MagnaChip also announced today that it has undertaken a strategic evaluation of the Company's Foundry business and Fab 4, the larger of the Company's two 8" manufacturing facilities. Fab 4 is an analog and mixed signal fab that produces approximately 73% of the Company's total capacity, and is used primarily to meet wafer demand from Foundry customers that rely on outside suppliers. The strategic evaluation is expected to include a range of possible options, including, but not limited to, joint ventures, strategic partnerships as well as M&A possibilities. The Company has retained financial and legal advisors to assist in the evaluation.
Nader Tavakoli, Chairman of the Board of MagnaChip, said, "The Board is committed to improving MagnaChip's profitability and unlocking shareholder value. As we undertake this strategic evaluation of the Foundry business, we will be mindful of the best interests of all of our stakeholders including shareholders, customers and employees."
In commenting on the Company's financial performance in Q4, YJ Kim, CEO of MagnaChip, said, "We are pleased to have met our revenue guidance in the seasonally soft fourth quarter despite a challenging macroeconomic backdrop, a slowdown in China, and an inventory correction by customers."
In commenting on the 2018 financial results, Mr. Kim said, "Our OLED and Power businesses both had record annual revenue in 2018 and are positioned for success in 2019 due to a strong product lineup, robust product roadmap and well-established customer traction. Higher-margin Premium Power products represented over 45% of total Power revenue in Q4, due mainly to growth in the industrial, television, and lighting markets. In the OLED business, MagnaChip secured new design wins for display driver ICs from China smartphone makers and three design wins from a major smartphone maker in Korea for a line of mid-range smartphones. Our latest and lowest-power 28 nanometer OLED display driver IC will sample at the end of this month, and we anticipate volume production in the second half of this year." Mr. Kim added, "Our foundry business under-performed in Q4 2018 on an "as adjusted" basis, due in part to an inventory correction by customers that caused a drop in utilization in Fab 4. We expect utilization in Fab 4 will decline significantly further in the first half of 2019, due in part to a continuing inventory correction and our decision to be more selective about business as we undergo our strategic evaluation process."
Q4 2018 Summary
- Revenue of $179.4 million within guidance range of $174-$184 million; revenue up 2.8% Year-over-Year (YoY)
- Standard Products Group revenue of $96.3 million up 2.5% YoY on an "as reported" basis; up 14.3% on an "as adjusted" basis
- Foundry Services Group revenue of $83.1 million up 3.1% YoY on an "as reported" basis; down 8.0% on an "as adjusted" basis
- Record Power standard products revenue of $46.1 million; up 14.6% YoY
- Total gross profit margin of 24.5% was below the guidance range of 25-27%; gross margin down 3.8 percentage points YoY primarily due to lower Foundry-related fab utilization and increased costs for wafers
- Operating income of $7.9 million, or 4.4% of revenue, up 2.9% YoY and Net Loss, on a GAAP basis, of $2.4 million, down 105.5% YoY
- Adjusted EBITDA of $17.4 million, or 9.7% of revenue, down 15.4% YoY
Full Year 2018 Summary
- Revenue of $750.9 million, up 10.5% YoY
- Record OLED revenue of $188.0 million, up 3-fold YoY
- Record Power revenue of $169.3 million, up 13.0% YoY
- Foundry revenue of $325.3 million, up 1.6% YoY on an "as reported" basis; down 7.2% on an "as adjusted" basis
- Gross margin of 26.4% declined by 1.2 percentage points YoY primarily due to lower Foundry-related fab utilization
First Quarter 2019 Business Outlook
For the first quarter of 2019, MagnaChip anticipates:
- Revenue in this seasonally soft quarter to be in the range of $150 million to $155 million, down sequentially about 15.0% at the mid-point of the projected range. The guidance for the first quarter of 2019 compares with revenue of $179.4 million in the fourth quarter of 2018, and $165.8 million in the first quarter of 2018.
- Gross profit margin to be in the range of 14% to 16%. This compares to 24.5% in the fourth quarter of 2018, and 26.9% in the first quarter of 2018.
Both revenue and gross profit margin guidance reflect a downturn in the Foundry business due in part to a continuing inventory correction and the Company's decision to be more selective about business as it undergoes a strategic evaluation process.
Fourth Quarter Financial Review
Total revenue in the fourth quarter of 2018 was $179.4 million, up 2.8% as compared to reported revenue of $174.6 million from the fourth quarter of 2017, and down 12.9% from $206.0 million in the third quarter of 2018.
Segment Revenue and Segment Adjustments
In January 2018, as part of our ongoing portfolio optimization effort to realign business processes and streamline our organizational structure, we transferred a portion of our non-OLED display solutions business ("Transferred Business"), which represented $13.4 million of net sales for Q4 2018 and $33.0 million of net sales for the 2018 year, from our Standards Products Group to our Foundry Services Group. The corresponding non-OLED display business represented $30.3 million of net sales for the year ended December 31, 2017. As a result, the historical financial results in the tables below are discussed both on an "as reported" basis, which presents the Transferred Business in the Standards Products Group results, and "as adjusted" basis, which presents the Transferred Business in the Foundry Services Group results, for comparative purposes.
Foundry Services Group revenue in the fourth quarter was $83.1 million, up 3.1%, on an "as reported" basis from the fourth quarter of 2017, and down 0.9% from $83.9 million in the third quarter of 2018; and on an "as adjusted" basis, down 8.0% from $90.3 million in the fourth quarter of 2017.