Welcome to the Q4 2021 Magnachip Semiconductor Corporation earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there'll be a question-and-answer session. To ask a question at that time, please press star then one on your touch tone telephone. As a reminder, today's conference call is being recorded. I will now turn the conference over to your host, Ms. So-Yeon Jeong. Ma'am, you may begin
Thank you. Hello, everyone. Thank you for joining us to discuss Magnachip's financial results for the fourth quarter ended December 31, 2021. The fourth quarter earnings release that was filed today after the stock market closed can be found on the company's investor relations website. A telephone replay of today's call will be available shortly after 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 Financial Officer. YJ will discuss the company's recent and annual operating performance and business overview, and Shinyoung will review financial results for the quarter and the year and provide guidance for the first quarter of 2022. There will be a Q&A session following the 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 statement found in our SEC filing. 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 fourth quarter earnings release available on our website under the Investors section at magnachip.com. I now will turn the call over to YJ Kim. YJ?
Hello, everyone. Thank you for joining our call today. For the first quarter, the demand and signals from our customers remain strong across the board. However, severe supply constraints continued to significantly limit our OLED revenue potential, which was partially offset by our stronger power business. We reported $110.3 million in revenue and $0.31 in non-GAAP diluted EPS. Our revenue decreased 13.1% sequentially and 22.8% year over year as a result of the supply constraints. The shortage was felt more severely for 28 nm 12-inch wafers, where we have been producing most of our new OLED products, winning numerous designs and rapidly expanding market share in the past few years.
Case in point, the revenue from 28 nm products grew 80% to $174 million in 2021 from $97 million in 2020, representing 90% of the total OLED revenue in 2021 as compared to only 34% in 2020. The success of our 28 nm product line has been, and we expect will continue to be, one of the critical growth enablers for us. Unfortunately, a severe shortage of 28 nm OLED wafers adversely affected our OLED business as a major limiting factor, adding tremendous pressure to an already difficult supply environment. Fortunately, we enhanced our supply chain for an additional 20 nm capacity last year, which we expect will start to come online in the later part of this year.
Looking at the full year, while our revenue for 2021 declined 6.5% year -over -year due to the wafer supply shortage, partially offset by outstanding growth in our power business, I am pleased that we delivered solid profitability for the full 2021 year. Gross profit margin reached 32.4%, representing an increase of 710 basis points from 2020. Adjusted operating income margin increased to reach 11.8% of total revenue from 8.2% in 2020. Adjusted net income was 10.8% of total revenue versus 5.6% from the year before, and adjusted EBITDA also grew to $70.7 million from $52.9 million in 2020.
2021 has certainly presented its share of unique challenges for us. However, our team steadfastly pressed forward with our plan to achieve not only healthy profitability, but also critical milestones to fuel future growth, upon which I will elaborate shortly. I deeply appreciate every Magnachip team member for their unwavering commitment and dedication. I'm most grateful that we could achieve solid results while protecting and safeguarding our employee health and safety amidst the global COVID-19 pandemic. Now, let's move to a detailed review of our product business, starting with the OLED business. Our OLED revenue in Q4 was $37.7 million, down 31.8% sequentially, and down 53.1% from our historical record revenue level in Q4 2020.
Against severe supply constraints, we have been protecting our profitability by strategically focusing on high-value, high-margin design activities, including the newly launched flagship smartphone model of a major smartphone OEM. Revenue from 5G smartphones and high frame rate products continue to grow, represent over 93% of our 2021 OLED revenue. Turning to the full-year review, OLED revenue was $192.8 million, down 32.3% year-over-year, as we unfortunately had to forgo some demand. Our demand was more than 50% higher than what we shipped in 2021. However, I am pleased to report some critical milestones that we achieved. One, we have successfully broadened our customer base to include a top-tier panel maker outside Korea. Initial revenue is expected to start in the later part of this year.
