Bruce Entin - Head, IR YJ Kim - CEO Jonathan Kim - CFO.

Suji De Silva - ROTH Capital Rajvindra Gill - Needham and Company Atif Malik - Citigroup.

Good day, ladies and gentlemen, and welcome to the MagnaChip Semiconductor Corporation Q1 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions for how to participate will follow at that time.

[Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Bruce Entin, Head of Investor Relations. Sir, you may begin..

Thank you for joining us today to discuss MagnaChip’s financial results for the first quarter ended March 31, 2018. The first quarter earnings release that we filed today after the stock market closed and other releases can be found on the Company’s Investor Relations website.

The 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 Jonathan Kim, our Chief Financial Officer.

YJ will begin the call with a discussion of the Company’s recent operating performance and Jonathan will provide an overview of our Q1 financial results. And YJ will come back to provide a brief recap, as well as provide financial guidance for the second quarter of 2018. There will be a question-and-answer 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 will also discuss the 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’ll now turn the call over to YJ Kim.

YJ?.

Thank you, Bruce, and good afternoon to everyone on our Q1 2018 conference call. We got the year off to a good start in the first quarter of 2018. We made operational progress across our three business lines and created a solid foundation for long-term growth.

Revenue of $165.8 million in Q1 exceeded the high-end of the guidance range, driven by increased demand for our OLED display drivers. Jonathan will provide more details regarding the new revenue recognition standard adapted in this quarter, but the impact to Q1 revenue amount was not material.

Gross profit margin was in line with the guidance range, despite higher vehicle prices and typical season weakness. Operating income and adjusted EBITDA, both showed double-digit percentage gains from a year ago. Here are the four takeaways from Q1. Number one, results in the power Standard Products business were impressive.

Revenue grew nearly 10% year-over-year and gross profit margin hit on all time high, post MagnaChip IPO in 2011 and exceeded the corporate average for the first time. These financial results demonstrated the success of the portfolio optimization and engineering restructuring review that were launched more than two years ago.

Number two, BCD and EEPROM technology continued to drive customer demand in our foundry business and accounted for approximately 40% of foundry revenue. The combination of analog-based BCD and E-squared technology is ideal for power management solutions and power ICs used in smartphones, IoT devices and USB-C applications.

Number three, in display, we took decisive steps through a portfolio optimization initiative to transform the underperforming non-OLED portion of the display business unit. LCD prices have been in a steady decline for some time. And in December 2017 alone, 32-inch LCD panel prices dropped by about 30% according to market observers.

We said on our Q4 earnings call, that we would not actively pursue on attractive LCD opportunities, which is exactly what we did in Q1 with about $11 million worth of LCD business.

We also said on the Q4 call that this strategy will temporarily affect revenue and fab utilization in Q1 2018, but that was consistent with our strategy of improving product mix and MagnaChip’s profitability over the long run. All that still holds true.

We also transferred in Q1, $4.4 million worth of products from the non-OLED display business to the foundry as part of ongoing portfolio optimization effort to realign business processes and streamline the organization structure. The product transfers have technical and business characteristics more closely aligned with the foundry business.

When all is said and done, the non-OLED display business remaining in our Standard Products Group is expected to be about $15 million per quarter this year as compared to about $30 million per quarter last year.

The good news for MagnaChip is that the growth we anticipate in our higher margin OLED business will more than offset the decline in revenue from the non-OLED display business line.

We are cultivating the non-OLED portion of the display business that is aimed at higher margin opportunities such as automotive and we will redirect display-related product development beyond OLED smartphones in order to gain market share in the overall display market.

Number four, this brings us to the final takeaway in Q1, the recovery in our OLED business. It was a long time incoming, but our OLED business regained momentum in Q1 and set the stage for robust revenue growth in 2018.

Based on our strong and growing design pipeline and current visibility, we now anticipate that OLED revenue will far surpass our previously stated revenue targets in 2018.

As a reminder, we stated on our Q4 earnings call that OLED revenue in Q1 2018 have the potential to increase sequentially by more than 75% and expressed confidence that OLED revenue was on track to exceed 50% growth in 2018 as compared to 2017 or clearly exceed $100 million for the full year.

In fact, the results were significantly better than expected. Demand continued to strengthen throughout Q1. OLED revenue in Q1 increased 141% sequentially and 112% year-over-year. OLED revenue in Q1 was $34.3 million and represented 59% of the total display business.

