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MAGNACHIP SEMICONDUCTOR Corp 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Magnachip Semiconductor Corpora

Filing date:

03/14/2025

TLDR:

ELI5:

Magnachip, a chipmaker, is focusing on power management chips. They made a little more money than last year, but lost more money overall. They’re trying to sell off another part of their business and face some challenges, but also have chances to grow.

Accession #:

0001193125-25-054851

Published on

Analyst Summary

  • Magnachip is strategically shifting to become a pure-play Power company, exploring options for its Display business.
  • Total revenues increased slightly by 0.7% to $231.7 million in 2024, driven by Power IC and Power discrete products, while transitional Fab 3 foundry services revenue decreased significantly.
  • Gross profit remained relatively flat at $51.9 million, with a decrease in gross profit margin for the standard products business due to product mix and lower utilization of the Gumi fabrication facility.
  • Net loss increased to $54.3 million, primarily due to foreign currency losses.
  • The company repurchased 846,227 shares at an average price of $3.98 during October-December 2024, with $24.589 million remaining under the $50 million program.
  • Magnachip secured a KRW 38 billion (approximately $27 million USD) term loan from Korea Development Bank.

Opportunities and Risks

  • Opportunity: Growing demand for power management solutions in various applications.
  • Opportunity: Established relationships with leading global electronics companies.
  • Opportunity: Efficient manufacturing capabilities.
  • Risk: Customer Concentration: A significant portion of sales comes from a limited number of customers.
  • Risk: Pricing Pressure: The semiconductor industry is subject to rapid declines in average selling prices.
  • Risk: Strategic Execution: The company may fail to realize the anticipated benefits of its operational initiatives.
  • Risk: Currency Fluctuations: Changes in exchange rates could impact results of operations.
  • Risk: International Trade: Expanded trade restrictions may limit the ability to sell to certain customers.
  • Risk: Labor Problems: Future labor problems may affect the ability to deliver products and services in a timely manner.
  • Risk: Cybersecurity: Disruptions, breaches or cyber-attacks of secured networks and information technology systems could damage reputation, harm business, expose to liability and materially adversely affect results of operations.

Potential Implications

Company Performance

  • The strategic shift to a pure-play Power company could improve long-term profitability if the company can successfully execute its plan.
  • The divestiture of the Display business could result in a loss of revenue in the short term, but could also free up resources to focus on the Power business.
  • The company’s ability to manage risks related to customer concentration and pricing pressures will be critical to its future success.
  • Cost reduction initiatives could improve profitability, but may also impact the company’s ability to invest in growth opportunities.

Stock Price

  • The strategic shift to a pure-play Power company could be viewed positively by investors, leading to an increase in the stock price.
  • The divestiture of the Display business could be viewed negatively by investors, leading to a decrease in the stock price.
  • The company’s ability to manage risks related to customer concentration and pricing pressures will be a key factor in determining the stock price.
  • The company’s financial performance will also be a key factor in determining the stock price.

Magnachip Semiconductor Corp – 2024 10-K Filing Analysis

Executive Summary

This report analyzes Magnachip Semiconductor Corp’s 2024 10-K filing. Key findings include a strategic shift towards becoming a pure-play Power company, exploring strategic options for its Display business, and financial performance impacted by macroeconomic conditions and industry cyclicality. The company faces risks related to customer concentration, pricing pressures, and international trade. Opportunities exist in the growing power management market. Overall assessment: Hold, pending further developments regarding the Display business divestiture and execution of the Power-focused strategy.

Company Overview

Magnachip Semiconductor Corporation is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions. The company operates primarily in Korea, with a significant presence in Asia. Recent developments include a strategic decision to focus on the Power business and explore options for the Display business. The company’s business is divided into Mixed-Signal Solutions (MSS) and Power Analog Solutions (PAS).

Financial Statement Analysis

Revenue

Total revenues increased slightly by 0.7% to $231.7 million in 2024. Standard products business revenue increased by 13.0%, driven by Power IC and Power discrete products. Transitional Fab 3 foundry services revenue decreased significantly.

