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Himax Could Be a Good Long-Term Investment

July 10, 2014 | About:
kcpl

kcpl

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Himax Technologies (HIMX) has been in troubled waters as the shares of the company have declined about 40% this year so far. Also, the stock suffered even more when Northland Capital Markets lowered its price target from $20 to $15. Northland quoted that a large South Korean customer has pulled away display driver orders from Himax for the rest of 2014.This could lead to a revenue loss of about $50 million to $60 million this year for Himax, hurting its prospects.

Himax's short-term prospects don't look impressive as a result. Its recent quarter wasn't too strong as well. Himax posted revenue of $194.6 million, an increase of 10.8%. Also, the revenue was in line with the company’s own guidance. But will Himax be able to accelerate its performance going forward?

Positive expectations

Himax expects robust sales in smartphone and tablet applications in the Chinese and the Korean markets. The company is also trying to improve operational efficiencies. It is expecting growth across different segments in the future.

Smartphones and tablets remain the key growth drivers for Himax. China has a huge potential for these devices, as it is one of the largest and fastest growing markets in the world. The company is one of the leading suppliers to panel makers in countries like Taiwan, Korea, China, and Japan. Thus, Himax covers a vast majority of leading smartphone-end customers in both China and the international markets.

Himax also produces drivers for small and medium size applications for Tier 1 international customers, and the fast growing Chinese white-box market. Additionally, the fast growing 4G LTE platform in different areas of the world, including China, will open up more opportunities for Himax.

However, Himax is seeing weakness in the large panel display drivers business. Revenue from this business unit dropped 25% year-over-year in 2013, and accounted for 29.7% of total sales, as compared to 41.4% in 2012.

Nevertheless, Himax expects a turnaround in its business on the back of 4K TVs. Also, the company is engaged in product innovation in large panel drivers for 4K TVs. This market can help Himax enjoy a competitive edge over its peers. Thus, the 4K TV market can be a big growth driver for Himax in the future. According to NPD, the number of commercial 4K TVs shipped across the world were around 1.9 million in 2013. This year, shipments are expected to increase to 12.7 million.

The Google Glass advantage

Himax is counting on its non-driver products such as LCOS micro-displays to drive its growth. Himax is expecting sales of LCOS micro display drivers to increase since the company is a supplier for the Google Glass wearable device. Google has recently made positive moves to increase adoption of the Google Glass, including a partnership with Luxottica to distribute the device. So, in the long run, Himax could might become a good investment. But right now, investors need to be cautious.

Conclusion

Himax is currently trading at a trailing P/E of 17. Also, the near-term uncertainty in the business could hurt its performance further. Moreover, Google Glass is still not in the cards right now, and the large panel driver business has been under pressure of late at the same time. So, there might be some downside for shares of Himax in the short run till the catalysts arrive.


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