Himax Technologies (HIMX, Financial) is probably the best stock to benefit from the Virtual and Augmented reality market. However, there is a lot more to the company than just AR and VR. The company’s core business is growing at a strong pace and given the potential of AR and VR market, the stock is a buy.
Demand is increasing
In the most recent quarter, revenue generated by Himax’s small and medium panel driver segment was $90.6 million, a surge of 14% sequentially and 9.4% year over year.
As a matter of fact, the growth in this segment was primarily due to smartphone sales, which escalated 30% sequentially and 25% year over year as the supply surplus of smartphone products in China declined and the company’s customers launched new products.
Apart from this, Himax shared that the revenues in the next quarter will be uniform mainly because the company can barely make sufficient delivery for the escalating rush orders.
Despite the company not being able to take advantage of the rising demand, as it did not expect the surged orders from its customers, this is definitely a positive sign for demand trends in the industry aided by the small and medium driver segment.
What about growth?
Himax Technologies has observed a turnaround in its core display driver business, which accounted for slightly more than 78% of revenue in the prior quarter, and the remaining 21% of business revenue is emerging as a new growth opportunity for the company.
Moreover, the automotive and television industries have also shown hopeful signs The total number of vehicles is increasing gradually and all of the vehicles feature a display. As a result, the company has gained benefits from this trend.
Moving forward, the company anticipates sales in that area to carry on growing as the number of vehicles comprising screen display and the size of those screens both escalate over time. The company’s management projects 30% year-over-year sales growth in the automotive segment throughout the second quarter.
The advancement of ultra-high definition TVs has delivered a boost as the company’s large panel driver division has surged 14.1% year over year in the first quarter. Nondriver products presently comprise mostly components used in AR and VR gear. Presently, both the segments accounts for a small portion (19.5%) of the company’s overall sales.
However, that figure is projected to grow. Additionally, the company’s management is exploring supplier prospects in IoT products.
Conclusion
While Himax’s core business is stabilizing, it is gaining traction in other high growth segments. Going forward, Himax should benefit from the rise of AR and VR, which is why I think the stock is a buy.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
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