Magnachip Semiconductor Corp (MX) 2013 Q2 法說會逐字稿

Good afternoon. My name is Lacey, and I will be your conference operator today. At this time, I would like to welcome everyone to MagnaChip Semiconductor's Q2 2013 Financial Results 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.

Thank you, Lacey. Good afternoon and thank you for joining us for MagnaChip's second quarter 2013 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 second quarter business highlights and Margaret will discuss our financial results. Following Margaret's financial discussion, Sang will provide our third quarter guidance, after which we'll open the call for questions.

During the course of this conference 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 reflect 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 second quarter business. Sang?

Thank you, Robert. We delivered solid result in the second quarter. Revenue of $215.3 million was up 4.9% sequentially and up 6.2% year-over-year. Gross margin of 33%, was up 100 basis points, compared to the last quarter and up 200 basis points compared to the Q2 of last year.

We are excited that our effort to focus on fast-growing markets with our expanding list of partners has enabled us to deliver 10 consecutive quarters of meeting or exceeding our financial guidance.

Our smartphone and tablet-related revenue increased to 35% of the company revenue this quarter from 19% in Q2 of last year. Our diversified smartphone and tablet business with our 53 products and 24 customers helped to differentiate us from our peers and minimized the impact of unexpected softness in the high-end smartphone and tablet market.

Currently, we are working with the mid-to-low end smartphone makers and their partners to increase our design win opportunities in this newly expanding market where we support five smartphone makers and there are seven phone models. We expect this effort along with the launch of several new product lines, including our new sensor family will help us to continue our growth momentum into next year.

I'm happy to report that our power business continues to expand quite nicely and represented 17% of our revenue in Q2, up from 15% in Q1. We expect that our power business will grow throughout the second half of this year as we introduce our new line of Super Junction MOSFET and other premium products.

For our display business as you may have seen from our recent product announcement, we have launched our own family of intelligent sensors targeted at mobile and medical applications. With a growing demand from our AMOLED customer and our alignment with them for their new product plan, we expect this business will help us to grow in the future.

Our foundry business has added three additional product families, which include ultra-high voltage, eBCD and R.F. SOI technology. We are getting very strong interest from customers especially in the US

With our new product offerings from each of our business units, new customer in the pipeline and broader alignment with the blue chip customers for their new product plan next year. We are well positioned for future growth. As a result, we expect to win more sockets at leading OEMs and to expand our new customer list.

Even though there is a limited visibility for the high-end smartphone market, we are managing this situation with diversified product offerings and sales channels. And to increase shareholder value, we have completed refinancing of our senior note at a much lower interest rate. In addition, our board approved a new stock buyback program. management will proactively execute the plan because we believe that our shares are undervalued.

Now, let me discuss the highlights of three business segments. For power solutions, second quarter revenue was $36 million, up 19.1% sequentially and up 6.7% year-over-year. A couple of factors contribute to growth of this quarter, including stronger demand from our major Korean smartphone OEMs as well as traction in China for industry or high-power modules.

Revenue from premium product continues to expand in Q2 growing by 7% compared to the prior quarter and by 42% year-over-year. In Q2, premium products reached 32% of our power solutions revenue, and the design pipeline continued to be robust. We intend to deliver new PMIC high-power modules and Super Junction MOSFET to a growing list of newly 50 premium product customers this year.

Our Super Junction technology is one of the best-in-class, featuring the low RDS resistance. This makes it well-suited for applications such as LED TVs, smartphone, tablet P.C. as well as for LED lighting.

Design-ins increased in Q2 for Super Junction MOSFET, and we are targeting additional R&D into new product, new development project.

Revenue of power management I.C. has grown over 50% last year. We have a strong pipeline of new power management ICs targeted for AMOLED D.C. to D.C., R.F. D.C. to D.C. and LED driver for mobile applications. And we continue to invest in this area.

New working samples of power modules are in the field under evaluation by a major power supply company, and we have a design-in for welding machines and UPS.

For display solutions, second quarter revenue was $68.9 million, down 2.1% sequentially and down 10.3% year-over-year due to a slow -- Okay. Our AMOLED revenue, which is a growth driver for our display business continue to ramp as we become integrated into more flat designs at a major Korean OEM. We believe our alignment with them for future product will help us to continuously grow our sales next year.

Our reach is expanding beyond the AMOLED smartphones to even larger form factor AMOLED device. Around the corner, there is a developing market for OLED and ultra-high definition televisions.

