Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

MagnaChip, Inc. (NYSE:MX)

Q4 2012 Earnings Call

January 30, 2013 5:00 p.m. EST

Executives

Robert Pursel – IR

Sang Park – Chairman and CEO

Margaret Sakai – EVP, CFO

Analysts

Terence Whalen – Citigroup

Raji Gill – Needham & Co.

Mike Chu – Deutsche Bank

C.J. Muse – Barclays Capital

Nick Gadios – UBS

Jay Srivatsa – Chardan Capital Markets

Operator

Good afternoon. My name is [Hope] and I'll be your conference operator today.

At this time I would like everyone to the MagnaChip Semiconductor's Fourth Quarter 2012 Earnings Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you.

Mr. Robert Pursel, you may begin your conference.

Robert Pursel

Thank you, [Hope]. Good afternoon and thank you for joining us for MagnaChip's fourth quarter 2012 earnings conference call.

A copy of the press release issued today is available on our Investor Relations website. A 72-hour telephone replay will be available shortly after today's call and this webcast will be archived on the company website for one year. Access information is provided in today's press release.

Joining us today are Sang Park, MagnaChip Chairman and CEO, and Margaret Sakai, Executive Vice President and Chief Financial Officer. Sang will begin the call with an overview of our fourth quarter business highlights and Margaret will discuss our financial results. Following Margaret's financial discussion, Sang will provide our first quarter guidance, after which we'll open the call for questions.

During the course of this call we may make forward-looking statements about MagnaChip's business outlook, including statements regarding our expectations for revenue, target gross and operating margins, as well as cost savings for 2013 and beyond. Our forward-looking statements and all other statements that are not historical facts [describe] our beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the Safe Harbor discussion found in today's press release.

During the call we will also discuss non-GAAP financial measures. The non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release.

I would now like to turn the call over to Sang Park for a review of our fourth quarter business. Sang?

Sang Park

Thank you, Robert. I'm very pleased that we ended 2012 with a revenue of $819.6 million, up 6.1% from 2011 and outpacing the semiconductor industry which declined 3% this year. While the macro environment maintained [width], we have successfully aligned with the growing smartphone and tablet PC market, leveraged our strong relationship with [our broad] customers, and delivered 30% more new product in 2012 than the previous year. I believe that this will help differentiate us from our competitor and allow us to perform better than 2012.

For 2012, gross margin improved 190% -- 190 basis points over 2011 as a result of our mixed business model. This hybrid model allow us to pull multiple levers to maximize fab utilization which averaged over 90% during 2012.

During 2012, our Power Solutions segment grew 34.8% and our Foundry segment grew 15.2%. With our strong position in AMOLED display driver IC at the leading Korean smartphone maker, we expect our Display Solutions segment will grow this year.

Our transition to these high-growth products was part of the business transformation that began over three years ago. Revenue from the smartphone and tablet grew nearly 30% of the total revenue in 2012 with over 50 products being shipped to nearly 30 different customers. In addition, this year we have expanded a range of products and diversity of our applications we are delivering the leading -- we are delivering to the leading Korean maker. This expansion will help us to manage any potential changes in the smartphone market landscape.

Looking at the quarter, revenue of $218.1 million declined 1.7% and gross margin 30.1% was down 40 basis points compared to the previous quarter. But both were better than midpoint of our Q4 guidance range. Compared to the same quarter last year, Q4 revenue is up 20.6% and gross margin improved 560 basis points due to the successful product and customer shift to growing markets. Our revenue and margin performance this quarter represent the eighth consecutive quarter of meeting or exceeding guidance.

As we look back -- look ahead, we are well-positioned for profitable growth. We are adding new product lines for the power for continued growth. We are ramping up touch solutions for the new Korean foundry customers. And we are focusing to become one of the leading suppliers of AMOLED display driver IC for the next platform smartphone at the major Korean OEM.

Also we had seen continued weakness in the notebook market and some uncertainties in the consumer market. We are confident that we can continue to execute and deliver growth that outpaces semiconductor industry in 2013. Because we are seeing a return to normal seasonality, we anticipate revenue for the Q1 to be down sequentially. Looking ahead based on current inventory correction cycle and customer loading forecasts, we expect a return to seasonal growth from Q2 and beyond.