That compared on the adjusted basis to $14.3 million in Q4, 2017 or 32% of the display business and $16.2 million in Q1 2017 or 38% of the display business. The OLED momentum from Q1 has carried over so far into Q2. Based on current customer demand, our current view is that OLED revenue has the potential to increase about 50% in Q2 from Q1 level.

And if the current trends hold, OLED revenue in 2018 has the potential to approach the results in our 2016 breakout year when OLED accounted for approximately $160 million in revenue. The recovery in our OLED business in Q1 and the strengths we continue to see so far in Q2, did not develop overnight.

Instead, the seeds of our OLED recovery were planted in 2017 when we launched several new OLED display drivers that over time went from sampling to designing to smartphone product introductions that began modestly in Q4 2017. The pace of new China smartphone launches picked up in Q1 and the momentum is continuing into Q2.

While there is much debate about the current state of the China smartphone market, MagnaChip is seeing definite pockets of strengths, especially in rigid OLED display drivers for mid range and premium smartphones, on area where we have been positioned well.

TSMC which has a broad global customer base and a real-time pulse on the market, said on its recent earnings call that the high-end of the smartphone market is, and I quote here “a little bit soft” but added -- and I quote here again, “We do see China as a market start to pick up in the smartphone.” The Company then added that the China smartphone market is picking up slowly.

The last comment from TSMC about the pace of the recovery in the China smartphone market, may be true overall, but we have a different story to tell. Our slice of the business in the China smartphone market suggests the pickup, at least for MagnaChip, is resuming at a different speed, at least at this time. Are there of this scenario? Of course.

Some smartphone models could be delayed, others may disappoint and the economy and trade tensions are wild cards. These factors are beyond our control, but we are focused like a laser beam on what we can control. For example, we have expanded the OLED product portfolio. So, we don’t rely on the success of one or two products as we did in 2016.

What’s more? We are designing to more than two dozen latest OLED smartphones participating in multiple smartphone market segments, and broaden our end-customer footprint. We have also added a second Korean OLED panel maker as a customer and signed on a second external 12-inch foundry source to ensure we meet high-volume requirements of customers.

Let me expand upon a few of these points. In 2016, we mainly had two OLED display drivers including a legacy version. We hit a home run with the rigid 55-nanometer display drive IC, when just two China smartphone makers accounted for approximately 100 million in revenue. Fast forward to 2018.

More than 10 smartphone makers have awarded MagnaChip with 28 OLED design wins over the past three quarters including 10 design wins in Q1. And we continue to win design wins.

We typically don’t call out names of smartphone makers using our OLED drivers but we can say that our drivers were used in three OLED smartphones launched in Q4 2017, another four in Q1 and we anticipate that about 10 more will hit the market in Q2. Let’s look out our current mobile OLED product portfolio.

It now consists of six display drive ICs, three 40-nanometer rigid bezel-less drivers, two 55-nanometer flexible bezel-less drivers, and one mature 110 rigid OLED driver used by a Korean global smartphone maker for multiple entry level, high volume smartphones.

Several of our OLED drivers enable smartphones with ultrahigh-end features, so that mid-range to high-end prices in China, elsewhere in Asia and Europe and in emerging markets. Five of our OLED drivers are currently in volume production and the sixth, which we just introduced, is expected to be in production later this year.

Just a word about the new driver we sampled. It’s a new third generation 40-nanometer, rigid bezel-less OLED display driver that enables 21 by 9 screen aspect ratio and full HD plus, plus resolution. It already has one designing at a leading smartphone maker for a mainstream device targeted for launch in the second half of 2018.

The smartphone market with its annual product cycles requires non-stop product innovation. So, we have accelerated the pace of our OLED driver development. Already in the works is a 28-nanometer next generation OLED driver.

We expect our 28-nanometer DDIC will have the industry’s lowest power and smaller die size with the utmost OLED display capabilities. This will make it a technically compelling fit for the high-end smartphone market.

The good news is that we already ticked out a 28-nanometer test chip and we expect to hit the market with the product by end of this year or early in 2019. And we’re already in the early stages of designing of our own product. A final word about profit margin on OLED display drivers.

Our OLED business has consistently generated gross profit margin that topped our corporate average and that again was a case in Q1. We shipped mostly rigid drivers in Q1, but we expect that higher margin flexible OLED drivers will begin to ship in higher volumes later this year.

