UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): May 6, 2020

MagnaChip Semiconductor Corporation

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (352) 45-62-62

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

On May 6, 2020, MagnaChip Semiconductor Corporation (“MagnaChip”) held an earnings conference call to discuss the financial results of its first fiscal quarter ended March 31, 2020. A copy of the prepared remarks for the conference call is furnished and attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information disclosed under this Item 7.01, including Exhibit 99.1 hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

The following exhibit is furnished as part of this report:

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit 99.1

MagnaChip Semiconductor Corporation

Prepared Remarks for the Investor Conference Call

for the First Quarter ended March 31, 2020

BRUCE ENTIN (Moderator)

Thank you for joining us to discuss MagnaChip’s financial results for the first quarter ended March 31^st, 2020. The first quarter earnings release 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 Shinyoung Park, our Chief Accounting Officer. YJ will discuss the Company’s recent operating performance and market outlook for our product categories, and Shinyoung will provide an overview of the accounting treatment of Continuing and Discontinued operations. There will be a Q&A 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 also will 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 first quarter earnings release available on our website under the investor relations tab at www.magnachip.com.

I now will turn the call over to YJ Kim. YJ?

YJ KIM (Chief Executive Officer)

Thanks Bruce, and welcome to everyone on the Q1 2020 conference call.

First of all, our hearts go out to all those people whose lives have been impacted by the global pandemic. At MagnaChip, we are fortunate that Korea seems to have handled the COVID-19 breakout in a manner that minimized its spread.

MagnaChip started 2020 on a high note. We executed well and delivered solid results in Q1 despite typical seasonal softness and market disruptions caused by the COVID-19 global pandemic.

If you recall, on our Q4 earnings call on February 19th, we guided Q1 revenue between $180 to $195 million and gross profit margin between 23% to 25%. We updated our guidance on March 10^th and raised the low end of revenue guidance to $187 million and the high end to $197 million due to stronger than expected revenue in our OLED and Foundry businesses, and despite weakness in our Power business. We kept the gross profit margin range the same.

The financial statements we released today look different than in previous quarters because beginning in Q1 we now account for the Foundry business as a discontinued operation under accounting rules. The continuing business includes the Display business, Power business and Fab 3 operations. The change in our reporting came about when we signed a definitive agreement on March 30^th to sell the Foundry business and Fab 4. Shinyoung, Chief Accounting Officer, will soon provide a more detailed overview of the accounting rules that govern how we now present our financial statements.

Meantime, we’re pleased that the combined Q1 revenue from standard products and Foundry services hit $197 million on a non-GAAP basis. That was our highest revenue level for a first quarter in 12 years and met the high-end of our updated guidance. We currently do not detect excess inventories in our sales channels, and our own inventories are at levels to meet near-term demand.

The non-GAAP combined gross profit margin from continuing and discontinued operations was 25.3%, which exceeded the high-end of the guidance range. Revenue from standard products was $110.7 million, up 10.4% year over year, and gross profit margin was 26.3%. Revenue from the Foundry business was $86 million, and gross profit margin was 23%.

Now I’d like to give you an update on the definitive agreement to sell the Foundry business and Fab 4. If you recall, the transaction value was $435 million, which includes $344.7 million in cash and approximately $90 million in accrued severance liabilities that will be transferred along with approximately 1,500 employees to the buyer.

The transaction remains on track to close on schedule in the September-October timeframe. It’s worth noting that there is no closing condition tied to any regulatory approval. Also, worth noting is that the definitive agreement contains an explicit condition that COVID-19 cannot be a cause to delay or cancel the transaction. I’ll comment further about the strategic rationale for selling the Foundry business and Fab 4 when we discuss Q1 Foundry results in a few minutes.

Now, let’s take a closer look at the continuing businesses, starting with OLED, which accounted for about 90% of our total Display business in Q1:

We see the following trends in 2020 for our OLED business:

Now let’s turn to Power.

Now, turning to the Foundry Services Group.

