After a rough 2016, Himax Technologies Inc. (HIMX, Financial) had a marvelous run in 2017. Shares of the fabless semiconductor company jumped more than 70% in 2017. The stock, however, is off to an awful start heading into 2018 as it is down almost 25% year to date.
Shares of Himax tumbled 18% last month due to a disappointing sales outlook for Apple’s (AAPL, Financial) pricey iPhone X as well negative ratings from several analysts. Himax is one of Apple's top suppliers as it provides the chips for its facial recognition technology. As a result, the bearish sales outlook could have added to the additional negative sentiment in its downturn.
In addition, Himax reported disappointing fourth-quarter results on Feb. 13. For the quarter, the company posted earnings per share of 14 cents, in line with the consensus estimate. Revenue came in at $181.08 million, missing the consensus by $4.05 million and declining 11% year over year.
Although Himax is currently facing several headwinds, it will likely find its way back into the green in the upcoming quarters. The company appears to be in a great position to benefit from the sales of 3-D cameras.
Another important factor to consider is Apple is not the only major catalyst for Himax as the company has also partnered with Qualcomm (QCOM, Financial) to develop 3-D sensing chips for automotive applications as well as smartphones. While 3-D sensing solutions currently do not have a significant impact on Himax’s revenue, it will start contributing to its revenue in the first half of this year.
Although Himax currently generates the majority of its revenue from its driver ICs business, it is aggressively trying to diversify its revenue stream. The company has spent a tremendous amount of resources on development wafer-level optics,Ă‚ liquid crystal on silicon (LCOS) and complementary metal-oxide-semiconductor (CMOS) products.
The company’s management recently announced it has acquired advanced nano 3-D mastering assets as well as related intellectual property from an undisclosed U.S.-based technology company. The company has not shared any further details yet.
It did say, however, the advanced nano 3-D technology is mainly used in imprinting or stamping replication process to fabricate devices. The acquisition will provide Himax with the ability to further enhance its wafer-level optics (WLO) technology.
Himax uses WLO technology for its 3-D sensing modules. The company’s recent investments in WLO capacity clearly suggest it will have higher capital expenditures going forward. However, a single failure would push the company into troubled waters. In addition, the potential of the 3-D camera market is still ambiguous.
Other inetellecutal properties it purchased through the deal will open doors to new markets and help develop more advanced diffractive optical element (DOE) and 3-D sensing solutions.
Summing up
Himax Technologies’ share price has plunged sharply over the past several months, but investors should consider the recent selloff as a great opportunity to initiate a position in the stock.
In my opinion, the fabless semiconductor company is well positioned with the new 3-D camera technology, which will likely be incorporated into high-end devices by smartphone manufacturers. Introducing new features and improving technology are the only things that can keep smartphone manufacturers growing. As a result, they will be forced to adopt this technology in the future.
Himax Technologies currently trades at a healthy price-earnings (P/E) ratio of 24.5 and its robust business should help it recover from its recent pullback. The stock offers a strong forward dividend yield of 3.02%, making it an appealing investment option. As a result, shareholders should consider buying the stock at current levels as it could soon find its way back higher.
Disclosure: No positions in the stocks mentioned in this article.
