Magnachip Semiconductor is a buy, Roth says

ROTH Capital Partners analyst Suji Desilva says Magnachip Semiconductor’s (Magnachip Semiconductor Stock Quote, Chart, News, Analysts, Financials NYSE:MX) decision to shut down its display business bodes well for its core business and shareholders.

Desilva, in a research report to clients April 8, maintained his “Buy” rating and price target of $6.00 on MX.

On April 8, Magnachip Semiconductor Corporation said it will shut down its display business by the end of the second quarter of 2025, following a unanimous decision by its Board of Directors. The company had previously explored strategic alternatives but was unable to reach a deal it deemed in the best interests of shareholders.

The closure includes liquidating Magnachip Mixed-Signal, Ltd. (MMS), the subsidiary operating the Display unit. The company will retain its Power IC business, formerly part of MMS, and continue operating it alongside its Power discrete business under Magnachip Korea. These two business lines will form the company’s core operations moving forward.

Magnachip has begun notifying affected customers and will maintain a small team to manage end-of-life Display product support. It will also evaluate options to monetize the remaining Display assets. The shutdown is expected to reduce annual operating expenses by 30% to 35%, excluding equity compensation, compared to 2024. Magnachip Korea will handle any remaining customer obligations related to EOL Display sales.

“It was an extremely difficult decision to shut down our Display business when considering both our valued customers and employees,” Magnachip CEO YJ Kim said. “However, our first priority is to ensure Magnachip’s long-term success by achieving consistent profitability and earnings growth in order to maximize shareholder value. Navigating the unpredictable macroeconomic headwinds will likely pose significant challenges to all companies over the coming few quarters.” He said the company’s strategic pivot to focus exclusively on Power discrete and Power IC businesses is designed to position the Company for a return to profitability.

“We aim to attain a quarterly Adjusted EBITDA break-even from continuing operations by the end of this year,” the CEO added. “We also believe that this will pave the way for positive adjusted operating income in 2026 and positive adjusted free cash flow in 2027.”

Kim said each of these targets will act as milestones towards achieving a goal in three years to reach a $300-million annual revenue run-rate with a 30% gross profit margin target.

“We call this our 3-3-3 strategy. Magnachip’s Power discrete and Power IC businesses generated $185-million in revenue in 2024, up 13% from 2023, and the Company expects mid-to-high-single digit revenue growth in 2025.”

Desilva said the move will be a big boost to the company’s ledger.

“MX emphasized a go-forward focus on its pure-play power semiconductor business and reaffirmed standalone power business growth and profitability guidance. We expect MX to benefit from increased focus on its core power semiconductor product offerings,” he wrote.

Desilva said MX will post an EPS loss of $(0.66) on revenue of $197.0-million in fiscal 2025. He thinks those numbers will improve to an EPS loss of $(0.32) on revenue of $210.0-million in fiscal 2026.

“We specifically model CY25 power semis growing +mid- to high-single digits y/y, with 35%-40% reduction on operating expenses related to display, driving a trend toward adjusted EBITDA breakeven exiting CY25,” Desilva said.