Our foundry, power and remaining non-OLED display business all are critical to MagnaChip’s success, because they have grown steadily over the past three years. They also share synergies that improve our product design efficiency and manufacturing know-how and expose us to a broad range of technologies, customers, applications and geographic markets.

Here is a short recap for each. Fab utilization hovered around high 80% range, reflecting seasonal weakness, although we see modest improvement going forward. Aside from focusing on PMIC-related applications, our foundry business increasingly focused on new market segments, including automotive and power discrete.

In Q1, we introduced Automotive-Grade 0.18 micron BCD process technology with up to 100 volt, which offers automotive-grade reliability for DC to DC converters, LED drivers, motor drives, battery chargers and PMICs using automotive electronics. Turning now to the power products business.

The progress we’ve made on the product front is equally as impressive as the improved financial results in that business. Premium products accounted once again for over 40% of power revenue in the quarter and we continue to develop new premium products.

For example, we are converting existing products to new generation super junction, medium voltage MOSFET and IGBT. While at the same time we are reducing the contribution level of low margin products. New generation MOSETs were strong in the TV market, while IGBT and medium voltage MOSFETs were especially strong in China industrial power markets.

Super junction product showed healthy demand from the industrial and lightning markets. Power is becoming an increasingly important part of our business and the industry. Let me make some final comments about our non-OLED portion of the display business.

Back in our Q3 earnings call, we identified the low-margin portion of our LCD products business as a headwind because portions of it often fell short of our internal profit objectives.

In some ways, this business resembled our power business of a few years ago, which is why we now are actively pursuing a similar portfolio optimization strategy in the non-OLED display business.

Our reengineering of the non-OLED display business will take time, but we’ve taken major steps in Q1 to put it on the path to improved revenue and profitability. One note about where display portfolio optimization effort is headed. We have a broad pallet of technologies and good understanding of system design.

So, we plan to use a platform approach to product development and design a new and more competitive line of display drivers that share a common architecture for larger screens and automotive applications.

We believe that over time, this approach has the potential to accelerate time to market, improve the product mix, and optimize the display business for higher revenue and improved profitability. With that, I’ll turn the call over to Jonathan.

I’ll return afterwards to wrap up and provide our business outlook and financial guidance for the second quarter of 2018.

Jonathan?.

Thank you, YJ, and welcome to everyone on the call. YJ provided a detailed view of revenue growth in Q1. So, I’ll pick it up from there to share our view on gross profit metrics and overall profitability. Gross profit margin in Q1 was 26.9%, in line with our guidance range, despite previously disclosed and widely discussed headwinds.

Those include a substantial increase in raw silicon wafer prices, typical seasonality that affected foundry product mix and fab utilization. We stated on the Q4 earnings call in February that we took steps to partially mitigate the impact on gross margin from increasing wafer prices that are being felt, not just by us, but industry-wide.

We continue to engage in long-term supplier arrangements with wafer suppliers and make prepayments to guarantee wafer supply at attractive prices. Also, we continue to opportunistically buy raw wafers to add to buffer stock inventory.

We said on the Q4 call that we had the potential for overall gross margin in fiscal 2018 to be flattish, give or take with the gross margin results we posted in fiscal 2017. We stand by those words.

Regardless how it turns out at the end of the year, we believe it will be useful to monitor gross margin dollars as a key financial metric in addition to gross profit margin. An increase in revenue growth which we expect to achieve in 2018 would fall through to gross profit dollars adjusted EBITDA and cash flows.

In Q1 gross profit dollars moved in the right direction improving to $44.6 million, up 7.2% from $41.6 million in Q1 2017. Other profitability metrics also have shown improvements. Operating income of $7.4 million in Q1 increased 15.9% from $6.4 million in Q1 2017. Adjusted EBITDA totaled $15.5 million in Q1, up 18.4% from $13.1 million in Q1 2017.

We said many times and we will say so again today that our number one goal is to improve profitability. I’d like to turn now to the balance sheet and start out by providing you with some context around ASC-606, the new revenue recognition standard. As noted by YJ, the impact to Q1 revenue amount was non-material.

However, it did have an impact to the way that inventories and receivables are reflected on our balance sheet. As background, in Q1, we continued to deliberately and opportunistically increase buffer stock of raw wafers and inventory at attractive prices.