Foundry turned in a good quarter, but our decision to sell that business and Fab 4 was strategic and aimed at maximizing shareholder value over the long term. The Foundry business is capital intensive, highly cyclical, requires a separate salesforce, continuous R&D and scalability. Hence, we believe this business could grow with a dedicated focus, which it now will have with new owners. Given our size and financial resources, our management and Board both believed it made more sense to focus on either foundry or standard products, but not both.

From an operational point of view, the sale of the Foundry business and Fab 4 allows us now to transform into a streamlined, pure-play products company focused exclusively on the growth opportunities in the Display and Power businesses.

The sale also allows us to set near-term and longer-term financial goals to improve overall profitability and maximize shareholder value. Putting aside the near-term impact of COVID-19, here are key priorities and financial metrics we’re focused on over the next few years:

We plan to provide more detailed information on our pro-forma financial model as we go forward and hold an analyst day after we close the sale of the Foundry business and Fab 4.

Now let me make a few comments about COVID-19 and how we are dealing with it at MagnaChip.

Many investors have asked us how we are managing our workforce in view of the pandemic. We began in February to take serious steps to help protect our employees, the vast majority of whom work in Korea. Each day, we disinfect all areas in our fabs where workers tend to gather, and we require that office and fab employees use separate entrances to avoid cross-contamination. We’ve also installed plexiglass partitions in the employee cafeteria to create protected spaces for employees. Forehead temperatures are taken and hands are sanitized each time an employee enters any of our offices or fabs, and employees wear a face mask and practice social distancing. In our Seoul office, we’ve upgraded to a Semi-HEPA air filter system capable of filtering out ultra-fine particles and we’ve implemented alternating work-at-home days for those in critical functions to avoid sidelining whole teams or management. We’ve provided paid leave for fab employees that were in a severely affected area and sent them the care packages to their home. I thank all our employees for their ongoing dedication to serve our customers during this extraordinary period.

Turning now to our supply chain. Our assembly and test subcontractors in China now are fully operational. We use two external 12” foundries outside Korea and China in separate locations to manufacture our newer-generation OLED display drivers. Both foundries have been operating at normal levels. Likewise, our Display sub-contractors in Korea are operating at normal levels, and now also hold an extra two months of inventory to prepare for unexpected events. To date, our Fab 3 and Fab 4 manufacturing facilities in Korea have been operating at normal levels. The supply chain is only as strong as its weakest link, so we will continue to monitor it closely to mitigate potential vulnerabilities.

Turning now to our business outlook.

Please refer to the press release we issued today for Q2 financial guidance. COVID-19 has reduced our visibility and created significant business challenges, but we are better prepared now than ever before to confront them.

To sum up, I would like to emphasize that the business transformation we’re undergoing will better position us to deliver sustainable and profitable growth. I shared with you earlier our priorities over the next few years and look forward to report our progress as we continue to execute our business plan.

Now I’ll turn the call over to Shinyoung and come back for Q&A.

Shinyoung?

SHINYOUNG PARK (Chief Accounting Officer)

Thank you, YJ. Let’s review the accounting treatment for the continuing and discontinued operations.

As you can see in our first quarter earnings release, the financial statements look very different from what we’ve reported in the past. Until we close the sale of Foundry business and Fab 4, the prudent way to calculate our Non-GAAP EPS is that you need to look at it on a combined Non-GAAP basis.

The Foundry Services Group is accounted for as a discontinued operation beginning in this quarter and (ii) the assets and liabilities relating to the Foundry business and Fab 4 are shown separately as those held-for-sale on our balance sheet.

What this essentially does is that we’re carving out FSG from our operational results, and the assets and liabilities that belong to the Foundry business and Fab 4. To do this carve-out, we’ve applied certain assumptions mainly for the allocation of OPEX between the Foundry business and the standard products business. For instance, we used a list of approximately 1,500 employees as a basis for the allocation of payroll costs. If there is any change to the list of employees to be transferred through to the closing, we will make an adjustment as applicable.

