Magnachip Semiconductor Corp (MX) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2017 MagnaChip Semiconductor Corporation Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Bruce Entin, Director of Investor Relations. Sir, you may begin.

Thank you for joining us to discuss MagnaChip's financial results for the second quarter ended June 30, 2017. The second quarter earnings release that we filed today after the stock market closed and other releases can be found on the company's Investor Relations website. A telephone replay of today's call will be available shortly after the completion of the call, and the webcast will be archived on our website for one year. Access information is provided in the earnings press release. Joining me today are YJ Kim, MagnaChip's Chief Executive Officer; and Jonathan Kim, our Chief Financial Officer. YJ will begin the call with a discussion of the company's recent operating performance. Following YJ, Jonathan will provide an overview of our financial results. YJ will then briefly provide a recap as well as provide financial guidance for the third quarter of 2017. There will be a question-and-answer session following today's prepared remarks.

During the course of this conference call, we may make forward-looking statements about MagnaChip's business outlook and expectations. 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 our SEC filings.

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, but are intended to illustrate an alternative measure of MagnaChip's operating performance that may be useful. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our second quarter earnings release available on our website under the Investor Relations tab at www.magnachip.com. I would now like to turn the call over to YJ Kim. YJ?

Thank you, Bruce, and good afternoon to everyone on our Q2 2017 conference call. When we announced the results for the fourth quarter of 2016, we told investors that our primary focus in 2017 would be to improve gross margin and overall profitability. Our financial results in Q1 of this year show that we were on the right track and moving in the right direction. The Q2 financial results we are reporting today continue to demonstrate that we are executing according to our plan. As a management team, we closely track several profitability metrics, but we believe gross profit margin and adjusted EBITDA are particularly good indicators of our progress because they provide a snapshot of the ongoing operational performance in our core business.

Let's first review our gross margin performance in Q2 and then move on to adjusted EBITDA. Total gross margin in Q2 was 28%, which exceeded the high end of our previous guidance range and was at the highest level in more than 4 years. Gross margin benefited from slightly higher fab utilization, a favorable product mix and earlier than expected cost benefits from departures of manufacturing employees who participated in our 2017 voluntary headcount reduction plan. Our 8-inch fab utilization, a key driver of gross margin, reached the low to mid-90% range in Q2 as compared with approximately 80% in Q2 of 2016. Foundry Services Group gross margin in Q2 was 28.7%, an increase of about 6 percentage points from 22.8% in the second quarter of 2016. Gross margin in the Standard Products Group was 27.2% in Q2, also up approximately 6 percentage points from 21.4% in the same period a year ago.

Turning now to adjusted EBITDA. Adjusted EBITDA in Q2 was $20.3 million or 12.2% of revenue, up 136% from $8.6 million or 5.2% of revenue in the second quarter a year ago, and up 55% from $13.1 million in the first quarter of 2017. Adjusted EBITDA of $20.3 million in Q2 reached the highest dollar level in any quarter since the first quarter of 2013, and adjusted EBITDA as a percentage of revenue increased for the fourth straight quarter. A discussion of improved profitability would not be complete without mention of total revenue, which came in at the high end of the guidance range for Q2. Revenue was $166.7 million, about flat with the second quarter a year ago and up 3% from Q1 of 2017, despite previously disclosed softness in the OLED business. The headway we have made to improve profitability can be traced back to business strategies we've implemented and key operation decisions we've made. Here are 3 recent examples, beginning with our decision to reduce the workforce in the first half of this year by over 12%. Example number 1. In Q2, we completed a voluntary headcount reduction plan that led to a reduction in our labor force of 352 employees since the beginning of the year. The reduction in the workforce, which was more than twice the size of a similar action taken into 2016, is expected to generate annual cost savings of approximately $24 million with a payback period of less than 1.5 years. Example number 2. We have made great strides in our drive to improve gross margin in our Power Standard Products business. We optimized our product portfolio to emphasize higher margin products, killed weak margin performance, streamlined the organization and installed a new R&D top management.

