Magnachip Semiconductor Corp (MX) 2007 Q1 法說會逐字稿

Welcome everyone to MagnaChip's First Quarter 2007 Results Call. Joining us today from the Company are Mr. Sang Park, the Company's Chairman and CEO, and Mr. Bob Krakauer, President, along with Ms. Margaret Sakai, SVP, Finance. After management's prepared comments, we will have time for any questions. If you have not yet received a copy of today's release, please call 646-536-7003 at the Ruth Group, or you can get a copy of the release off of MagnaChip's global website www.magnachip.com.

Before we begin the formal remarks, the Company's attorneys advised that this conference call contains statements of future events and expectations which are forward-looking statements. Any statement in this call that is not a statement of historical fact may be deemed to a forward-looking statement that involves 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, anticipants, 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 declines in average selling price, delays in new product construction, continued success in technological innovation, 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 SEC filings, including its annual report on Form 10K for the period ended December 31, 2006.

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.

At this time, I would now like to turn the call over to Mr. Park; please go ahead sir.

Thank you (David); thank you everyone for joining on today's call. Before I begin I would like to welcome Margaret Sakai, our Senior VP of Finance onto her first call. Margaret will be reviewing MagnaChip's financial highlights for the quarter.

The first quarter developed as expected with no major surprises. Most importantly, we continued to make progress in returning MagnaChip to the revenue growth we are capable of achieving. Since I joined the Company last year, we have focused on rebuilding MagnaChip's capabilities by improving customer relationships, product development execution, and, of course, functional teamwork. As a result, we expect our business to recover from Q2 with our (inaudible) already showing improvement as of today.

We expect our core foundry business to grow steadily through 2007 from new product-driven revenue in some key market segments because of how management and display driver that is expected to favorably influence the business results throughout the remainder of the year with the potential of additional upside in case of other market recovery.

We are also encouraged with the level of design wins and customer activities in our display solution business. We are expanding market share to increase business for the current strategic accounts as well as in new customer additions.

Further, our product we are shipping LTPS and OLCD technology has continued to strengthen to position us well to participate in wins applications going forward.

In our Imaging Solutions business, as announced for the first quarter, our (inaudible) has extended its walls to include a Manager of Imaging Solutions business, and he is striving to improve execution to achieve the expected performance of our product line.

Overall, we expect continued improvement in 2007. Our business model has significant upside as we fill our fabs with new customers and products going forward. We are seeing a high level of customer activity from our sales pipeline, which we expect to convert to actual revenue opportunity for MagnaChip.

Our core business remains strong and we have financial resources needed to continue execution of our business strategy.

Now I would like to turn the call over to Margaret for a review of our financials.

Thank you Sang. Net revenue for the 3 months ended April 1, 2007 was $151.8 million compared to $162.3 million in the fourth quarter of 2006. This is a decline of 6.5% from prior quarter, but better than our prior guidance.

Average selling price erosion from quarter 4 2006 to quarter 1 2007 was approximately 4.9% for display driver ICs; 18.5% for CMOS image sensors based on a shift in mix to small form factor VGA products, and 5.2% in our wafer foundry business.

Revenue by segment for the quarter was $58.9 million from Display Solutions, $11.8 million from Imaging Solutions, $57.8 million from Semiconductor Manufacturing Services, and $23.4 million from other. Display Solutions revenue increased 0.6% from the prior quarter, slightly higher than our expectations.

Imaging Solutions revenues decreased 7.9% from the prior quarter, primarily due to ASP erosion. Semiconductor Manufacturing Services revenue declined 6.2%, due to a combination of ASP erosion, typically lower seasonal demand, and industry corrections in the analog and the (inaudible) areas of our foundry business.

We are still targeting a return to growth in SMS in the second quarter of 2007 as we benefit from a series of initiatives and the addition of new customers.

Revenue by geography was 66% from Korea, 18% from Greater China, 5% from Japan and 11% from rest of world.

Revenue by end market for the quarter was 27% from computing, 14% from wireless, 14% from consumer, 1% from industrial and 44% from wafer foundry. Our wafer foundry business is further broken down as 30% from computing, 17% from wireless, 49% from consumer and 4% from industrial.

In the first quarter we had one customer greater than 10%, and the top 10 customers represented 71% of total revenue.

