Chardan Affirms Himax (HIMX) at 'Sell'; Slow Smartphone Sales, Capacity Constraints Could Impact Stock

Chardan Capital reaffirms its Sell rating and $5 price target on Himax Technologies (Nasdaq: HIMX) on expectations of a drop in smartphone sales this quarter.

Analyst Jay Srivatsa commented, After a strong Q3:14 which saw the ramp up of 4G LTE smartphones in China driven by subsidies, our checks indicate that both branded and non-branded handset manufacturers are projecting weaker Oct and Nov sales. While December usually begins to signal resumption of order activity ahead of Chinese New Year, we believe HIMX could guide conservatively for Q4:14 given the current move by handset manufacturers to clear out existing 3G smartphone inventories as they pause their 4G LTE product launches and promotions ahead of iPhone 6 launch in China on Oct 17.

Post iPhone 6 launch, we expect the top three telecom carriers to resume their promotions for Q4:14 but it is widely projected that several of the domestic handset manufacturers including Coolpad, Lenovo, Xiaomi as well as international brands like Samsung (SSNLF-NR) will likely miss their 2014 handset shipment goals. We note that 4G LTE phones are high end products, which despite the subsidies, remains out of reach for the average Chinese population. As such, a pause in 4G LTE ordering and drop off in 3G sales could make for a rough Q4:14 for HIMX, in our view.

We also project that HIMX may be capacity constrained in Q4:14 as its primary fab partner – TSMC (NYSE: TSM) is likely extending lead times with its customers as iPhone 6 devices fill out its fabs. Furthermore, we expect HIMX’s TV driver IC sales will likely drop in Q4:14 following Oct 1 holidays as manufacturers clear out excess inventories. As such, we believe that HIMX could guide for Q4:14 revenues to be sequentially flat to down modestly, while street consensus estimates are projecting ~5% growth.

For an analyst ratings summary and ratings history on Himax Technologies click here. For more ratings news on Himax Technologies click here.

Himax Technologies closed at $8.55 yesterday.

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