Last week, we announced a new product family of intelligent sensors based on our leading-edge, low-noise mixed signal process technology. We have a design in the leading smartphone maker in Korea, and we expect to complete the final stage of qualification later this year at that customer. These new products are targeted at rapidly expanding sensor I.C. market for smart devices that incorporated human interface and other monitoring devices.

Our magnetic sensors including e-Compass and smart Hall sensor are currently sampling as several smartphone and tablet makers in Korea, China and US We intend to continue to develop new products to expand our family of intelligent sensors to take the advantage of growth opportunity this segment provides.

And for our foundry segment, second quarter revenue was $109.8 million, up 5.4% sequentially and up 20.2% year-over-year. While high-end smartphone demand has start to slow, mid- to low-end smartphone demand has been ramping up.

We expanded our reach in mid- to low-end smartphones by doubling a number of foundry customers, focused in the area of touch I.C. products. We almost doubled our revenue from Korean touch I.C. makers for mid- to low-end smartphones application in this quarter from the Q2 of last year. And we expect this trend will continue.

We are making a good progress in developing new customers in the US and Europe. As we target the high growth and higher margin markets such as LED lighting, energy harvesting and automotive applications.

Currently, we are actively engaged in design activities with a leading global mobile chipmaker and a digital power chip maker while we are also ramping our [eSquare] production for microchip.

We are broadening our technology portfolio by offering new technology families, including 0.35 micron 700 ultra-high voltage process, 0.18 eBCD technology and R.F. SOI technology to customers. We have a design-ins for 700 ultra-high voltage at two customers and have strong interest from others.

Our 700-volt ultra-high voltage technology offers lower RSP of 700 volts and 450 volts and LDMOS with various low and medium voltages integrated for the logic and gate drive.

The 0.18 micron eBCD offers low-noise and best-in-class low Rsp LDMOS performance with a 30 volts rating without a need of epi-layer. This technology is well-suited for the premium high power amplifier at a competitive cost.

The R.F. SOI technology is currently being transferred from National Nano Fab Center in Korea, and we expect to offer this technology to customers by middle of the next year. We believe that this technology has a significant growth potential for us.

Now, Margaret will discuss our financial highlights. Margaret?

Thank you, Sang. Let me provide some financial highlights and several very positive developments over the last few weeks.

Today, we announced that our board of directors approved our new $100 million stock repurchase program that run from August 2013 to December 2014. The new program replaces our existing program under which we repurchased 4.3 million shares or 12% of our outstanding shares over six quarters.

We are extremely proud to announce that our outstanding financial performance together with the steady free cash flows and a strong balance sheet allows us to continue our share repurchase program.

This month, we completed our private offering of $225 million of new senior notes. The net proceeds are used to redeem our outstanding 10.5% of senior notes due 2018. As a result, we reduced the coupon to 6.625% and extended the maturity by 3 years through 2021.

We are also able to reduce cash interest expense by 30.3% or approximately $6.5 million annually. The new senior notes will be the only outstanding long-term debt on our balance sheet.

This successful transaction benefited from an upgrade of our corporate family rating to B1 by Moody's Investors Services in June, which highlighted our significantly diversified source of earnings, our ability to retain key customers and low CapEx requirements. We were upgraded to BB- by S&P in April of this year.

Adjusted EPS, our non-GAAP measurement was $0.71 per diluted share for the second quarter compared to $0.48 in the second quarter of 2012. This is the highest second quarter adjusted EPS we have achieved in our history. A reconciliation of the non-GAAP financial measures to GAAP measures can be found in today's press release.

Second quarter revenue of $215.3 million and a gross margin of 33% represented the 10th consecutive quarter we met or exceeded our guidance.

Now turning to our statement of operations. Revenue for the second quarter of $215.3 million represented a sequential increase of 4.9% primarily due to volume increase in premium product in power solutions and higher sales in the foundry business. The revenue increased 6.2% year-over-year.

Revenue by business segment for the second quarter was $109.8 million for foundry services, $68.9 million for display solutions and $36 million for power solutions. Gross margin of $71 million or 33% for the second quarter was up 100 basis points from the prior quarter, primarily due to improved product mix and ongoing cost controls. Gross margin increased 200 basis points year-over-year. For the first half, our gross margin was 32.5%, which is the highest first half of gross margin in our history.