As a result, the gross margin in the Power Standard Products business, which had been unacceptably low, has increased by nearly 10 percentage points over the past 2 years, with more than half the gaining coming in the last 12 months.

We continue to optimize the Power Product portfolio and explore opportunity to grow the business and further improve margins. Example number 3. More than 2 years ago, we made the strategic decision to focus our Foundry business on analog technology to better align our internal capabilities with the needs of global IC players. At around the same time, we introduced 0.13-micron BCD and EE from analog process technology for Power Management Solutions in smartphones, IoT devices and for industrial and USB-C applications. Fast forward to today, the broad customer adoption of this high-density analog process technology helped Foundry revenue grow by 31% in Q2 as compared with Q2 of 2016, while Foundry gross margin increased by 6 percentage points. The key takeaway is that we have multiple operation levers to pull to improve profitability. And while profit improvement may not always be linear from quarter to quarter, our number one goal is to improve overall profitability for the company, as opposed to enhancing the profit picture in any of our business lines or operating segments.

Speaking of our operating segments, let's turn to a high-level review of their performance in Q2, beginning with Foundry. Revenue in the Foundry business was $81.5 million in Q2, up 30.8% from revenue of $62.3 million in the second quarter of 2016 and up 5.2% sequentially from $77.5 million in the first quarter of 2017.

In Q1 of last year, we closed a legacy 6-inch fab that was a drag on gross margin, leaving us with 2 highly efficient 8-inch fabs. Our 8-inch fab utilization, a key driver of gross margin, increased in Q2 of this year to over 90% as compared with approximately 80% in Q2 of 2016. Our Foundry gross margin profit dollars in Q2 totaled $23.4 million, an increase of 65% from $14.2 million in Q2 of 2016. Foundry revenue from new business, which we define as product running in volume in the fab for 1 year or less, increased by approximately 50% in the first half of the year as compared to the same period a year ago.

New business accounted for approximately 20% of our total Foundry revenue in Q2, which was indicative of a healthy Foundry pipeline. Our BCD, EEPROM analog process technology continued to be a winner for MagnaChip. Revenue from this pure analog technology increased 81% in Q2 from Q2 of 2016. We have said this before but it's worth repeating, we may be the only foundry able to combine the BCD technology with high density EE technology in a single process node at 0.13 micron, and we believe we have one of the smallest EE cell size in the industry.

Now turning to the Standard Products Group. I've already highlighted the margin improvement in our Standard Products Group, so let's focus on our revenue performance. Revenue in the Standard Products Group was $85.1 million in Q2, down 18.7% from the second quarter a year ago and up 1.1% sequentially from $84.2 million in the first quarter of 2017. Revenue in the Power Standard Product business in Q2 was $35.3 million, an increase of 16.9% from revenue of $30.2 million in the second quarter of 2016, due primarily to increased demand for Super Junction MOSFETs and the MOSFETs for the UHD television and industrial markets. Power revenue in Q2 was about flat with Q1 of 2017, although demand for premium products like Power IC, Super Junction MOSFET and IGBT devices set a record.

Now turning to Display Standard Products business line. Before I describe the results in our Display business, please take a note that going forward we will, from now on, refer to our AMOLED display driver ICs as OLED display driver ICs. We are making this change in order to be consistent with commonly accepted industry naming practices for this product category. Revenue for Display Standard Products was $49.8 million, down [from] 33.1% from $74.4 million in the second quarter of 2016 and up 1.8% from the first quarter of 2017. As we have said in the past, the year-over-year decline reflects previously disclosed seasonal factors and a timing mismatch between the expected drop up in revenue from our existing OLED products and the introduction of our new OLED products. This decline was partially offset by a 34% increase in demand for non-OLED display products as compared to Q2 of 2016. Our non-OLED display drivers are now designed into 32 different models of large-screen UHD televisions. The (inaudible) market -- automotive market accounts for more than 10% of our non-OLED display business.

