Good day, and thank you for standing by. Welcome to the First Quarter 2023 Magnachip Semiconductor Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After this conference presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today with Yujia Zhai, Investor Relations representative for MagnaChip. Please go ahead.

Hello everyone. Thank you for joining us to discuss Magnachip’s financial results for the first quarter ended March 31, 2023. The first quarter earnings release that was issued today after the market close 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 is YJ Kim, Magnachip’s Chief Executive Officer; Shinyoung Park, Magnachip’s Chief Financial Officer, is on maternity leave. During Shinyoung’s absence, YJ is the Principal Financial Officer of the company. YJ will discuss the Company’s recent operating performance and business overview, and I will provide the financial results for the quarter and YJ will provide guidance for the second 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 first quarter earnings release in the investor relations section of our website. With that, I now will turn the call over to YJ Kim. YJ?

Hello everyone, thank you for joining us today and welcome to Magnachip’s Q1 2023 earnings call. Before we proceed, I want to welcome Gilbert Nathan as an observer of the Company's Board of Directors and ad hoc Strategic Review Committee of the Board. Mr. Nathan is currently the managing member of Jackson Square Advisors as well as the CEO of Keycon Power Holdings. With his extensive experience serving on the Boards of multiple publicly listed companies, we are very pleased to have him join us. Following our annual shareholders’ meeting in May, Mr. Nathan will promptly be appointed as a director on our Board and serve as a member on Magnachip’s Strategic Review Committee. We are pleased to benefit from Mr. Nathan's deep knowledge and expertise in finance and capital markets, as we strive to enhance value for our shareholders. Moving on to our results. Our Q1 financial performance was within the range of the guidance we provided on our Q4 earnings call. Revenue was $57 million and gross profit margin was 21.2%. As we indicated last quarter, our results are being severely impacted by several macro challenges that I will detail as I discuss each of our two main businesses. Beginning with our Display business. Q1 revenue was $10.8 million, down 62.9% year-over-year, but up 43.5% sequentially. These results reflect the continued effects of last year’s supply shortage of 28 nanometer 12-inch OLED wafers that impacted 2nd half 2022 design wins and the ongoing smartphone inventory correction. End-consumer demand overall continued to be weak, but we have begun to see some market recovery in the Premium Tier, where our display products play. During the first quarter, we saw increased demand from our large Korean panel customer for a leading Korean smartphone model. We also commenced shipments of our OLED…

Thank you YJ, and on behalf of Magnachip’s CFO Shinyoung Park, I will provide the financial update for Q1. Total revenue in Q1 was $57 million, down 6.5% sequentially and down 45.2% year-over-year. Revenue from the standard products business was $51.5 million, down 4.3% sequentially and down 45.2% year-over-year. Revenue from our Display business was $10.8 million, up 43.5% sequentially and down 62.9% year-over-year. Our results continued to be impacted by the wafer supply constraints in our OLED business that impacted our design wins in the second-half of 2022 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 $40.7 million, down 12.1% sequentially and down 37.3% year-over-year. Our Power business continues to be impacted by a weak demand environment across most of our end markets, particularly Computing and Consumer related applications. Gross margin in Q1 was 21.2%, down from 26.4% in Q4 2022 and down from 37.5% in Q1 last year. The sequential decline in the gross margin was mainly due to a lower utilization rate of our internal fabrication facility in Gumi in response to the industry-wide slowdown, an inventory correction and higher fab costs. The year-over-year decrease was primarily due to an unfavorable product mix and a significant drop in the utilization rate of our Gumi fab. As a reminder, gross margin in Q1 last year benefited by 200 basis points from a one-time, timing mismatch of lower cost 12 inch wafers that was purchased in Q4 2021 and subsequently sold in Q1 2022. We expect our Q2 2023 gross margin will continue to be impacted by lower utilization, as well as higher manufacturing input costs such as electricity and wages. Gross margin is expected to improve as we anticipate…

Thanks, Yujia. We expect our results to remain soft in the near-term, but we believe both Power and Display are poised for a recovery in the second-half of this year based on our current customer feedback. Based on our current projections, and assuming a steady state global economy, we are cautiously optimistic that our key financial metrics have the potential to show sequential improvement in both the third and fourth quarters of 2023. Now moving to our second quarter guidance. While actual results may vary, for Q2, Magnachip currently expects revenue to be in the range of $58 million to $63 million, including about $8 million of Transitional Foundry Services in our Gumi Fab. Gross profit margin to be in the range of 21% to 23%. Thank you. That concludes the prepared remarks section of our call today, operator you may now open up the call for questions.

Our first question comes from the line of Raji Gill with Needham.

Hi, this is Nick Doyle on for Raji Gill. Thanks for taking my other question. First question, just wanted, if you could talk more about the design moment being around your new DDIC chips? And, then also if you could speak about you mentioned the -- a little bit of premium market recovery if you could talk more there? Thanks.

Sure. Thank you very much. So on the design win front, we have one new chip that supposed to deliver this quarter to a Korean customer. With that customer, we saw in Q1 recovery of some premium phone for the Korean customer, as well as two new product launches that's happening in Q2. So we saw some of the improvement there. We are also going to production with automotive this mid-May. So those are the key progress with that customer. And then in the non-Korean panel customer, we have qualified the first product last quarter. We shipped some and we expect to increment to ship during the next few quarters. Our second chip has delivered on schedule and that initial evaluation done. Now we are moving into the panel evaluation stage. And we expect that the product to do really well as we're seeing a lot of interest. That product is much better feature and performance and power consumption in the first one. So we are looking optimistic about that. And then as we said during today's call, we are also working on our next generation chip that we will pay part that will contribute to revenue next year as well.

Thanks. And if we could talk about utilization, it was lower this quarter. And did you say you expected to go lower again next quarter and hoping you could give more direction on that further into the year? And is that completely tied to the power segment or is that in display as well? Thanks.

Yes. So we make the 100% of the display OLED DDIC using external foundry whether it's 8 inch to 12 inch. So the utilization doesn't matter for that chip. On the power, we make around 80% internally. So the utilization does matter, and that's one of the region why Q1 margin was low on power. We expect the Q2 utilization to be better than Q1, but without giving the details of the magnitude.

[Operator Instructions] Our next question comes from the line of [Indiscernible] with Oppenheimer.

Hi. On the line, I'm calling for Martin. Martin Yang for Oppenheimer. First question, what was driving the ASP growth in premium to your Power Solutions product? And how confident are you at maintaining the premiums here?

So our premium products composed of Super Junction, IGBT and Power IC, so we have been introducing next generation products more. This week, you saw we introduced nine more Super Junction products. And we also alluded that we will be introducing more of the other series of Super Junction other than 600 volt. So we will have a much better product portfolio that will be introduced. So our confidence on growing the premium products is very high. But we're not going to give all the other stuff. But I can say the product portfolio roadmap looks really good. And you will see a lot of new product introduction some in Q2 more and then a lot more in the second-half this year.

Okay, great. Sounds good. My next question is, can you talk about gross margin puts and takes when needs to happen to drive gross margin towards high 20%?

So that's really good question. So on the power, the utilization is a key factor. So once we're starting to fill the fab, that will drive the gross margin, because we have a fixed cost and so you feel more fab with a better utilization, the gross margin will come. On the side of DDI, that will be based on portfolio, as well as the shift towards the higher end devices like QHD and WXGA type of devices and the brand new launches we expect it towards the second half. So that's how we'll drive the gross margins of each product line.

Got it, great. That's all from me.

Thank you.

I'm showing no further questions in queue at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.