Total operating expenses for the second quarter were $40.8 million, which were $0.5 million higher than the prior quarter, excluding restructuring and impairment charges of $2.4 million in the first quarter. Our operating expenses were 19% of revenue, which is in align with our target range.

Operating income was $30.2 million or 14% of revenue for the second quarter. This compares to $22.9 million or 11.2% of revenue last quarter.

Net interest expense was $5.9 million for the second quarter and consistent with the last quarter. Going forward, our net interest expense will decline as a result of our senior notes refinancing transaction.

Another impact of the refinancing transaction has increased tax efficiency. Going forward, we now expect annual cash tax expenses of between $5 million to $10 million until our NOL balance is fully utilized, which we expected by December 2014.

On a GAAP basis, net income for the second quarter was $4.4 million or $0.12 per diluted share. GAAP net income was primarily impacted by our foreign currency loss of $21 million related to non-cash foreign currency translation for intercompany balances that were denominated in US dollars.

Turning to the balance sheet. Total combined cash balance, cash and cash equivalents plus restricted cash was $192.6 million at the end of the second quarter compared to $183 million at the end of the first quarter. Cash provided from operations for the second quarter totaled approximately $11 million compared to $37.5 million for the prior quarter due to short-term changes in net working capital.

Our accounts receivable balance increased this quarter partly because the second half of this quarter was stronger than the first half in terms of revenue. By the end of this year, we expect our accounts receivable to decline to the target level of 55 to 65 days.

Our days inventory was 48 days, down 6 days from the previous quarter. For the coming quarter, although we expect a slight increase in the days of inventory as we focus on our high growth businesses, we expect our inventory to stay in the recent historical range.

Capital expenditures was $7 million this quarter and our target for the full-year remains approximately $60 million.

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

Thank you, Margaret. For our third quarter guidance, when we look at the current billings and bookings and the market dynamics, we expect that our revenue will be in the range of $215 million to $225 million. Based on this revenue level and our wafer loading forecast we anticipate our gross margin will be in the range of 33% to 34%.

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

Thank you. (Operator Instructions). Your first question comes from Blayne Curtis with Barclays.

I missed a part of your preamble. The display business, it sounded like you said the high-end smartphone was weak, which I think echoes a lot else others have said. If you could just provide a little bit more color there that I missed. And then, when you look at the guidance for September, is that business expected to be down? I thought you mentioned the AMOLED was still going to continue to ramp?

Well, our AMOLED business for the smartphone definitely is a growth driver for us. When we are looking at smartphone high-end even from Samsung, they increased from last year 2012 to 2013 49%. So that's a real additional volume that's available to sell our product into and plus that we are in the new -- the flagship platform of Samsung. So, for AMOLED and smartphone, it is actually additional revenue for this year.

Okay. Thanks. And then, as you look to September, did I hear that right, that or maybe you didn't say it -- when you look at September, is display segment going to be down as part of your forecast?

We're looking at display flat or slightly up.

Okay. So, is it a function of you're able to -- you're seeing some corrections but you're able to offset with other models? Is that the best way to look at it?

Exactly, because we have so many diversified business in smartphone and tablet. And, obviously, it's a little lower than originally we expect, but we're able to manage it. And yes, that's the story.

Okay. Thanks. And then, just finally on the sensor business, you mentioned that you had a win, and then you're sampling the Compass product. Could you talk about how quickly you could get that to revenue? Is that win for this year on the Hall sensor? And then for the Compass, what's the right time frame to think about revenue from that?

Yes. This is a real exciting product, and the whole concept came from customer's request. And I say actually design-in not win yet, but we're very close. We expect some revenue before this year over. And as I say we have a number of customers interested not only in Korea, also China, as well as the US They are smartphone and tablet makers. So, they really welcome our samples and they're actively evaluating.

Okay. Thanks. Nice job.

You're welcome.

Your next question comes from Suji De Silva with Topeka.

Hi guys, nice job on the quarter. Can you talk about the utilization here and what's your wafer capacity growth expectations are for the remainder of the year?

We had about low 90 utilization in Q2 and Q3; we're expecting high 80s. But again, these are the numbers based on a partially closed 6-inch fab that we did during the first quarter, but that's only 6-inch fab.

Okay. Thanks, Sang.

And then on the smartphone side, can you talk about the products that you think would help you in the low-end smartphone market different from what you've already been able to accomplish in the premium smartphone market, different products, different foundry processes perhaps?