We are well-aligned with top-tier panel makers in the world and positioned to benefit from increasing OLED adoption in multiple countries. Two, we enhanced our supply chain for additional 20 nm manufacturing capacity, which is expected to come online in the later part of this year. In addition, we are in discussions with our foundry partners regarding a multi-year supply agreement in order to secure long-term capacity. We have also been working on MoUs and supply agreements with key customers, some of which have been already signed. Three, we're expanding into new areas. We have successfully commenced initial mass production of OLED TV DDIC during the fourth quarter, and we continue to expand our large display OLED TV business by addressing next-gen premium TVs with Micro LED technology.
We used to have over 30% market share in TV application with LCD DDIC with a particular vendor during peak times before we strategically defocused from the business a few years ago. In addition, we are also expanding our OLED DDIC product lineup for automotive display applications. In summary, our OLED business is winning new customers and expanding into new applications. The demand from our current customers is strong. In fact, we are getting numerous RFQs from Korean panel makers, although supply constraints continue to be the gating factor. With additional supply capacity expected beginning in the later part of this year, we are very optimistic about the rejuvenated growth in our OLED business in the coming years. Now, let's turn to the Power business.
Power revenue in Q4 came in at $58.2 million, which was slightly lower than our record revenue in Q3 2021, and a solid quarterly revenue growth of 24.2% year-over-year. The overall demand for our IGBT, medium voltage MOSFET, and BatteryFET products in the industrial and wireless applications remain strong, especially our IGBT products for solar inverter demonstrated solid traction in Q4, bolstered by growing interest in alternative energy. For full year 2021, our Power business delivered a record high revenue of $227.8 million, an increase of 36.8% year-over-year, driven by solid demand across most of our product families, coupled with increased internal capacity resulting from our timely investment in Fab 3. Clearly, we are approaching our target ahead of our plan, and we are working to further improve Fab 3 capacity.
Shinyoung will provide more details shortly. One notable highlight for 2021 is the exciting momentum we are seeing in premium power products. Our premium product group grew remarkably in 2021 to $117 million from $82.5 million a year ago. Super Junction MOSFET not only maintained its solid position in Korean TV markets but also expanded into PC power, lighting, and other industrial applications. Power IC revenue grew over 60% year-over-year since the first penetration into solid-state drive-related application in 2020. IGBT revenue grew significantly, driven by strong demand for renewable energy. Our go-to-market strategy, efficient R&D, and timely investment in Fab 3 led us to achieve record quarterly revenues three quarters in a row during 2021 and also accelerated development and introduction of new products.
In summary, we will continue to execute the growth plan of our Power business by strengthening Fab 3 productivity and introducing new products with superior performance and improved cost, which we expect will further drive healthy growth for many years. Before I turn the floor over to Shinyoung, I will take a few minutes to comment on our capital allocation plan. Given our current business condition, our near-term cash use is focused on three areas. First, we target to maintain $100 million plus cash on the balance sheet. This is mainly for working capital, but it also reflects our customers' desire to see a solid cash balance. Two, as we have already demonstrated, we are committed to share the return. In December 2021, our board authorized a $75 million stock repurchase program. Three, the remainder of the cash on our balance sheet will be allocated for flexible optionality.
At the present time, we believe that supply is the fundamental limiter of our potential growth. Therefore, enhancing our supply chain is currently deemed one of the imminent capital allocation options. Possible options include, but not limited to, securing additional 20 nm manufacturing capacity and locking in multi-year long-term supply agreements, which typically require strong commitment from us and our customers, including prepayments. We are also expanding additional manufacturing capacity at Fab 3 for our power business to address continuously increasing demand. In conclusion, we're expanding our customer base, penetrating new applications. Our ability to supply is anticipated to improve in the later part of this year.
While our near-term outlook is still being challenged by persisting supply constraints, we expect OLED revenue to be flat to slightly up in 2022 compared to 2021, with significant growth coming during later part of the year. As a whole company, we expect modest revenue increase in 2022, driven by the OLED recovery as well as decent growth in our power business. Recent developments and critical milestones we have achieved reinforce our confidence and optimism about our long-term growth. Now, I will turn the call over to Shinyoung and come back for the Q&A session. Shinyoung?
