Himax Technologies (NASDAQ: HIMX) reported Q1 EPS of ($0.01), $0.01 better than the analyst estimate of ($0.02). Revenue for the quarter came in at $163.3 million versus the consensus estimate of $158.8 million.

Q2 2019 Outlook

Himax expects the second quarter gross margin to decline around 3% with slightly increasing revenue from the previous quarter. The Company fully realizes that this quarter mark the second consecutive quarter that it will make a bottom line loss, the first in the Company’s corporate history. While Himax remain committed to its big picture strategy, Himax is actively taking measures to get back to steady profitability. The second quarter gross margin will decline for three major reasons. Firstly, the higher material cost of the large panel driver IC resulting from an industry-wide material shortage will lead to lower gross margin. The Company’s large-size panel customers are going through a difficult period of increasing supply and lackluster demand right now. Himax thought it was prudent not to pass on the rising material cost to its customers as it used to for the consideration of long term relationship. Secondly, the gross margin of the WLO business would also fall because of reduced shipment per an anchor customer’s demand which will lead to lower capacity utilization. The Company expects the gross margin of WLO to return to a much-improved level in the second half when orders are expected to come back strongly, reflecting the anchor customer’s demand seasonality. Finally, smartphone segment gross margin would likely shrink a little for product mix change. Himax anticipates significant sequential increase in the second quarter shipment of TDDI for lower-end market and certain traditional discrete driver IC for smartphones. Both will generate gross margins lower than the corporate average.

Based on its Q1 results and Q2 outlook, Himax’s 1H19 revenue would experience year-over-year decline as the current market conditions have not shown signs of improvement. The uncertain market conditions, including global economy, oversupply of TV panel markets, weak global smartphone demand and automotive sales, have led to pricing and cost pressure for Himax. Customers’ ongoing downward inventory adjustment in smartphone TDDI was also outside of the Company’s expectation. However, looking ahead into the second half, among its major product segments, the Company expects TDDI and WLO shipments to increase significantly, offset by shipment decline of the traditional discrete driver ICs for smartphones and automotive display drivers. Automotive display drivers are expected to stay relatively weak following several years’ strong and continuous growth.

Last but not least, Himax continues to tighten its cost and expense controls. The Company is in the process of bringing inventory down from an unusually high level which was built up in response to material shortage. It expects to begin to see reduction in inventory days and in absolute value in Q2. The Company is also putting close control in R&D expenses, targeting to continuing R&D activities across its strategic areas without raising R&D expenses from the last year. These include next generation display driver technology for 8K TV and AMOLED, 3D sensing for both mobile phone and non-mobile phone applications and AI-based ultra-low power smart sensing solutions. Total opex for 2019 is budgeted to be at around the same level as that of the last year excluding the anticipated increase of $4.9 million in depreciation arising primarily from the construction of the new fab.

Comparing to the First quarter 2019 revenues, Himax expects large display driver ICs to decline by mid-teens, small and medium-sized display driver IC to increase by more than 20% and its non-driver IC business to increase by mid-single digit in the second quarter 2019.

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