Now let me discuss the highlights of our three business segments. For Power Solutions, fourth quarter revenue was $30.19 million, down 5.6% sequentially and up 45% year over year. 2012 power revenue was $124.7 million, up 34.8% compared to 2011 for the full year. Our road map for the continued growth in power is through our new product targeted at expanding markets and applications.

The number of power products shipped in 2012 increased by 91% and our power management IC revenue grew by 340%. We are expanding our PMIC product offerings by dedicating 40% of our development resources of power division. Since our first design win for LED backlight controller at the leading Korean TV maker, we have continued to win this [target] in subsequent TV models for three years now and we have a major market share of this device at this customer. Excuse me.

With this success, we are entering into new PMIC products for the smartphone in the form of AMOLED DC to DC, RF power amplifier DC to DC, and LED backlight units. We received a design spec for the AMOLED DC to DC from the leading Korean smartphone maker and we'll be submitting a working sample in the first year of this year -- first half of this year. Also we are working with a Korean TV maker for PMIC for SSD, solid state drive, and expect to deliver a working sample in the second half of this year.

For the LED lighting market, we will be making our LED driver working sample available to the open market in the second quarter. We are developing and enhancing our super-junction [inaudible] product portfolio and have [design-ins] at the top-tier customer for their smartphone and tablet adaptor, TV and PC and the server. We expect this new product will contribute to power revenue in Q2.

For Display Solutions, fourth quarter revenue was $72.8 million, up 4.5% sequentially as a result of expansion of AMOLED products at a major Korean smartphone maker. For 2012, display revenue was $302.2 million, down 10.8% compared to the 2011 because of product shift strategy moving away from lower-margin DDI products. We are well aligned with a leading global AMOLED maker by ramping up display driver for the current smartphone model and are going through the last stage of qualification for the next platform smartphone at this leading smartphone maker. We expect this product line will help us to grow our display business in 2013.

For the growing tablet market, we have on the development or are in production with a display solution for five different models of tablet PCs for the leading Korean maker. We have also been working closely with top two TV makers in Korea on their OLED TVs and have our display drivers designed into a current mass production model as our sole source supplier. Our relationship with LG Display and Samsung have continued to remain strong that [design-ins] increased 16% at these two customers and design win momentum grew by 42% in 2012.

And for our Foundry segment, fourth quarter revenue was $112.7 million, down 4.5% sequentially and up 65.7% year over year. 2012 revenue was $389.8 million, up 15.2% compared to the 2011 and outpacing foundry industry's 9.4% growth rate.

Revenue from the smartphone and tablet PC almost tripled in 2012 from 2011 as we expanded our product offerings to top two OEMs. The number of products we shipped to the top two smartphone tablet makers through our foundry customers increased by 33% from Q4 2011 to Q4 of 2012. Also [design-in] activity grew by over 70% in 2012 for the smartphone and tablet PC applications, which we believe will contribute to revenue growth into 2013 and beyond. Revenue from our US and European customers increased by over 60% in 2012 by aligning our foundries overseas to their smartphone and tablet PC application requirements.

With our strong pipeline of new designs, we have now shipping 37 different products to 16 customers in the smartphone and tablet PC market. We also continue to enhance our process technology to meet the needs of our smartphone and tablet PC customers with a new technology that includes 0.13 micron mixed-signal [prompt] for touch controller IC and MCUs, 0.18 micron 12 voltz [EBCD] for high output audio amplifiers, tantalum nitride register for audio amplifiers, and 0.25 micron SOS process used in RF switches for the next-generation smartphones and tablet PCs.

In addition, we are continuing to expand our technology offerings by developing IP with [inaudible] Korean or multiple companies and enhancing our process technology with a best-in-class RSP performance in 0.18 and 0.35 micron 30 voltz BCD.

Now, Margaret will discuss our financial highlights. Margaret?

Margaret Sakai

Thank you, Sang. Let me provide some financial highlights and a brief review of our statement of operations.

