Magnachip up for sale as boss steps down, capex slashed
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The CEO of struggling Korean power chip maker Magnachip has stepped down after ten years as the board puts the company up for sale and cuts capital spending in half.
YJ Kim stepped down as CEO and as a member of the Board of Directors, effective immediately , and has been replaced by Camillo Martino, Chairman of the Board of Directors.
The company is also looking at options for its sale. It went through a similar situation in 2020 after selling off its largest fab and foundry business for $350m to focus on making power MOSFETs and display drivers. A bid by Chinese owned Wise Road was blocked by US authorities, and the same is likely to happen again as it has since moved into supplying MOSFETs for automotive suppliers and dropped the display driver business.
The move to drop Kim as CEO just as the semiconductor market is picking up indicates a split in strategy with leading shareholders.
“YJ Kim became CEO during a turbulent period in the Company’s history, and has led the firm for the past decade. However, Magnachip now faces several strategic, operational and financial challenges as it transitions to become a pure play power semiconductor company, and this requires new leadership. On behalf of the Board of Directors, I thank YJ for his service and wish him well in his future endeavors,” said Martino.
“I am fully committed as Interim CEO and will spend most of my time in South Korea to accelerate our transition to a pure-play power company, while also focusing intensely on achieving sustainable profitability and maximizing shareholder value,” he said.
“As part of Magnachip’s capital allocation process, the Board will review all strategic alternatives including, but not limited to, a potential sale of the Company. The Board and management share the frustration of shareholders regarding the performance of the Company, and we are determined to optimize capital returns to shareholders.
Capex is set to be cut from around $65m to $30m, with the majority coming from borrowing.
“Among the first actions being taken in our plan is cutting capital expenditures by more than 50% over the next two-plus years as we prioritize capital allocation. As part of our capital allocation plans, it is important that we invest in our Gumi fab to support the growth of our new-generation power products that are critical to our financial recovery. New-generation products are expected to increase our market competitiveness and result in higher average selling prices and gross profit margins. Capital expenditures, which recently had been forecast to range between $65-70 million through 2027, now are forecast to be in the range of $30-35 million, but the total net cash outlay by Magnachip currently is expected to range between $12-13 million, with the remainder covered by our bank equipment loan facility.
“In addition, we will continue to review all other available cost reduction initiatives to align our spending consistent with our goal to achieve Adjusted EBITDA breakeven as soon as possible. One of the right-sizing initiatives being undertaken is headcount reduction, primarily through shared corporate functions. We are currently targeting to achieve annual savings of $2-3 million in operating expenses, with a payback period of 1.5 years.”
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