However, this action won’t be immediately obvious upon first glance at the balance sheet, because reported inventories at the end of Q1 actually showed a decline of 22.5% to $56.7 million from $73.1 million at the end of fourth quarter of 2017 and as compared to $61 million in first quarter of 2017.

So, what happened? In a nutshell, MagnaChip changed its accounting policies to conform with the new revenue accounting standard that became mandatory in 2018 for all publicly traded companies reporting under U.S. GAAP.

The new revenue recognition standard mainly affects the accounting of the foundry services group, which requires a portion of the foundry revenues to be recognized over time rather than upon shipment or delivery, depending on the related arrangement.

Because of the new revenue recognition standard, you will see a new line in the balance sheet called unbilled accounts receivable of $39.2 million at the end of Q1 which relates to inventory working their way through the fab at working process, but not yet fully built and billed to a customer.

Next, I’d like to discuss actions we took in Q1 with regard to non-OLED display product portfolio. YJ discussed this earlier, and I’d like to provide how the changes we made affect segment reporting.

In Q1, we implemented two major changes to reinvigorate and redirect the non-OLED display business and to improve our product mix and profitability over time in the business line. The changes also required that we make adjustments in our segment reporting.

Specifically, we number one, transferred a portion of non-OLED display business, which represented $4.4 million for Q1 2018 and is estimated to be approximately $20 million for fiscal 2018 as part of the Company’s ongoing portfolio optimization effort. Our segment financial results reflect this business transfer.

And number two, we decided not to actively pursue unattractive LCD opportunities of approximately $11 million. We clearly signaled our intention to take this action on our last earnings call, but we haven’t specified the dollar amount at that time.

When all is said and done, the non-OLED display business remaining in our standard products group is expected to be about $15 million per quarter this year as compared to about $30 million per quarter last year. A few final housekeeping notes before I turn the call back to YJ.

SG&A is trending flattish as we said it would, although we reported an unexpected benefit of $700,000 in Q1 to recoup on insurance claim related to restatement related legal fees. R&D increased in Q1 to reflect increased development costs, primarily related to our OLED products.

The increase in R&D is consistent with comments we’ve made on past earnings calls. There were 34.3 million basic weighted average number of shares outstanding and 35.2 million diluted weighted average number of shares outstanding in Q1.

The difference between earnings per basic share and diluted share primarily relates to equity-based compensation and does not include the effects of the Company’s exchangeable notes as it is anti-dilutive for the quarter. Capital spending in Q1 2018 totaled $7.3 million.

We currently expect our capital expenditures in 2018 to be approximately $30 million as compared with $32.7 million in 2017. Cash was $123.1 million at the end of Q1 2018 as compared with $128.6 million in Q4 2017 and $132.6 million in Q1, 2017. In Q1 2018, we made our regular biannual interest payments of $9.6 million related to our debt obligations.

In summary, we performed well in Q1, despite headwinds and are making progress on improving key profit metrics. So, with that, I’ll turn the call back to YJ.

YJ?.

Thank you, Jonathan. What a difference a quarter makes. When we reported Q4, we forecast a sharp improvement in our OLED business in Q1, even though it may not had been apparent to you, based on our stated financial results.

We have created our own upturn by developing a new generation of OLED drivers that began to generate the substantial design-ins starting in the second half of 2017.

With Q1 results now in the books, we look ahead with confidence in 2018, based on expanded OLED product portfolio, a growing design win pipeline and building competitive advantages as the world-leading independent supplier of OLED display drivers.

Having a unique relationship with the top two OLED panel makers in the world who happen to be in Korea is a privilege and a strategic advantage. We feel good about 2018 because it appears the low-end and mid-range smartphone segments are healthy, and these are the segments we serve with market-leading rigid and rigid bezel-less OLED drivers.

We also have a growing portfolio of flexible OLED drivers for high-end smartphones, a market segment where we barely scratch the surface and represents a great opportunity. It’s not clear when foldable smartphones will hit the market, but we know they will require OLED flexible drivers since LCD physically cannot be folded.

MagnaChip intends to be ready with the flexible OLED display drivers and complex packaging that will be require for those foldable smartphone panels. OLED is an attractive market that will surely draw new entrants, but we focus more on customers and end markets.

