Himax Technologies (HIMX) Tops Q3 EPS by 2c

Himax Technologies (NASDAQ: HIMX) reported Q3 EPS of $0.12, $0.02 better than the analyst estimate of $0.10. Revenue for the quarter came in at $218.1 million versus the consensus estimate of $216.4 million.

Business Updates

The Company delivered solid results to achieve both top and bottom line growth during the first three quarters of the year as its driver and non-driver business segments both performed strongly.

The Company has increased market share in its core driver IC business this year and continues to solidify its leading position through technology advancement and customer engagement. With the most comprehensive product portfolio in the industry, the Company will further capitalize on its strong position in display drivers to lead the market in major new technology trends, including higher display resolution, AMOLED and in-cell TDDI. Equally important, Himax has many unique technologies and solutions for AR, VR and IoT applications with exciting long-term growth potential. For the Company’s LCOS micro display and WLO products, which are integral parts of the eco-system for the booming AR sector, the Company continues to increase new project engagements with many heavyweight customers worldwide. The Company remains committed to its long-term strategy to diversify its product and customer base with innovative technologies.

The Company’s large panel driver IC business has grown from Chinese panel customers’ rapid capacity ramping and rising 4K TV penetration this year. For the fourth quarter, the Company anticipates its large panel driver IC revenue to increase high single digit year-over-year, but to decline mid single digit sequentially due to one single customer’s inventory adjustment. Despite the temporary demand slowdown, Himax’s leading position in this segment remains intact. The Company’s large panel customers are increasingly demanding a total solution from IC vendors in addition to their constant request for better IC solutions to support their high-end and high-resolution products. On top of its unique offerings of technology solutions for advanced features required of high end TVs, the Company’s capability to provide a total solution covering driver ICs, timing controllers and PMICs especially positions it very well in the 4K and 8K display markets. For example, to handle the massive amount of video data, 8K TVs require higher speed interface, advanced driving and video processing technologies, as well as highly integrated timing controllers with sophisticated functions. The Company believes its technology strength and total solution capability are significant differentiators against its competitors and will further solidify its leading position as the industry migrates to 8K TVs. Himax is one of the pioneers in product development of 8K TVs with its Chinese and Korean panel customers and is already shipping small volume to a leading Korean panel maker.

The other segment within its driver business is ICs used in small and medium-sized panels for applications including smartphones, tablets and automotives. While the market demands remain strong, fourth quarter sales for smartphones are likely to decline mid single digit sequentially due to the foundry capacity constraints. However, the sales of smartphone DDICs will still grow close to 30% year-over-year, driven by Chinese end brand customers’ strong shipment growth this year. On the AMOLED front, the Company is collaborating closely with leading panel makers across China for AMOLED product development. This positions the Company well for the coming growth of new AMOLED panel shipment expected from these customers starting late 2017. The Company has seen wider adoption of AMOLED panels, now almost exclusively supplied by Samsung, for smartphone brand customers’ flagship models. This trend has prompted all leading Chinese panel makers to ramp up their investments in AMOLED manufacturing and accelerate their timetable for the mass production of AMOLED panels. The Company believes AMLOED driver ICs will be one of the critical growth engines for the Company’s small panel driver IC business starting the end of 2017.

Among driver ICs used in small and medium-sized panels, the most noteworthy category in recent years is automotive applications. The Company expects continued solid momentum in Q4 with revenues expected to grow double digit sequentially and close to 50% year-over-year. With numerous tier 1 automobile brands as its indirect end customers, the Company has successfully engaged all key panel manufacturers and module houses worldwide for long-term partnerships and commands a leading market share in this segment. To address the growing demand of larger automotive displays with higher resolution and built-in on-cell or in-cell touch screen feature, the Company continues to develop advanced solutions to enable new automotive display applications and provide its customers with the most comprehensive solutions in the industry. As such, the Company anticipates the strong growth will likely continue into the next few years. Driver ICs used in tablets will continue to grow double digit in the fourth quarter, following the third quarter’s strong momentum, thanks to shipments for several leading brand customers in the US and Korea and the holiday season impact. Overall, Himax expects the small and medium-sized driver IC segment to increase sequentially by low single digit in the fourth quarter.

For the past few years, the non-driver business segment has been Himax’s most exciting growth area and a differentiator for Himax. New product developments continue to evolve and gain traction. While the Company is more positive than ever on the long-term growth prospect of its non-driver businesses, the Company anticipates near-term headwinds with about 20% sequential decline in its non-driver revenues for the fourth quarter. Sales of timing controllers and CMOS image sensors will deliver strong growth in the fourth quarter, but those of WLO and LCOS micro displays and, to a lesser extent, touch panel controllers and ASIC chips will decline sequentially.