Gross margin was $14.9 million, or 9.8% of revenue for the quarter ended April 1, 2007, exceeding our prior guidance. Operating expenses were $57.8 million, or 38.1% of revenue in the first quarter.

R&D expense in the first quarter was $35.1 million, or 22% of revenue, compared to $29.9 million, or 14% of revenue in the year-ago period. We had an increase in spending on R&D (mass) and wafers during the quarter, due to the increase in the introduction of new products versus the prior year's quarter. However, quarter 1 R&D expense was essentially flat compared to quarter 4, 2006.

We had an operating loss of $42.9 million during the quarter compared to loss of $11.1 million in the prior year's first quarter.

Net interest expense for the first quarter was $14.4 million, compared to $14.7 million in the first quarter of 2006. Other non-operating income is comprised of the net effect of currency gains and losses during the period. Most of these currency effects are non-cash impacts of outstanding inter-company debt.

Net loss for the three months ended April 1, 2007 was $67 million compared to a loss of $45.6 million in the prior quarter. Depreciation and amortization expense was $43.9 million, or approximately 28.9% of revenue in the first quarter.

EBITDA for the first quarter was ($1) million, compared to ($6.2) million in the prior quarter. While EBITDA is not defined by Generally Accepted Accounting Principles, it is commonly used to measure a company's ability to service debt. Our current revolving line of credit of $100 million has financial covenants linked to EBITDA performance. We were in full compliance with these covenants at the end of the first quarter.

Headcount as of April 1, 2007 was approximately 3,468. This is a 9% decrease from one year ago. Capital expenditures for the first quarter were $8.4 million, versus $14.2 million in the year-ago quarter. We expect CapEx will be approximately 10% of the revenue in 2007. Total available cash and cash equivalents were $69.3 million as of the end of the first quarter.

Accounts Payable days were 60, consistent with 60 in the fourth quarter of 2006. Accounts receivable net of reserves was ($18.7) million at quarter end, an increase of $4 million from the fourth quarter. Our accounts receivable days of sales outstanding were 48 in the current quarter, compared to 43 days in the prior quarter, due to an increase in AR accounts from strategic accounts. We expect AR days to be higher going forward than they have been in the past as a result of this change.

Inventory days of supply were 46 compared to 36 in the prior quarter. Net inventory was $69.4 million, compared to $57.8 million in the prior quarter. Inventory increase in quarter 1 due to higher resellers in line with (inaudible) to revenue growth.

Now let me turn the call over the Bob.

Thank you Margaret. We have laid the groundwork for our recovery with the customer-oriented R&D investment, process improvements, and execution invigoration over the past several quarters. As a results, we expect revenues for the second quarter of 2007 to growth by 10% to 12% versus Q1. Please note that we've changed our guidance approach and will only provide revenue guidance 1 quarter out for the Company as a whole. We will no longer provide guidance for individual business lines and gross margin.

Over the past several weeks, I've met with nearly all our Imaging Solutions employees and key customers worldwide. Much of the feedback was positive, but we need to do more. We made the move the change the direction of our Imaging Solutions' leadership in order to improve its operational tempo and increase coordination of the unit amongst its global elements. We've made changes to our product roadmap and in personnel over the last year and in the first quarter of 2007. We expect to give MagnaChip an even stronger competitive position as we navigate the normal fluctuations inherent in the design cycle.

At the same time, Imaging Solutions is behind versus the original plan for 2007. In particular, while we are shipping our 1.3 and VGA products to key accounts, we expect to continue to grow this business throughout the year, we are still making final revisions and working together with customers to bring our 2.2 micron pixel-based, 2.1 megapixel products, as well as our 3.2 megapixel EDoF products to market.

We continue to believe in the potential of these and other products in our roadmap and expect to achieve our revenue targets for this business, but now believe that the products will be achieved 1 to 2 quarters later versus the original plan.

In my new role, my key focus is improving on the timing and execution of our product introductions. To help in this efforts, we have focused the unit on accelerating its pixel roadmap, our 3.2 digital auto focus imagers, packaged products to the China market, and mass production ramps of our 1 and 2 megapixel-based products.

More broadly speaking, we expect to see continued improvements in the overall business in 2007. Our factory utilization was 74% in the first quarter and is steadily rising into the second quarter. The leverage of this increased volume will significantly help improve our cash earnings. Our fabs remain a growth driver for us, allowing us to provide customized processes based on our large intellectual property base.

