathan Kim, our Chief Financial Officer. YJ will discuss the company's recent operating performance and the outlook for 2019 and Jonathan will provide an overview of our Q4 and 2018 financial results and provide financial guidance for Q1 2019. 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 fourth quarter earnings release available on our website under the Investor Relations tab at www.magnachip.com. I now will turn the call over to YJ Kim. YJ?

Welcome to everyone on the Q4 conference call. We have a lot of ground to cover today, so let's get started. MagnaChip had a solid year in 2018, revenue of $750.9 million increased 10.5% over 2017, despite uncertain macro factors, a general slowdown in China and on inventory correction by customers. The improvement in our revenue performance was especially notable considering that China accounted for more than 40% of our annual revenue for 2018, either through direct sales or indirect sales, through distributors and Korean OLED panel makers. Our Standard Products Group turned in strong performance in 2018 with revenue of $425.4 million, up 18.4% over 2017 and up 29.3% on an adjusted basis. Both OLED and power had the record revenue in 2018 and are positioned for success in 2019, due to their strong product line ups and customer traction. OLED revenue of $188 million in 2018 was on all-time high and was nearly triple the number of 2017 level. The $188 million in revenue, beat our previous record in 2016 by 17%. OLED display driver ICs accounted for 73.4% of the display revenue in 2018, up from 30.1% in 2017, which illustrates how we are improving the product mix within our display business. We were awarded a record 41 new OLED design wins in 2018 from smartphone makers, primarily in China, but also in Korea that compared favorably with 29 OLED design wins in 2017. In a seasonally soft Q4, OLED revenue declined more than expected due to a slowdown in the smartphone market in China. Our OLED business is off to a good start in 2019 and we currently expect Q1 2019 OLED revenue to be higher than Q4 2018. And 2019 OLED revenue is expected to be higher than 2018, driven by our strong product lineup…

Thank you, YJ, and welcome to everyone on the call. As a reminder, the results that we discuss are historical numbers on an as reported basis and reflect year-over-year results, unless otherwise noted. Please refer to our published financial tables for the as adjusted historical numbers to reflect changes associated with the transfer in January, 2018. Our portion of our non-OLED display business from the Standard Products Group to Foundry Services Group as part of a portfolio optimization initiative. Let's begin with our corporate financial recap of 2018. Several key financial measures in 2018, including revenue, gross profit dollars, operating income and adjusted EBITDA achieved their highest annual levels since 2012. We achieved these results despite softness in our foundry business caused in part by an uncertain macroeconomic climate, as well as higher labor costs and substantially higher wafer prices that dampened gross margin. Here's a snapshot of the key financial measures in 2018 and how they compare to 2017. Revenue of $750.9 million increased 10.5% from $679.7 million. Gross profit dollars of $198.1 million increased 5.4% from $187.9 million. Operating income of $47.4 million increased 20.9% from $39.2 million and adjusted EBITDA was $84.3 million, up 7.1% from $78.7 million. Let's now turn to our 2018 financial recap. SPG revenue in 2018 increased 18.4% over 2017 and increased 29.3% on an as adjusted basis. SPG benefited from a three-fold increase in OLED revenue and a 13% year-over-year increase in power revenue. Foundry revenue increased 1.6% from 2017, but declined 7.2% on an as adjusted basis. SPG revenue was 56.7% of total revenue in 2018, compared to 52.9% in 2017, and 48.4% on an as adjusted basis. Foundry revenue was 43.3% of total revenue in 2018, compared to 47.1% in 2017 and 51.6% on an as adjusted basis. Our top…

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

Thank you. [Operator Instructions] And our first question comes from Suji Desilva with ROTH Capital. Your line is now open.

Hi, YJ. Hi, Jonathan. So, question first – so first on the gross margin, look, perhaps you know, the first half, what is your plan for utilization and how you plan to run the fab near term in terms of managing? And what portion of the business do the foundry has which you consider desirable versus not desirable to understand how much you're trying to kind of flush out of the system if you would?

