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.
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