Himax Technologies (HIMX) Tops Q4 EPS by 0c; Offers Business Update

Himax Technologies (NASDAQ: HIMX) reported Q4 EPS of $0.09, $0.00 better than the analyst estimate of $0.09. Revenue for the quarter came in at $227.2 million versus the consensus estimate of $225.05 million.

Himax Technologies sees Q1 2015 EPS of $0.07 - $0.09, versus the consensus of $0.09.

Business Updates

Following a successful transformation in 2013, Himax delivered strong operational and financial results in 2014. This accomplishment illustrates the successful execution of the Company's long term strategy to diversify its customer base and product portfolio.

Looking into 2015, despite the current softness in China's smartphone and tablet markets, which is worsened by fewer working days due to the timing of Chinese New Year, the Company is excited about its full year outlook and believes that it will experience strong growth across all business segments. The Company anticipates 2015 to be another year of continuous revenue and earnings growth.

Following a few years of revenue decline, large panel driver IC sales should be a major growth engine for the Company in 2015. Himax expects its large panel drivers in the first quarter of 2015 to register strong growth compared to the same period last year, at approximately 25%. The Company should continue to benefit from the display capacity expansion in China, where it is the market leader in driver IC sales. Furthermore, Himax expects to grow market share in the non-China large panel market in 2015. On the technology front, Himax remains a market leader in providing state-of-the-art, high-end large panel driver IC solutions. 4K TV penetration should continue to be the driving force for growth in this segment with its sales volume expected to more than double this year.

In the Company's previous earnings calls, it mentioned that large panel makers are increasingly demanding a total solution from IC vendors. Himax is experiencing accelerating demand from panel manufacturers seeking IC vendors who can provide driver IC, TCON, Gamma OP, and PMIC as a total solution. Meanwhile, TCON is getting more and more technologically advanced, with high end models integrating sophisticated functions such as MEMC. This positions the Company very well in the 4K TV market and beyond. As the industry migrates to 8K TVs, which is already starting to take place in product development, the Company's business and technology strength and integrated product solutions will be a significant differentiator against its competitors.

Thanks to its leading technology and comprehensive customer base, the Company is confident that it is at the beginning of a long term growth trend for its large panel driver products, a trend which should last for the next several years.

For driver ICs used in small and medium-sized panels, business covers smartphones, tablets and automotive applications markets. The Company expects continued resolution upgrades this year in both the smartphone and table markets. FHD is quickly replacing HD720 to become the new mainstream for high end smartphones. Himax also expects to begin mass producing driver IC for the very high end QHD resolution panel at the beginning of Q2 this year. A more favorable product mix should help the Company mitigate margin pressure in the competitive smartphone market. Notwithstanding its positive outlook, first quarter sales for smartphone drivers are likely to decline substantially, which the Company already indicated in its last earnings call. The weakness is particularly significant in China where smartphone vendors, lacking new government stimulus programs, are turning cautious as they are forced to try new sales channels such as e-commerce and direct sales points to replace the previous approach of selling through telecom operators. Worse yet, exports are also weak because Chinese smartphone manufacturers are worried that a strong RMB would further compress their already thin profit margin. Following two quarters of market weakness, the Company has started to build inventory in preparation for a market rebound toward the end of Q1 or Q2. In addition to its leading position in TFT-LCD smartphone driver IC product offerings, Himax started small shipments of AMOLED driver IC to certain Chinese customers in Q4 2014. AMOLED is likely to be a future growth engine for its small panel driver IC business and Himax is collaborating with multiple customers both in Korea and China on AMOLED product development. It is worth mentioning that quite a few new AMOLED fabs are being built in China and the Company has the most comprehensive customer coverage there, although this will not bring in meaningful revenue contribution until later this year.

The company also expects a significant sequential sales decline for tablets in the first quarter, for reasons similar to those for the smartphone market mentioned above. Moreover, in the Chinese tablet market, there are more smaller and less resourceful players, many of them being forced out of the market due to the Chinese government's credit tightening policy, causing further market weakness. The declining demand might also be a result of changing consumer behavior, as some consumers are moving to smartphones with screen sizes similar to those of smaller sized tablets. Tablet demand, after a lengthy slump, may improve after Chinese New Year; yet sales visibility is still low as we speak. Going forward, mainstream demand will be 10" and above with higher resolutions, instead of the once popular sizes of 7" to 9"s. Himax is seeing many tier-1 OEMs pursuing this segment aggressively which may materialize in 2015 and trigger new market demands.

Among driver ICs used in small and medium-sized panels, the most noteworthy category in 2015 is the automotive application. Himax has successfully engaged key panel manufacturers and module houses for long term partnerships. The Company anticipates Q1 sales to be slightly stronger than the previous quarter and expects robust sequential growth throughout the year. Himax believes that with numerous tier 1 automobile brands being its indirect end customers, the Company is well positioned to take advantage of the growing market in 2015 and beyond.