Following the consummation of the sale of Foundry business and Fab 4, and for a certain period of time thereafter, we will provide transitional foundry services to the buyer for Foundry products manufactured in Fab 3, our fabrication facility located in Gumi, Korea. For the periods prior to closing, revenue we derive by providing transitional foundry services from Fab 3 to the Foundry Services Group are recorded at cost in both of the continuing and discontinued businesses, resulting in no margin, as such sales and costs are eliminated when results from the two businesses are combined together. Because of this accounting treatment, you will see new lines on the statements of operations called “Net sales – transitional Fab 3 foundry services” and “Cost of sales – transitional Fab 3 foundry services”.

Keep in mind that accounting rules dictate that general corporate overhead, shared between continuing and discontinued operations get lumped 100% into the continuing operations bucket. This is why it would not be accurate to extrapolate this level of shared services expenses as part of continuing operations into the future.

I’d like to note:

With that, I’ll turn the call back to Bruce.

Bruce?

BRUCE ENTIN (Moderator)

Thank you, YJ and Shinyoung.

So (Operator), this concludes our prepared remarks.

With that, we would now like to open the call for questions.

[Q&A Session]

BRUCE ENTIN (Moderator)

Thank you, (Operator). So, this concludes our first quarter 2020 earnings conference call. Please look for details of our future events on MagnaChip’s Investor Relations website.

Before we end the call, I’d like to welcome Ms. So-Yeon Jeong, a 20-year IR veteran in Silicon Valley who replaces me as Head of Investor Relations. She is an IR pro and she looks forward to meeting all of you. As for me, thanks to everyone in the financial community for a great ride over the past five years. I enjoyed my time and had the honor of working side-by-side with YJ, his team and the Board. I’ll be spending less time on airplanes and more time at home, and cheering on MagnaChip from the sidelines.

Thank you for joining us today.

[END OF PREPARED REMARKS]

Forward-Looking Statements

Information in this script regarding MagnaChip’s forecasts, business outlook, expectations and beliefs are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These statements include statements about MagnaChip’s future operating and financial performance, outlook and business plans, including second quarter 2020 revenue and gross profit margin expectations, and the impact of the COVID-19 pandemic on MagnaChip’s second quarter 2020 and future operating results. All forward-looking statements included in this script are based upon information available to MagnaChip as of the date of this script, which may change, and we assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Factors that could cause or contribute to such differences include the impact of changes in macroeconomic and/or general economic conditions, including those caused by or related to the COVID-19 outbreak, recessions, economic instability and the outbreak of disease; the impact of competitive products and pricing; timely design acceptance by our customers; timely introduction of new products and technologies; ability to ramp new products into volume production; industry wide shifts in supply and demand for semiconductor products; industry and/or company overcapacity; effective and cost efficient utilization of manufacturing capacity; financial stability in foreign markets and the impact of foreign exchange rates; unanticipated costs and expenses or the inability to identify expenses which can be eliminated; compliance with U.S. and international trade and export laws and regulations by us and our distributors; the risk that the pending sale of our Foundry Services Group business and the Fab 4 facility to Magnus Semiconductor, LLC or one of its wholly owned subsidiaries is not consummated according to our current expectations or at all; public health issues, including the COVID-19 pandemic; other business interruptions that could disrupt supply or delivery of, or demand for, MagnaChip’s products, including uncertainties regarding the impacts of the COVID-19 pandemic that may result in factory closures, reduced workforces, scarcity of raw materials and goods produced in infected areas, as well as reduced consumer and business spending affecting demand for MagnaChip’s products due to government and private sector mandatory business closures, travel restrictions or the like to prevent the spread of disease; and other risks detailed from time to time in MagnaChip’s filings with the SEC, including our Form 10-K filed on February 21, 2020 (including that the impact of the COVID-19 pandemic may also exacerbate the risks discussed therein) and subsequent registration statements, amendments or other reports that we may file from time to time with the Securities and Exchange Commission and/or make available on our website. MagnaChip assumes no obligation and does not intend to update the forward-looking statements provided, whether as a result of new information, future events or otherwise.