Fourth quarter revenue of $218.1 million and a gross margin of 34.1% represented the eighth consecutive quarter we met or exceeded our financial guideline. For the full year 2012 revenue, grew 6.1% to $819.6 million from $772.8 million in 2011. Power Solutions revenue increased by 34.8% to $124.7 million in 2012 compared to $92.5 million in 2011. Gross margins for 2012 increased by 190 basis points to 32.2% of revenue from 30.3% of the revenue in 2011. Our gross margin improvement was a result of our mixed business model, higher-than-industry average fab utilization rates, and the very strict cost controls.

GAAP net income for the full year 2012 was $193.3 million or $5.16 per diluted share compared to $21.8 million or $0.55 per diluted share for 2011. Adjusted EPS of $2.23 per diluted shares for the full year of 2012, our non-GAAP measurement was 33.5% higher than $1.67 per diluted shares in 2011. Reconciliation of our non-GAAP financial measures to GAAP measures can be found in today's press release.

As a result of our continued strong financial performance, we repurchased 406,000 shares of our common stock during the fourth quarter and 4 million shares since the beginning of the common stock repurchase program. The total amount of our repurchase is, since we initiated our buyback, is $39.9 million.

Now turning to our statement of operation, revenue for the fourth quarter was $218.1 million and within our guidance range for a decrease of 1.7% sequentially and increase of 20.6% year over year. For 2012, revenue was $819.6 million, up 6.1% from 2011.

Revenue by business segment for the fourth quarter was $112.7 million for Foundry Services, $72.8 million for Display Solutions, and $31.9 million for Power Solutions. Display Solutions revenue increased by 4.9% due to strong AMOLED demand while Foundry Services and Power Solutions revenue decreased as we anticipated.

For the full year, Foundry Services was $389.8 million, growing 15.2% compared to 2011. Display Solutions was $302.2 million, a decrease of 10.8% compared to 2011, and Power Solutions was $124.7 million which was 34.8% higher than 2011. Gross margin was $74.3 million or 34.1% for the fourth quarter and $263.5 million or 32.2% for 2012. For the full year, gross margin improved 190 basis points compared to 2011 as a result of higher revenue and fab utilization along with our ongoing cost management program.

Total operating expense for the fourth quarter was $38.9 million or 17.9% of revenue, which was in line with the prior quarter, and $157.7 million or 19.2% of our revenue for the full year. Operating income was at $35.3 million or 16.2% of revenue for the fourth quarter and $105.8 million or 12.9% for the year. Net interest expense was $5.7 million for the fourth quarter, consistent with last quarter, and $22.6 million for the full year.

GAAP net income for the fourth quarter was $125.3 million or $3.38 per diluted share. This compares to $48.4 million or $1.30 per diluted share for the prior quarter. GAAP net income was primarily impacted by the creation of deferred tax assets of $64.7 million and a foreign policy translation gain of $33.7 million in the current quarter compared to $21.8 million of translation gains in the third quarter.

Our deferred tax asset recognized is the portion of our NOL which will be utilized going forward based on our [past three years] of profit generation and expected future profitability. This is a non-cash tax item, therefore we anticipate our cash tax expenses to remain at between $10 million to $15 million per year until the NOL is expired.

Depreciation was $6.3 million and amortization was $2.2 million for the fourth quarter, which is the same as the prior quarter. And for the full year, depreciation was $23.3 million and amortization was $9 million. Adjusted net income, a non-GAAP measurement, for the fourth quarter was $28.7 million or $0.77 per diluted share and $83.5 million or $2.23 per diluted share for 2012.

Turning to the balance sheet, total combined cash balance, cash and cash equivalents plus restricted cash $182.4 million at the end of the fourth quarter compared to $165.8 million at the end of the third quarter. Cash provided from operations for the fourth quarter totaled approximately $31.5 million compared to $23 million for the prior quarter. Cash provided from operations for the full year of 2012 was $121.1 million compared to $104.5 million in 2011.