Well, actually to both from our product and as well as a foundry, maybe foundry side has more opportunity. It's mainly touch I.C. that the Korean fabless company and successfully shipping to Korean company as well as to the Chinese new makers. And also, we do have our own product goes into mid to low, so it's potentially a good business for us.

Okay, great. Thanks guys.

You're welcome.

Your next question comes from Mehdi Hosseini with SIG.

Yes, thanks for taking my question. Back to the earlier question, should we assume that foundry will be similar to display in Q3 flat to up?

Foundry business will be flat to down.

Flat to down, Okay. So, it is the power business that could be growing double digit on a sequential basis?

I didn't say double-digit, Mehdi, but, yes, it is growing. Yes.

Okay. And then historically, sorry.

It is growing with the new product family, so that's even better news.

Sure. And then, in regards to the new products especially power solution and new customers in foundry, how should we think about the seasonality that kicks-in in the Q4 timeframe? Some of your Korean handset customers and others may typically reduce inventories in the later months of the year. Could the new products or new programs be enough to offset any of those seasonal trends?

Obviously and historically, we usually peak at Q3 and slightly down in Q4. Still we have a limited visibility in high-end smartphone, and that's heavily in foundry business. So, the next few weeks is critical to looking to Q4, but we don't provide any guidance for the Q4. But I think it's a seasonably little lower.

Okay. Thank you.

You're welcome.

Your next question comes from Rajvindra with Needham & Company.

Yes, thanks, and congrats on good results. A lot of a pretty tough market.

On the gross margin, Margaret, you said there is some improvement sequentially as part of the guidance, but it's still down year-over-year. Last year September, 2012, I think it was like 34.5%. What's the cause of the year-over-year, I guess, drop in terms of gross margin%ages? Is it just mix shift? And how should we think about margins in Q4 and going forward if you're starting to see more of a ramp of power management?

Okay. For us, the two major factors of our gross margin improvement is utilization and the product mix. And the main reason of the comparison in the third quarter year-over-year last year. Last year, our utilization on the third quarter was 94 middle kind of the high middle of the 90% compared to what we are expecting this coming quarter is around a little bit higher than mid 80%. So that is the major factor of it.

And the margins kind of going forward, how we should think about that? I mean, I know in the past you talked about one to two point margin improvement per year?

Well, we say that our business model providing the utilization equal to we can do 1% or 2%. So, let's close the Q4 and maybe that number still is possible, but it all depends on our foundry business so.

So the foundry was down -- expected to be flat to down slightly in Q3, which is down year-over-year. Although I think Q3 you had a very tough compared -- Q3 of last year, foundry was up 45% year-over-year. Can you talk about why is it down sequentially at least? Is it seasonally down in Q3? And you talked about slowdown of high-end smartphone offsetting it by low to mid range. When do you think we'll see that offset start to occur in the foundry business?

Well, a couple other things. Obviously, the reason it's down is the high-end smartphone demand. But we got a lot of non-smartphone tablet related foundry, new customers in the pipeline. They were coming into revenue starting from Q4 and on. We will see more diversified customer list and revenue starting from next year.

And also one correction, I believe that our foundry business is going to grow from 2012 into 2013. Again then let's close our Q4 and maybe we can look at the number. And Q2, which is closed, it's a 20% up year-to-year, so the first half of foundry business has been very strong and that's going to help us to continue through the -- that's providing a strong foundation.

So our foundry business, yes, there is a crossing which all the market and industry experience. We've been working on this diversifications of our low-end and new business. I think they will probably help us into next year. So we have high expectation and particularly new product that with our new technology family we're introducing such as the ultra-high voltage 700, it's well popular.

We will see actual revenue starting from next year, that's a 0.35 micron, and as well as R.F. SOI probably available to customer starting from next year will be real good product attracting new list of customers. So we are the specialized foundry, and we will even offer more options and more technology that's unique to us and our customers are very interesting.

Very good. Just last question, if I may. Margaret, on the OpEx, should we think about OpEx at these kind of levels $40 million to $41 million or is there any upticks that we should consider?

I think it's between $40 million to $43 million again depending on our R&D project.

Thanks a lot and congrats again.

Thank you.

Thank, Rajvi.

Your next question comes from Ross Seymore with Deutsche Bank.

Bob Gujavarty for Ross. I was just curious, I mean, obviously, the growth was coming from low and medium and smartphone to tablets. How does that dynamic change from maybe a margin perspective or even an ASP per wafer? Is there an impact as you kind of go to these new customers compared to your traditional high end customers?