We believe that if we develop and deliver innovative and high-quality products and take care of our customers, then the rest will go a long way towards taking care of itself. With that, let’s turn now to our forward-looking guidance.

For Q2 2018, MagnaChip anticipates revenue to be in the range of $182 million to $188 million, up sequentially 11.6% at the midpoint of the projected range. The guidance for the second quarter compared with revenue of $165.8 million in the first quarter of 2018 and $166.7 million in the second quarter of 2017.

Despite headwinds, gross profit margin to be in the range of 26% to 28%, this compares to 26.9% in the first quarter of 2018 and 28% in the second quarter of 2017. Now, I will turn the call back to Bruce.

Bruce?.

Thank you, YJ. So, Jimmy, this concludes our prepared remarks. We now like to open the call for questions..

Thank you. [Operator Instructions] Our first question comes from Suji De Silva with ROTH Capital. Your line is now open..

Hi, YJ, hi Jonathan. Congratulations on the inflection you’re seeing in OLED and the execution to get back there.

So, maybe, you can help us kind of with the more detailed kind of perspective on what’s going on the China’s smartphone market? What’s the reaction there to iPhone action, what’s going on there? The demand, how quick is the cutover the bezel-less flex aspect ratios at a higher OLED? And just help us understand how quickly the market is jumping to those models?.

Yes. So, I think there is many mix different news coming out and various sources. But, I think the latest this times that was published yesterday today, did show that in Q1, China smartphone market did go down, but they expecting the top 5 China smartphone maker to rebound in Q2 with the growth rate of around 15%.

Having said that, I think, we are in a quite different story. Because we had a new generation product that we planted last year. And we have about 28 design wins cumulative by the end of the Q1, and we see those new products being ramped.

There was also report in one of the China newspaper that among the top 10 most popular phone in China, five were OLED-based.

So I think this is reflecting that our new product that is showing the 21 by 9 or 19.5 by 9 and making the looks and feel very similar to the iPhone 10, with the latest features and a great utmost features at a mid range price points or in the premium price points is enabling our end customer to restarting the market. .

Okay. Thank you, YJ. That color is very helpful. And then, just comparing this year to 2016, I am trying to kind of gauge how many of high runners there were in 2016? It sounds like maybe one or two. And how many of the models you’ve won this year had the potential to do that? That’s not potentially all the ones you have won.

Just can you give a sense of how much more diversified the opportunity is in 2018 here?.

So, in 2016, if I recall correctly, we had about 10 or 12 end customers globally. And as we said today, the two customers in China, drove about $100 million with one product that we hit a homerun.

I think this year, our portfolio is more larger than last time and we have more than 12 end customers and I think it’s more balanced this year than the last time. So, we may have some homerun, we may have first base, second base. So, we feel good about this year’s position.

We also sampled, introduced the third-generation 40-nanometer, which also will go into the second half of this year. We did not have that kind of product in 2016. So, again, it’s a little apple and oranges, but I think the -- we are more balanced this year..

Okay. That’s helpful color as well. And then lastly, perhaps for Jonathan. You talked about the gross margin, how you’re managing it.

I don’t know if I heard, may have missed it, how is the 8-inch wafer tightness and how’s that going to progress going to the second half of the year, what’s your outlook there?.

We’ve talked about the fact that this particular headwind has a potential impact of 2% to 3% to our gross margin, if not to manage, and obviously we’re not going to be doing managed, we are doing various different things including continuing to engage in long-term contracts, making prepayments and building up on buffer stock to the extent that we can get attractive prices.

So, we’re doing those things. As we look out into the market, we do continue to see demand outpacing supply. So, we are certainly feeling the impact of that, but we are working on these various different things to mitigate the impact of the wafer pricing. And in addition to that, we are continuing to look for ways to improve our utilization.

We talked about the fact that we’re continuing on with our power product portfolio optimization. We’re starting that on the non-OLED side and we heard some good news today about the OLED businesses as well..

Thank you. Our next question comes from Rajvindra Gill with Needham and Company. Your line is now open..

Yes, thanks and congrats as well on solid progress on OLED. That’s great news.

On the OpEx, Jonathan, just wondering if you could provide some insight on, on how you’re seeing, looking at OpEx and in the second quarter and going forward, is it going to be at this kind of $37 million per quarter range?.

Yes. So, with respect to SG&A, we talked about the fact that we see SG&A being flattish, and we’ve provided $18 million to $19 million range to be sort of the SG&A amount.

