A peek at Himax Technologies' (NASDAQ: HIMX) recently announced third-quarter earnings results may raise more questions than answers. With the company's stock up 113% in 2017 and currently bumping up against its 52-week high, it would be logical to assume Himax's comparables must be off the charts. But year over year, Himax's revenue and earnings per share (EPS) don't paint a pretty picture.
So, why is Himax stock riding high? Because Himax investors are looking beyond today, and the view is awfully good. Himax could be a gold mine for growth investors because of the multiple growth opportunities it either has, or soon will have, for customers begging to buy its solutions. Though it is early, all the signs are there that Himax will continue its phenomenal run.
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To his credit, CEO Jordan Wu was blatantly honest during Himax's second-quarter earnings call regarding a couple of production and supply hiccups that hindered results. Wafer-level optics (WLO) production, a core offering of Himax, was woefully inadequate to meet demand. The WLO supply issue, and the lack of orders from China-based smartphone manufacturers, were going to take their toll ... and they did.
Wu added that the WLO production would be remedied in the third quarter, and Himax delivered. The increase in production has begun, and shipments are heading out the door. WLO shipments are expected to ramp up even more this quarter and into 2018.
As for the smartphone snafu earlier in the year, Himax is already experiencing a jump in orders that will continue into next year. Though 2017 may not have started as smoothly as Himax would have liked, those concerns are now a thing of the past. Growth investors shouldn't be surprised when Himax's fourth quarter demonstrates another period of substantial sequential improvement.
This is starting to get interesting
Due to the rough start to 2017, comparing quarter-over-quarter growth gives a more accurate view of the direction Himax is heading. All three of Himax's product lines reported sequential gains, though its $197.1 million in total revenue was a 9% drop compared to a year ago.
Large-panel display driver revenue climbed 5.4% from the second quarter to $54.9 million. A key customer in China delayed its display driver order until this quarter, or the gain would have topped 10%. Himax's largest division, small and medium display drivers, rose 24.5% sequentially to $87.2 million. And Himax's nondriver segment soared to $55 million, good for an 85.9% improvement.
Thanks to Himax keeping a close eye on spending, gross margins also improved to 25.5%, up from the prior quarter's 23.8%. Excluding one-time items, operating expenses dropped 4.5% compared to a year ago and are down 9% to $500 million so far in 2017.
But the best part of last quarter was the introduction of a new, industry-leading product that could boost Himax to lofty heights in the months and years ahead.
The future starts now
A key talking point of Apple's (NASDAQ: AAPL) latest smartphone, the iPhone X, is the incorporation of its new 3D sensing technology. Apple's face recognition technology in past smartphone iterations is often cited by users as a favorite feature. The iPhone X's 3D sensing takes Apple's new phone to the next level of security and augmented reality.
What does Apple have to do with Himax? Naturally, if Apple has a technology Android doesn't, that must be remedied, and Himax is doing just that. In partnership with Qualcomm, Himax has developed its own 3D sensing solution specific to Android devices, SLIM.
Not only is SLIM nearly ready for the Android-loving masses, Himax expects production capacity to reach 2 million units in early 2018. Based on feedback from manufacturers already clamoring for SLIM, it will be "a major contributor to both our [Himax] revenue and profitability" by the first half of next year.
Looking for a pure-play growth stock with an eye toward the future? Himax is just beginning to hit its stride, and it will only pick up steam from here.
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Tim Brugger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Qualcomm and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.