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Harsh Jain
Harsh Jain
Articles (199) 

Is Himax Technologies a Buy?

The chipmaker's journey is just getting started

November 30, 2017 | About:

Shares of Himax Technologies Inc. (NASDAQ:HIMX) were trading at an all-time high in early 2014. The chipmaker’s shares jumped on speculation that augmented reality (AR) and virtual reality (VR) were going to explode in the near future. Nothing went as expected, however, as shares plunged to a three-year low in February.

The stock has been performing incredibly well recently as it is up nearly 130% year to date, trading near its all-time high. Himax reported third-quarter results on Nov. 9. For the quarter, the chip manufacturer posted earnings per share of five cents, exceeding estimates.

Revenue came in at $197.1 million, surpassing the consensus by $4.7 million. Although that figure represents a decline of 9% year over year, it throws light on the company's rapid sales recovery. The revenue generated from small and medium-sized driver ICs was up almost 25% sequentially and now accounts for 45% of total revenue.

The company's non-driver IC business also displayed healthy signs of growth. The revenue from its non-driver IC business surged a whopping 86% quarter over quarter, led by a shipment of the new wafer level optics (WLO) to a leading customer.

Himax recently announced it is partnering with chip manufacturing giant Qualcomm Inc. (NASDAQ:QCOM) to create a high-resolution, 3-D sensing camera system for automobiles and smartphones. Qualcomm plans to build a 3-D camera module by uniting its computer vision expertise with Himax’s WLO technology and module integration capability.

Himax is now aggressively focusing on 3-D sensing technology while also making progress in augmented reality. The chipmaker plans to spend nearly $80 million to improve its WLO capacity, which will help it to diminish the size of 3-D sensing camera modules so they can be more effectively integrated into portable devices.

The production of 3-D sensing camera modules is anticipated to start in the first quarter of 2018, enabling Himax to gain an early lead in the 3D-enabled smartphone segment. Apart from this, augmented reality is now gaining traction in the commercial space, which could be beneficial in the long run.

This is not the first time the company’s management has had high hopes for evolving technology in its non-driver business. As mentioned previously, the company had huge expectations for augmented and virtual reality, but failed to produce fruitful results. The story is entirely different now, however, as the widespread adoption of 3-D sensing technology in high-end smartphones has a higher probability of success than the previous AR devices.

Summing up

Himax Technologies has been through several ups and downs over the past couple years, but it has finally managed to get itself on the right track. Growth in augmented and virtual reality has been bland so far, but should flourish in the coming years.

On the other hand, improving high-resolution TV driver sales, continuously growing sales to auto manufacturers and increasing adoption of 3-D solutions for high-end smartphones will likely help the company produce stunning results going forward.

Like the stock price, Himax's price-earnings (P/E) ratio has also increased at a rapid pace. The stock currently trades at a P/E of 254, making it extremely expensive. Although Himax’s prospects look strong, it is not the right time to purchase the stock. As a result, I recommend investors wait for a pullback before initiating a position in the stock.

Disclosure: No positions in the stocks mentioned in this article.


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