Additionally, we are hitting key milestones in our large display business with new design wins; our foundry business continues to have strong customer relationships, and to be well positioned to benefit as the consumer products market improves throughout the year. All the employees of MagnaChip are focused on improving our operating performance and resulting financial results in the remainder of the year.

Thank you for your continued interest in MagnaChip and Operator that concludes our prepared remarks. We can now take any questions.

(OPERATOR INSTRUCTIONS). Rob Hopper, UBS.

Thanks; I guess first thing just Bob on the last thing you were mentioning in terms of utilization until we get that out of the way; where were you for the full year in the quarter?

At the end of Q1, our utilization rate for the Q1 was 74%.

Seventy-four percent; where should we be looking for that to trend over the course of Q2?

Along with obviously revenue increase, we expect that to go up into the low-80s.

I guess on the first page of the release, you talk about " pleased with the level of design wins and customer activity"; can you put a little bit more clarity into that, specifically by some of the different business units, talk about the foundry display driver side as well as know there's a slowdown on the image sensor side but where's your progress to date? Can you give us just a little bit more explanation what's going on there?

Well Sang, do you want to start with the rest of the business?

I can clearly hear you but, hello?

Yes Sang, do you want to answer that question for Rob?

We didn't hear the question. So can somebody repeat the question?

Rob wants some detail on the design wins by business.

Design wins of what business?

Each element.

Obviously we can give you by numbers, but it's more broader, such as a large (PDI) and not only winning new design wins but also we are adding the new customers within the country and outside of the country, and small PDI very active, with again that our design wins with existing customers as well as the new additional customers. And imaging business, the same thing. And that extends also to foundry business, we are winning the new projects and new customer requirements of the existing customer and also we're earning the new customers.

So that's sort of overall and broad activities that we have seen.

And to round that out -- this is Bob -- the ISP business also we expect growth Q1 to Q2 is embedded in our guidance. Additionally, we are reducing our foundry business that is in the other category quarter-over-quarter, so our actual, our internal businesses, our SMS as well as standard products businesses are actually drawing it faster.

So if we were looking at the full (inaudible) for next quarter, we should assume that the (inaudible) goes down where the (CIS) show modest growth but display driver and foundry is where you see a little bit stronger growth?

Correct.

I guess specifically on the display driver side I was soft of surprised to see the flat line in what is typically a seasonally weak quarter. We've heard some very good comments since from the industry in terms of demand, but at this time last year we were also hearing similar things. I guess, any concerns on your part in terms of inventories in that part of the business, how the OEMs are managing their business right now?

Which part are you referring to Rob?

The display driver side.

We don't see inventory problems. That was the case a couple of quarters ago, and we were shipping product to the customer and then steadily grow, and I don't see any inventory problems from our large and small display customers.

And since this is a new, most of the revenue coming from new design wins, then we expect that it's going to grow into next quarter and quarter after.

So these are actual design wins; are you in production for this already or is this something --?

Yes, that's one of the reasons that our fab is getting full.

Just to add some color to that Rob, what we have is we have design wins that have transitioned for small display into the cellular market versus our traditional strength in gaming on some advanced phone handsets and additionally in large DDI as the industry has gone through the transition HD and 4HD panels, the design wins we have there are for some of the higher-end TVs helping fuel our growth.

What do you as, and I'll turn it back to you after this, but this seems to be an increasing area of growth for you throughout the past year or so everyone is focusing on the sensor business. It seems like this is an opportunity for you that is almost really more growth opportunity over the near term the image sensor side. We've talked about the image sensor at the (inaudible); can you frame sort of what is going on with the display driver side specifically in terms of what this opportunity could be from new revenue perspective there?

We're having a problem hearing you. Can you try to answer and then I hear more clearly of your voice. And then I'll make corrections if I need to.

Sure, so Rob to reiterate your question is what's going on and the size of opportunity for display driver IC; The display driver IC business is almost 2 to 3 times larger than our CMOS sensor business, so it has had significant growth. Part of that is the result of our technology introductions in the small display side that is (inaudible) acquisition as well as very good (inaudible) by our small DDI engineering team, and in large refresh that pipeline as we talked about previously and we're now seeing the results of the good work over the last year.

