Himax Technologies (NASDAQ: HIMX) reported Q1 EPS of $0.09, versus the analyst estimate of $0.09. Revenue for the quarter came in at $194.6 million versus the consensus estimate of $194.2 million.

Business Updates

In Himax's large panel, driver IC business, the Company believes driver ICs for TVs will be the main growth product in this segment and offsetting any softness of notebooks and monitors ICs. The reason for the growth in large panel driver IC's for TVs are attributed to new customers, increased TV sales in China, and 4K TVs rolling off production lines. Though this remains a competitive and mature market, the Company believes its innovation enables them to continue pursuing new technologies and growth opportunities that will strengthen the Company's large panel driver IC business, which is the longest standing business segment. The Company remains positive on the outlook of this segment in 2014 and beyond.

The other segment in the Company's driver business are ICs used in small and medium-sized panels for applications including smartphones, tablets and automotive. Though smartphones have, and will continue to drive sales growth in this segment, the inventory correction by one of the Company's major Korean end-customers will result in a decline in the Company's second quarter smartphone IC sales. Offsetting the customer-specific inventory correction is the Company's continued growth in the Chinese smartphone market during the second quarter. The Company sees market momentum in China carrying strongly into the second half of the year as 4G LTE adoption and resolution upgrades to HD go mainstream. The Company's customer base in China is highly diversified and not one end-customer there is 10% or more of the Company's driver IC sales for smartphones.

Included in the small and medium-sized panel IC are also drivers for tablet and automotive displays which have been growing steadily. Himax believes it is a market leader in the tablet space particularly in the fastest growing tablet market in the world, China. The Company also reported new revenues from globally-branded customers which are new entrants to its customer list for tablet sales.

For the small and medium-sized driver segment, compared to the previous quarter, the Company expects revenues to be down for driver ICs for smartphones, to be flat for tablets and to rise for automotive. The total small and medium-sized driver segment is expected to finish the quarter flat to slightly down as a result. Notwithstanding the short term set back in the second quarter, The Company is positive on the third quarter prospect and it believe sales for this segment will rebound strongly from there.

The Company believes that its non-driver product line is a key differentiator versus many of its competitors. The Company's expertise in image processing and human interface related technologies, together with its driver IC products make Himax a comprehensive solution provider to its customers. The Company believes its non-driver products including CMOS image sensor, touch panel controller, power management IC and ASIC service are set to grow significantly in the second quarter. Himax expects the business category to grow double-digit in Q2, and the momentum to continue throughout 2014 and beyond.

The Company's CMOS image sensors delivered strong, sequential sales growth in the first quarter of approximately 30%. Himax's two and five megapixel CMOS image sensors are contributors in the segment which includes a customer base of select international brands and Chinese 'white-box' OEMs. While volumes of CMOS image sensor shipments have increased, the Company has reported that most of these shipments were for higher costs, older generation CMOS image sensors. The sales of these low margin products given their rather significant amount, is the key reason why the Company's overall corporate gross margin in the second quarter looks to stay flat or go slightly down. Without it, the Company's overall gross margin for the quarter would have continued to expand. Himax envisions the margins for this category will increase as newer generation and higher-resolution, such as the Company's eight megapixel CMOS image sensors, are shipped later this year. The Company believes this will contribute to significant sales growth and better gross margin in the second half of the year.

Additionally, following multi-year design efforts, Himax now has a competitive CMOS image sensor product line for automotive and surveillance markets, both large, lucrative and fast-growing markets. This is a market segment with a high barrier of entry where special know-how is required. Collectively, the Company expects the CMOS image sensor business to more than double in 2014.

The Company's touch panel controller product line is set to triple in revenue sequentially in the second quarter as a result of increasing shipments to tier-one, branded Asian customers and also the Chinese white-box market. The Company's rapidly-growing market share in the traditional touch panel market has provided it a platform to develop new "in-cell' and "on-cell" touch panel technologies which has placed us in a very competitive position for the future. The development of new "in-cell" and "on-cell" touch panel technologies are led by TFT-LCD makers which Himax's teams are in close partnerships. Himax expects growth momentum in touch panel controller to continue throughout the rest of 2014.

The Company is equally bullish on the growth of its ASIC business. Having been awarded multiple new leading-edge projects for tier-one international customers in the second quarter, the Company sees this accomplishment as a validation of its R&D competitiveness and capabilities. The Company expects to generate more development fees for projects and expects the ASIC segment to grow double-digit in the second quarter.

Lastly, Himax believes that it has and will maintain its lead in the LCOS microdisplay market for some time. The Company strictly abides by its policy not to release details on design specifications and customers; however, the Company continues to work with multiple customers, including top-notch names, on multiple designs simultaneously and many of which involve custom-built designs that are funded by customers' development fees paid to Himax. The Company's LCOS microdisplay business will remain the most exciting and significant long-term growth area for Himax.

Himax Technologies sees Q2 2014 EPS of $0.132-$0.152, versus the consensus of $0.13. Sees net revs flat, as compared to the first quarter of 2014.

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