Now let's talk about our OLED business. On our Q1 conference call back in May, we shared our qualitative view of the state of our OLED business. At that time, we described our OLED business as bumping along the bottom and said that we expect OLED revenue growth to resume in Q3. We also said that we expected the OLED business to gain traction in Q4 and set us up nicely for 2018. I can tell you now that the qualitative view we provided back in May still holds true today. We are confident that OLED revenue hit bottom in Q2 and that sequential revenue will resume in Q3 as we begin volume production from the new design wins that we shared with you in our last conference call. Our 55-nanometer flexible OLED display driver IC, which eliminates side-to-side bezels, and our 40-nanometer bezel-less OLED driver IC are expected to begin volume production during Q3. I also told you on the last call that we have another new product in the pipeline. And today, I'd like to share with you that today we expect to sample another 55-nanometer flexible bezel-less OLED driver IC for high-end smartphones. We expect this design to begin volume production in first half of 2018. In addition to the 40-nanometer and 55-nanometer design wins I've just mentioned, we recently won 2 other new designs using our 110-nanometer OLED display driver. This display driver has been designed into 2 new midrange smartphone models from a major Korean smartphone maker with volume production for one program expected to commence in Q3 of 2017 and Q4 of this year for the other program.

The bottom line is that our OLED business is now beginning to recover. Despite some lingering softness in China smartphone market, we believe we will achieve a modest rate of sequential growth in Q3 in our OLED business, followed by a further growth in Q4. We remain upbeat about a more robust recovery in 2018. We believe we have an opportunity for our OLED business to, once again, substantially exceed the industry rate of growth in 2018, which several analysts have pegged at 25% to 30%. We base our confidence on recent design win activities, new products in the pipeline and our belief that smartphone makers will introduce midrange and high-end models with the latest features to compete with new OLED phones being introduced from the leading global brands.

Now let's turn to the Q2 actuals for OLED. OLED display driver revenue accounted for 31% of display in Q2, down from 65% display revenue in Q2 of 2016 and 33% in Q1 2017. A widely acknowledged slowdown in China smartphone market may have contributed to the decline in our OLED revenue.

To sum up on OLED, MagnaChip is the world's only independent and volume supplier of OLED display drivers with many built-in competitive advantages. We have a 10-year track record in OLED, unparalleled design expertise, unique IP, and a Foundry partner to manufacture our newer generations of OLED drivers in volume using our proprietary process design kits. Perhaps, most important, we are the only second-source supplier of OLED display drivers to the top 2 OLED panel makers in Korea who currently produce over 95% of all OLED panels in the world according to analysts. That relationship with panel makers helps form a competitive moat and a high barriers to entry.

Now I will turn the call over to Jonathan to review our financials. And then I will come back to sum up and provide financial guidance. Jonathan?

Thank you, YJ, and welcome to everyone on the call. As YJ said, our primary focus as a management team is to improve gross margin and overall profitability. So let's start with the numbers for the second quarter and first half of 2017. Revenue in Q2 was $166.7 million, about flat with $167.1 million in Q2 a year ago and up 3.1% on Q1 of 2017. The sequential improvement in revenue was due primarily to a 5% increase in Foundry revenue, while revenue in the Display and Power business lines on a sequential basis were essentially flat. Total revenue in the first half of 2017 was $328.4 million, up 4% from revenue of $315.2 million in the first half of 2016, despite previously anticipated softness in the OLED business.

Turning now to profitability metrics. We generated significantly more profit dollars in Q2 of 2017 than in Q2 of 2016 on total revenue that was essentially flat with Q2 of 2016. We generated $46.7 million in gross profit in Q2, up 27% from $36.7 million in Q2 of 2016, while gross profit in the first half of 2017 was $88.2 million, up 24% from $71 million for the first half of 2016. We previously had expected that gross margin would begin to reflect the benefits of our headcount reduction in Q3 of this year. However, our gross margin actually began to benefit from -- benefited more than expected in Q2 due primarily to earlier than expected cost benefits from departures of manufacturing employees. As a result, a portion of the incremental gains we previously had expected to record in Q3 actually were recorded in Q2. Aside from a slightly higher fab utilization and a favorable product mix, the benefits from the headcount reduction helps to explain why gross margin in Q2 exceeded the top end of our guidance range. The workforce reduction was a challenging undertaking since Korea has worker-friendly labor laws and strong unions. That said, we negotiated favorable terms and successfully implemented the plan without missing an operational beat. Approximately 60% of those affected by the headcount reduction plan were employed in manufacturing-related positions. As YJ mentioned, the rightsizing of the company is expected to generate cost savings of approximately $24 million with an expected payback period of less than 1.5 years. The cost of the workforce reduction plan expected to consist of cash expenditures is approximately $31 million, comprised of termination-related charges of $11.1 million recorded in Q1 and $2.3 million recorded in Q2. The remaining estimated total cost of $17.6 million relates to statutory severance benefits and has already been fully accrued. Of the $31 million total cost, $28 million has already been paid.