So then adding to that then, what I did after I joined the Company I focused on display driver business first, and we in turn improved the customer relationships and new product introductions and that really strengthened our business and winning the new design wins. And then our focus was the foundry and now Bob is talking about our CMOS imaging sensor business. So over time of our year and then obviously can't do them all but we're able to handle them step-by-step and that's the result you will see.

Going forward, and years from now, obviously I see more equal contribution by display drive and CMOS imaging sensor and foundry business as well.

Jeff Harlib, Lehman Brothers.

Hi, could you talk a little bit more about the foundry business (inaudible)? Can you hear me? Hello? Yes, could you talk --.

Eric Reubel, Miller Tabak Robs.

Gentlemen thank you for taking my call; if I can ask you a question about the foundry segment first; I know you talked about that segment looking like it's going to grow throughout the year. If I look at sort of the broad piece of analog market that was integrated, manufacturers that may not necessarily be customers, but those guys have seen revenue declines in the 5% to 10% on a sequential basis for the past 2 quarters while MagnaChip's revenue on the foundry side is down by a much higher percent. How does that business come back over the next couple quarters? If you can help me understand; is it proprietary designs that will ramp up more quickly, or is there, are they more overflow designs that could take longer to ramp; up as customers work down higher days of inventory?

That's really a good question; actually the reason that we were down more than market in fourth quarter and the first quarter is because we had an issue with the overflow season. And now we have our confidence and we see strong sign of steadily into second quarter and beyond and because of our own primary position with our customer. And so that's the new design wins, and also we've been working with additional customers over last about 12 months, and that is paying off so we get some new customers as well. Does that answer your question?

So you've been, you talked about new customers that been qualifying over the past 2 to 3 quarters; can you give (frame) expectations around how you think customers will start to ramp up?

It's not only 1 or 2; some of them already started and some of them will begin next quarter, and I think the next 3 to 4 quarters, we have a (spate) of new customer actually we starting shipment. So it's not 1 or 2; we're looking at 6, 7 new customers. And they are global and very well-known customers.

Thanks for that color, and then can I touch on the display, sorry the image sensor business quickly; can you give any more color on the 2.0 product, what happened, how you see that playing out over the next, the remainder of the year? I understand you're pushing out (Program) and it's ramping slower than expected.

No, we actually, we've gone through a second revision on the 2 megapixel products, and we're working with customers to introduce that this quarter. It's just our belief that certain design windows on some of the phones closed earlier in the year, so it's just a matter of timing. We still feel very confident about the performance of our pixels as well as our phone architecture. So the (inaudible) approach we've taken behind in the market we think is going to have a very high (inaudible). We're just (inaudible) those into phone so it's just a matter of timeline.

Okay and then lastly if I can just ask one more on the LCD business; LG Phillps mentioned on their call the introduction of a new lower-priced panel for this year; they were very optimistic about potential units for that particular product. Could you give us some color on what (inaudible) price reduction; you talked about ASP erosion in display drivers being relatively good for a Q4 to Q1 transition. Are you involved in that particular design that they talked about?

Sorry that we can't disclose but we are one of the major driver suppliers for (LTL) so that's all I can say. The driver business is a very competitive business and we know what is our challenge; cost reduction is really key, and we have to continuously shrink our technology, and one of the strengths we have in this business is we have our own fab compared to some of our competitors who has to go to foundry supplier and obviously we don't have to do it. So in that case, I think that we can pick up this challenge of market and still continue to perform better than our competitor. So that's one of our strengths.

Okay thank you gentlemen.

Jeff Harlib, Lehman Brothers.

Okay, can you hear me this time? Hello?

Yes we can hear you Jeff.

Oh good, thank you; okay, you talked before about when you would fill up the fab mid-2007. How does that look now in terms of CapEx for the year, and you mentioned that the Hynix business will start to trend down. When do you see that, do you see that going down to zero, and how do you see your utilization in the next quarter?

Our CapEx profile for the year has not changed. It's as expected, and so far the year is playing our we planned. Hynix, our support of Hynix for their needs will continue as we can support them. It's a good win/win relationship, but we do expect that their market requirement will eventually trend down on the designs we support them on.

Okay and on pricing across 3 businesses, can you talk about trends there? And I know you're not giving gross margin guidance, but maybe you can talk a little, other than volume some of the things that could impact your gross margin in Q2?