Accounts receivable net of reserves was $143.3 million compared to $148.5 million last quarter. Days sales outstanding were $60, down from $62 last quarter, and within our target range of 55 to 65 days.

Net inventory was $89.4 million or 57 days of inventory, which was up from 47 days last quarter, primarily due to a combination of increased manufacturing cycle time for smartphone, tablet PC and the new PMIC product that required 10% to 15% additional [photo] layers, significant ramp of AMOLED drivers in the Display Solutions segment which also required longer front-end processing and backend testing, introduction of new power modules in first quarter driving higher inventory procurement levels ahead of anticipated first quarter sales. We are currently evaluating our days of inventory target range based on our growing mix of new products.

Capital expenditures was $4.9 million in the fourth quarter and $62.4 million for the full year.

Now let me turn the call over to Sang for our first guidance.

Sang Park

Thank you, Margaret. For our Q1 guidance, when we look at the normal seasonality of our business and the current macro environment, we expect our revenue will be in the range of $201 million to $209 million. Based on this revenue level and our [inaudible] loading forecast, w anticipate our gross margin will be in the range of 31% to 33%.

Robert Pursel

So, [Hope], this concludes our prepared remarks. We will now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions].

Our first question comes from the line of Terence Whalen, Citigroup.

Terence Whalen – Citigroup

Yeah, hi. Good afternoon and thanks for taking the question. This one is a higher-level question on gross margin. Obviously we've made very good progress over the past couple of years with gross margin. We saw a 2-point increase in 2012. My question, as we look forward to 2013, what are the key swing factors that would determine whether gross margin goes up maybe a point or two points? What are the different puts and takes that you see influencing gross margin most significantly across utilization, products mix and anything else? Thanks.

Sang Park

Terence, we don't provide guidance for the 2013, but that is our goal, 1% to 2% gross margin improvement every year. And really up to two things you spelled which is definitely utilization of our fab, and number two, is our product mix. I don’t think there is anything else. I mean there are a lot of minor things influencing to this number, but I think those are the two major points.

Terence Whalen – Citigroup

Okay, terrific. Then my follow-up is on the power business, it sounds like some, you know, modest softness in the PC area of the power business. Can you refresh us on understanding the components of the power business? And even though PC is soft right now, can you let us know whether you're seeing any sort of a cyclical improvement from maybe the Chinese industrial market? Thank you.

Sang Park

As of now, let me divide into two categories. One is power mass fab, and takes up about 61%, and 18% is PMIC, and rest of them are module. And just looking into that biggest market today is Korea; they are more consumer related. And then second biggest -- that probably about 42%, 45% -- and China is a number two and that's maybe about between 35% to 40% and is more industrial. And Taiwan, which is only now just below 20%, is notebook.

Terence Whalen – Citigroup

Thanks. Over to queue. Thank you.

Sang Park

You're welcome.

Robert Pursel

Thanks, Terence.

Operator

Your next question comes from the line of Raji Gill, Needham & Co.

Raji Gill – Needham & Co.

Yes. Thanks for taking my question, and congrats on solid results. Sang, you talked about kind of returning to kind of some normal seasonal patterns in kind of Q2 and for the rest of the year. Perhaps if you could remind us kind of -- what is kind of your normal historical seasonal patterns by quarter, to give us some sense of kind of the cadence of the numbers.

Sang Park

Right. Even though we align with the smartphone and tablets and more than 60% of other revenue coming from so-called wide range of consumer products, and typically these products lowest in the first quarter and grow second, peak at third quarter, and slightly down fourth quarter. And that's our seasonality. Last few years there's a lot of unusual patterns in electronic business, so you're going to go back five, six years of this company. And just looking at the history and that's the pattern -- excuse me.

Raji Gill – Needham & Co.

And the guidance for Q1, could you provide a little bit of color on the specific segments kind of what are you seeing for display, power and manufacturing services?

Sang Park

The power will be flat and Display Solutions slightly up, and foundry slightly down.

Raji Gill – Needham & Co.

On the foundry side, could you maybe talk a little bit about if you experienced any volatility related to kind of, you know, Apple's procurement cycle at all and any volatility of the foundry customer side in Q4 and Q1?

