Magnachip Semiconductor : Q2 2023 Prepared Remarks

Magnachip Semiconductor Prepared Remarks for Q2 2023 Investor Conference Call

August 7, 2023

Yujia Zhai

Hello everyone. Thank you for joining us to discuss Magnachip's financial results for the second quarter ended June 30, 2023. The second 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, has returned from maternity leave. 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 third 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 second quarter earnings

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release in the investor relations section of our website. With that, I now will turn the call over to YJ Kim. YJ?

YJ Kim

Hello everyone, thank you for joining us today and welcome to Magnachip's Q2 earnings call.

Starting with our financials. Q2 revenue was $61 million, down 39.8% year- over-year and up 7% sequentially. Gross margin was 22.2%, up 100 basis points from Q1 driven by higher utilization at our Gumi Fab. Our year-over- year results continued to be impacted by macro challenges that I will detail in each of our business sections, but I am pleased to see sequential improvement in our Power business driven by Industrial and Automotive applications. These positives were offset by weaker OLED smartphone revenue during the quarter from our top Korea panel customer.

During the quarter, we also completed the $25.5 million of our remaining stock buyback program, and today I'm pleased that our Board approved a new stock buyback authorization of $50 million, which signifies our confidence in our long-term business and unwavering commitment to enhance shareholder value.

Finally, earlier in the second quarter, we announced that our Board approved the recommendation of its Strategic Review Committee to separate our Display and Power business into separate legal entities. Broadly speaking, this strategic separation represents a significant milestone for Magnachip and highlights our commitment to unlock long-term value for our shareholders. We are currently working through the process of separating the businesses so they will have distinct ERP (Enterprise Resource Planning) and accounting systems. The process is expected to be completed at the

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end of 2023 and go live in January 2024. Post-separation, the board and management team will continue to oversee both businesses. This internal separation is aimed at enhancing transparency, accountability, business flexibility as well as business focus and strategic optionality and we look forward to providing further updates on our upcoming earnings calls.

Let me now provide updates into each of our business segments:

Beginning with our Display business. Q2 revenue came in at $9.7 million, down 65.9% year-over-yearand down 10.9% sequentially. Year-over-year,our results reflect the ongoing smartphone inventory correction and the continued impact of the last two year's supply shortage of 28nm 12-inchOLED wafers that affected our 2nd half 2022 design wins. Sequentially, our OLED revenue declined from Q1 due to decreased demand from our large Korean panel customer. Despite these near-termhurdles, we remain focused on expanding our customer base to include all major global panel customers to deliver highly competitive products to achieve sustainable long- term growth as an industry leader in display.

• At our new global Tier 1 panel customer, we delivered our second- OLED DDIC project sample in Q1 but due to spec changes by the customer, we revised and shipped a second chip at the end of June. We aim to receive final qualification in a few months and anticipate production at the end of the year.
• Additionally, we have sampled the third chip in Q2, which has been evaluated by the global panel customer, and is now at the design-in evaluation stage by a smartphone maker for first half 2024 launch.
• Further, with our new global panel customer, we continue to collaborate on new projects. In Q2, we began developing a 4th OLED

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DDIC project for our global panel maker that has the potential to contribute revenue around mid-year 2024. Additionally, we started work on a mass-market OLED display driver, 5th chip, aimed at expanding market share of the low-to-mid-range OLED smartphone display market, which we expect to drive revenue growth in the second half 2024 and beyond.

• Given these developments, we feel confident about our odds of winning additional Asian smartphone designs and capturing significant market share over the longer-term in Asia. It is estimated that in Q2'23, China panel makers already have captured almost 40% of worldwide OLED smartphone panel production.
• With regard to our large panel customer in Korea, we began production shipment of our first OLED automotive chip in Q2 targeted for two different car models for a leading European Automaker. Following the quarter end, in July, we also initiated production shipment targeted to another top-tierEuropean car manufacturer. We anticipate these three models to provide revenue beginning in the 2nd half of this year and beyond.
• Further, we secured two new design wins with a third European Automaker in Q2, with mass production slated for 2nd half 2025. With these wins, we now have five cumulative design wins targeted for car models from leading European automakers.
• For our smartphone DDIC project at our large panel customer in Korea, we are awaiting our customer's alignment with Chinese Smartphone OEMs, and look for such alignment by the end of the year.

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Moving on to our Power business: Q2 revenue was $41.7 million, down 33.7% year-over-yearand up 2.6% sequentially due to strength in Industrials and Automotive markets.

• As we stated in our last quarter call, we believe we hit the bottom in Q1'23 and we saw progress in inventory on hand. The demand improvement in Q2 was broad based. For instance, we saw a revival in demand for TVs, solar, and lighting markets.
• Additionally, we continued our strong momentum of design activities in Q2 propelled by our robust product portfolio across automotive, industrial, and computing applications, in particular. Notably, 35% of the design-ins and wins are attributed to new products and customers, while more than 17% emerged from new applications. One key design win was at a leading home appliance maker in Korea, with production slated to begin in Q3'23.
• Power products ASP remained strong, increasing 25.3% YoY and down slightly by 2.2% sequentially on lower Premium product mix.
• We also continue to innovate. In early July, we announced four new low voltage MOSFETs using super-short channel technology that significantly improves power loss of smartphone batteries when charging or discharging.

In summary, in our Power business, our product design-in/win rate is stronger than ever and we're rolling out next generation power products throughout this year. Looking ahead, we are seeing some improvements in our customer base, and we expect further sequential growth in Q3.

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