The non-driver business segment provides the Company's most exciting long-term growth prospect. Overall, its non-driver business category enjoyed approximately 33.5% growth during 2014. Amid a weak overall market sentiment and the usual seasonality, Himax expects a double digit sequential decline in its non-driver products for the first quarter. However, looking ahead, many of its non-driver products, including our CMOS image sensor, timing controller, touch panel controller, power management IC, ASIC service, wafer level optics and LCOS microdisplay, are poised to grow significantly in 2015.

The Company's touch panel controller product line continued to experience significant growth in Q4 2014, increasing more than 40% sequentially. Himax exited 2014 with its touch controller sales more than doubling from the previous year. The Company expects this strong growth momentum to continue in 2015. On top of its rapidly growing market share in the discrete touch panel market segment, Himax is extremely excited about technological advances in the latest pure in-cell technology where it is one of the pioneers in offering one-chip solutions integrating driver IC and touch panel controllers, or TDDI. Driven by top-tier TFT-LCD makers, the industry is moving towards pure in-cell panels, which is set to start mass production in the second half of this year. Himax is in partnership with essentially all of the leading panel manufacturers in pure in-cell touch for joint technological development and expect the market to see major launches of this new technology very soon.

Revenues from CMOS image sensors also experienced significant growth in 2014 and should continue to be a fast growing product area for Himax in 2015. Sales of the Company's 2 and 5 megapixel products were particularly strong, mainly due to robust demand from several international customers as well as from Chinese white-box customers. Looking into 2015, Himax expects its sales of 8-megapixel sensors, now the mainstream design for smartphones, to accelerate while high end 13 megapixel sensors to start mass production later in the year. This puts Himax firmly on the map as one of a small handful of companies capable of offering a comprehensive product portfolio for smartphone cameras.

In addition to the afore-mentioned consumer applications, Himax is also making significant progress in CMOS image sensors for non-consumer applications, which typically enjoy higher margins and have relatively little direct competition. Himax already started initial shipments to a Korean automotive end customer and is actively engaging more module houses to penetrate into Chinese before-market-installation automotive applications. As the Company grows sensor sales for automotive and other non-consumer applications and continues to turn the bulk of its CMOS image sensor sales from 2 and 5 megapixels to higher end, higher margin 8 and 13 megapixels, Himax expects its CMOS image sensor business to accelerate in 2015.

Regarding Himax's LCOS business, the Company was very pleased to see major new head-mounted display devices and/or programs unveiled by a growing list of industry heavyweights recently. Some of these devices are truly revolutionary in nature with potentially breakthrough applications which are not possible without a head-mounted display. This is clear evidence that the head mounted display is establishing itself as a new product segment for future computing. Major technology companies are moving quickly to develop HMD technologies and that this new product category should transform the way people interact with the environment. Being the market leader in the microdisplay technology, Himax is in a unique position to benefit significantly from this industry trend where its products are integral components. As the Company mentioned repeatedly in previous earnings calls, it continues to work with multiple top tier customers who are committing significant resources to develop cutting edge HMD products. The Company is working with some of them on multiple designs simultaneously, many of which involve custom-built designs that are funded by these customers' development fees.

The Company unveiled its Front-Lit™ LCOS technology in the middle of last year. It still represents one of the most significant technological breakthroughs in the HMD industry. Himax is seeing more and more customers adopting its proprietary technology. By consolidating two key components of optical engines and integrating them into the micro display module itself, Front-Lit™ LCOS enables an ultra-compact, high brightness and extremely power-efficient optical engine which is also easier to manufacture compared to traditional optical engines. There is essentially no competition to this product.

Furthermore, the Company continues to partner with numerous industry leading companies using its cutting edge and industry-dominant wafer level optics, or WLO, for the development of three technologies of the future, namely array cameras, special purpose sensors and microdisplay wave guides for head-mounted displays. This product development often requires the collaboration of Himax's internal CMOS image sensor, LCOS microdisplay and/or video processing algorithm teams. Himax sits in a leading and unique position with respect to these exciting new technologies and it is the only company in the industry able to offer a true one-stop total solution. As these Tier 1 customers begin to mass produce products embedding these new and unique features, Himax, being in the heart of that supply chain, should benefit significantly. To meet the anticipated demand growth for its LCOS and WLO products, the Company is expanding its production capacity starting in Q1 2015. It will report its progress in due course.

Collectively, the Company's LCOS sales and WLO NRE incomes should more than double in the first quarter of 2015. This illustrates the Company's strong customer engagements with tailor-made designs and represents products in the pipeline which will translate into meaningful sales and profit contribution in the near future.

Although the Company is seeing weakness in market demand, especially in China, which will lead to sequential revenue decline in the first quarter, it remains confident and excited about all these aforementioned new developments and the increasing business opportunities across every business segment for 2015. The Company believes it is strongly and uniquely positioned for another successful year. Himax is excited with respect to its business outlook in 2015 and beyond, both in terms of revenue, profitability growth, and the adoption of many of its non-driver products.

For earnings history and earnings-related data on Himax Technologies (HIMX) click here.

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