Sang Park

We're not free from that. Obviously that showed inventory correction took off -- took out all my upside. But because of we are well-diversified and we're able to meet the market expectations, and just remind that compared to fourth quarter of -- I mean let's say that the first quarter of 2011 and compared to our midpoint of Q1 guidance, we still grow 16%. So there is -- and gross margin improved 380 basis points. That said, we are fundamentally restructure the company and we align well, but we could do better if there was no short-term inventory correction. So that has an impact, but we are well-diversified as we say that to the market a number of times.

Raji Gill – Needham & Co.

Got it. And just last question, the OpEx, you know, was down nicely in Q4 around $39 million. How should we be looking at the OpEx going forward? Thank you.

Margaret Sakai

[inaudible] OpEx is going forward, we, you know, we expect it between $42 million and $45 million per quarter, which is depending on number of, you know, the R&D project.

Raji Gill – Needham & Co.

Thank you.

Robert Pursel

Thank you, Raji.

Operator

Your next question comes from the line of Ross Seymore, Deutsche Bank.

Mike Chu – Deutsche Bank

Hi, this is Mike Chu for Ross. Congratulations on a great quarter. And I just had a question about the inventories. You did explain why it went up in the quarter. Do you expect that to stay at those higher levels in 1Q or do you expect the inventory to come down in the first quarter?

Margaret Sakai

For the inventory, it's depending on the product mix still right now. Then for the first quarter we are expecting pretty much the same level. And then, you know, we are currently evaluating our days of inventory target range.

Sang Park

But as Margaret explained, we're selling more of AMOLED DDI, probably this number stay high because of longer manufacturing cycle time. But as we do more foundry, probably this number is coming down a little bit.

Mike Chu – Deutsche Bank

Okay. And as a follow-up, just wondering if you could provide us with some guidance on CapEx for 2013 and even 2014 if you have it.

Margaret Sakai

You know, as we showed in our, you know, the midterm business model, our CapEx expectation annual basis is between $50 million to $60 million every year, which includes $5 million to $10 million maintenance CapEx.

Sang Park

And we [inaudible] to grow if the market supports.

Mike Chu – Deutsche Bank

Okay. And I guess my final question, could you just remind us on your debt on your balance sheet if you have any calls or when that mature, and if there's any way that you could actually repay that debt earlier than when it's due in 2018?

Margaret Sakai

That is outstanding, the [$205 million], and that maturity is in 2018 with non-call for four years.

Mike Chu – Deutsche Bank

Okay. So there's no way to repay that earlier than the call date?

Margaret Sakai

2014. So we issued in 2010, so, 2014 is the year we can consider.

Mike Chu – Deutsche Bank

Okay, great. Thank you.

Sang Park

Thanks, Mike.

Operator

Your next question comes from the line of C.J. Muse, Barclays.

C.J. Muse – Barclays Capital

Good afternoon. Thank you for taking my question. I guess first question, specific to your foundry business, can you talk about I guess the visibility you have today to your customer demand and how that will factor in to how you run your utilization in Q1, Q2?

Sang Park

The Q4 was slightly higher than 90% and Q1 we expect just below that number. And obviously we do have 12 months rolling forecast from customer, but also that's subject to change. We're looking at year-to-year and it looks pretty healthy.

C.J. Muse – Barclays Capital

Got you, very helpful. As a follow-up, I guess a question on your prepared remarks, I believe I heard you talk about top two mobility customers growing 35% year over year in Q4, and I guess I'm trying to understand, you know, your foundry business was up 65% year over year, and so I guess, are you including display within that number as well? Any clarity there would be helpful.

Sang Park

So, any display related foundry show up in our Display Solutions business.

C.J. Muse – Barclays Capital

Okay. So the number you're reporting was in aggregate, okay.

Sang Park

Yes.

C.J. Muse – Barclays Capital

Great, very helpful. Thank you.

Sang Park

Thank you, C.J.

Operator

Your next question comes from the line of Nick Gadios, UBS.