Thank you, YJ, and welcome to everyone on the call. Let's start with key financial metrics for the full year 2021 and Q4. Revenue in 2021 was $474.2 million, down 6.5% from 2020. The decrease was primarily due to a decrease in revenue from our OLED DDIC products, stemming from a continued severe supply shortage, which was offset in part by strong revenue growth from our power business. Display business revenue was $205.3 million, down 31.3% from 2020, whereas power business revenue was up 36.8% from 2020 to $227.8 million. Power business revenue growth was driven by solid demand across most product families, coupled with increased internal capacity resulting from our timely investment in Fab 3.
Despite the decline in revenue year-over-year, due mainly to the global shortage in manufacturing capacity, gross profit margin in 2021 improved 710 basis points year-over-year to reach 32.4%, which flowed through to non-GAAP metrics of adjusted operating income, adjusted net income, and adjusted EBITDA, all of which improved year-over-year as highlighted by YJ earlier. Our non-GAAP diluted earnings per share was $1.09 in 2021, up from $0.73 in 2020. Now turning to Q4 results. Total revenue in Q4 was $110.3 million, down 13.1% from Q3 and down 22.8% from Q4 a year ago.
Revenue from the standard product business was $99.5 million, down 15.2% from Q3 and down 23.2% from the same quarter a year ago. Both the sequential and year-over-year decrease was driven mainly by a significant decrease in revenue from our OLED products due to the previously mentioned supply shortage. Power revenue in Q4 was $58.2 million, down 1.1% sequentially, but up 24.2% year over year, despite the fact that Q4 usually is a seasonally soft quarter. The significant increase year -over -year was due to strong demand across most product families as well as from the increased internal capacity at our Fab 3. Gross profit margin in Q4 was 35%, down 170 basis points from Q3, but up 810 basis points from Q4 a year ago.
The year-over-year increase was attributable to an improved product mix, combined with an increase in average selling price under a favorable pricing environment and a higher utilization rate of Fab 3. In Q3 2021, gross profit margin was favorably impacted by the shipment of certain products that were manufactured at a lower cost in the previous quarter. The higher gross profit margin combined with the higher revenue resulted in a significant improvement in all profitability metrics in Q3. Now turning to operating expenses. SG&A in Q4 was $13.3 million as compared to $12.6 million in Q3 and $12.6 million in Q4 last year. R&D in Q4 was $20.2 million as compared to $12.3 million in Q3 and $11.6 million in Q4 last year.
Stock compensation charges included in operating expenses were $1.6 million in Q4, $1.9 million in Q3, and $1.9 million in Q4 2020. In Q4, our operating income of $63.9 million included net gain of $49.4 million that represented income of $70.2 million from the recognition of a reverse termination fee, net of professional service fees and expenses incurred in connection with the contemplated merger transaction of the company that was terminated in December 2021. Of that $70.2 million, we received $51 million in cash in December 2021, and the remaining $19.2 million is expected to be received by the end of March 2022.
This remaining portion was recorded as other receivables on our balance sheet as of December 31, 2021. Adjusted operating income in Q4 was $14.4 million, down from $22.7 million in Q3, down from $15.4 million in Q4 a year ago. Adjusted EBITDA in Q4 was $18.1 million, down from $26.4 million in Q3, and down from $18.6 million in Q4 a year ago. The sequential decline in these non-GAAP metrics was primarily attributable to the higher than usual gross profit in Q3, as explained above. Net income in Q4 was $53.6 million, as compared with $10.8 million in Q3 and $66.6 million in Q4 a year ago.
