Good day and welcome to Magnachip's Fourth Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Instructions will be given at that time. As a reminder this call is being recorded. I would now like to turn the call over to Yujia Zhai, IR representative for Magnachip. You may begin.

Good afternoon everyone. Thank you for joining us to discuss Magnachip's financial results for the fourth quarter ended December 31, 2022. The fourth quarter earnings release that was just issued today after the stock market closed can be found on the Company's Investor Relations website. The webcast replay of today’s call will be archived on our website shortly afterwards. Joining me today are YJ Kim, Magnachip’s Chief Executive Officer; and Shinyoung Park, our Chief Financial Officer. YJ will discuss the Company’s recent operating performance and business overview, and Shinyoung will review financial results for the quarter and provide guidance for the first quarter of 2023. There will be a Q&A session following the 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 statement found in our SEC filings. During the call we also will 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 Investors Relations section at www.magnachip.com. I now will turn the call over to YJ Kim. YJ?

Hello everyone, thank you for joining us today and welcome to Magnachip’s Q4 2022 earnings call. I will begin today’s call with a summary of our Q4 results as well as our performance for the full year 2022. After that, I will provide a detailed update on each of our business segments before turning the call over to Shinyoung to go over our financials in more detail and provide guidance for Q1 2023. Starting with Q4 results. Revenue was $61 million, near the high-end of our guidance range. Nevertheless, Q4 revenue was lower by 44.7% year-over-year and 14.3% sequentially. Gross profit margin was 26.4%, within our guidance range. By business line, Display revenue was $7.6 million and Power revenue was $46.3 million. As we indicated last quarter, these results were primarily driven by severe wafer shortages in our OLED business, which prevented our new designs at our leading Korean panel customer to hit new key product launch windows in the second half of 2022. Our OLED business was also impacted by weak consumer demand in China and globally, which led to an inventory correction by Android smartphone OEMs. In our Power business, the record momentum we set in the first half of the year slowed down significantly in Q4 as macro conditions and consumer demand deteriorated, leading to inventory builds across a number of our end markets. Looking back at the full year, total revenue was $337.7 million and gross profit margin was 30.0%, down 28.8% and 240 basis points year-over-year, respectively. By business line, our Display business solely contributed to the significant year-over-year decline as revenue was only $71.4 million compared to $205.3 million in 2021. Our Power business revenue in 2022 was $230.5 million, up 1.2% year-over-year from $227.8 million. It goes without saying that 2022 was a…

Thank you, YJ, and welcome to everyone on the call. Let's start with key financial metrics for Q4. Total revenue in Q4 was $61 million, down 14.3% sequentially and down 44.7% year-over-year. Revenue from the Standard Products business was $53.8 million, down 14.2% from Q3 and down 45.9% year-over-year. As YJ already mentioned, both the sequential and year-over-year decreases were mainly attributable to the supply constraints for wafers in our OLED business and slow demand for Chinese and Korean top-tier smartphone models as a result of the global downturn in the smartphone market. Revenue from our Power business was $46.3 million, down 18% sequentially and down 20.5% year-over-year. The sequential decline accelerated from last quarter, driven by deteriorating consumer demand for TV, smartphones, e-bike and computing applications. Gross profit margin in Q4 was 26.4%, down from 35% in Q4 2021, but up from 24.2% in Q3 2022. The lower gross profit margin year-over-year was mainly due to unfavorable mix from lower Display revenue as well as lower utilization rate of our Fab 3. The 220 basis point sequential improvement was primarily due to the absence of material inventory reserves or write-offs during the quarter. As a reminder, we recorded a $3.3 million scrap charge in Q3 related to demand weakness as a result of elevated smartphone inventories. Looking forward, we have reduced production at our Fab 3 in response to industry-wide slowdown and inventory correction. As a result, our Q1 2023 gross profit margin will be further impacted by lower utilization as well as higher manufacturing input costs such as electricity and wages. We expect gross profit margin to recover as volume and utilization improves in the second half. Turning now to operating expenses, Q4 SG&A was $12.6 million as compared to $11.4 million in Q3 2022 and $13.3 million…

Thank you, Shinyoung. Before we begin Q&A, I'd like close today by thanking all of our shareholders for their continued support during these challenging times. I’d also like to reiterate my earlier comments about our recovery plan for 2023 and beyond. We remain firmly committed to setting the business back on a solid foundation of growth this year and will execute it by: one, introducing new competitive power products and accelerating next generation products, especially in new applications such as automotive. Two, continuing our successful sales momentum of design wins in power to drive business with current and new customers, which will improve our Fab 3 utilization as well as margins. Three, accelerate next generation OLED, DDICs for our customers domestically and internationally to hit the volume production by second half 2023. And finally, we will further expand new OLED products for international markets to solidify foundation for future growth in 2024. With that I'll turn the call back to over to Yujia.

