Revenue for the three months ended July 3, 2005 increased 10.6% to $236.0 million, compared to $213.4 million in the first quarter of 2005.
Gross margin on a U.S. GAAP basis was $60.4 million or 25.6% of revenue for the quarter ended July 3, 2005, compared to 12.2% for the quarter ended April 3, 2005. Gross margin for the second quarter of 2005 was 25.6%, compared to 14.3% in the first quarter of 2005, an increase of 1,130 basis points, on an adjusted basis, due to increased utilization, higher yields, and the positive impacts of cost containment programs.
Operating expenses were $68.7 million in the second quarter or 29.1% of revenue, an increase of $14.2 million or 25.9% from the first quarter primarily due an asset impairment charge and increased amortization of intangible assets related to the acquisition of IC Media. On a U.S. GAAP basis, the operating loss for the quarter was $8.3 million, a $20.3 million or 70.9% improvement from $28.6 million loss in the first quarter. Adjusted for the special charge of $8.7 million of restructuring and impairment charges and $2.6 million of the amortization of intangible assets associated with acquisition, operating income was $3.0 million or 1.3% of revenue.
Net interest expense was $14.0 million for the quarter.
Net loss for the three months ended July 3, 2005, on a US GAAP basis was $33.5 million, compared to a net loss of $31.3 million in the previous quarter. Adjusted for the special non-cash charges, net loss was $22.2 million for the second quarter of 2005.
Youm Huh, President and CEO of MagnaChip Semiconductor, commented, "We are encouraged by our second quarter results. Our improvement in revenue and operations reflects a more favorable semiconductor environment and the results of our various operational initiatives. During the second quarter, we launched several new driver technologies with great potential. One example is the introduction of our new 162 channel 8-bit 1 chip driver for Low Temperature Poly Silicon (LTPS) panels. LTPS panels have shown remarkable growth in the small and medium-sized panel market in recent months with their ability to provide faster response time and support high-resolution picture quality. We also announced the launch of our newest microcontroller (MCU) line. These MCUs have the capacity range of 4K, 16K, 24K and 48K flash memory and will be ready for mass production in early July 2005."
Robert Krakauer, Executive Vice President of Strategic Operations and CFO of MagnaChip Semiconductor, said, "We made significant progress this past quarter. Our gross margin improvement efforts are significantly ahead of where we expected. Improved utilization of our manufacturing facilities; reduction in material costs; better than expected yields, including hitting new highs for our mega-pixel image sensors; and improved labor productivity have all contributed to a dramatic recovery in gross margin during the quarter. In addition, we recently announced a move toward a product line oriented management structure that focuses on growth and accountability for product line profitability rather than the traditional functional management structure. We believe this structure will improve our financial performance as we continue to expand and support the world's leading consumer electronics and communications companies. Finally, the United States Securities and Exchange Commission ("SEC") declared effective MagnaChip's S-4 statement related to our December 23, 2004 sale of US$750 million of high yield notes in a private offering. This is a critical step toward establishing a liquid market for MagnaChip's bonds."
Dr. Huh, concluded, "While we remain optimistic about our progress and strong long-term growth prospects, we expect revenue growth will be only modest to flat in the third quarter due to the timing of our new product introductions ramping into volume. Importantly, we expect that the positioning of our products will continue to improve going forward with significant new launches coming to the market in the second half of the year. We expect MagnaChip will be well positioned for renewed growth as we leverage these new products in our target markets."
Investor Conference Call / Webcast Details
MagnaChip will report full results for the second quarter 2005 on Monday, August 1, 2005 at 5:00 p.m. EDT (6:00 a.m., Tuesday, August 2 in South Korea). The conference call will be available at www.magnachip.com and by telephone at (201) 689-8359. A replay of the call will be available immediately following the call on Monday, August 1, 2005 through midnight EDT on Monday, August 8, 2005 (1:00 p.m., Tuesday, August 9 in South Korea) by telephone at (201) 612-7415 and via the web www.magnachip.com. The account number and confirmation identification for the replay are 3055 and 157445, respectively.
About MagnaChip Semiconductor
MagnaChip Semiconductor is a leading designer, developer and manufacturer of mixed-signal and digital multimedia semiconductors addressing the convergence of consumer electronics and communications devices. We focus on CMOS image sensors and flat panel display drivers, which are complex, high performance, mixed signal semiconductors that capture images and enable and enhance the features and capabilities of both small and large flat panel displays. MagnaChip also provides wafer foundry services utilizing CMOS high voltage, embedded memory, analog and power process technologies for the manufacture of IC's for customer-owned designs. MagnaChip has world-class manufacturing capabilities and an extensive portfolio of more than 13,400 registered and pending patents. As a result, MagnaChip is a valued partner in providing leading technology solutions to its customers worldwide. For more information, visit www.magnachip.com.
Forward-Looking Statements:
Certain statements in this press release including statements regarding expected future financial and industry growth are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially. In some cases, you can identify forward-looking statements by such terms as "believes," "expects," "anticipates," "intends," "estimated," the negative of these terms, or other comparable terminology. Factors that could cause actual results to differ include general business and economic conditions and the state of the semiconductor industry; demand for end-use products by consumers and inventory levels of such products in the supply chain; changes in demand from significant customers; changes in customer order patterns; changes in product mix; capacity utilization; level of competition; pricing pressure and declines in average selling price; delays in new product introduction; continued success in technological innovations and delivery of products with the features customers demand; shortage in supply of materials or capacity requirements; availability of financing; exchange rate fluctuations; litigation and other risks as described in the Company's Offering Memorandum dated December 16, 2004.
Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements.
CONTACTS:
In Korea:
Robert Krakauer, EVP Strategic Operations, CFO
Tel: 82-2-3459-3682
Email Contact
In the U.S.:
David Pasquale, EVP at The Ruth Group
Tel: +646-536-7006
Email Contact
MagnaChip Semiconductor
Condensed Consolidated Statements of Operations
(In thousands of U.S. Dollars, except share and per share data)
(Unaudited)
Three Months Ended
July 3, April 3,
2005 2005
Revenue $236,023 $213,390
Cost of revenue 175,619 187,438
Gross profit 60,404 25,952
Operating expenses:
Selling, general and administrative 35,136 28,479
Research and development 24,870 26,099
Restructuring and impairment charges 8,720 0
Operating (loss) income (8,322) (28,626)
Interest (expenses), net (13,991) (13,901)
Other non-operating (expenses), net (12,795) 13,601
(Loss) income before income taxes (35,108) (28,926)
(Benefit from) Provision for income taxes (1,624) 2,352
Net (loss) income $(33,484) $(31,278)
Net (loss) income per common units:
Basic $(0.68) $(0.64)
Diluted $(0.68) $(0.64)
Common units (in thousands) used in
per common units calculation:
Basic 52,982 52,533
Diluted 52,982 52,533
Key Ratios & Information:
Gross Margin 25.6 % 12.2 %
Operating Expenses as a % of Revenue 29.1 % 25.6 %
Operating Margin (3.5) % (13.4) %
Depreciation & Amortization Expense $51,480 $55,306
Capital Expenditures $6,490 $12,980
MagnaChip Semiconductor
Reconciliation of US GAAP Gross Profit, Operating Income (Loss) and Net Income
(Loss) to Non-US GAAP Gross Profit, Operating Income (Loss) and
Net Income (Loss)
(In thousands of U.S. Dollars)
(Unaudited)
Use of Non-US GAAP Financial Information
To supplement our condensed consolidated financial statements presented on a US GAAP basis, MagnaChip Semiconductor uses a non-US GAAP conforming measure of gross profit, operating income (loss) and net income (loss), that are US GAAP gross profit, operating income (loss) and net income (loss) adjusted to exclude certain costs, expenses or gains, referred to as special items. Non-US GAAP adjusted gross profit, operating income (loss) and net income (loss) measure give an indication of our baseline performance before other charges that are considered by management to be outside of our core operating results. In addition, our non-US GAAP adjusted measure of gross profit, operating income (loss) and net income (loss) are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information should not be considered in isolation or as a substitute for gross profit, operating income (loss) and net income (loss) prepared in accordance with generally accepted accounting principles in the United States of America.
Three Months Ended Three Months Ended
July 3, 2005 April 3, 2005
Gross Operating Net Gross Operating Net
Profit Income Income Profit Income Income
(loss) (loss) (loss) (loss)
US GAAP
Amounts $60,404 $(8,322) $(33,484) $25,952 $(28,626) $(31,278)
Special items
(1) Fair
value
uplift
of
inventory
expense 4,475 4,475 4,475
(2) Order
backlog
amortization 2,969 2,969
(3) Restructuring
and
impairment
charges 8,720 8,720
(4) IPR&D
amortization 2,605 2,605
Total special items 11,325 11,325 4,475 7,444 7,444
Non-US GAAP
Profit
(Loss) $60,404 $3,003 $(22,159) $30,427 $(21,182) $(23,834)
Adjusted Gross
Margin 25.6% 14.3%
Adjusted
Operating
Expense -
% of Revenue 24.3% 24.2%
Adjusted
Operating
Margin 1.3% (9.9)%
Non-US GAAP adjusted condensed consolidated statements of operations are intended to present the Company's operating results, excluding special items. The special items excluded for the three months ended July 3, and April 3, are as follows:
(1) Fair value uplift for inventories in purchase accounting, non-cash
charge in the first quarter
(2) Order back log capitalized in purchase accounting and amortized for
3 months
(3) Restructuring and impairment charges include headcount reduction and
asset impairment
(4) IPR&D in purchase accounting and amortized immediately
MagnaChip Semiconductor
Condensed Consolidated Balance Sheets
(In thousands of U.S. Dollars)
(Unaudited)
July 3, April 3,
2005 2005
ASSETS
Current assets:
Cash and cash equivalents $44,821 $35,690
Accounts receivable, net 105,748 92,432
Other current assets 21,930 25,665
Inventories, net 77,301 72,402
Total current assets 249,800 226,189
Property, plant and equipment, net 514,704 566,174
Goodwill and intangible assets 219,758 232,383
Other non-current assets 46,925 45,170
$1,031,187 $1,069,916
LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts and other payables $92,237 $89,655
Other current liabilities 35,970 39,887
Total current liabilities 128,207 129,542
Long-term debts 750,000 750,000
Other non-current liabilities 62,207 64,399
Total liabilities 940,414 943,941
Redeemable convertible preferred units 101,407 98,929
Unitholders' equity (10,634) 27,046
Total liabilities, redeemable
convertible preferred units
and unitholders' equity $1,031,187 $1,069,916
CONTACT: In Korea - Robert Krakauer, EVP Strategic Operations, CFO of
MagnaChip Semiconductor, +82-2-3459-3682,
Email Contact; or In
the U.S. - David Pasquale, EVP at The Ruth Group, +1-646-536-7006,
Email Contact
Web site: http://www.magnachip.com/