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This Chipmaker Is a Sound Investment for the Long Run

August 25, 2014 | About:
sandyinvestment

sandyinvestment

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Himax Technologies (HIMX), a leading supplier of display drivers and other semiconductor products, released results for the second quarter, which were good as it came in line with the company’s expectations. However, the revenue did decline marginally as compared to last year. Still, Himax managed to beat analysts’ estimates. Let us take a closer look at Himax and see what more it has in its store for investors. Can it be a good long term holding?

What next?

Himax posted revenue of $196.4 million, a decline of 5% as compared to last year’s same quarter. But this revenue beat the consensus estimates of $195.3 million. The earnings of the company came in line with the Street’s expectation. The company posted earnings of $0.14 per share.

Himax came out with impressive results. The company is seeing good demand for its products. Its small- and medium-sized drivers are seeing good traction in the market. However, Himax is worried about its large panel display driver business, which declined by 21.1%. Himax is anticipating that this decline might have come mainly due to the inventory correction at its key Korean end customer. The company is working on various initiatives to improve its profitability. The company is also worried about its weak operational execution.

Better times expected

Himax is seeing strong growth in all of its product segments, including large panel driver ICs, small- and medium-driver ICs and non-driver IC businesses. Himax is also seeing demand from its major Korean end customer rebounding strongly, which is a good sign for the company.

Moving forward, the large panel driver IC business is seeing good traction. The driver ICs for TVs are rapidly gaining steam in the market, and the company is expecting it to be an important growth driver for it in the future. The company is confident about this progress as the demand for the driver has seen a good year-over-year increase. Further, the sequential demand from Innolux and accelerated growth from the Taiwanese and Korean customers are driving its sales further, which it is a good sign for Himax.

In addition, in China, the demand for 4K TVs is growing. The statistics tell that the 4K TV penetration and acceptance would grow strongly this year, and with this, Himax is expecting its driver IC shipments for 4K TVs to more than double in third quarter. This also presents a profitable opportunity in front of Himax to explore.

More positives

In China, with the robust growth in the smartphone market, Himax is seeing bright chances for growth. Himax continues to command a leading share in small- and medium-sized driver IC market. With the launch of new generation driver ICs for HD720, Himax is targeting the high end smartphone market in China. Further, with new design wins in China, Himax aims to be the market leader in the small- and medium-sized driver IC market.

Moving ahead, in the CMOS image sensor business, Himax is focusing on ramping up shipments. This will help the company gain market share. Also, it is seeing good traction for sensors for automobiles and surveillance. The growing sales of such products will help Himax to improve its profit margins.

Conclusion

With a trailing P/E of 21.09, Himax is slightly over valued, but its forward P/E of 14.92 indicates good earnings growth in the future. Thus, considering all the aspects, Himax Technologies is a good pick for the long run that investors should not ignore.


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