Gross Profit

Gross profit remained relatively flat at $51.9 million. Gross profit margin for the standard products business decreased due to product mix and lower utilization of the Gumi fabrication facility.

Operating Expenses

Operating expenses decreased due to lower selling, general, and administrative expenses and the absence of early termination charges, offset by increased impairment charges.

Net Loss

Net loss increased to $54.3 million, primarily due to foreign currency losses.

Key Ratios

  • Gross Margin: 22.4% (2024), 22.4% (2023)
  • Operating Margin: -22.9% (2024), -25.1% (2023)

Management’s Discussion and Analysis (MD&A) Insights

Management highlights the strategic shift to a pure-play Power company. The MD&A discusses the impact of macroeconomic conditions and industry cyclicality on the company’s performance. It also emphasizes the importance of innovation and customer relationships.

Red Flags

  • Increasing net loss.
  • Dependence on a limited number of customers.
  • Cyclical nature of the semiconductor industry.
  • Potential challenges in executing the strategic shift.

Uncommon Metrics

The filing does not explicitly highlight uncommon metrics. However, the discussion of design wins and customer relationships suggests their importance to future performance.

Risk Assessment

  • Customer Concentration: A significant portion of sales comes from a limited number of customers.
  • Pricing Pressure: The semiconductor industry is subject to rapid declines in average selling prices.
  • Strategic Execution: The company may fail to realize the anticipated benefits of its operational initiatives.
  • Currency Fluctuations: Changes in exchange rates could impact results of operations.
  • International Trade: Expanded trade restrictions may limit the ability to sell to certain customers.
  • Labor Problems: Future labor problems may affect the ability to deliver products and services in a timely manner.
  • Cybersecurity: Disruptions, breaches or cyber-attacks of secured networks and information technology systems could damage reputation, harm business, expose to liability and materially adversely affect results of operations.

Opportunity Assessment

  • Power Management Market: Growing demand for power management solutions in various applications.
  • Customer Relationships: Established relationships with leading global electronics companies.
  • Manufacturing Capabilities: Efficient manufacturing capabilities.

Conclusion

Magnachip is undergoing a significant strategic transformation. While the Power business presents growth opportunities, the company faces challenges related to the Display business divestiture and macroeconomic conditions. The overall assessment is a Hold, pending further developments.

Actionable Insights

  • Monitor the progress of the Display business divestiture and its impact on the company’s financials.
  • Track the performance of the Power business and its ability to offset the loss of revenue from the Display business.
  • Assess the company’s ability to manage risks related to customer concentration and pricing pressures.
  • Evaluate the effectiveness of the company’s cost reduction initiatives.

1. Commentary

Magnachip Semiconductor’s financial performance in 2024 shows a mixed picture. Revenue remained relatively flat, with a slight increase primarily driven by standard products, offsetting a significant decline in transitional Fab 3 foundry services. The company experienced a net loss, which widened compared to the previous year. While operating loss decreased, this was offset by other factors such as foreign currency losses. The company is actively managing its capital structure through stock repurchases and has secured new debt financing.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Metric: 2024: 22.4%, 2023: 22.4%
    • Trend: No change from 2023 to 2024.
    • Industry: The semiconductor industry generally has higher gross margins, often in the 40-60% range. Magnachip’s lower margin may reflect its product mix or competitive pressures.
  • Operating Profit Margin

    • Metric: 2024: -22.9%, 2023: -25.1%
    • Trend: Improved from -25.1% in 2023 to -22.9% in 2024.
    • Industry: The semiconductor industry generally has positive operating margins. Magnachip’s negative margin indicates operational challenges.
  • Net Profit Margin

    • Metric: 2024: -23.4%, 2023: -15.9%
    • Trend: Decreased from -15.9% in 2023 to -23.4% in 2024.
    • Industry: The semiconductor industry generally has positive net profit margins. Magnachip’s negative margin indicates overall profitability challenges.
  • Return on Assets (ROA)

