Activist Investor Jonathan Lennon States Bullish Case For MagnaChip Semiconductor Corporation (MX) In Letter To Management

The fund believes that the current stock price of MagnaChip is mainly affected by negative sentiment, transitory business problems, accounting, and geographic complexity, and that it does not reflect its underlying asset value. Precisely, Pleasant Lake Partners suggests that MagnaChip’s management has not been able to make the most of the constantly improving semiconductor industry since 2012, particularly for the foundry and analog sub-sectors. The improvement in the industry economics and valuation was not absorbed by MagnaChip due to three main reasons: restatement impact (e.g. turmoil after executive departures, one-time costs, inventory putback), misguided strategy, and poor execution of customer acquisition. As a result, Pleasant Lake Partners asks for necessary steps to maximize shareholder value and is ready to assist the management of the company in achieving that. Thus, considering the fact that the shares of MagnaChip have plummeted by over 44% since the beginning of the current year, it seems that there is a lot of upside for the manufacturer of semiconductor products in the upcoming months and years.

We’ll now briefly discuss MagnaChip’s financial results from the first quarter of the year so as to get a broader picture of the company’s performance. MagnaChip reported revenues for the quarter of $164.9 million, which yields a 1.7% decline compared to the previous quarter and a decrease of 0.42% year-over-year. The gross profit of the company for the quarter represents 21.2% of its revenues, which is lower compared to the 24.5% reported in the first quarter of 2014. At the same time, MagnaChip reported a net loss on a GAAP basis of $0.59 per diluted share, compared to the net loss of $0.63 per diluted share it reported for the first quarter of 2014. The net loss was mainly affected by lower revenues and gross margin, along with other issues faced by the company. The management of MagnaChip acknowledges that the company’s performance has been heavily affected by strategic missteps in the past, so it intends to enhance the company’s engineering efficiencies along with its comprehensive cost and portfolio optimization program. Therefore, it seems that both MagnaChip and Pleasant Lake Partners will focus on improving the efficiency of the manufacturer’s operations and activities, so we might observe a quick turnaround for the company soon enough. In the meantime, Marc Lasry’s Avenue Capital represents the largest shareholder within our database of MagnaChip Semiconductor Corporation (NYSE:MX)’s shares, with 4.09 million of them.

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