The sharp sequential increase in Q4 2021 was due primarily to the recognition of income from the $70.2 million reverse termination fee discussed earlier. As a reminder, net income in Q4 2020 was favorably impacted by the recognition of income tax benefits of $47.1 million, primarily from recognizing differences between GAAP and cash tax expense of $43.9 million. Our GAAP diluted earnings per share in Q4 was $1.12, as compared with $0.23 in Q3 and $1.45 in Q4 a year ago. Our non-GAAP diluted earnings per share in Q4 was $0.31, down from $0.42 in Q3, down from $0.40 in Q4 last year.
The difference between our GAAP and non-GAAP EPS in Q4 this year was primarily due to the elimination of income from the $70.2 million reverse termination fee and related professional service fees and expenses and income tax effect in connection with these non-GAAP adjustments relating to the contemplated merger transaction of the company that was terminated in December 2021. There were 47.7 million shares outstanding in Q4, calculated on a diluted weighted average basis. On December 21, 2021, our board authorized the repurchase of up to $75 million of the company's stock, and as an immediate step, we entered into a $37.5 million accelerated stock repurchase agreement and received an initial delivery of 994,695 shares under the agreement.
Our stock buyback under the accelerated stock repurchase agreement expected to be completed by the end of March 2022. Now moving to the balance sheet. Cash was $279.5 million at the end of Q4. This compares to $276.3 million at the end of Q3 and $279.9 million at the end of 2020. During Q4, we received $51 million out of the $70.2 million reverse termination fee and spent merger-related expenses of about $14 million. We also used $37.5 million of our cash to enter into the accelerated stock repurchase program that I just mentioned. Accounts receivable net totaled $51 million, a decrease of 3% from Q3. Our days sales outstanding for Q4 was 42 days.
Inventories net totaled $39.4 million, an increase of 1.5% from Q3. Our average days in inventory for Q4 was 50 days. CapEx was $18.8 million in Q4. CapEx of $32.2 million in 2021 included approximately $17 million of one-time investments with our Fab 3, which came in lower than the previously disclosed CapEx plan as a result of our cost reduction efforts in negotiating better pricing terms. As YJ mentioned earlier, while we are approaching our target capacity of Fab 3 ahead of our plan, the demand for our power products has been outstripping our internal capacity. In 2022, we'll invest about $8 million for special CapEx to further improve factory capacity with an expected payback period of less than two years.
Excluding this special CapEx, our normalized CapEx for 2022 is expected to be at around 4% of total [audio distortion]. Now moving to the first quarter guidance. Our near-term outlook is still being challenged by persisting supply constraints. While actual results may vary, looking into the next quarter, which typically presents seasonal softness, management anticipates Q1 2022 to be the bottom and currently expects revenue to be in the range of $102 million-$108 million, including about $9 million of transitional factory foundry services. Gross profit margin to be in the range of 34.5%-36.5%. With that, I'll turn the call over to So-Yeon. So-Yeon?
Thank you, YJ. Thank you, Shinyoung. Operator, this concludes our prepared remarks, and we'll now open the call for questions.
Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then one on your touchtone telephone. Again, to ask a question, please press star then one. One moment for our first question. Our first question comes from Raji Gill of Needham & Company. Your line is open.
Yes, thank you. Thanks for all the insight on the quarter and what you kinda expect throughout the year. YJ, on the supply constraint issue affecting your OLED revenue, you mentioned and you and Shinyoung mentioned that Q1 will be the bottom in terms of your overall revenue and OLED revenue specifically. I'm wondering how the capacity that's coming online, you know, from this new partnership, how that will kind of flow throughout the year. Are we expecting, you know, more supply coming online in the third and fourth quarter, and then, you know, to match the revenue ramp?
Are you kinda confident that you're gonna match the timing between the new supply coming online and you ramping with OLED with this new non-Korean panel maker? It's really more about the cadence and timing of the demand and supply.
Yes, Raji, thanks for the question. I think we gave kind of a framework. As you know, we only comment one quarter at a time, but we wanna give some framework to all so that you have a kind of understanding. Yes, we are bringing a new 28 nm foundry. Usually when you bring a new 28 nm foundry, you will go through a typical yield learning curve. We are currently being cautious. That's why we're saying that we expect the revenue to start towards the later part of the year. I think we'll give you more clarity in the second quarter.