    • Metric: ROA = Net Loss / Total Assets. 2024: -14.3%, 2023: -8.7%
    • Trend: Decreased from -8.7% to -14.3%.
    • Industry: The semiconductor industry generally has positive ROA. Magnachip’s negative ROA indicates inefficient asset utilization.
  • Return on Equity (ROE)

    • Metric: ROE = Net Loss / Total Stockholders’ Equity. 2024: -19.6%, 2023: -10.6%
    • Trend: Decreased from -10.6% to -19.6%.
    • Industry: The semiconductor industry generally has positive ROE. Magnachip’s negative ROE indicates inefficient equity utilization.
  • Earnings Per Share (EPS) – Basic and Diluted

    • Metric: 2024: -$1.44, 2023: -$0.89
    • Trend: EPS decreased from -$0.89 to -$1.44.
    • Industry: The semiconductor industry generally has positive EPS. Magnachip’s negative EPS indicates losses for shareholders.

Liquidity

  • Current Ratio

    • Metric: Current Assets / Current Liabilities. 2024: 4.74, 2023: 5.23
    • Trend: Decreased from 5.23 to 4.74.
    • Industry: A current ratio of 2 or higher is generally considered healthy. Magnachip’s current ratio is strong, indicating good liquidity.
  • Quick Ratio (Acid-Test Ratio)

    • Metric: (Current Assets – Inventory) / Current Liabilities. 2024: 4.08, 2023: 4.53
    • Trend: Decreased from 4.53 to 4.08.
    • Industry: A quick ratio of 1 or higher is generally considered healthy. Magnachip’s quick ratio is strong, indicating good short-term liquidity.
  • Cash Ratio

    • Metric: Cash and Cash Equivalents / Current Liabilities. 2024: 2.99, 2023: 3.37
    • Trend: Decreased from 3.37 to 2.99.
    • Industry: A cash ratio of 1 or higher is generally considered healthy. Magnachip’s cash ratio is strong, indicating good immediate liquidity.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Metric: Total Liabilities / Total Stockholders’ Equity. 2024: 0.37, 2023: 0.22
    • Trend: Increased from 0.22 to 0.37.
    • Industry: The semiconductor industry generally has moderate debt-to-equity ratios. Magnachip’s ratio is relatively low, indicating conservative leverage.
  • Debt-to-Assets Ratio

    • Metric: Total Liabilities / Total Assets. 2024: 0.27, 2023: 0.18
    • Trend: Increased from 0.18 to 0.27.
    • Industry: The semiconductor industry generally has moderate debt-to-assets ratios. Magnachip’s ratio is relatively low, indicating conservative leverage.
  • Interest Coverage Ratio (Times Interest Earned)

    • Metric: Earnings Before Interest and Taxes (EBIT) / Interest Expense. EBIT = Net Loss + Interest Expense + Income Tax Benefit = -54.3 + 2.0 + (-8.3) = -60.6. Interest Coverage Ratio = -60.6 / 2.0 = -30.3
    • Trend: N/A
    • Industry: The semiconductor industry generally has positive interest coverage ratios. Magnachip’s negative ratio indicates difficulty in covering interest expenses.

Activity/Efficiency

  • Asset Turnover

    • Metric: Total Revenue / Total Assets. 2024: 0.61, 2023: 0.55
    • Trend: Increased from 0.55 to 0.61.
    • Industry: The semiconductor industry generally has asset turnover ratios around 1. Magnachip’s ratio is relatively low, indicating inefficient asset utilization.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Metric: Stock Price / EPS. Stock Price = $3.88. EPS = -$1.44. P/E = $3.88 / (-$1.44) = -2.69
    • Trend: N/A
    • Industry: The semiconductor industry generally has positive P/E ratios. Magnachip’s negative P/E ratio indicates losses for shareholders.
  • Price-to-Book Ratio (P/B)

    • Metric: Market Cap / Book Value of Equity. Market Cap = Shares Outstanding * Stock Price = 36,912,118 * $3.88 = $143.23 million. Book Value of Equity = $276.797 million. P/B = $143.23 / $276.797 = 0.52
    • Trend: N/A
    • Industry: The semiconductor industry generally has P/B ratios around 1. Magnachip’s ratio is relatively low, indicating undervaluation.
  • Price-to-Sales Ratio (P/S)