Yes, relative to gross margin, we expect that we are going to get, the biggest impact will be the positive impact of volume leverage in the fabs. Additionally our cost improvement activities do continue but are being offset by ASP erosion in some tough consumer markets.

Sang do you have any follow-on comments on that regard?

No not much, but going back to the Hynix supporting business, it's not only Hynix, the product you mentioned also our fab is getting full, and so we have little room for support. And that's one of the reasons that we see this business is going away.

Okay and just back on the image sensor business Bob, I know that you expect to ramp you said 1 or 2 quarters later. What is your, in other words what is going to drive revenues over the next quarter of 2? Is it the 1.3 megapixel products in VGA? I'm just trying to get a feel as to how you're seeing that ramp?

Yes, we have several major design wins that are ramping for us. We actually expect a good percentage growth rate Q1 to Q2; it's on our 1.3 megapixel SVGA product, as well as we have introduced packaged product supporting the Taiwan and China markets, and those are all 3 of those are ramping for us as we move forward from Q1. Those are confirmed design wins.

Okay and with foundry, can you talk about how you see the market, I mean you mentioned there's, certainly you're bringing on new customers and previously you talked about some of your customers having market share issues or specific issues. Can you just update us on that and on how you see your foundry customer demand generally?

We don't see any market recovery from our foundry customers. The reason that, again, that we're steadily growing in that business is because of new design wins. But obviously overall, that customer is saying to us that our third quarter looks good, but second quarter we see it stable but not recovering yet.

You want to say something else Bob?

Yes I think the biggest thing we saw in our foundry business was you've got to remember our foundry business is concentrated in analog power as well as for other display drive IC companies, and all 3 of those areas did have a significant inventory position as they exited Q4 that they burned off in the first quarter, so we had a little bit of an inventory cycle where we're getting positive momentum and we know we had a one-time issue in prior quarters that we've worked through. So we've got both recovery to normal production levels, as well as the positive impact of new customers being added to the portfolio over the last year of hard work on that regard getting new customers in the pipeline. So we've got a good natural growth rate moving both from market share gain as well as recovery from the inventory burn off impacting foundry.

Okay good, thank you.

Guy Baron, Credit Suisse.

Hi, just a few clean-up questions here for me. Just on the image sensor front Bob, do you still feel comfortable with sort of some of the revenue levels you've talked about previously, just that now the timing is being pushed out?

Yes, I believe the market potential for our products in this area is still significant; it's just a matter of when we hit those numbers exactly. I think if you look at kind of the share of market, some of these potential wins are quite large potential, even with what I call minimal market share pick-ups.

Okay, and then looking to Q2, you put out the guidance of 10% to 12% sequentially in terms of growth. What is that specifically, and again I know you can't get in to customers but what specifically is that predicated on within each one of the businesses and given the way we are in the quarter, what could change that one way or another?

Well, as we stated in the call, we're preferring not to give guidance by unit. We're very confident with the revenue guidance that we gave based on our order backlog. We don't feel like there's lots of risks. Our order backlog is significantly improved with where we're at today versus where we were at the same time the prior quarter, so the order book is actually stronger than it's been this same time in a quarter versus how it's been the last several.

So we see a strengthening order pattern from customers as they re-engage into 2007.

But I would say that the (inaudible) is not only in 1 business, all 3 businesses.

Okay, and maybe in general terms, and again I know you don't want to get margin guidance, but how should we think about the correlation between gross margins and that revenue ramp at least in terms of a sort of a directional magnitude?

Well, I said in my statement that as our fabs get filled, and obviously cost gets lower and it's helping our margins, so we're expecting it is improving, but Bob do you want to add anything else?

Yes, I think it's a matter of kind of a (falter) rate on revenue. We have a fairly high fixed cost structure and I think historical models (didn't) portray well to future models. We don't plan on significantly building our cost space; we're making pretty aggressive R&D investments, there shouldn't be too material a change from where we've been. And I think we'll have a very healthy falter rate in some revenue down through cost of goods sold.

Okay on the working capital front, which you clearly burned some cash in this quarter, would you expect more working capital use as you continue to ramp?

I think the key issue for us is we had a significant customer change their AR terms, and so I think our increase in AR days is likely to be a permanent one moving forward versus where we've been historically.

All right, and then just on CapEx, is there a feel for how that's going to ramp to the percentage you talked about quarterly?

Yes we're expecting around $20 million to $24 million of CapEx in the second quarter.