For us, there is a very minimum impact even though it's a mid to low-end, yet I think that we offer a very attractive price to the customer so we don't expect that happen. And also, we are in mid to low smartphone, but that's one of the additional business opportunity for us. And the sensor family is going to win the new sockets and as well as the technology by foundry business, so all these are more diversifying. It's not only mid to low end.

Okay. Maybe then on the opposite side, you talked a little bit about the high power, high voltage application. Are those kind of products kind of accretive to your margins? Do they come in at a higher ASP and high margin level? And is that a potential offset to some of the stuff?

Yes, definitely like a 0.35 high voltage, ultra-voltage. If I remember correctly, may be about three foundry providers offering that technology so obviously that is a premium product. And same thing with the R.F. SOI, that's a real high premium and as we deliver technology solution to the customer.

Great. Thank you.

You're welcome.

Your next question comes from [Nat Gaudois] with UBS.

Hi there, that should be as Nick Gaudois from UBS. First question on the display side, you just talked about new tablet customers in Q4. I just wanted to know if you're seeing an increase in market shares into the fourth quarter for the main tablet maker who, of course, is a exporter in displays in Korea? And I have a couple of follow-ups. Thank you.

Okay. I think that you're referring to our sensor product and being marketed at China and US so they are either smartphone and tablet P.C. makers. So that's the new opportunity that I was referring to and we may able to get some revenue ending this year or more likely only next year. Did I answer your question?

Okay. Not really, but that's still interesting in itself. But my question was more -- if I look at one of your fabless partners in Korea, it looks as like they're regaining market share into both 7.9 and 9.7-inch tablets as the main tablet maker into the product refresh into the fourth quarter and in Q1. I wanted to know if you're actually seeing any benefit on your side of that.

Yes, we do. We're shipping [beacons] and timing controller. We're shipping display driver, and we see the volume increasing.

OK, great. I just wanted to go back to your touch I.C. maker exposure increasing in Korea. Is that effectively one or two fabless companies you're supplying into? I mean, one, in particular, being quite significant into the low- to mid-end at Samsung.

I think we can probably share the customer name, it's [Images]. That's the customer name very active. We can't really reveal the Samsung business or Chinese business, but they are lowering and increasing their wafers into our fab. And as long as -- we got three others as well.

Okay. Three others in Korea or three others global along the flip side?

It's in Korea, Images.

OK, great. Sorry. Images, but it wouldn't be Melfas is what you're aiming at?

No, we're not in Melfas.

Oh, it's not a Melfas, no.

Okay.

Melfas, yes, it's another company, totally different company.

Yes. Okay, okay, understood.

And last question, you still seem to be able to grow your display revenues in Q3 despite the fact that the panel TV market is slowing down quite significantly. Is that just the function on the mobile side of setting the TV side or is it also a function of increased silicon contents per panel basically helping you?

Yes. We think that getting into the third quarter traditional LCD market is very stable. But we got more sockets now, sockets including the OLED TVs but more towards its AMOLED.

AMOLED we're expecting that a good ramp this year for us for the smartphone, but the next year we have a much better alignment. I think they will be a strong growth driver for us into next year. We have a perfect alignment at the same time. Our main customer, they're increasing their products and capacity. So that will be a great opportunity for us next year.

And we have a much better alignment into new platform of T.V. and typically that ramping up in the fourth quarter, but I believe they probably stock up some of them in third quarter. So display business looks good, better than ever now.

That's great. Thank you very much.

You're welcome.

Thanks, Nick.

Your next question comes from Jay Srivatsa with Chardan Capital Markets.

Thanks for taking my question. Sang, I want to focus on the power segment. Even with the P.C. business being weak you've managed to grow that business very nicely. Can you talk about the phenomenon that's going on the there?

I mean, are you getting more sockets or are you sensing better opportunities in other markets outside of PCs? Can you just give us a landscape of what you're seeing in the power segment?

Actually, our [parts] Korea is adding new product line. As a matter of fact, we're expecting that throughout rest of the year, this business is going to grow. And strictly because of our new product line our Super Junction MOSFET, which is a premium product for us, it is growing. We're not growing our low price MOSFET.

That business stays out flat, but at the same time this Super Junction MOSFET and the power management I.C. finally expanding into other sectors and all of this is going to drive our growth and throughout the year. So we are really exciting about it.