Nick Gadios – UBS

Yes, hi. Just a little bit of a follow-up on the prior one, maybe if you could clarify how should we look at direct and indirect exposure to Samsung and Apple respectively and how this is balancing. I mean my guess would be that mix has changed from last year, in particular your AMOLED presence has gone up. So, any color to there would be very useful. And I've got two follow-ups. Thank you.

Robert Pursel

Okay. So, Nick, you're asking what is our direct and indirect exposure to Samsung and Apple and how --

Nick Gadios – UBS

Right. You said before it was 40% also, right? So, how has that changed? How do we look at Apple versus Samsung? Is Samsung bigger considering your ramp-up in AMOLED last year? Thank you.

Sang Park

We -- it's over 2012, maybe our exposure to company maybe close to 46%, 47% -- and what was the other question?

Robert Pursel

Apple versus Samsung mix, has it changed? With AMOLED, is it more Samsung --

Sang Park

You know, that's interesting question. When you're looking at these two leaders, their new product introductions start off not synchronized and we really appreciate that. So, you know, two company taking turn and bring the new product definitely is going to help us, if that is any help for your question.

Nick Gadios – UBS

Okay. No [inaudible] but it meets my first follow-up which is your foundry revenue is down as you expressed it in Q1. Actually doesn’t necessarily look that bad if we consider that for instance UBS forecast iPhone units down 21% q-over-q in the March quarter. What is coming into your foundry products or new customers or anything like that which actually allows you to offset the well-publicized Apple-related decline?

Sang Park

You know, we do have definitely the major customer in our foundry business, but also we're still well-diversified, not only smartphone and tablet PC, and therefore when a customer demand is sort of reduced because of short inventory correction, and we can use another customer demand and able to fill the fab. So that's the company's strength of being diversified.

Nick Gadios – UBS

Okay. And I guess what I was going about is, is any of the Samsung related exposure in foundries in Q1 effectively growing and offsetting the Apple-related year-over-year decline?

Sang Park

In the Foundry segment, Samsung-related business still is relatively smaller than the other company.

Nick Gadios – UBS

Okay. Great. Perfect.

Sang Park

-- grow second half.

Nick Gadios – UBS

Okay, got it. And just one point of clarification on what you said before, when you talk basically about your growing -- your DC to DC exposure for smartphones in Samsung in H1 2013, that's AMOLED, right, specifically?

Sang Park

Well, we mentioned that there are also power amplifier DC to DC and we are working with them on LED backlight. So it's more than one product for the Korean company smartphone applications.

Nick Gadios – UBS

Right. Perfect. Thank you very much.

Sang Park

You're welcome.

Robert Pursel

Thanks, Nick.

Operator

[Operator Instructions]. Your next question comes from the line of Jay Srivatsa, Chardan Capital Markets.

Jay Srivatsa – Chardan Capital Markets

Thanks for taking my questions. Congratulations on good numbers, Sang and Margaret. The question I had, Sang, your power [management] business has definitely declined as you increased your exposure to the power -- PMIC business. As you look at fiscal '13, what are your expectations in terms of continued growth in the PMIC side?

Sang Park

Our mass spec business is not shrinking, we're expecting will increase into 2013, but obviously our expectation is power management IC is going to outgrow by far the mass spec. So, our company commitment to the customer is we want to maintain mass spec business, but at the same time we want to increase power management IC. And in my statement, I said that power management IC, in addition to TV backlighting controller and now we're working with a smartphone application, also we started power management IC for SSD. As you know, it's a humongously big potential market and we have two leading DRAM maker -- I mean the flash maker, [NAM] flash maker in Korea. So we have a design-in into one, working with the other one. So that will be a really good opportunity once we complete it. And also LED lighting is continuously we had very sizable revenue second half of 2012 and now we have a product available for the open market and we expect that this is going to generate additional revenue.

So it's not just single product in PMIC, some multiple markets and multiple applications and multiple products, and that's why we have a very good hope. And also [super-junction] mass spec we do have a lot of design into Korean markets and Chinese markets and working with a Taiwanese customer we have a very high expectation. And also our -- the high-power module is going well. So all those add up as a non-mass spec business, we expect that we're going to have one other good year for the power in 2013.

