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Why MagnaChip Semiconductor Stock Popped Today

By Rich Smith – Oct 25, 2021 at 12:07PM

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Gross profit margin surged, but there weren't a lot of sales to profit from.

What happened

Shares of South Korean semiconductor manufacturer MagnaChip Semiconductor (MX) jumped out of the gate Monday and are up 4.3% as of 11:30 a.m. EDT after the company crushed its third-quarter earnings report this morning.

Heading into the third quarter, analysts had forecast that MagnaChip would earn $0.22 per share on $126.9 million in sales. As it turned out, the company just barely reached that sales target, booking $127 million in revenue. However, MagnaChip took a woodchipper to earnings projections, reporting a per-share profit of $0.42 per share and sending the shares flying.  

Simple green arrow going up.

Image source: Getty Images.

So what

Granted, that was only a pro forma number. Actual earnings when calculated according to generally accepted accounting principles (GAAP) were only $0.23 per share. And MagnaChip's sales inched only up 1.8% year over year in Q3 2021. The company's display solutions sales were especially weak, falling nearly 16% year over year, a fact the company attributed to "limited ... foundry capacity allocation amid global shortages in manufacturing capacities."

On the plus side, the company's gross profit margin on those sales grew by more than half to 36.7%, hitting "the highest level reported in the company's history."

Now what

The really bad news for MagnaChip investors, I fear, is that management says its "supply constraint is expected to persist for the foreseeable future," limiting its ability to grow revenue to which those strong gross margin numbers can be applied.

MagnaChip management didn't provide investors guidance on precisely how bad things could look later this year, but analysts are still forecasting a sizable falloff in revenue for the fourth quarter (down 7%) and an even bigger decline in earnings (down more than 40%).  

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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