Now turning to adjusted EBITDA. For the first half of 2017, adjusted EBITDA was $33.4 million or about twice the adjusted EBITDA of $16.6 million in the first half of 2016.

Now turning back to the P&L and operating expenses for Q2. Selling, general and administrative expenses were $17.7 million or 10.6% of revenue in Q2 as compared to $20.4 million or 12.2% of revenue in Q2 of 2016. The decrease of $2.7 million or 13.1% was primarily attributable to a $1.4 million decrease in restatement-related professional fees, mainly comprised of legal fees and a $1.1 million decrease in salary expense as a result of our headcount reduction. SG&A in Q2 also benefited from a gain of approximately $0.6 million from the sale of certain old fab [appointments].

Research and development expenses were $16.9 million or 10.2% of revenue in Q2 as compared to $18.2 million or 10.9% of revenue in Q2 2016. The decrease of $1.3 million, or 6.9%, was primarily attributable to a $0.6 million decrease in 8-inch R&D processing costs and a $0.6 million decrease in salary expense as a result of our headcount reduction of non-key R&D personnel in product lines that were either underperforming or spun out.

Net foreign currency loss in Q2 was $11.9 million as compared to net foreign currency loss of $7.1 million in Q2 of 2016. The net foreign currency loss in both periods was due to the depreciation in value of the Korean yuan relative to the U.S. dollar during the period. A substantial portion of our net foreign currency gain or loss is noncash translation gain or loss associated with the intercompany long-term loans to our Korean subsidiary which are denominated in U.S. dollars and affected by changes in the exchange rate between the Korean yuan and the U.S. dollar. Net loss on a GAAP basis for the second quarter of 2017 was $8.1 million or $0.24 per basic share as compared with net loss in the second quarter of 2016 of $17.8 million or $0.51 per basic share, and as compared with net income of $43.7 million or $1.30 per basic share and $1.05 per diluted share in the first quarter of 2017. The net loss in the second quarter of 2017 was attributable primarily to a noncash foreign exchange loss on the company's intercompany loans. Adjusted net income, a non-GAAP financial measure, totaled $7.8 million or $0.23 per basic share and $0.21 per diluted share in Q2 as compared to an adjusted net loss of $1.9 million or $0.05 per basic share in the second quarter of 2016 and adjusted net income of $0.5 million or $0.01 per basic and diluted share in the first quarter of 2017.

Turning to the balance sheet. Cash and cash equivalents totaled $131.5 million at the end of the second quarter, an increase of $47.6 million from $83.9 million at the end of the second quarter of 2016. The increase in the cash balance stems from the completion of an $86.25 million exchangeable notes offering in Q1 of 2017. Inventories at the end of Q2 were $58.1 million as compared with $70.4 million at the end of the second quarter 2016 and $61 million in Q1 2017.

Notably, our inventory reserves dipped below 10% in Q2 and declined 68% from inventory reserves in Q2 of 2016, which is another indicator that we are tightly managing our operations.

Accounts receivable was $76 million at the end of Q2 as compared with $54.7 million at the end of the second quarter 2016 and $81.7 million at the end of Q1 2017. The year-over-year increase in accounts receivable reflects a deliberate and strategic financial decision to significantly limit the practice of offering discounts to customers in exchange for early payments. The change in practice was made possible by the substantial increase in our cash position from a year-ago levels. Capital expenditures in Q2 were $5.4 million, an increase of $3.9 million from $1.5 million in the second quarter of 2016, an unusually low figure due to the timing of the purchases of capital equipment. The capital expenditures in Q2 were related to equipment purchases to support demand of certain process technologies.