You know, we are associating the typical yield learning curve, bringing a new foundry and the process. We are very excited about this additional foundry partnership as well as the new customer that's very world-class and that's outside Korea. We expect, based on supply constraints, we frame that the OLED revenue be flat to up and the power, I think, to grow more than the market. That's what we see.
Okay. That implies a pretty big ramp in OLED in the second half. I would assume by that time, third or fourth quarter, you would've been, you know, overcome some of the learning curves in terms of bringing the capacity. How do we think about the gross margins? 'Cause the gross margins have really been really good the last few quarters, and you're guiding it to 35.5% at the midpoint. When more supply comes online from this new foundry, how would that affect your margins if at all? Maybe talk quickly about the pricing environment. Is that affecting your margins positively? What about the mix shift within power to premium power? 'Cause the margins have been moving up despite, you know, some of the revenue declines in OLED.
Yeah. We are continued to work on the, you know, high value, high margin product. That's how we done in lieu of the shortages. Also, when you bring the new process, again, we'll go through yield learning curve. Initially, we've been cautious. We think that will have, you know, impact on the margin, so that's already baked into our forecast. Again, we will let you know how it progresses. Right now, I think it's best that put some conservative cautious because when you bring a new foundry, a new process, there's a yield learning curve.
Okay. Thank you.
Thank you. Our next question comes from Suji Desilva of Roth Capital. Your line is open.
Hi, YJ. Hi, Shinyoung. Maybe perhaps a quick follow-up on Raji's question on gross margin. What was the impact on the sale of written-off product in this quarter?
It's just regular. There's not really the special kinda write-off that we took.
I see.
in Q1. It's just your regular quarter as in the normal, you know, circumstances.
Okay. It happens periodically. Okay. Then, YJ or Shinyoung, the comment about 1Q 2022 being the bottom, can you just talk about the two or three key elements that give you the confidence to say that going forward at this point? 'Cause it sounds like the foundry capacity, the new foundry won't be coming on till the end of the year. So I'm just curious on the comments behind that.
Yes. There are a couple of points. On the power side, as Shinyoung mentioned, we are putting special $8 million of CapEx. The goal is to bring the additional capacity within six months. We will work on the productivity in the second quarter, so for us to get more productivity. On the OLED side, as you said, we're expecting more new foundry coming online in the later part of this year. Right now, the projection is based on supply constraints. The demand is still higher than what we can supply.
Okay. Fantastic. The new non-Korean OLED customer, can you talk about what the timeframe for that turning into material revenues? Just to understand how far off that would be as a incremental element to your revenue.
You know, I think we said that the OLED revenue will be flat to up than last year. That kind of give you what may happen in the second part of the year. That will coincide with our new foundry as well as new customer coming online.
Okay. Thanks for that color, YJ. Thanks, YJ. Thanks, Shinyoung.
Our next question comes from Andrew Northcutt of Oppenheimer & Co. Your line is open.
All right. Thanks. Thanks for your question. This is Andrew Northcutt, filling in for Martin Yang. Just one question for you. You know, when you're thinking about the quarterly revenue, how are you thinking about the seasonality for 2022, and how does that kind of compare to 2021?
Well, I think we are just saying that the seasonality is there, typically, but right now our revenue is actually limited by the supply constraints. The curve is actually limited by the supply constraint rather than the seasonality. Normally, our pattern has been Q3 in the peak, Q4 down, and Q1 down, and go up in Q2, Q3's. That's the normal seasonality. Right now, our revenue has been kept by the supply constraints on both OLED and power side.
Got it. Thank you so much.
Thank you. This does conclude our call today. I'd like to turn the call back over to management for any closing remarks.
Thank you, operator. This concludes our fourth quarter 2021 earnings conference call. Please look for details of our future events on Magnachip's investor relations website. Thank you for joining us today.