What happened
Chip manufacturer Magnachip Semiconductor (MX +17.36%) was falling 12.5% today as of 11:40 a.m. ET. The second-quarter 2022 earnings report is in, and the numbers beat expectations, but Magnachip added its voice to the chorus of semiconductor companies saying that parts of the tech hardware market are getting dicey.
NYSE: MX
Key Data Points
So what
Specifically in Q2, Magnachip said revenue was $101.4 million, down 11% year over year due to supply chain issues for chips used in OLED displays (an industry factor that also negatively impacted OLED supplier Universal Display (OLED 1.07%) last week as well). This was partially offset by an increase in the company's "power solutions." Adjusted earnings per share of $0.23 actually handily beat analyst expectations in spite of chip shortages and represented a 53% year-over-year increase.
Magnachip also said it's using this period of uncertainty to repurchase its stock. It's going to repurchase $37.5 million of its own shares in a return of excess cash to shareholders. The board of directors also initiated a "Strategic Review Committee" to explore other value-creation opportunities, including mergers and acquisitions.
Now what
As is always the case, though, past earnings are of far less importance than future outlook. And it's the preview of the third quarter that's really weighing on the stock today. Magnachip said revenue should be just $70 million to $75 million in Q3 (compared to $127 million in Q3 2021), further pressured by OLED display chip shortages.
The immediate-term outlook isn't great, but Magnachip is in fantastic shape. It has no debt and $274 million in cash and equivalents on balance, and shares currently trade for just 13 times trailing-12-month free cash flow. With the semiconductor industry expected to enjoy overall growth in the decade ahead, now could be the time to load up on chip stocks amid this downturn being brought on by supply chain issues.
