Himax Technologies (HIMX, Financial) posted first-quarter fiscal 2015 results earlier this month and revenue, gross margin, GAAP and non-GAAP earnings per diluted ADS, all were in the guided range for the quarter. The company beat the analysts’ earnings estimate, but failed to exceed expectations on sales.
First-quarter review
The company registered net sales of $179 million, representing 8% decline versus the year-ago quarter and 21.2% decline sequentially. Analysts were expecting $2.9 million more. The continuing softness in Chinese market, and fewer working days as a result of the Chinese New Year, dampened the first quarter sales numbers.
The small- and medium-sized drivers segment witnessed substantial quarter-over-quarter and year-over-year decline as a result of weakness in China. In the absence of new government stimulus, China's smartphone vendors are cautious as they look for new sales channels such as e-commerce and direct-to-consumers channels to replace the previous approach of selling through telecom operators.
In addition, there’s a significant decline in Chinese smartphone exports due to concerns that a strong RMB would erode already thin margins. The weakness also persisted in the large panel display drivers segment due to a slowdown in notebook and monitor markets, and lower shipments of 4K TVs from China.
The non-driver business segment also declined due to weakness for panels of all sizes, particularly in the smartphone and tablet segments, which resulted in the sequential decline. However, despite the weakness in sales, earnings came in at $0.08 per share, beating analysts’ expectations by $0.01 per share.
Growth drivers
Himax is confident about its long-term growth story, despite the weak first quarter results, as the company is confident of softness in demand to reverse. Also, it is expecting to see business growth from second half of the fiscal in the non-driver business segment which includes CMOS image sensor, LCOS and WLO businesses.
Himax is working in collaboration with industry heavy weights toward tailor-made head mounted display design, using its LCoS micro-displays. The company is gearing up for the early stage pilot production of new head mounted devices for some of its top-tier customers.
In fact, Rosenblatt Securities has upgraded Himax to Buy, saying that “the worst is over” for the company and that that there's M&A potential for the company's LCoS micro-display operations.
Himax is also upping its game in pure in-cell technology. The industry is moving toward pure-cell panels on the back of initiatives from top-tier TFT-LCD makers. The company is in partnerships with all leading panel makers in pure in-cell market for joint technological development. The company is expected to start production of this in the second-quarter fiscal 2015, and this will be a good growth driver in the long run.
Adoption of 4G smartphones in China had remained weak and this had negative impact on Himax’s CMOS image sensors revenues. However, this is about to change as China's big-3 carriers have announced major data tariff cuts.
This will fuel 4G adoption and hence drive revenues for Himax as the year progresses. The company expects to rope in significant design-wins in the second half of the year for its 8-megapixel and 13-megapixel sensors.
Himax is collaborating with industry leaders for developing of three technologies of the future -- array cameras, special purpose sensors, and microdisplay wave guides for head mounted displays – based on its industry leading wafer-level-optics, or WLO, technology.
Wrapping up
Himax went through a troubled first-quarter in fiscal 2015. However, the company is confident of reversing this on the back of certain industry leading technologies and product development. Also, the data tariff cuts from China’s big-3 carriers will fuel 4G adoption.
The company paid a dividend of $0.30 per ADS, amounting to payout ratio of 77.5% of last year's net profit, reflecting that the company is investor friendly. In addition, Himax has a very low debt-to-equity ratio of 0.27 well below the industry average.
Also, the quick ratio of 1.53 demonstrates the management’s ability to manage short-term debt. The stock is trading at forward P/E of 15.12 and PEG of 0.84. Hence the stock is a buy for long-term gains.
