Why Himax Technologies Tumbled 29% in 2016

Image source: Himax Technologies.

What happened

Himax Technologies (NASDAQ: HIMX) stock plummeted more than 29% in 2016according to data provided byS&P Global Market Intelligenceon news of a slowing smartphone market, lower demand forMicrosoft's HoloLens, and a series of analyst downgrades.

Image source: Ycharts.

So what

After a few pops in 2016, Himax's stock price took a turn for the worst toward the end of the year. Himax's problems began after investors dinged the company for ever-so-slightly missing analysts' revenue estimates in the first quarter.

Investor skittishness continued a few months later when the company's stock price fell by more than 15% in July based on reports that smartphone sales were slowing, which means component sales to Himax's smartphone clients would likely be affected. Himax makes about 45% to 50% of its total revenuefrom its small- and medium-drive IC components, which are mainly sold to smartphone makers. So the negative news sent investors scurrying.

But Himax's stock price descent really began around September of last year with a series of analyst stock downgrades. The first wasNomura analyst Donnie Teng's downgrade from "buy" to "neutral," which pushed the stock down about 19% that month.

That was followed by a pessimistic outlook byNorthland Capital Markets analyst Tom Sepenzis for Microsoft's augmented reality HoloLens headset (of which Himax is a supplier) and a prediction that demand won't tick back up until mid-2017.Mizuho Securities then downgraded Himax in December, further pushing down Himax's already-falling stock price.

Now what

I've written before about Himax's penchant for volatility, and there's likely more of that ahead. Until the company can solidify revenue and earnings from its potential in the augmented reality market, I think investors will continue to see further stock dips and pops. Himax's management is looking to the end of 2017 or early 2018 for more stability in AR component sales, so investors may have to wait until then to stop taking antacids.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's Board of Directors. LinkedIn is owned by Microsoft. Chris Neiger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.