Okay, but in coming out of the second quarter is there a sense of where you think cash may be exiting?

Yes obviously we have our models, but we don't give cash guidance.

All right, thanks.

Aaron Husock, Morgan Stanley.

Great, thanks for taking my question; I missed the very beginning of the call, so I apologize if you said this, but what were your imaging sales in the quarter, in Q1?

Yes, Margaret?

It is $11 --.

It is $11.8 million.

Okay great, can you talk about that unit mix between VGA and 1.3 megapixel in Q1?

We don't break that out.

Well if you were expecting 1.3 megapixel to ramp up significantly, I think it was last quarter you talked about 1.3 megapixel getting up to something on the order of 25% of unit in Q1 give or take. I mean if you talk about, do you come close to that or was it still --?

We are executing to our expectations relative to 1.3 megapixel.

Okay, okay your 3.2 megapixel auto focus product, can you talk about when that will be available for volume production and what initial customer interest has been like?

We are working with customers in the design cycle currently, and that will be worked out with them. But I'd rather not give a specific date, but those we actually have working silicon and it is being demonstrated globally this quarter.

Okay, but it sounded like we would see revenue from that in calendar 2007; that would be a 2008 event?

I have not updated guidance about when I expect that at this point.

Okay, can you talk a little bit about the general pricing environment in image sensors, and kind of break it out by the VGA 1.3 megapixel, 2 megapixel if there's a big difference?

Well, there's industry surveys where you can get that data but I don't intend to provide it on this call. But I think we give it for the overall ISD; I think there is differences, but I think the majority of them are related to different companies' mix shifts.

Would you say in general, image sensor pricing is as aggressive, was as aggressive in Q1 as it was in Q4? Did the pricing pressure erosion that up a little bit? Was it worse?

I think it was pretty normal for a first quarter, which typically has the most price erosion pressure, and it was what you would have seen historically for Q1 in this industry.

Okay, okay great, thank you.

Sundar Varadarajan, Deutsche Bank.

Yes, hi guys, thanks; Bob could you talk about, normally you guys give us fab-5 utilization as well; where was that at the end of the quarter?

About the same as the overall Company average.

So around 74?

Yes.

And what's your kind of optimal level of utilization? Is it around, in the low-90s or can it get to high-90s before you really have to start spending on CapEx?

No, I think optimal utilization is 100, so the number we're giving you is an operational number I think similar to some of the other industry benchmarks that are out there.

No, we spend CapEx as we need to expand and de-bottleneck and balance our lines on a go-forward basis. So as we previously discussed, as we are pushing down our geometries to .11 for our CMOS sensor line, we're investing in demand for that as well as our display driver IC business some of its most advanced designs are now at .13, so as that happens, we will invest to support that plus foundry customer requirements.

We expect the majority of that as we previously stated to be in the middle of this year; between Q2 and Q3 to be the most heavy investment really in advance of the production ramps we're expecting for the back half of the year.

Ladies and gentlemen, in the interest of time, please limit your questions to one per person.

(Scott Edelman).

Hi, thanks for taking my question; I was just kind of wondering if you could give a little bit more color on the inventory situation both in image sensors in general and in the end market for handsets. There's been a lot of talk about that as of late.

Can you say that question again?

Yes sorry; could you give kind of a little bit of an update on you had said there was excess inventory of image sensors in Q4 and you said that that was burned through in Q1; is that entirely burned through or do we still see some inventory sitting out there in the channel?

And then also from an end product perspective, there's been a lot of talk that there's still some kind of low-end inventory out there. Have you guys seen that?

Let me correct the first part of your question; I made a comment around analog and power relative to our foundry business, and that inventory being burned off; I actually made no comment relative to CMOS image sensor levels.

I actually don't see a large stack-up of CMOS image sensor inventory in channels or at customers, although there has been plenty of discussion in the public press around different inventory levels at different OEMs that I really can't comment about. But I don't think there's really an inventory issue relative to sensors as they are pretty unique design wins by account. So id not' really believe that there is an issue today.

Oliver (Corlett), (inaudible)

All right, thanks for taking my call. If I could just focus on the cash flows for a minute, you had in your covenant that you had with your I think fifth amendment to the bank agreement the big sort of bulge in CapEx in Q2. And then you had another amendment that allows that to roll over later into the year. What is most of the CapEx going to be focused on, and you said $20-odd million in Q2; does that imply a fairly big bulge further down the year?