Hi, so I think we mentioned a number of things in connection with what's impacting the utilization and it's mostly related to the inventory correction and the China slowdown that lot of folks have talked about out in the industry, but it also has to do with our strategic evaluation process as well. So having said that, also during the second half, out in the industry, we also hear about a recovery, and so with the inventory correction and the China slowdown aspect of the impact, it recovers during the second half, we do see a recovery in the second half, and so in connection with that, we're going to continue to service our foundry customers and we do see a recovery in the second half, and so we're being selective for now in connection with the strategic evaluation process, but the expectation is that with the improvement in the inventory correction, as well as the China slowdown in the second half, we should see the related improvement.

Okay. And then on the OLED business, what's the typical number of wins you'd expect in a given quarter, you had five this quarter and how much potential is there for that business to grow in 2019, given that you have a lot more designs in flight now ramping versus a year ago? What's the potential there?

Yes, Suji, that's a very good question. So, I think that in the 2017 year of design win and that helped to go into 2018 ramp and then more on the design win in the numbers, but if you look at now, we are getting a point where the business on OLED is stabilizing. It's matter of a key quality designs that we win. So, for example, in the Q1, we are guiding now that the OLED revenue to grow this quarter, that's due to key 13 number design, that's really ramping up despite the China slowdown market. So, I would say that going forward, it's a matter of the – not necessarily in total number, but it's a quality of the each design win. So, and with our 20-nanometer, I think that our portfolio is more strengthened, so that's how we see the 2019 to grow over 2018.

Okay. Thanks, YJ, and then my last question is on the foundry restructuring announcement here, you did hint at it three months ago, so I just wanted to ask more contextual question you had a review for the company about a year plus ago and took longer than a year. What's the timeframe you imagine for this process, if you can give us any thoughts there, and then are there any participants from the last review that perhaps you still engage with? And maybe you could just talk about why now is the time for you guys to look at the foundry business in this light versus the past?

Yes. So, I see there is multiple question there. So, I'll try to answer one by one, but in terms of timing, look, our goal is to go through the strategic evaluation process. Our goal is to conclude, in terms of the – why now, you know, if you look at the – when we took over the business a few years ago, and we solidified the power business, now power is growing very nicely, it's higher than corporate gross margin growth for 2019 and beyond with automotive sector, if you look at the display, we transformed the company from the LCD now to OLED. OLED now account 73% and we are the leader in the industry as an independent guy have shipped more than 400 million units. So, the next that we have to look at is, how to fix the foundry for next level. So that's what it is.

Any thoughts on timeframe, YJ?

Yes, we don't speculate on time. But our goal is to go through the process and conclude it.

Okay. YJ, I'll pass it along. Thank you.

Thank you.

Thank you. [Operator Instructions] And our next question comes from the line of Ari Shusterman with Needham & Company. Your line is now open.

Hello, this is Ari. And I'm speaking – I'm asking a question on behalf of Rajvindra Gill from Needham & Company. So, this is with regards to the Foundry business. I think you hinted at this, probably [indiscernible] so much in foundry, when it's [42%] of sales and how much foundry is in China, and I think you also talked about inventory correction, can you give some more color on that please?

Yes, it was hard to hear, it was breaking down, but the – so the slowdown in the foundry, I think that's industry global. So, you see the latest foundry people reporting the results all soft outlook for the first half and then rebound second half. So, I think that, that's consistent in the foundry customer. In terms of our exposure to China as we said before earlier that the – about more than 40% of total revenue come from China directly or indirectly, through distribution or through our panel makers as a customer. I hope that answers your question.

And I'm not showing any further questions at this time. I would now like to turn the call back to Mr. Bruce Entin, Head of Investor Relations for any further remarks. Actually, we do have one...

Go ahead.

Actually, that does conclude today's program. I would like to turn it back to Mr. Bruce Entin.

So, thank you, Chris. This concludes our fourth quarter 2018 earnings conference call. Please look for details of our future events on MagnaChip's Investor Relations website. Thank you for joining us today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.