The Company has seen significant traction in customer adoption and design wins of its on-cell solutions. Notably, a leading Chinese smartphone maker is featuring Himax’s solution in its newly-launched flagship tablet. More importantly, Himax is one of the pioneers in offering TDDI solutions and is in partnerships with essentially all of the display makers of state-of-the-art pure in-cell touch panels for joint technological development. The Company is seeing the use of in-cell display with TDDI rapidly becoming the preferred choice for smartphone brand customers’ next generation mid-to-high end models. Also, the increasing adoption of AMOLED panels has pushed TFT-LCD panel makers to turn to pure in-cell TDDI panel development for thinner display designs. On top of the busy design-in activities for TDDI solutions with Korean, Chinese and Taiwanese panel customers, the Company is also aggressively developing new products and strengthening its team to expand its product portfolio and get itself ready for the anticipated strong growth in this segment. TDDI will be a major growth engine for the Company’s small panel business starting early 2017, which will also boost its corporate gross margin over time.

Himax’s LCOS and WLO businesses have grown strongly through the first nine months of 2016 mainly due to shipments to one of its leading AR device customers. The Company was recently informed by the AR customer to reduce future shipment of the current generation device to a minimum, and instead, to focus on the joint-development of future generation devices. The Company therefore expects its LCOS and WLO sales to decline in the fourth quarter, as well as over the next few quarters in 2017. Himax is not particularly worried about the short-term headwind as the said major customer is more committed than ever in the long-term development of the AR product concept, which is viewed as a new computing platform and that the Company remains a critical partner to the customer in its AR efforts. Equally important, while the revenues from LCOS and WLO may subside over the next few quarters, they will come from a much more diversified customer base. Quite a few of the Company’s other customers are expected to bring their AR products to the market starting next year, although the Company still doesn’t expect large volumes from the early generation products of these customers. Not only will the Company see more diversified revenue stream from multiple customers, its list of customers continues to expand and it now covers some of the world’s biggest tech names. Such customers usually come to Himax for tailored solutions and pay for such developments. This is clear evidence for Himax’s undisputed leadership position in the industry. Having invested in related technologies for over 15 years, the Company is uniquely positioned as the provider of choice for micro display and related optics, both of which are critical enablers to AR devices. With little competition, the Company is currently working with over 30 customers on various current and future generation AR devices using LCOS micro display and/or WLO. The Company’s increasing design engagements cover not only leading companies mentioned above, but also niche AR players which bring in innovative product ideas.

In addition to many AR devices under development, Himax’s WLO technology is also being adopted to enable new things such as 3D scanning, which can in turn be used in a wide variety of industries such as consumer, industrial, IoT, AI, medical, automotive and military. Some customers even come to the Company with novel bio-medical product ideas. The Company’s customer base for this business is extremely diversified, covering literally all of the most well-known tech names throughout the world, some of them leading end brand players or semiconductor platform solution providers. Himax is one of the very few players in the market with WLO technology and the one possessing the most proven mass production track record with expertise ranging from design and high yield production to cost and quality controls. The Company is very happy with its current development progress in this area.

With respect to the expansion plan for its next generation LCOS and WLO production lines, the Company has proceeded in line with its schedule. The Company plans to complete it around the end of 2017 or early 2018. The new production lines will enable higher end product design and offer far better product quality for mass production of its next generation LCOS and WLO product lines that the Company expects will lead the industry in the future generation of related products. This investment will be financed through the Company’s internal resources and existing bank facilities, if needed.

Himax continues to make great progress with its new smart sensor areas by collaborating with certain heavyweight partners, including a major e-commerce customer, leading consumer electronics brands and a heavyweight international smartphone chipset maker. By pairing a DOE integrated WLO laser diode collimator with a near infrared CIS, the Company is offering the most effective total solution for 3D sensing and detection in the smallest form factor, which enables easy integration into next generation smartphones, AR/VR devices and consumer electronics. Similarly, the ultra-low-power QVGA CMOS image sensor can also be bundled with the Company’s WLO lens to support super low power computer vision to enable new applications across mobile devices, consumer electronics, surveillance, drones, IoT and artificial intelligence. The Company will report business developments in these new territories in due course. Regarding other CIS products, the Company maintains a leading position in laptop applications and will increase shipments for multimedia applications such as surveillance, drones, home appliances, consumer electronics, etc.

GUIDANCE:

Himax Technologies sees Q416 EPS of $0.09-$0.11, versus the consensus of $0.11.

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

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