Based on our current estimates, we anticipate 2017 capital expenditures to be approximately $30 million.

Before I turn the call back to YJ, I'll leave you with this final thought. We remain focused on executing our core business, continuing to explore opportunities to reduce costs and being fully committed to improved profitability of MagnaChip. YJ?

Thank you, Jonathan. You've heard me say many times that our top priority is to improve gross margin and overall profitability, but we also are committed to invest in initiatives to fuel profitable revenue growth. We've invested in our analog and Power business by developing higher-margin standard products and investing in fab equipment, new process technologies and IP for the needs of global Foundry customers. We've also invested in improving product quality and with dramatic results. This year, we were honored to receive the highest-quality awards from our 2 largest Korean customers who have demanding quality standards. And of course, we are investing in OLED to build our current leadership position. We're increasing our R&D budget to generate (inaudible) for new OLED products currently in the product pipeline. We are developing custom IP to improve screen resolution, aspect ratios, as well as lower power consumption and reduced manufacturing costs. We are also putting engineering resources in place to develop next-generation OLED packages that enable the volume production of new flexible OLED display drive ICs. We've already introduced our first flexible OLED display drive IC for curved displays with no side-to-side bezels, and are setting our long-term sights to prepare for the day when foldable and rollable OLED displays will become a reality. There is little doubt that the OLED market is in the early stages of growth, and we believe we are well positioned to capitalize on this technology. For now, though, our sights are set on the day-to-day execution of the business and laying the foundation for overall corporate profitable growth.

In summary, here is how we see the business shaping up. The outlook for any channel of fabs is bright for the longer term. 200-millimeter fabs are tight. The devices running in them have long product cycles and the capital costs of these analog fabs is a fraction of larger (inaudible) memory fabs. Our Power Standard Product business is expecting a continuing growth mode over time, driven by the insatiable demand to extend battery life in mobile and IoT devices and to provide more efficient sources of power supply for consumer and industrial applications. We've made substantial progress to improve our Power margins, and we will continue to explore more opportunity to extend our gains. We are confident about our prospects with our OLED product lineup, but also mindful that the China smartphone market has been weak in the first half of 2017, and aware that there could be an overhang effect. As a result, we expect that total MagnaChip revenue in 2017 could be flat with 2016 as we compare to our previous expectation of modest growth. But overall, the company is firmly committed to its profitability objectives and believes gross profit margin and adjusted EBITDA will be substantially higher in '17 than in 2016. To sum up, our design wins are leading indicators that give us confidence that our OLED rate of growth will substantially exceed the industry rate of growth in 2018.

With that, let's turn now to our forward-looking guidance. For the third quarter of 2017, MagnaChip anticipates revenue to be in the range of $172 million to $178 million or up sequentially nearly 5% at the midpoint of the projected range as you compare with Q2 and compared to $192.3 million in the third quarter of 2016. Gross profit margin is anticipated to be in the range of 27% to 29% as compared to 28.0% in the second quarter of 2017 and as you compare it to 20.4% in the third quarter of 2016. Now I will turn the call back to Bruce. Bruce?

Thank you, YJ. So Heather, this concludes our prepared remarks. So we'd now like to open the call for questions.

(Operator Instructions) Your first question comes from Suji Desilva with Roth capital.

Congratulations on the strong execution here, particularly showing up in the gross margin line. My first few questions are really around the Display and AMOLED business here. Can you help us understand the -- in whatever metrics make sense, the number of wins or placements you have kind of exiting '17 versus where you were in '16 to understand how much broader your footprint is?

Sure, Suji. So if you capture the last few earnings calls, first of all, we sampled the -- our first 55-nanometer flexible AMOLED display drive IC with bezel-less drive IC in February this year. Now we are saying that we are going production this quarter. We also introduced our new 40-nanometer bezel-less drive IC in July, we sampled, and we're also saying that we're going to production towards end of this quarter. And we just also said that we have 2 design wins in 110-nanometer that we are going production in Q3 this quarter as well as next quarter. And also, I just disclosed today, we expect to sample another 55-nanometer flexible display driver with bezel-less. That is for high-end smartphone that we expect to go to production in first half 2018.