This quarter, what was unique was that we had some unexpected benefits related to some insurance claim that came through for about $700,000 and that’s the reason why you see $17.6 million on the SG&A line. R&D is expected to go up. So, for this quarter, we have about $37 million in OpEx.

And it will likely go up, primarily related to R&D activities related to our OLED business..

Okay, got it. And then, on the growth you’re seeing in power standard products, that seems to be a kind of a secular driver across semiconductors, the demand for power ICs and P mix for all sorts of applications. And I think it’s kind of an underappreciated story for you guys.

So, YJ, I was wondering if you could maybe characterize the demand for power management this year and how is it different from last year and the years passed. Because it seems like the demand for power is accelerating dramatically..

Yes. Thank you, Raj, for asking the great question. So, as we said today, for the first time, our power products gross margin was higher than corporate average after the IPO. And it’s a reflection of the health of our products as well as market. In our power, we have a majority of revenue coming from the discrete.

If you look at discrete market, it’s very strong because there is new applications such as the automotive electric cars that is really driving the automotive demand. And that also there is a strong industrial.

So, what that means is that there is a lot of also pick-up from the consumer and computing and power discrete because there is over-demand and in the industrial. So, we are doing really well with our new generation products, which has very high quality and high characteristics.

So, we have been able to grow the revenue as well as improve the profitability..

And Jonathan, last question for me. The transfer of the -- rationalization started the non-OLED business. And then, you are transferring $4.4 million to the foundry. Just want to understand the math. So, that business was $30 million a quarter, now it’s going to $50 million a quarter.

But, that’s being -- more than offset being with OLED but then you’re putting another $4 million into foundry from that segment. So, I wanted to understand why you’re transferring from 4 from the non-OLED business to foundry and I was wondering if you could talk a little bit about that. Thank you. .

Yes. I will give you the product characteristic and then hand over to Jonathan. But that $4.4 million really resembles the foundry business type, looking both technically and business, because we don’t have a design work in that particular revenue. So, it’s more like foundry. So, that’s why it made sense to transfer the foundry.

As for the additional comment, I’ll have Jonathan talk..

Yes., I think that’s very good color around what the business is. And again, the primary reason for us transferring that business over to foundry is because the underlying characteristics of that business is much more similar to foundry versus the standard products business.

The reason why we had standard products business before was related to our longstanding relationship, customer relationship that caused us to keep doing that business for a while. But as we’re looking at our portfolio optimization and bringing more focus to each of the segments, we thought it would be appropriate thing to do..

Thank you. Our last question comes from Atif Malik with Citigroup. Your line is now open. .

Hi. Thank you for taking my questions and good job on execution here.

YJ, the 50% sequential growth expectations for the OLED business in the June quarter, can you just talk about, are you expecting both Korea and China to grow within that 50% growth or is Korea down and China way up?.

I don’t know on top of my head what is what exactly, but both countries expected to grow on that. And so we said that we have potential to grow about 50% in the second quarter.

It’s primarily driven by the cumulative 28 designs and we said that we expect about 10 or more smartphones to be launched in the second quarter of that 28 cumulative designs that we had end of the Q1 2018. Three already have launched in Q4 last year, four have launched in Q1. So, we expect about 10 to be launched in Q2..

Okay. And then with respect to ZTE and Huawei, there is a bit of concern about these two phone makers.

Have you de-risked any kind of exposure to these OEMs in June quarter?.

So, a very good question. So, first of all, we do not ship directly to ZTE whatsoever in terms of the products. Second, even if there is that it would be immaterial to our revenue..

Okay. And then, last question rigid versus flexible mix, it sounds like rigid panels are doing much better in June quarter for you guys.

How should we think about your mix longer term, like exiting this year and exiting next year, rigid versus flexible?.

So, I think the rigid will be still bigger portion, but I think the good thing for us is that the higher margin flexible will grow over time. So that’d be also a positive for us in terms of margins..

Thank you. And I’m showing no further questions in the queue at this time. I’d like to turn the call back over to Bruce Entin for any closing remarks..

Okay. Thank you, Jimmy. So, this concludes our first quarter 2018 earnings conference call. Please look for details of our future events on MagnaChip’s Investor Relations website. Thank you for joining us today..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude your program and you may all disconnect. Everyone have a great day..