Thanks YJ. So that concludes the prepared remarks section of this earnings call. Operator, please begin the Q&A session.

Thank you. [Operator Instructions] I'm not showing any questions at this time. I'd like to turn the call back over to Yujia Zhai for closing remarks.

Operator, can you just screen again for questions? I did see some of our covering analysts on the line.

[Operator Instructions] Thank you. And our first question comes from Martin Yang with Oppenheimer. Your line is open.

Hi. Thanks for taking my question and good morning. I would like to maybe ask your expectations for key customer ramp in 2023. Has the current challenges in the near-term affect your outlook for the key customer ramp? And – yes, that's my first question.

Hey Martin, thank you. So I'm assuming that you're asking for our new international customer and the ramp for the OLED. So yes, so we said that the first chip has been qualified last December, and we expect the initial production to begin towards the end of this quarter. We just got our second chip for this customer in-house, and we expect to ship within this month. And so that's ahead of schedule, and we expect that to go to production towards second half. So the first chip is targeted for the full HD+. Second chip is full HD+ and beyond. But second chip has much robust capabilities, which we'll talk about once the chip start shipping. So with those, we expect the majority of the shipments, and the big curve to come on second half of this year.

Got it. And is there any way for you to quantify the number of designs or just overall missed opportunities for OLED. Do you see capacity constraints? So when I say missed opportunities or missed designs, these are things you would have realized in calendar 2023?

Well, so we don't report the smartphone vendor design wins, but the – we expect to disclose more of that once the smartphones start to introduce their new product lines. And so I think it's more towards the second half heavily, we are shipping some volumes based on the current design wins and current products. And so that's the curve you should look at.

Got it. Last question from me is do you expect to see any lingering effect on your 2024, meaning any design activities that will result in 2024 shipments are being disrupted?

We are shipping new products as we speak. So we believe that revenue will hit in second half as well as early 2024, and we will be working on new products to hit the samples in second half this year that should go into 2024 in addition to some of the products that we'll be shipping in second half this year.

Got it. I've no more questions. Thank you, YJ.

Thank you.

Thank you. Our next question comes from Raji Gill with Needham. Your line is open.

Hi, Nick Doyle on for Raji Gill. I just had a question about auto. How do we think about the auto opportunity in calendar 2023 and then hopefully 2024? Could you be a little more specific on the opportunities with the design wins that you talked about on the call earlier? Thanks.

Sure. Thank you. So in the automotive, this year is, I would say is an embryonic stage year for us in both OLED and Power. We start shipping the first OLED automotive parts this quarter. And we also expect to ship Power this quarter as well. And we had several design-ins going in to last year-end, and we expect about four to five automotive power to ship this year. The revenue is not huge. But what's nice about automotive is it's a long design cycle, even in OLED, maybe five years, and the ASP and margin typically much better than the regular smartphone usage. So we are going to work on incrementally adding these automotive opportunities, and I think that's going to be gradual over the next few years.

Thank you. And then are you really focusing just on the Asian market here? Or are you also trying to expand internationally in auto as well?

Obviously, Asia is close to our home coverage. So – but like OLED, the major automakers are of course Europe and Asia for our market. On the Power side, it's more in Asian automakers. So that's how we're going to start out, and we'll try to cover globally with the success of our design wins.

Thank you.

Thank you. There are no further questions at this time. I'd like to turn the call back over to Yujia for closing remarks.

Thanks operator. This concludes our Q4 earnings conference call. Please look for details for our future events on Magnachip's Investor Relations website. Thank you, and take care, everyone.

This concludes the program. You may now disconnect. Everyone, have a great day.