Himax Technologies (NASDAQ: HIMX) saw weak demand in the recently reported second quarter, but company guidance promises strong top-line growth in the third quarter. Can the chipmaker deliver? Let's take a look.
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What could work for Himax
Himax Technologies has been very optimistic about the demand for its 3D sensing solution by major smartphone customers. Not surprisingly, management spent a lot of time in the earnings conference call discussing the potential of this product platform, indicating that they have managed to create a high barrier to entry that could help Himax charge a higher average selling price.
Himax has been rumored to be supplying the 3D sensing components for Apple's next iPhone series and the company's boastfulness about the uniqueness of its 3D sensing solution might be an indication of a big design win. In fact, Himax management said during the conference call that its 3D sensing solution is in strong demand from "Tier 1" smartphone customers, and it could start mass production by early next year to meet "aggressive launch timetables."
Apple usually launches its new iPhone(s) in September, but it has been widely reported that Cupertino has run into trouble with components for the next device that could push launch back to early 2018.
Therefore, investors shouldn't rule out a potential Apple design win for Himax, though they shouldn't take management's words at face value since there is competition in this space. Finisar, for instance, is reported to be one of the contenders to enable 3D sensing applications in the next iPhone. Finisar management claims that the company has already been given production purchase orders for its vertical-cavity surface-emitting laser (VCSEL) product, so Himax doesn't have a clear field in this space yet.
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Still, Himax's guidance for sequential revenue growth between 23% and 30% as compared to a 2.2% drop last quarter indicates that it might have hit something big. The majority of the growth will be from the non-driver side of the business (which includes 3D sensing) that's expected to jump 90% sequentially.
Himax Technologies' large-panel driver business was shrinking until 2014, but it has made an impressive comeback since. This is good news for the company as large-panel driver integrated circuits accounted for over 36% of the total business last quarter, and could continue getting better thanks to rising demand for 4K TVs.
More importantly, Himax claims it is the leading supplier of display drivers to Chinese TV panel makers, which is advantageous as the country is expected to account for a third of global TV panel sales. Himax's automotive sales are also increasing at a terrific pace, recording 30% annual growth in the past few years.
Looking ahead, the company forecasts that the number of vehicle display panels will jump from 135 million units annually in 2016 to 200 million units by 2022. This sets up Himax's small and medium-sized driver IC panels for secular growth, which should augment its financials in the long run since this business supplies 45% of the total revenue.
Himax Technologies has a number of strong catalysts in the second half of the year that could significantly boost its top line. A possible design win at Apple, along with the growing traction of its other business segments, could put the company's financials back on track after a period of consistent declines over the past few quarters.
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