All right. Going back to the attention you're focusing on the low-end and the mid-end smartphone market, that dynamic, a lot of the demand is now coming from China there. What is your strategy in terms of attacking the white-box manufacturers in China who appear to be gaining a lot of momentum in the low-end, mid-end smartphone segment?

Obviously, the foundry, through the foundry, we're going to have some upside opportunity. And our sensor product we're going to directly marketing to them. We're not going to go into any low margin products such as display driver, and we have no intention to it.

This is not a big company. We do have a limited product, limited -- the offerings, and we will focus more into premium product selling to China, but we're looking forward to.

Okay. Thank you. Good luck.

Thank you, Jay.

Your final question comes from Terence Whalen with Citi.

Hi, good afternoon. Congratulations on the intact results in a choppy environment.

So, one question I had -- it's actually administrative question on tax. Margaret, I think that you said you expected your NOL to be fully used up by the end of 4Q '14. What sort of tax rate should we be modeling after that into 2015?

Between 23% to 25% --

Okay.

-- that you can see the tax rate, yes.

Okay, terrific.

But I don't know whether you caught it, but with our tax expense used to be $10 million to $15 million per year. With the refinancing its $5 million to $10 million, so we are saving significant tax until NOL expires.

Yes, thank you, Sang. That was actually one of my follow-up question is. It seems like $5 million to $10 million, you're still expecting on a quarterly basis to have a little bit of a tax. Should we think about that as evenly distributed maybe in the third and fourth quarter to get to that $5 million to $10 million for 2013?

Yes, it is evenly distributed. You can do that for your model.

OK, thank you. And then just a quick one. I'm not sure if I had missed this, but just specifically on interest expense, did you specify your expectation for interest income and interest expense next quarter?

What I said is that we expect. With the debt refinancing, we expect annual basis our interest expense will be decreased by the $6.5 million level approximately ongoing basis.

Okay, okay. Thank you. And then the other question I had is more fundamental in nature. I think at Analyst Day in New York you had talked about efforts to diversify the foundry customer base.

Sang, you talked a little bit about having some a promising business with some touch controller suppliers. I want to also understand how progress is with other diversified US customers in particular. So, I guess the question would be, as you make an effort to diversify the foundry business how do you see the regional opportunity is playing out and are some more immediate than others and how, in particular, are prospects for US customers with higher margin foundry business looking right now?

It looks real good. All the foundry business takes time to bring the revenue, but the pipeline is strong. I expect that before year-end, I'm going to announce couple of names that new US customers you can easily recognize. And other than that existing US foundry customers and also moving into one other technology platforms and that's going to enhance that our business into next year.

Again be aware with us, it is a slow moving business but once that engaged I think that it complement smartphone and tablet-related business. So, we look forward to it.

Okay, terrific. And then, I apologize because I was bouncing in between another call. The buyback, could you provide any sort of context around how you think about buyback? Is it something that you'd like to evenly meter out around over the next four quarters? Is it something that's more-price sensitive as you see the stock sort of day-in, day-out, week-in, week-out? Thanks.

Obviously, we do have some internal target but in statement I say we proactively executed, it all depends on the stock price and business specification. But I'd say one more time we proactively execute them.

Terrific. My last question is sort of one more fundamental in nature. Just regarding the prognosis for thinking about the general state of inventory in the supply chain, we're seeing deceleration in high-end smartphone.

GSMC I think made the comment that they expect their fourth quarter this year to decline a little bit more than the fourth quarter last year. I need just general thoughts or insights into how you feel maybe about the inventory levels in context of deceleration that we're seeing. Thanks.

I think it's not an inventory problem, it's a visibility problem. It all depends on two major players and when they're going to place the order and trickling down to foundry provider like us. So, fourth quarter typically seasonally a little bit low, but we don't have clear visibility. We'll probably share our insight into fourth quarter may be a little bit later during maybe third quarter earnings release.

I thought of it. Anyway thank you so much, Sang. Best of luck.

Thank you, Terence.

So, in closing, MagnaChip will be presenting at the Deutsche Bank dbAccess Technology Conference as well as the Citi 2013 Global Technology Conference in September. Both events will be webcast live and archived for replay for 90 days.

Also, our next earnings release and conference call is scheduled for October 29, 2013. So please look for details of these and other upcoming financial events on MagnaChip's Investor Relations' website at www.magnachip.com. Thank you for joining us today.

Thank you for participating in today's conference call. You may now disconnect.