Jay Srivatsa – Chardan Capital Markets

All right. One of the players in your space, [Diodes], made an acquisition of a Chinese company in the power management side. What are your thoughts in terms of competitive space in China given that acquisition by [Diodes]?

Sang Park

We've never done any comparison to BCD. I don’t believe we consider them as a competitor. So in that BCD market, obviously we have no data that we can share with you. But definitely China is a big market and we mostly penetrate into industrial application customers. I don’t believe BCD have. And so we're not really concerned about [Diodes] acquiring BCD. It's of completing our product on time and bring the satisfying service to the customer, that's probably more challenge for us.

Jay Srivatsa – Chardan Capital Markets

All right. Last question, on the display side, I think it looks like the display revenues appear to be doing really well for you, and you've guided for some modest increase. Is it coming off the continued success of some of the products from your large customer in Korea or some of the products that are coming up for launch that I think is expected in the next quarter or so? What is driving your demand for displays in Q1?

Sang Park

It's AMOLED driver for the cell phone -- smartphone I should say.

Jay Srivatsa – Chardan Capital Markets

Okay. Thank you.

Sang Park

You're welcome.

Robert Pursel

Thanks, Jay.

Operator

Your next question is a follow-up question from the line of Terence Whalen, Citi.

Terence Whalen – Citigroup

Thank you for taking the follow-up. This one is regarding the foundry business, obviously had significant success in foundry in 2012. The question is a little bit of a broad-based question, as we look into 2013, will growth in the foundry business be driven by higher volumes at existing customers or will it be driven by new additional customers? How do you see growth in the foundry business changing in 2013 versus 2012?

Sang Park

What we're looking at possibly is growth from existing customers first half compared to 2012. Second half I expect there are a number of new customers and it will not be very heavy volume but it's a sizable volume, but number of customers, that's our expectation for the growth in second half of 2013.

Terence Whalen – Citigroup

And then, Sang, can you update us on the success that you've had in terms of migrating some of the newer foundry customers, some of the higher-margin processes, can you give us a feel for how that's progressing? Thanks.

Sang Park

It is a very customer-specific question, but obviously we are shifting customers more to European and US customer, and that progress is well-made.

Terence Whalen – Citigroup

Terrific. And then my last follow-up was on the tax line. Can you help us understand how we should be modeling the GAAP effective tax rate out into 2014? Just trying to understand at what point should we begin stepping that up. And also just in general where we stand with the NOL today. Thanks.

Margaret Sakai

Okay. You know, towards the end of 2012, our NOL balance is approximately $280 million, and further, cash tax expenses is going to be still between $10 million to $15 million. The deferred tax asset is one of reconciliation items to calculate our adjusted net income. So, no impact on our earnings per share, adjusted earnings per share diluted calculation.

Robert Pursel

So, Terence, the best way to look at it is if you're looking for a rate to use for modeling purposes, I think Margaret feels comfortable with still going with 10 to 15 per year for taxes.

Terence Whalen – Citigroup

Into 2014, is that correct?

Margaret Sakai

Yes, correct.

Terence Whalen – Citigroup

Okay, great. Thank you.

Sang Park

You're welcome.

Operator

Your next question is a follow-up question from the line of Raji Gill, Needham & Co.

Raji Gill – Needham & Co.

Just on the taxes real quick, you're saying, Robert, 10% to 15% tax rate or $10 million to $15 million of cash taxes for you?

Robert Pursel

Yeah, dollars, dollars. There is no tax rate. So, $10 million to $15 million.

Raji Gill – Needham & Co.

Okay, all right. And Sang, you talked about adding some new foundry services for the touch business related to some Korean customers. I was wondering if you could maybe elaborate on that and kind of your foray into the touch market.

Sang Park

The market expect that there will be solid growth in mid to low end of smartphone. And obviously, Korean company is leading into that market and worldwide, and obviously they're looking for the local supplier, except one. And most of Korean touch -- the fabless company using our [inaudible] technology and the forecast we're receiving and some of them will be successful and ramping up their volume in second half. That's what I was referring to.

