Why Shares of MagnaChip Semiconductor Corp. Dropped Today

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What happened

Shares of MagnaChip Semiconductor Corp. (NYSE: MX) slumped on Wednesday after the manufacturer of analog and mixed-signal semiconductor products reported its fourth-quarter results. The numbers were in line with or slightly ahead of analyst expectations, but that wasn't enough to prevent the stock from dropping 11.6% by market close.

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So what

MagnaChip reported fourth-quarter revenue of $174.6 million, down 3.3% year over year but about $0.6 million above the average analyst estimate. Foundry services revenue rose 3.6% to $80.6 million, while standard products revenue slumped 8.4% to $93.9 million. The company pointed to a slowdown in the China smartphone market as one factor behind the revenue decline.

Non-GAAP earnings per share came in at $0.23, up from $0.04 in the prior-year period and just as analysts anticipated. The company managed to grow its gross margin by nearly 3 percentage points year over year to 28.3%, which helped boost the bottom line.

CEO YJ Kim thinks the OLED business, which was down in the fourth quarter, will perform much better in 2018. He said, "Based upon our current business visibility, we anticipate a sharp rebound and steep growth in our OLED business in the first quarter of 2018 and remain confident that our OLED revenue this year is on track to exceed 50% growth as compared to 2017 or clearly exceed $100 million."

Now what

MagnaChip's fourth-quarter results weren't bad, but the market punished the stock anyway. The company's guidance could be to blame: MagnaChip expects to produce first-quarter revenue between $158 million and $164 million, roughly flat compared to the $161.7 million revenue it reported for the prior-year period. It also predicted that its gross margin would take a hit from higher silicon wafer prices and lower utilization.

With revenue stagnating, growth potential in the OLED business isn't enough to satisfy investors. Wednesday's slump comes a few months after the stock tumbled on news that existing shareholders were selling about 10% of outstanding shares in a secondary offering.

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Timothy Green 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.