Semiconductor manufacturer Magnachip Semiconductor (NYSE:MX) reported Q4 CY2024 results topping the market’s revenue expectations, with sales up 24% year on year to $63.04 million. On the other hand, next quarter’s revenue guidance of $44.5 million was less impressive, coming in 18.7% below analysts’ estimates. Its non-GAAP profit of $0.07 per share was significantly above analysts’ consensus estimates.
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Magnachip (MX) Q4 CY2024 Highlights:
- Revenue: $63.04 million vs analyst estimates of $61.57 million (24% year-on-year growth, 2.4% beat)
- Adjusted EPS: $0.07 vs analyst estimates of -$0.19 (significant beat)
- Adjusted EBITDA: -$2.64 million vs analyst estimates of -$5.9 million (-4.2% margin, 55.3% beat)
- Revenue Guidance for Q1 CY2025 is $44.5 million at the midpoint, below analyst estimates of $54.76 million
- Operating Margin: -25%, up from -31.4% in the same quarter last year
- Free Cash Flow was $4.43 million, up from -$7.50 million in the same quarter last year
- Inventory Days Outstanding: 59, down from 64 in the previous quarter
- Market Capitalization: $150.3 million
Company Overview
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
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Magnachip’s demand was weak over the last five years as its sales fell at a 18.3% annual rate. This wasn’t a great result and is a sign of poor business quality. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Magnachip’s annualized revenue declines of 17.2% over the last two years suggest its demand continued shrinking. 
This quarter, Magnachip reported robust year-on-year revenue growth of 24%, and its $63.04 million of revenue topped Wall Street estimates by 2.4%. Company management is currently guiding for a 9.3% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 9.4% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and suggests its newer products and services will fuel better top-line performance.
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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 59, which is one day above its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.
Key Takeaways from Magnachip’s Q4 Results
We liked that were impressed by how significantly Magnachip blew past analysts’ EPS expectations this quarter. We were also excited its adjusted operating income outperformed Wall Street’s estimates by a wide margin. On the other hand, its revenue guidance for next quarter missed significantly. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 1.2% to $4.10 immediately after reporting.
Magnachip may have had a good quarter, but does that mean you should invest right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