So I mean, you are seeing a flow of new product that is pretty decent. And so we feel very comfortable to say that we feel very confident that we can substantially exceed the growth rate of the OLED growth rate, which the analysts tagged at 25% to 30%. So I think that's a good indication of the execution and the pipeline.

Okay. And then for some of the smartphone customers you were thinking about using AMOLED, perhaps in the mid-tier or the high end around the flagship competition. What's driving the timing of when those phones come to market? Is this softer macro demand? Is it kind of competitive dynamics? What do you think is the factor there in when those phones come to market?

So if you look at the industry rumors and so forth, there are lot of reports you're seeing. I think that the -- a, the move to AMOLED on the midrange and high-end phones is real and there is also a rumor that there's a global brand who is about to introduce an OLED phone. So it seems that the market has been watching out or timing their new product with OLED around that time frame. So once that product launches and it's really good, then we will feel more comfortable and confident about the prospect. And I think that the -- that will show, and then on the -- perhaps, on our next earnings call, see what the impact has been. But we remain hopeful that the -- our customers who use our drive IC will have very competitive new AMOLED offering. And once that the global brand launch is done, we hope to see their results and the effects.

Okay, great. And then on the Foundry part of the business. You had a -- also a high utilization rate. Can you talk about what the key elements are that allow you to grow the revenue and the margin there? And where you are in transitioning the AMOLED business outsource so you have more room in your Foundry -- for Foundry?

Yes. I think you are asking very good questions. So if you look at our Foundry growth, that really helped our utilization to grow from 82% low to mid-90% now. And the Foundry revenue grew by about 30% year-over-year. And so we are looking at several things, right? So we are looking at the -- just like in AMOLED, we have outsourced externally. We are also looking at some Standard Product Group to be outsourced possibly. And then we're going to also do better efficiency, driving the operation. And we also will look into maximizing our utilization going [upward]. And also as you mentioned, some of the AMOLED legacy and some of the display products -- legacy products are winding down. So that will give us some room to grow the Foundry business. However, our #1 priority is to drive the gross margin for the corporate. And so what we will do is we optimize for corporate margin. And so many levers and many things to consider, and we will try to optimize all 3 businesses.

Okay. Question on the financials. The gross margin here in Standard Products coming up here. I mean, is that new level you've achieved sustainable? And what are the puts and takes there from -- for each improvement you've achieved to date on Standard Products?

So gross margin on the Standard Products Group is obviously moving in a good direction. And as YJ said before, we are completely focused on profitability. We are primarily focused on the corporate profitability. However, all of the businesses appear to be moving in a good direction.

Yes. So let me to add. I mean, as we said in the call today, we have optimized portfolio in the Power. We have continued to push the portfolio optimization in Power. And of course, the AMOLED continued to be above the corporate gross margin and we are relying on the external Foundry. So we are going to do to focus, number one, on the corporate gross margin and then we will look at each business to optimize their own gross margin based on the new products and the optimizing customer base or the portfolio of the each product.

And then my last question on the OpEx. The R&D came down nicely here. What's the sustainable level here? Is there more room for that to come down? And how are [takeouts] maybe affecting that line?

On the R&D line, as discussed in the prepared remarks, there were some non-key R&D headcount that we were able to reduce. And so it did come down nicely. However, going forward, given the OLED-related R&D activities, R&D costs could likely go up. And so that's what we're looking at as we look forward.

And your next question comes from Atif Malik with Citi.

Nice job on gross margin execution. I have a question in terms of your restructuring and headcount reduction. When do we -- when should we expect that to complete? And are there any other restructuring initiatives that you guys are looking at in terms of sale of certain products?