Raji Gill – Needham & Co.

Okay. Thank you.

Sang Park

You're welcome.

Operator

Your next question is a follow-up question from C.J. Muse, Barclays.

C.J. Muse – Barclays Capital

Thanks for taking the follow-up. I guess, could you provide any granularity in terms of mix-wise on the display side between where you were in terms of AMOLED traditional TFD and maybe quad HD last year versus what you expect this year? And then as part of that question, given that mix shift that will likely happen, do you think you can get display gross margins in excess of 30% at some point this year?

Sang Park

Since the customer concentration is there for AMOLED, we're not sharing any gross margin numbers in that area. But obviously it is higher than average TFD gross margin, that's as far as I can say.

And what was your first question, C.J.?

C.J. Muse – Barclays Capital

Just trying to understand the mix shift between traditional TFD and I guess higher-quality, higher-ASP AMOLED or quad HD.

Sang Park

Okay. We don’t do a whole lot of TFD mobile driver. We only do now in volume AMOLED, so which is definitely high-definition. And I'm sure they will bring up ultra-high-definition smartphone sometime this year too. And I hope that we will be there with them.

C.J. Muse – Barclays Capital

Okay. One last question, can you talk about the competitive environment on the foundry side? And here I'm particularly interested in your thoughts on [SK Hynix] talking about becoming a foundry supplier, CMOS image sensors and other. Is that a threat that I guess -- on the roadmap or something that is not concerning?

Sang Park

Definitely we're not doing any CMOS imaging sensor foundry. We're completely out of that market a long time ago and as one of our restructuring. And they're not really in open foundry market and they're also, as far as I know, they're more into leading-edge technology and we are more into analog and mixed signal. So as of today, there is no crossover.

C.J. Muse – Barclays Capital

Very helpful. Thank you.

Sang Park

You're welcome.

Operator

Your next question is a follow-up question from the line of Jay Srivatsa, Chardan Capital Markets.

Jay Srivatsa – Chardan Capital Markets

Thanks for taking my follow-up. Just a couple of housekeeping ones. Were there any 10% customers? And if so, what percentage was it in Q4?

Sang Park

I think that we only -- yeah, go ahead.

Margaret Sakai

We do have only one, you know, the customer that is, you know, revenue is 10%, you know, greater than the 10% of total company revenue.

Sang Park

And they're a Korean customer.

Jay Srivatsa – Chardan Capital Markets

Okay. And then in terms of stock repurchase, it looks like you've continued the program in Q4. What are your plans in fiscal '13 in terms of stock repurchase program?

Margaret Sakai

We still do have, you know, remaining $20 million, the balance that, you know, [inaudible] the approval. So as we did, you know, ongoing basis, we will review and then do it at proper execution.

Jay Srivatsa – Chardan Capital Markets

Okay. Thank you.

Robert Pursel

Thanks, Jay. You're welcome.

Operator

Our final question is a follow-up question from the line of Ross Seymore, Deutsche Bank.

Mike Chu – Deutsche Bank

Hi again, this is Mike Chu for Ross. Just a quick follow-up, for the OpEx guidance, just wanted to clarify, did you say it was $42 million to $45 million for the first quarter? And I'm assuming that includes amortization.

Margaret Sakai

Yeah. What I meant was, you know, between the $40 million to $45 million, depending on the number of our R&D projects for, you know, going forward. And also it is including amortization too.

Mike Chu – Deutsche Bank

Okay, perfect. Thanks.

Robert Pursel

Thanks, Mike.

Operator

There are no further questions at this time. I would like to turn the call back over to Mr. Robert Pursel.

Robert Pursel

Okay. Thank you, [Hope].

So in closing, what I'd like to say is that our next earnings release and conference call is scheduled for April 30, 2013. So please look for these details and others for other upcoming financial events on MagnaChip's Investor Relations website at www.magnachip.com. So thank you for joining us today.

Operator

This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: MagnaChip Semiconductor's CEO Discusses 4Q2012 Results - Earnings Call Transcript
This Transcript
All Transcripts