Yahoo Finance Magnachip (NYSE:MX) Posts Better-Than-Expected Sales In Q2, Stock Jumps 28.6%
Semiconductor manufacturer Magnachip Semiconductor (NYSE:MX) reported Q2 CY2024 results exceeding Wall Street analysts' expectations , with revenue down 12.8% year on year to $53.17 million. Guidance for next quarter's revenue was also optimistic at $64 million at the midpoint, 2.4% above analysts' estimates. It made a non-GAAP loss of $0.21 per share, down from its loss of $0.06 per share in the same quarter last year.
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Magnachip (MX) Q2 CY2024 Highlights:
Revenue: $53.17 million vs analyst estimates of $51.47 million (3.3% beat)
Adjusted Operating Income: -$8.13 million vs analyst estimates of -$15.43 million (47.3% beat)
EPS (non-GAAP): -$0.21 vs analyst estimates of -$0.33
Revenue Guidance for Q3 CY2024 is $64 million at the midpoint, above analyst estimates of $62.5 million
Gross Margin (GAAP): 26.4%, up from 22.2% in the same quarter last year
Inventory Days Outstanding: 81, up from 71 in the previous quarter
Free Cash Flow was -$2.01 million compared to -$4.64 million in the previous quarter
Market Capitalization: $188.3 million
YJ Kim, Magnachip’s CEO, commented, “Our Q2 revenue was above the mid-point of guidance and gross margin was better than expected. Revenue in our Standard Products Business, which is comprised of our MSS and PAS businesses, increased sequentially by double digits in Q2. We benefited from a recovery in our Power business, increased demand for OLED drivers for China smartphones and European autos, and an upturn in Power IC demand for OLED IT panels and LED TVs.”
With its technology found in common consumer electronics such as TVs and smartphones, Magnachip Semiconductor (NYSE:MX) is a provider of analog and mixed-signal semiconductors.
Analog Semiconductors
Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.
Sales Growth
Magnachip's revenue has been declining over the last three years, dropping by 23.2% on average per year. This quarter, its revenue declined from $60.98 million in the same quarter last year to $53.17 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Even though Magnachip surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 12.8% year on year. This could mean that the current downcycle is deepening.
Magnachip looks like it's on the cusp of a rebound, as it's guiding to 4.5% year-on-year revenue growth for the next quarter. Analysts seem to agree as consesus estimates call for 31.1% growth over the next 12 months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Magnachip's DIO came in at 81, which is 23 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.
Key Takeaways from Magnachip's Q2 Results
We were impressed by Magnachip's strong gross margin improvement this quarter. We were also excited its EPS outperformed Wall Street's estimates. Next quarter's revenue guidance was also above expectations, rounding out a good quarter for the company. The stock traded up 18% immediately following the results.
So should you invest in Magnachip right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