So the planned headcount reduction has been successfully completed by end of the Q2. And so the estimated cost savings, as we mentioned, is going to be approximately $24 million on an annualized basis with related cash costs of $31 million, of which, $28 million has already been paid. And so the return on the investment that we made on the restructuring, I think it's going to be quite healthy. As to the full effects of the cost savings kicking in, we think that it will be sort of in the back half of Q3. As to the gross margin impact, the good news for us in this quarter was that the benefits that we were anticipating to start hitting in Q3 actually came in a little early. And that's part of the reason why the gross margin came in higher than expected in the guidance that we provided for the quarter.

Okay. And then just kind of longer term on the gross margin. If I were to flatline the revenue at the midpoint, $175 million, just based on your mix and some of the initiatives that you have, where can you take some of these gross margins kind of at a fixed revenue level?

We provide our guidance 1 quarter at a time for revenue and gross margin at the corporate level, and that's been our practice. But as we've said repeatedly, we will continue to focus on profitability as well as our gross margin, and we will be looking at all different levers to execute our plan going forward. So we will continue to look at our strategy, our cost structure and various different opportunities to explore cost reduction opportunities. And as we've said, we are fully committed on executing on our core business and committed to improving profitability.

Okay. And did you disclose your OLED sales in Q2?

We said that it accounted 31% of our display revenue.

Okay. And then with respect to China, I understand you guys are proliferating in China on the curved smartphones. And -- but it's very difficult to predict which one of the smartphones are going to be winners. So -- but when you look at your funnel of the Chinese kind of customers and smartphones, do you think you're hitting all the top 2 or 3 guys, like Huawei and (inaudible) and Vivos, that your odds of growing this business next year should improve?

Yes, so you're asking very good questions. So first of all, we don't talk about our end customers publicly, but if you look at in last year, 2016, we had more than 12 Chinese smartphone makers and customers. Obviously, with all these new products, we are going after that. And as you said, the -- I think that the -- what we're excited about is that we are enabling our -- the previous customer or the current customer with the new design that allows you to do a midrange phone, high-end phone, a flexible, curved or bezel-less. So this will be all new form factors. And I think this is a new trend. So we are excited to see the product launch that's going to happen towards the end of this quarter and see how that plays out. And we will also see how the global brand plays out. And the next earnings call, we probably can give you the indications of the impact and the effect.

And your next question comes from Rajvindra Gill from Needham & Company.

This is Bob Mertens on behalf of Raji. Just going back real quick to the Foundry business. I wanted to get a little bit more clarity around AMOLED coming off of the 110-nanometer fab. I mean, in terms of the percentage of the AMOLED business, is it safe to assume this is around 30-or-so percent? And how should we really track that going forward? Are these legacy products that have a long tail? Or do we see most of the analog coming off by, say, the end of next year?

Well, so Robert, first of all, we don't break down the AMOLED as a portion of our internal fab consumption and so forth. But we -- as we disclosed today that we won 2 other sockets using our 110-nanometer. So it seems like that we may have some usage of that in our internal fab through -- towards the end of next year. And so -- but it's not that large consumption. So we will try to make as (inaudible) much possible for the -- our Foundry growth, and we also discussed that some other ways that I talked about, perhaps, outsourcing some of the Standard Products Group further, as well as some of the IT products waving down and the non-AMOLED display, things like that will provide more room for the Foundry usage growth.

And maybe just a more general question in terms of what demand you're seeing for Power Management products. Are there any particular products that you feel you're seeing outsized growth within the market currently?

Well, so there are 2 areas in Power front. One is the -- our Foundry and our own product. So they are different markets, different customers. So -- but we are well positioned in the consumer, industrial and communications with our own products. And then our customers, they are all over in all the 5 key segments, and we don't compete, so which is also very good. And then our own products tend to be more concentrated in Asia, whereas our customers are global, so that also gives a more diversification. And so -- but the -- as we disclosed today, that is one of the key growth areas for our Foundry as well as our own product, and we think that those analog will be a good long-term growth and portfolio for us.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Bruce Entin for closing remarks.

Thank you, Heather. So this concludes our second quarter earnings conference call. Please look for details of our future events on MagnaChip's Investor Relations website. Thank you for joining us today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you all may disconnect. Everyone, have a wonderful day.