    • Metric: Market Cap / Total Revenue. Market Cap = $143.23 million. Total Revenue = $231.737 million. P/S = $143.23 / $231.737 = 0.62
    • Trend: N/A
    • Industry: The semiconductor industry generally has P/S ratios around 2. Magnachip’s ratio is relatively low, indicating undervaluation.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Metric: EV = Market Cap + Total Debt – Cash. Market Cap = $143.23 million. Total Debt = $27.211 million. Cash = $138.610 million. EV = $143.23 + $27.211 – $138.610 = $31.831 million. EBITDA = -$53.3 million. EV/EBITDA = $31.831 / (-$53.3) = -0.60
    • Trend: N/A
    • Industry: The semiconductor industry generally has positive EV/EBITDA ratios. Magnachip’s negative ratio indicates operational challenges.

Growth Rates

  • Revenue Growth

    • Metric: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue. (231.737 – 230.051) / 230.051 = 0.0073 or 0.73%
    • Trend: Increased by 0.73%
    • Industry: The semiconductor industry generally has positive revenue growth. Magnachip’s revenue growth is relatively low.
  • Net Income Growth

    • Metric: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income. (-54.308 – (-36.622)) / (-36.622) = 0.483 or 48.3%
    • Trend: Increased by 48.3%
    • Industry: The semiconductor industry generally has positive net income growth. Magnachip’s net income growth is relatively low.
  • EPS Growth

    • Metric: (Current Year EPS – Previous Year EPS) / Previous Year EPS. (-1.44 – (-0.89)) / (-0.89) = 0.618 or 61.8%
    • Trend: Increased by 61.8%
    • Industry: The semiconductor industry generally has positive EPS growth. Magnachip’s EPS growth is relatively low.

Other Relevant Metrics

  • Adjusted EBITDA

    • Metric: 2024: -$23.6 million, 2023: -$24.2 million
    • Trend: Improved slightly from -$24.2 million to -$23.6 million.
    • Significance: Adjusted EBITDA is a non-GAAP metric used by the company to assess operating performance by excluding items not considered indicative of core operations. The adjustments include equity-based compensation, foreign currency gains/losses, derivative valuation gains/losses, impairment charges, and early termination charges. While it provides a clearer picture of core operations, it has limitations as it doesn’t reflect cash expenditures, working capital needs, or debt service.
  • Adjusted Operating Loss

    • Metric: 2024: -$40.2 million, 2023: -$41.2 million
    • Trend: Improved slightly from -$41.2 million to -$40.2 million.
    • Significance: Adjusted Operating Loss is a non-GAAP metric used by the company to assess operating performance by excluding items not considered indicative of core operations. The adjustments include equity-based compensation, impairment charges, and early termination charges. While it provides a clearer picture of core operations, it has limitations as it doesn’t reflect cash expenditures, working capital needs, or debt service.
  • Adjusted Net Loss

    • Metric: 2024: -$29.2 million, 2023: -$22.5 million
    • Trend: Decreased from -$22.5 million to -$29.2 million.
    • Significance: Adjusted Net Loss is a non-GAAP metric used by the company to assess operating performance by excluding items not considered indicative of core operations. The adjustments include equity-based compensation, foreign currency gains/losses, derivative valuation gains/losses, impairment charges, early termination charges, and income tax effect on non-GAAP adjustments. While it provides a clearer picture of core operations, it has limitations as it doesn’t reflect cash expenditures, working capital needs, or debt service.
  • Share Repurchase Program

    • Details: The company repurchased 846,227 shares at an average price of $3.98 during October-December 2024, with $24.589 million remaining under the $50 million program.
    • Significance: Share repurchases can boost EPS and ROE, but also reduce cash available for operations or investments.
  • New Debt Financing

    • Details: Magnachip secured a KRW 38 billion (approximately $27 million USD) term loan from Korea Development Bank.
    • Significance: The new debt provides additional liquidity but increases leverage and interest expense.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️