Your characterization of it is consistent with our expectations. There's really been no change in the last couple quarters about what we expect for the year, and I stated earlier, the majority of the investment is for capacity at the .11 and .13 geometries as well as some 4 foundry customers to support the new design wins that we have.

(Eric Berry), Paragon Managers.

Hi guys, thanks for taking the call. I wonder if you can talk about your expectations regarding covenant compliance come the end of the second quarter, and if you're having any discussions around that with the lenders?

Our expectation is that we will be in full compliance of our covenants as we were first quarter and our bank creditor group continues to be extremely sensitive and we appreciate the access to the $100 million credit that have provided.

Keshan Long, Deutsche Bank.

Yes, it's Michael Lipsky from Deutsche Bank. My question is about the utilization. I believe the utilization last quarter was 59%, up to 74%. I'd asked the question last quarter about Hynix and if we look at a 74% number, what would utilization be ex-Hynix business?

I'm not sure that we want to provide you that information, but it is significant clearly being reduced the capacity we're using for Hynix.

Jay Kamani, Morgan Stanley.

Hi, last quarter we talked about image sensor revenues exiting the year at $150 million to $200 million run rate. Can you update us on what you expect that to be now?

No I can't and as I stated in the call, we're not going to do a specific business line guidance moving forward.

(David Gilson), (Brandies) Investment Partners.

Yes, I wanted to know on the covenant issue, I understand you're in compliance but are you, do you have the ability to draw the entire line at this point in time; do you anticipate that still? And also, can you repeat the answer to the imaging sales question? I couldn't understand the answer.

Yes, relative to the covenants we expect to be in compliance in the coming quarter as we were for the first quarter, and yes we have access to the full line.

Relative to the CMOS image sensor sales question, my response was that as I stated in the prepared comments, I gave color about where we were at relative to that guidance, and we don't plan on updating individual business units on a go-forward basis any further, as we frankly believe that it has caused undue attention to a small part of our business relative to the overall performance of our business. We're very pleased with our revenue guidance that we've given on Q1 to Q2 growth of 10% to 12% relative to many semiconductor companies, that's a very good growth rate, especially given the fact that in the same quarter, we're overcoming the reduction on the other revenue, which we expect to drop fairly significantly Q1 to Q2, and therefore our inherent growth rate is actually doing quite well as we're gaining share in some significant pieces of our business.

Ryan Watson, Stone Power Capital.

Hi can you hear me?

Yes.

Under your second lien indentures, what is the, what is your interpretation of the amount of first lien debt that you can put on the Company? I guess what I'm trying to understand is how big could you make your revolver now if you wanted to max it out, how much more over the 100 could you make it?

I think that's stated in the indenture. At this time, we don't plan on increasing the size of our line of credit. Frankly, we have never drawn upon it in a material way, and we frankly don't have forecasts that require that. That credit availability is going to be more than sufficient for our growth operating income the foreseeable future.

(Resash Patel), Credit Suisse

Hi, I just wanted to know whether the planned CapEx of $20 million to $25 million in Q2 was going to be dependent upon further design wins, actual design wins which lead to production?

Obviously, that would be the case, and given how close to timing that is, we do have design wins that support that investment today, but we obviously monitor that on a go-forward basis. Frankly, we've I think proven historically how prudent we are relative to CapEx. As you see in Q1, we actually came in again slightly less than our guidance on CapEx when we entered the quarter, so we continue to be conservative in husbanding our cash, and we will continue to do that. But we have some significant design wins that are supporting our revenue guidance on the second quarter and further into the back half of the year, and we're going to need to invest the process notes that I've discussed.

Thank you, I would now like to turn the call back over to management for closing comments.

Bob go ahead first.

All right, well thank you very much for your attention to the credit and the bonds, and we really appreciate everyone following MagnaChip; we appreciate that our performance this last quarter versus where we've been historically is challenged, but we're very pleased in the trajectory of our business and we're now seeing the results of the last couple quarters of hard work, and it's a pleasure to start to see that we've now hit the bottom or our performance and have a good growth story returning to MagnaChip.

Thank you everybody. Our management team in more confident in turning around this Company, and all the employees feel that the demand is coming and obviously more enthusiasm through the Company now. We thank you --.

(Audio ended).